View our online presentation: The Changing
Geopolitics of Oil
Greenspan warns on implications of natural gas shortage
In testimony before the
House Energy and Commerce Committee on June 10, Federal
Reserve Chairman Alan Greenspan continued to warn of the economic implications of increasing natural gas (NG) prices.
The gap between North American NG
demand and available supply - 95% of natural gas reserves are located out of North America, while
the U.S. alone accounts for over a quarter of global NG consumption -
led to sharp price increases over the past year.
Greenspan emphasized "futures prices suggest
that we are not apt to return to earlier
periods of relative abundance and low prices anytime soon." Rising prices profoundly impact
industries reliant on NG, like fertilizer and ammonia makers, as well as the utility market, which turned to NG to generate electricity in the
late 1990s when NG was promoted as a cleaner-burning fuel than oil
or coal. In Greenspan's words, "if we stay at these very elevated prices
we're going to see some erosion in a number of macroeconomic variables which are not
evident at this stage."
The U.S. gets its natural gas from three major sources: domestic production
(81%), imports from Canada (17%), and imports of liquified
natural gas (LNG) (2%.)
For shipping purposes, natural gas from outside of North America is supercooled to
become LNG. Specialized LNG terminals and tankers
are pricey, up to $1 billion and $500 million each respectively. Transport and handling of LNG, highly pressurized and explosive,
has substantial security implications.
currently the largest supplier of America’s imported NG, will need more
and more of its NG for itself, and would therefore be hardpressed to increase exports.
Greenspan recommended that the U.S. prepare to import
more natural gas by building more LNG import terminals. He noted that while
increasing NG "supplies from abroad..would expose us to possibly insecure sources of foreign supply, as it has for oil..natural gas reserves are somewhat more widely dispersed than those of oil."
While most global oil reserves are in the Middle East, there are roughly
equal reserves of natural gas in the former USSR and the Middle East.
However, gas from the Former Soviet Union (FSU) will almost certainly not make its way to North America.
Regarding gas from Russia proper, Brookings fellow Fiona Hill and energy consultant
Florence Fee, note in an analysis
of Russian oil and gas that Russia’s giant gas company Gazprom
controls 90% of Russian gas output and "Industry analysts question Gazprom’s ability to
increase its natural gas exports to Europe, as well as to construct new pipelines and meet
the anticipated long-term contracts with Northeast Asian countries." Regarding the Central Asian states of the
FSU, Hill and Fee note "Central Asian gas fields are
poorly situated for European markets and equally distant from markets in Northeast Asia." The only existing pipelines for export
of Central Asian gas run through Russia, which capitalizes on the constraint by using the resource to "supply gas at low-cost to former
Soviet states such as Ukraine, which have fallen behind in their energy payments to Russia."
With the FSU and Canada so constrained, the Middle East is left as the main
potential NG supplier for the U.S., replicating American
over-dependence on politically volatile regions for oil supply.
The U.S. is also sure to face increased competition for LNG imports
due to the growing energy appetites of fast-developing China and India.
Greenspan noted the U.S. would do well to increase use of coal and nuclear
power. The U.S. holds 25% of global coal reserves.
The main obstacle to the use of coal as an
energy source is concern over its effects on the environment through carbon
emissions, but this is being addressed by ever more advanced and
economical clean-coal technologies. While nuclear power supplies 20% of U.S. electricity,
public perception has hindered expansion of the industry.
Also see: The U.S. faces a shortage of natural gas
Terrorism expert warns of attack on oil targets in strategic chokepoints
Think of anything within your sight - from toothpaste to light bulb to golf ball - and realize that these things are
possible only as a result of the discovery and production of oil and gas. This self-test opens the powerful and
thought-provoking book Terrorism & Oil
by Neal Adams, one the most influential voices on terrorism in the oil field.
