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We have entered the era of 'tough oil' Print

Sydney Morning Herald, 22 June 2010

THE Gulf of Mexico oil spill, the equivalent of one Exxon Valdez every four days, was inevitable. This was no unforeseeable event created by equipment failures and human error. With oil reserves depleting, it is a harbinger as oil companies drill in riskier ways.

This goes beyond the incompetence revealed by BP chief Tony Hayward last week when he adopted the Sergeant Schultz defence and told the US Congress he was not involved in decision-making before the blast, claiming he had known nothing about drilling operations at Deepwater Horizon. In a piece of damage control, BP sent him back to London. Despite their outrage over his stonewalling, US legislators still have not acknowledged that this is more than an environmental crisis. It reflects a wider climate and energy crisis.

There are many causes of the blast that destroyed the Deepwater Horizon drilling rig in April, killing 11 of BP's 126 workers there. A malfunctioning device that was supposed to cut off oil flow when the explosion occurred has been blamed. Insufficient government oversight has been blamed.

Whatever the immediate trigger of the explosion, the underlying cause is that we have used up most of the world's readily accessible oil. Energy has never been as critical to the health of economies. The result: governments and oil companies are looking for oil in less accessible places. According to the US Department of Energy, world energy output must rise by 57 per cent over the next 25 years to satisfy expected international demand, largely driven by India and China. Without this extra energy, the world economy will fall into recession or depression, and that would tip the planet into chaos.

The debate about "peak oil" is certain to continue, but Michael Klare, a professor of peace and world security studies at Hampshire College in Massachusetts, says we are now entering the era of "tough oil". As he describes it in his book Rising Powers, Shrinking Planet: The New Geopolitics of Energy (Holt Paperbacks, 2009), ''easy oil'' is being displaced by higher cost "tough oil'' found in unstable or hard-to-access regions, including the kind that necessitated the deep-sea drilling that was being undertaken by BP.

"Each new barrel added to global reserves, experts suggest, will prove harder and more costly to extract than the one before; it will be buried deeper underground, farther offshore, in more hazardous environments, or in more conflict-prone, hostile regions of the planet,'' Klare writes. "A similar scenario is likely to play out when it comes to most other existing fuels, including coal, natural gas, and uranium. Given this, the future adequacy of global energy stocks is in serious doubt."

The "tough oil" theory is supported by alarming data released by the US Department of the Interior's Mineral Management Service showing that the number of spills from oil rigs and pipelines in US waters more than quadrupled this decade. From the early 1970s to the '90s, they averaged four spills a year. From 2000 to 2009, that number surged to 17. From 2005 to 2009, they averaged 22 a year.

Significantly, Australia has refused to follow the lead of the Obama administration, which imposed a six-month moratorium on deep-sea drilling in the Gulf of Mexico following the Deepwater Horizon catastrophe. Canberra continues to grant oil and gas exploration companies permission to drill off the Australian coast. According to the Australian Maritime Safety Authority, up to eight rigs like the semi-submersible type used by Deepwater Horizon are now exploring for oil and gas in Australian waters.

The inquiry into the Montara oil spill last year, Australia's largest oil spill and one that dumped oil into the Timor Sea for 10 weeks, heard evidence of dysfunctional federal-state regulation, hardly any monitoring of compliance and no preparedness for spills - echoes of the BP disaster. The federal government wants to put a national regulatory system in place, but what is needed from governments everywhere are better controls and laws that reduce the risk of another spill.

What is also needed now is a carbon price. As Hayward himself told the World Economic Forum in January, that encourages focus on wind and solar power. A carbon price would reveal the true cost of energy and wean us off a depleting resource likely to cause more environmental catastrophes. But regardless, we can expect the politics of oil to be more prominent over the next decade.

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