The Climate Post: Ailing Economies Push Richer Countries to Tap Emergency Oil Reserves


30 Jun 2011

In a move that caught many by surprise, the world’s richer oil-importing countries will soon tap into emergency oil reserves, the International Energy Agency (IEA) announced, arguing: “Greater tightness in the oil market threatens to undermine the fragile global economic recovery.”

In total, over the next 30 days, IEA member countries plan to release 60 million barrels of crude—less than one day’s worth of global consumption. Half that oil would come from the U.S., and the rest from a dozen other countries, including many European Union members, Turkey, Korea, and Japan. The IEA has coordinated a release of oil from its members’ reserves only twice before, in response to the 1991 U.S.-Iraq war and to Hurricanes Katrina and Rita in 2005.

U.S. Secretary of Energy Steven Chu said, “We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries.” However, the Obama administration began considering tapping the strategic oil reserve in January.

Speculation of Motives

Reactions to the oil release ran the gamut, with the chairman and the managing director of oil analysis firm IHS CERA saying the new release is “an unprecedented use of strategic reserves as an economic stimulus.” Some said the move is symbolic, to boost market optimism and to give the sense that the government is doing something about high gasoline prices while others said the real motivation was to hurt oil speculators by catching them by surprise.

Some speculators, it seems, may have gotten a jump on it: oil started trading suspiciously in the hours before the IEA announcement, driving prices down and prompting an investigation by the Commodity Futures Trading Commission. In fact, oil prices fell more than 5 percent in the day of the IEA announcement, but the following day rebounded, in part because of fears about supplies getting tighter later this year.

Spare a Barrel

Many members of the Organization of Petroleum Exporting Countries (OPEC) criticized the decision, saying the IEA had not given them time to boost their production. In late May, OPEC countries decided against formally raising their production quotas, but some members—in particular Saudi Arabia—signaled they would boost production anyway.

OPEC members in the Persian Gulf—such as Saudi Arabia and Kuwait—are widely considered to hold most of the world’s spare capacity for oil production. But oil expert Euan Mearns noted that despite a sharp rise in drilling activity in Gulf nations in February 2011, their production hasn’t risen much. He interprets this as a sign of goodwill, and as an indication that “usable spare capacity does not exist”—or that it must be of relatively undesirable heavy, sour crude.

A Natural Gas Bubble?

In the U.S., “fracking” to get natural gas out of underground shale has been booming—but the vast majority of fracking wells are “inherently unprofitable” and the fast-growing industry is a “Ponzi scheme,” according to industry e-mails obtained by the New York Times. Much of the shale gas activity has been financed by a rush of investment money into the sector, rather than by profits from production, the e-mails say.

In a companion article, the New York Times reported e-mails from the Energy Information Administration reveal internal doubts over their forecasts of shale gas production, such as projections it would triple from 2009 to 2035.

California Carbon Cap Stalled

California’s legislation for a cap-and-trade system for many of the state’s largest greenhouse gas emitters had faced a legal battle—but the court hearing the case ruled the state can go ahead. The project was scheduled to start in January 2012, but Air Resources Board Chairwoman Mary Nichols, who oversees the program, announced enforcement for major polluters would will be delayed until 2013.

Efficiency from Detroit to Afghanistan

The Obama administration is trying to cut demand for oil by boosting vehicle efficiency. In closed-door talks with Detroit’s big three—General Motors, Ford and Chrysler—officials called for average mileage for cars and light trucks to reach 56.2 miles per gallon by 2025.

Meanwhile, Obama announced plans for troop withdrawals from Afghanistan, prompting renewed discussion of the costs of the war—including NPR’s report that U.S. military operations in Afghanistan and Iraq spend an estimated $20 billion a year on air conditioning.

The Climate Post offers a rundown of the week in climate and energy news. Written by Mason Inman, it is produced each Thursday by Duke University’s Nicholas Institute for Environmental Policy Solutions.

bookshelf

books I've read on failure & grace

The World Without Us
The Last Oil Shock: A Survival Guide to the Imminent Extinction of Petroleum Man
Zeitoun
A Paradise Built in Hell: The Extraordinary Communities That Arise in Disaster
Hell and High Water: Global Warming--the Solution and the Politics--and What We Should Do
The Worst Hard Time: The Untold Story of Those Who Survived the Great American Dust Bowl
The Tipping Point
Three Cups of Tea: One Man's Mission to Promote Peace... One School at a Time
The Upside of Down: Catastrophe, Creativity and the Renewal of Civilization
Out of Poverty: What Works When Traditional Approaches Fail
The Little Ice Age: How Climate Made History, 1300-1850
Confessions of an Eco-Sinner: Tracking Down the Sources of My Stuff
Deep Economy: The Wealth of Communities and the Durable Future
The Geography of Bliss: One Grump's Search for the Happiest Places in the World


Mason's favorite books »

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