Adams emphasizes how addicted our society to this threatened resource and how vulnerable we are to
disruptions in oil supply, which he believes are inevitable. Terrorists are knowledgeable, resourceful, and have proven to
be capable of sustaining a pace two steps ahead of western intelligence and law enforcement agencies. "Oil terrorism can
cause grand scale disruptions that could wreak havoc with any country's economy and way of life," he writes.
Adams is particularly concerned about the situation at sea. Today, over 60% of the world's oil is transported by sea
through a small number of geographic 'chokepoints' -- channels narrow enough to be blocked, and vulnerable to piracy
and terrorism. The most important chokepoints are the Strait of Hormuz, through which 14 million barrels of oil are
moved daily, Bab el-Mandab, which connects the Red Sea to the Gulf of Aden and the Arabian Sea and the Strait of
Malacca, between Indonesia and Malaysia. There are also the Bosporus, the Suez Canal and the Panama Canal. Many of
these places are controlled by countries in which terrorists operate. "From all the chokepoints the Strait of Hormuz is the
800-pound gorilla," said Adams in an interview to Energy Security, "if something happens in this location, there is no
alternative supply route. Fourteen million barrels will go out of the market, most of them go to Japan and the EU." This would
have major implications on world economy and on everyone's life. The situation in the Strait of Hormuz is of particular
concern primarily because Iran controls the three tiny islands of Abu Musa, Greater Tunb Island and Lesser Tunb Island.
Adams warns against further deterioration in U.S.-Iranian relations. The Iranians have the capacity to shut down the strait.
Last year Ayatollah Ali Khamenei, Iran's supreme leader warned: "If they [the Western countries] do not receive oil their
factories will come to a halt. This will shake the world." Adams sees many consequences to an attack in the Strait, from
maritime insurers shutting off tanker coverage to contamination of the entire area due to nuclear release.
"My fear is that we have already forgotten the implications of 9/11 and will not understand the need for change until
that life-altering experience has already occurred. The U.S. has become a 'fat and Lazy' society, accustomed to the
idea of endless energy supplies far into the future."
Adams thinks the U.S. doesn't understand the ferocious drive of various factions to obtain world dominance through any
means. "We need to make every possible effort to remedy this situation through increased domestic production, emphasis
on development of significant alternative fuel sources, conservation, and a drastically revised domestic and global energy
Iraqi Oil Production Delayed
Looting, accidents, and sabotage are hindering
Iraq’s oil production, seriously enough that a representative of the Iraqi Oil
Ministry called the situation “not a problem, but a crisis.”
As attacks intensify, the mix of coalition forces
and local Iraqis hired by the Oil Ministry to secure the nation’s oil
infrastructure is proving inadequate to the task. Since President Bush declared
the end of the war on May 1, 54 American troops have died, many of them in sniper fire or other
guerilla type attack.
An additional multi-national force of
20,000 troops are expected
to arrive in August and September.
The Coalition-appointed interim chief executive of Iraq's oil ministry,
Thamir Ghadhban, had announced in May a production target of 1.5 million barrels per day (bpd) by
mid-June. Iraq is currently producing between 700 and 750 thousand bpd and requires
roughly 500,000 bpd for its own consumption.
Two explosions on June 12 near the Baiji Refinery
along the Iraq-Turkey pipeline have been widely reported as acts of
sabotage, but a U.S. military spokesman attributed them to an accidental gas leak.
In contrast to the confusion engendered by the Baiji explosions,
attacks on the power grid which supplies the refinery at Basra have been clear
cases of sabotage, as were attacks on a natural gas pipeline Saturday and on an oil pipeline near
the Syrian border Monday.
Joseph Collins, a Pentagon official responsible for stability operations, noted that some of the attacks are the fault of
jihadists who came in during the war and are not going back to where they came from until they are either killed or captured."
Defense Secretary Donald Rumsfeld agreed, saying in a briefing last week "The people we're scooping up, in many cases, are not Iraqis."
