Petroleum Apocalypse: The Impending American Petrocalypse

Jim Amrhein talks about the upcoming Petroleum Apocalypse — and how it doesn’t take a macroeconomics whiz or an oil expert to notice that demand for oil will soon rocket past supply.

“The American people are going to pay a terrible price for not having had an energy strategy.” — Robert Gates, former director of the CIA

IT’S HARDLY A news flash that the U.S. oil outlook is far from rosy, and getting worse by the year. But the reasons why I’m worried about where our next billion gallons of gasoline and heating oil are coming from aren’t exactly the same reasons they were just a few months ago…

You may remember that back in March (“Pollution Absolution,” W&G March 10, 2005), I wrote to you about how the aims of the environmental lobby, both locally and worldwide, were best served by the rampant U.S. consumption and refinement of crude oil — since we do it more cleanly (blasphemy to the enviro-nazis, but true) and generate more prosperity and tangible goods per unit of oil consumed than almost any other nation on Earth.

Back then, my biggest fear about the future of U.S. oil supplies was the specter of radical environmentalism affecting so much change in the way America’s own oil resources are allowed to be tapped that our ability to produce our own petroleum is rendered impotent — putting us even more at the mercy of OPEC and the Middle East’s America-hating Islamic oil cabal…

But after a recent happy hour chat with three-time New York Times best-selling author and fellow Agoran Addison Wiggin, my eyes were opened to four classes of threats to U.S. oil supplies I’d never considered in anything more than a cursory fashion. The way he explained it, each one of these is potentially deadly to American oil interests in its own right — and even the least apocalyptic of them is potentially many times more serious than my environmentalism-run-amok fears. Put together, they spell imminent disaster. He calls them the “Four Horsemen of the Petrocalypse” (I wish I’d come up with that), and with his permission, I’d like to render my thoughts on them here…

Now, as many of you know, my stock in trade is typically the personal freedoms and privacy beat. I don’t pretend to be the macroeconomic seer that my fellow Whiskey & Gunpowder editor Dan Denning is — or that W&G guest columnist Justice Litle is (that guy’s a wizard). And of course, I’ll never know half as much about oil as my other Whiskey compatriot Byron King has forgotten.

But here’s the thing: If you’re getting the right information (and you won’t get it on the evening news or in the mainstream financial media), one doesn’t have to be a global commodities genius, an oil historian, or even a close friend of Dick Cheney’s to know that something disastrous is coming down the pipeline for America oil supplies. Here’s what I mean…December 21, 2005

Petroleum Apocalypse: The End of the “Woild” as We Know It?

We didn’t hear about this on the evening news or on the front page of USA TODAY, but six months ago, a pair of energy think tanks — the National Commission on Energy Policy and Securing America’s Future Energy (SAFE) — assembled a group of former high-level government officials (including a senator, a Marine commandant, and two former CIA heads) to run a “war games” scenario for global oil. Their goal: To predict how changes in the world oil supply chain would affect the United States. Coincidentally, their scenario occurred in December of 2005…

In that scenario, just three relatively insignificant disruptive events worldwide (civil unrest in Nigeria, a skilled labor walkout in Saudi Arabia, and a pair of small-scale terrorist attacks) caused incredible mayhem in America’s oil outlook. According to the exercise, the results of these three circumstances caused:

Hard to believe? Not when you consider this…

• Crude oil to hit $150 per barrel
• Pump prices for gas to top $5 a gallon
• Over 2 million American jobs to evaporate
• An overnight recession to hobble the U.S. economy
• The S&P 500 to lose more than a quarter of its value

Petroleum Apocalypse: 2006: Historic Overload for the World’s Oil Flow

If you believe the latest numbers from the International Energy Agency (and I do, in this instance), current global production of oil exceeds worldwide demand by only 1%! That’s why even a hiccup in one part of that supply chain causes massive havoc. And because America is the world’s No. 1 crude consumer (we currently gulp 25% or more of world production), that havoc is multiplied for us…

Now think about this: The IEA estimates that in 2006, global oil consumption will rise by 2.1%. That means that for the first time in history, oil demand is likely to exceed supply — and that’s assuming the world petroleum machine operates at 100% efficiency, with NO disruptions!

Yes, you’re reading this right: This coming year will be the first in which there simply won’t be enough oil to go around. And unlike in years past, the United States may not be at the top of the oil consumption “food chain” anymore. With China having made itself “factory to the world” and India’s middle-class buying power beginning to flex real economic muscle, it may be us who’s holding the empty bucket under the spigot…

That’s what Addison believes, anyway (and what he’s compiling into a report even as I write this article). And for what it’s worth, I agree with him. As if that’s not bad enough, he also explained to me why it’s absurdly unrealistic to hope that the world oil supply machine will operate at anywhere near full capacity in the next few years.

