U.S. Faces 'Axis of Oil'

U.S. interests over the next 25 years will be challenged by strategic and political consequences of ongoing structural shifts in global energy markets, especially the global oil market -- most notably, cooperation between China and Russia on energy matters, an expert has told lawmakers.

"Most notably, cooperation between China and Russia on energy matters is bolstering Sino-Russian cooperation on strategic issues, effectively creating a Sino-Russian 'axis of oil' as the principal counterweight to America’s global hegemony," says Flynt Leverett, a former senior analyst at the CIA and former senior director at the National Security Council.

Today Leverett is director of the Geopolitics of Oil initiative at the New America Foundation.

The global oil supply has grown steadily in recent years, and there is considerable evidence that it will continue to grow for many years to come, Leverett notes. However, global demand for crude oil has been growing faster than supply—particularly due to burgeoning energy demand from emerging economic powerhouses in Asia, particularly China and India.

The second important structural shift in the global oil market is the progressive concentration of the world’s oil reserves under the control of national governments and national oil companies, especially in the Middle East and the former Soviet Union, Leverett says.

"Taken together, these two trends are generating strategic and political responses on both the supply side and the demand side of the global oil market," he says.

The new axis of oil is also reflected in Sino-Russian cooperation to frustrate a significant segment of U.S. policy objectives regarding the Iranian nuclear issue, Leverett says.

"Both Russia and China have complicated policy agendas toward the Islamic Republic," he says. "To be sure, neither Moscow nor Beijing sees Iranian acquisition of a nuclear weapons capability as a Iran as a desirable turn of events. But both are prepared to tolerate a higher-level of Iranian nuclear development than the present U.S. administration. Moreover, each has other interests that it wants to pursue with Iran."

It is "intellectually and politically facile" to answer these challenges by simply advocating “energy independence” for the United States, according to Leverett.

"Unfortunately, this is not a serious response to the strategic challenges facing our country," he says. " Simply put, there is no economically plausible scenario for a strategically meaningful reduction in the dependence of the United States and its allies on imported hydrocarbons during the next quarter century. Reducing our dependence on domestically produced and imported hydrocarbons has many attractions as a policy goal, but we should have no illusions about how rapidly this can be achieved or how soon it can provide meaningful relief to the strategic challenges I have described."

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Chevron's Costly, Double-Page Ad is Deceptive, Says Group

Ordinary citizens who spotted Chevron Corp's two-page color ad in the New York Times Monday could only wonder what it meant, since it's obviously not aimed at consumers. The ad mimics the desktop of a busy corporate executive, littered with notes about oil demand and oil flow around the world, plus a checklist of Chevron's good deeds.

One answer is right on Chevron's website in a press release saying the company's ad campaign, which ran last year and is being renewed as the new Congress gets down to work, is "targeted at influentials who are involved with leading the energy debate."

That means Congress and the Bush administration, says the Foundation For Taxpayer and Consumer Rights (FTCR), which criticized the ads as deceptive by omission. As Chevron and other oil companies face the loss of tax breaks in the new Congress and investigations of price gouging in last summer's record gasoline prices, the ad tries to shift the discussion, the organization says. The global market in oil, says the ad, is "a world of rising demand, supply disruption, natural disasters and unstable regimes."


Such language absolves Chevron and other major oil companies of their own responsibility for "supply disruptions" in the gasoline market, which are due in large part to the industry's restriction of refining capacity even when, as in last year's price spike, there was no lack of availablecrude oil, says FTCR. The price spike equaled -- and in California exceeded-- the prices following Hurricane Katrina in 2005, despite the utter lack of such weather disasters nationwide last year, the group says.


The ad also aims to forestall congressional criticism of questionable foreign oil investments by California-based Chevron, arguing that oil investment should be allowed to "flow freely across borders," FTCR says. Chevron praises itself for "developing energy through partnerships with 26 countries."