Leaflets circulated in Baghdad by a group called al Awda, meaning "the Return,"
point to an alliance between Saddam loyalists and
Islamist terrorist groups in
Iraq. Some of the terrorists have come from outside Iraq, particularly from Iran,
Saudi Arabia, and Syria.
Saddam loyalists ally with Islamists
Saudi Mischief in Fallujah
Oil pipeline explosion kills 105 in Nigeria
A June 19th oil pipeline blast in Nigeria killed at least 105
people, according to Nigerian Red Cross figures released late Sunday.
Weeks before the blast, vandals had caused a rupture in a pipeline
carrying oil from Port Harcourt to Enugu, 140 miles to the north. The
villagers of Onicha Amiyi-Uhu, where the blast occurred, had been
scavenging oil from the leak. The blast was touched off by a spark
from a passing motorcycle.
Although it has substantial oil reserves and is the fifth-largest
exporter to the U.S., Nigeria's residents suffer from widespread
poverty. Vandalization of pipelines and smuggling of oil is rampant, despite the
government's attempts to discourage the practice and past tragedy. A
1998 explosion in the town of Jesse killed over 1,000 people.
Oil accounts for 90-95% of Nigeria's export
revenues, over 90% of its foreign exchange earnings, and nearly 80% of
government revenues. Transparency International lists Nigeria
as the world's second most corrupt country after Bangladesh.
Thousands have been killed in religious clashes
following the adoption of Islamic sharia law in states of Nigeria's predominantly Muslim north,
and in other ethnic and political violence.
Nigeria's exports plummeted for several months earlier this year following ethnic clashes.
ambassador to Nigeria Howard Jeter said recently that Nigeria faces real threat of Al Qaeda attack.
News from the technology front
Introducing Plug-in hybrid electric vehicles
Plug-in hybrid electric vehicles (HEVs) are hybrid vehicles with an added battery. As the
term suggests, plug-in hybrids - which look and perform much like "regular" vehicles - can be
plugged in to a 120-volt outlet (for instance each night at home, or during the workday at a
parking garage) and charged. Plug-ins run on the stored energy for much of a typical
day's driving - depending on the size of the battery up to 60 miles per charge, far beyond the
commute of an average American - and when the charge is used up, automatically keep
running on the fuel in the fuel tank. A person who drives every day a distance shorter than the
car’s electric range would never have to dip into the fuel tank.
A study by the
Electric Power Research Institute (EPRI,) a California-based
research arm of the utility industry, found that consumers like plug-ins because they would offer
the best of both worlds: the gas savings and emissions reduction benefits of battery powered electric
vehicles, and the range of a "normal" car.
Since much of the energy used by plug-ins comes from electricity - which can be generated efficiently
and cleanly from America's abundant domestic
energy resources - and not from gasoline, plug-in hybrid vehicles can greatly reduce dependence on imported oil.
We'll keep you posted on progress getting plug-ins on the road. A few cities are set to test public transit plug-ins.
Kansas City will test
a Plug-in hybrid bus with a 20 to 30 mile electric range battery, charged by plugging into the Kansas City
Power & Light Co. power grid, and a backup diesel engine to provide supplementary power
if needed for longer distance, climbing hills, or air conditioning. Other vehicles will be tested in New York, Long Island, and Los Angeles.
U.S., EU agree to collaborate on fuel cell development
The U.S. and the European Union (EU) formally agreed to cooperate in developing fuel cell technology.
Speaking at the Brussels conference at which the agreement was announced, U.S. Secretary of Energy Spencer
Abraham said the pact 'will help unify our approaches to hydrogen research and highlight the importance of
international cooperation in the development of hydrogen energy technologies. [W]orking together with international
partners, we can leverage scarce resources and advance the schedule for research, development, and deployment of
Abraham later highlighted the importance of establishing common codes and standards, saying
'Businesses and industries that are conducting hydrogen research will have a greater incentive to invest and succeed if they
know that the products they develop will have worldwide application.'