Petroleum Apocalyspe: Enter the 4 Horsemen of the Petrocalypse

Being far more knowledgeable and savvy about markets and how various events can shape them than I, Addison showed me just how screwed America would be from a petroleum standpoint — and, who am I kidding, from an overall standpoint as well — if one or two major events in any one of four classes of catastrophe (he calls them chokepoints) were to occur. Here’s just a snapshot of what he was talking about:

EXPLODING ASIAN DEMAND – Chinese oil demand is growing at a rate that’s four times higher than the United States’, and the gap continues to widen. Within 20 years, China’s appetite for oil will exceed ours (I think it’s more like 10 years, since our nation’s industrial engine seems to have stalled). The major oil-producing nations see this trend and are preparing to shift from servicing American needs to those of Asia -especially in the America-hating Middle East.

And because the Chinese aren’t constrained by concepts like giving preferential treatment to democracies or trade embargoes like the one I believe we have with Iran, they’re free to secure oil deals all over the planet. In fact, they’ve already turned Venezuela against us and are making aggressive moves to secure supplies from the Athabasca Sands region of our neighbor (and supposed ally) Canada. And this is just the tip of the iceberg, according to Addison’s research…

TERRORISM – One of the terror targets in those oil “war games” I mentioned above was the Alaskan port of Valdez. But there are so many others in the world that would cripple us even worse than this one should terrorists manage to shut them down for any length of time. On our own soil, consider what would happen if they were to hit Louisiana’s Port Fourchon, through which a total of 13% (about half from imports and half from oil pipelined in from the Gulf of Mexico) of America’s crude passes. It’s not too hard to imagine them sneaking a Fourchon-bound suitcase nuke over the nearby, virtually unguarded Mexican border, is it?

And what about if al Qaeda somehow seized control of the two-mile wide Strait of Hormuz (off the Iranian coast), through which some 40% of the world’s oil passes in every given year? Think that wouldn’t more or less cripple us? There are tons more examples, too — Addison mentioned others that are just as crucial.

And if you think attacks on our oil arteries aren’t happening already, think again. One report I read claimed that insurgent terrorist attacks on oil pipelines or facilities average one per week. I, for one, won’t be a bit surprised if we learn that the recent oil explosion in the United Kingdom is none other than an al-Qaeda action. Perhaps the first of many…

POLITICAL TENSIONS – As we Americans go blithely about our days, driving hither and yon to cushy jobs, soccer camps and vacation homes in the mountains, we’re for the most part blissfully ignorant of political crises that could be disastrous for our oil supply. Just one case in point that Addison mentioned is Saudi Arabia. Few of us are aware of just how precarious the ruling class of that oil-rich nation is. Growing resentment within the impoverished populace about the House of Saud’s obscene accumulation of wealth makes that nation ripe for revolution — especially with so much of the citizenry’s loyalties so clearly sympathetic to al-Qaeda. Remember, 15 of the 19 Sept. 11 attackers were Saudis. Osama bin Laden’s a hero to them, and the only thing many of them hate more than their own ruling class is the USA. Think they’re not prime for a major upheaval — or a nationwide takeover by al-Qaeda?

But this is only one example. Venezuela’s been ratcheting up the anti-American rhetoric for some time now — even to the point of accusing the United States of plotting an assassination attempt of President Hugo Chavez. Meanwhile, they’re cozying up to Chinese oil interests…

MOTHER NATURE – Natural disasters are something we accept as a harsh fact of life. What we don’t consider is how lucky we’ve been to have somewhat dodged the natural disaster bullet (from a petro-economic standpoint, of course). Even 2004’s Hurricane Ivan — so far the most costly to America in terms of oil prices — didn’t really cripple us, even though it caused massive, long-lasting price spikes by only temporarily knocking offline about 3% of the offshore rigs in the Gulf.

But what if the entire Gulf and Louisiana/Texas oil coast sustains a Category 5 super-hurricane next year? That could wipe out as much as 25% of our oil supply overnight. A blow like that could be one the United States might never recover from. But again, this is just one example worldwide — there are others that could deal us similarly nasty blows…

Petroleum Apocalypse: The Dollars and Sense of Surviving the Petrocalypse

Look, I know I’m not the expert on this stuff, but even from my perspective, I’m scared about where our oil’s going to come from tomorrow — especially in light of our reluctance to fully (or even partially) exploit our own resources or develop energy strategies that don’t play directly into our enemies’ hands. What you’ve read here is just my own quick snapshot on the matter.

And of course, I wish I could offer you more in the way of actionable ways to play this coming “Petrocalypse” for maximum profits — or simply portfolio damage control.

The men who can are Addison Wiggin and Justice Litle. Right now, Addison’s writing an in-depth report on this topic that will make this article look like a blurb on a book jacket. As of this moment as I type these words (several days before you’re reading them), this report is not yet complete…

But Greg has told me that by the time this article circulates to you readers, it may be done. Glance below my sign-off, and if you see a link to this report, that means it’s done. You should click on it to get the whole story form the real authority — plus learn how to actually survive this Petrocalypse (and even thrive during it)…

If you don’t see the link, keep an eye out for it in your next few editions of Whiskey & Gunpowder. It’s going to be a must-read BEFORE 2006 goes down in history as the first year the world begins to run dry of oil.

Never “horsing” around when it comes to our oil outlook,

Jim Amrhein
Contributing Editor, Whiskey & Gunpowder