"Those 26 countries would include Nigeria, where Chevron's ties with brutal security forces and broken economic promises to people near its oil fields have been strongly rebuked by human rights organizations," says Judy Dugan, research director of FTCR. "And Ecuador, where Chevron's toxic drilling wastes polluted regional water sources and triggered a lawsuit by indigenous tribes whose children are said to suffer four times the leukemia rate of unaffected areas.


"Chevron, aside from trying to shift the discussion away from its own behavior in the gasoline market, appears to be intent on quelling any trade regulation that might restrict its dealings with abusive regimes," says Dugan.




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Federally Funded Research Targets America's Largest Potential Source of Oil

A U.S. Department of Energy (DOE)-funded project has successfully demonstrated the viability of a new technology that could prove to be the key to unlocking America's largest potential source of oil.

If ongoing research continues to confirm the technology's effectiveness, its application offers the potential to dramatically reduce costs and environmental impacts in the extraction of oil from oil shale.

America holds more than three-fourths of the world's estimated 2.6 trillion barrels of oil-in-place of oil shale resources. As much as 1.1 trillion barrels of oil equivalent is believed to be recoverable in the richest single deposit -- the Green River formation of Colorado, Utah, and Wyoming. That volume is almost 50 percent greater than the combined proved reserves of conventional oil in the entire Middle East, according to DOE.

The oil price collapse of the early 1980s adversely affected earlier efforts to develop this vast unconventional resource. Expectations of continued high oil prices and national energy security concerns have revived interest in developing the U.S. oil shale resource. A mature oil shale industry producing 3 million barrels per day of oil 30 years from now could provide America with direct and indirect economic benefits of as much as $40 billion per year while pressuring oil prices downward, according to one DOE study.

Oil shale contains a substance called kerogen that occurs in sedimentary rock and is thought to be a precursor to petroleum. Kerogen cannot be extracted like oil that is pumped from a reservoir. The oil shale rock must be heated to a high temperature in a process called retorting, and the liquid that results must be separated and collected, with fine particles removed. The liquid product is then upgraded to a synthetic crude oil that is ready for shipment and refining through the existing US petroleum industry infrastructure.

Previous attempts to develop U.S. oil shale resources on a large, commercial scale were costly, complicated megaprojects that entail mining huge volumes of oil shale and processing the mined shale in large, complex plants to yield an upgradeable liquid. A project managed by DOE's National Energy Technology Laboratory is pursuing a lower-cost, more environmentally benign alternative to the mining megaprojects of the past. Composite Technology Development Inc. (CTD), Lafayette, Colo., is developing a technology that can heat the oil shale in situ, several thousand feet below the surface, separating the kerogen without mining the oil shale rock. If proven viable, the process could extract the petroleum-like liquid and render it mobile enough to be pumped to the surface.

CTD's project goal is to develop downhole cable heaters 2,000-5,000 feet long that can be deployed in oil shale deposits. These cable heaters would provide high power, at preferably high voltages, to heat the oil shale to about 850 degrees Celsius (1,550 degrees Fahrenheit). There are two main challenges associated with developing this technology:

• Producing electrical insulation material that is stable in the subsurface at high temperatures over time.
• Developing a cost-effective manufacturing method to fabricate the heaters.
  

In the first phase of the project, CTD developed and evaluated high-temperature ceramic-based composite insulation materials that meet the requirements of an in situ oil shale recovery process. Researchers also conducted 2,500 hours of tests of the performance of the new insulation materials in full-power, limited-length cable heater prototypes. The results: much improved insulating qualities that were stable over time when compared with commercially available products.

In the project's second phase, CTD is developing and scaling up a manufacturing process to cost-effectively produce the new-design cable heaters in lengths relevant to an oil shale recovery system.

By eliminating the mining and large-scale processing aspects of oil shale development, such in situ technology could slash its recovery cost by half or more while minimizing disturbance of the land. This bodes well for efforts to develop the world's largest liquid hydrocarbon resource and thus reduce America's dependency on oil imported from unstable regions.


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