EU Research Commission
Vice President, Loyola de Palacio noted that 'Europe is running today the world's largest demonstration project of
hydrogen fuel cell buses. Such projects are pointing in the right direction but they don't reach the critical mass for market
Commissioner Philippe Busquin, summarized: 'By pooling EU and US research efforts and resources, we
improve our chances of finding a long-term solution to the world's energy and transport problems.'
The agreement details development of joint initiatives in seven fuel cell related areas:
Also see: EU Report: Hydrogen and Fuel Cells - A Vision of Our Future
- Transportation vehicle demonstrations, including fueling infrastructure
- Fuel cells as auxiliary power units that boost the onboard power of gasoline vehicles
- Codes and standards for fuel infrastructure, vehicles and auxiliary power units
- Fuel choice studies and socio-economic assessment of critical materials availability for low temperature fuel cells
- Support studies, including assessment of critical rare earth materials for high temperature fuel cells
- Direct methanol and polymer electrolyte membrane fuel cells for transportation and stationary applications
- Solid oxide fuel cells and high temperature fuel cell turbine hybrid systems
Ballard Receives US $1.75 Million Fuel Cell Order from
New Major Automotive Customer
Ballard Power Systems has received
a US $1.75
million order from an undisclosed new major automotive customer for Ballard fuel cell products.
Ballard, a Canadian company that is 19.1% owned by Ford Motor Company, is commercializing fuel cell
engines for transportation applications and fuel cell systems for portable and stationary products,
as well as electric drives for fuel cell and other electric vehicles.
Dennis Campbell, Ballard’s President and Chief Executive Officer commented, “Our automotive business
continues to grow and we are very pleased to be adding another auto company to our customer
base. By supplying a majority of the major auto companies, we have the opportunity to test and
evaluate our fuel cells under a variety of different operating conditions and vehicle platforms, learn
more about our customer requirements and reinforce Ballard’s position as the fuel cell supplier of
choice to the automotive industry.”
Earlier this month, Ballard announced that starting early 2004, its fuel cell power trains will
power a fleet of five Ford Focus fuel cell vehicles, in Vancouver, in a three year field trial program in
collaboration between Fuel Cells Canada, Ford and the Canadian government.
The vehicles are the first of up to 100 Ford fuel cell vehicles to be operating in Vancouver by 2005.
Energy Visions achieves benchmark in its Direct Methanol Fuel Cell technology
Energy Visions Inc., a Canadian developer of advanced
battery and fuel cell technologies,
achieved a significant benchmark in the development of its proprietary flowing electrolyte
Direct Methanol Fuel Cell (DMFC). “The
development team has been able to double single cell electrolyte chamber
performance over previous designs while simultaneously achieving a simpler, more compact, lower cost design. This
achievement moves us substantially closer to our goal of commercializing our unique flowing electrolyte DMFC” said Dr.
Douglas James, VP and GM of EVI’s Fuel Cell Division in Calgary, Alberta. Potential applications range from portable
electronics to people movers such as golf carts.
In an interview with Energy Security, Dr. James explained EVI's approach of coupling a fuel cell with a Nickel-Zinc
rechargeable battery in a hybrid power system. Since in a hybrid system the fuel cell is required to handle at most 20% of a peak
power load, the overall cost is significantly lower as compared to solely relying on a fuel cell. EVI assesses that at mass
production its hybrid system would achieve cost parity with existing solutions.
EVI is aiming for a 2005 pilot product release.
Using methanol, a hydrogen rich liquid, as fuel sidesteps the
fuel supply and distribution challenges currently presented by use of pure hydrogen, and holds particular appeal in the case of small vehicles
or devices in which limited space is available for fuel storage.
Details on EVI's Direct Methanol Fuel Cell technology
DOE: Clean Coal-to-Methanol project a success.
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