Monday, August 14, 2006

Oil crisis: It's only just begun

By Paul Salopek

Chicago Tribune

Marathon station manager Michelle Vargo keeps an eye on customers in South Elgin, Ill. A single mother, she has worked long hours to turn a profit in a business that actually makes tiny profits from gasoline.

Burke Transport Service driver Howard Dunbar guides his load of 7,000 gallons of fuel from a terminal in Arlington Heights, Ill., through the dark streets toward the South Elgin Marathon station.

Last summer, a gasoline station opened in South Elgin, Ill., an old farming village that's now being swallowed by the westward sprawl of Chicago.

As service stations go, it's an alpha establishment. A $3 million Marathon outlet with 24 digital pumps, a computerized car wash and a convenience store lit up like an operating room, it sells everything from ultra-low-sulfur diesel to an herbal "memory enhancer" to Krispy Kreme doughnuts.

Howard Dunbar's Tanker Truck 6 rolled into the station one night last September and proceeded to unload 7,723 gallons of gasoline and diesel into underground tanks.

This bonanza would be sucked dry by customers in 24 hours, a small, stark example of the nation's awesome petroleum appetite at a time the planet appears to be lurching into an energy crunch of historic proportions.

By now, most Americans realize that something is profoundly awry in the global oil patch.

For most motorists, like the "swipe and go" customers at the South Elgin Marathon, the evidence is painfully obvious: record-high fuel costs that have surpassed last year's infamous price spikes after Hurricane Katrina. Prices are expected to go even higher, especially in the Pacific Northwest and California, after the shutdown of an oil pipeline on Alaska's northern slope.

Yet to fully grasp the scope of the crisis looming before them, Americans must trace their seemingly ordinary tankful of gasoline back to its shadowy sources. This is, in effect, a journey into the heart of America's vast and troubled oil dependency.

"I truly think we're at one of those turning points where the future's looking so ugly nobody wants to face it," said Matthew Simmons, a Houston energy investment banker who has advised the Bush administration on oil policy. "We're not talking some temporary Arab embargo anymore. We're not talking your father's energy crisis."

What Simmons and many other experts are talking about is a bleak new collision between geology and geopolitics.

Below ground, the biggest worry is "peak oil" — the notion that the world's total petroleum endowment is approaching the half-empty mark, a geological tipping point beyond which no amount of extra pumping will revive fading oil fields.

Peak-oil theory is controversial. Many think it alarmist. Yet even Big Oil is starting to gird itself for possible fuel shortages: Chevron, the nation's second-largest oil company, has bluntly declared that "the era of easy oil is over" and is warning energy-hungry Americans that "the world consumes two barrels of oil for every barrel discovered."

Aboveground, things look little better. Most petro states, aware that crude supplies are growing increasingly valuable, have limited drilling rights to their own oil companies.

Meanwhile, thirst for petroleum continues to run wild. Producing nations are pumping at maximum capacity. Yet the competing energy demands of America and rapidly industrializing China and India now threaten to outstrip global oil output. Chinese oil imports are projected to double to 14 million barrels a day over 20 years. Many credible analysts foresee a new "energy cold war" as the United States and China square off over the planet's last reserves.

The new Marathon station in South Elgin turned out to be an ideal laboratory to parse these sobering issues. Exclusive access to industry refining data made it possible, for the first time, to track oil consumed by this one gas station back to the dusty war zones, belligerent autocracies and tottering nation-states from where it came.

For years, oil companies have insisted that this could never be done. Conventional wisdom holds that America's colossal oil flows are mixed, swapped among companies and rebranded too many times to pinpoint the actual source of your $40 purchase of unleaded.

Yet, with a little research and proprietary data supplied by Marathon Petroleum, the Chicago Tribune could trace with unparalleled clarity virtually every bucketful of trucker Howard Dunbar's shipment to its distant origins.

On the hydrocarbon menu that September night, in round figures:

• Gulf of Mexico crudes: 31 percent

• Texas crudes: 28 percent

• Nigerian crudes: 17 percent

• Arab light from Saudi Arabia: 10 percent

• Louisiana sweet: 8 percent

• Illinois Basin light: 4 percent

• Cabinda crude from Angola: 3 percent

• N'Kossa crude from the Republic of Congo: .01 percent

Thus, $73.81 worth of unleaded pumped one Saturday by a Little League mom was traced not simply back to Africa, but to a particular set of Nigerian offshore fields through which Ibibio villagers canoed home to children dying of curable diseases.

Every day, the jaded tanker drivers brought human stories echoing in their trucks. They plunked their long wooden measuring sticks into the Marathon station's 40,000-gallon underground tanks, and the resulting subterranean gong evoked — depending on the changing oil vintage — an Iraqi ex-colonel's cavernous loneliness. Or the laments of a West African fisherman named Sunday, afloat on a fishless stretch of the Atlantic. Or the songs of Marxist Indians reveling in their newfound oil wealth atop a dusty South American plateau.

The voices of Chinese oil prospectors gurgled inside all of the fuel shipments. And diluted in the gas came a warning that many Americans seem unprepared to hear: Our nation's energy-intensive joy ride, powered by 150 years of cheap petroleum, may be coming to an end.

Journey to the pump

It was September. Hurricanes Katrina and Rita had delivered their one-two punch to the energy-rich Gulf Coast, swamping New Orleans and disabling the offshore wells and pipelines that yield one-third of America's domestic energy production. In South Elgin, population 20,000, gas prices at the Marathon had broken the $3-a-gallon barrier, and people were stealing Michelle Vargo's gasoline.

"You'd think it would only be the crummy cars, but people in nice cars are doing it, too," the frazzled station manager exclaimed. "I never seen anything like it."

Vargo, 36, is too young to recall that this had happened during the Arab oil embargo of 1973 and the Iranian hostage crisis of 1979.

In typically murky industry fashion, the station is branded and supplied by Marathon but actually owned by an independent fuel retailer — in this case, Prairie State Enterprises of Barrington, Ill. Freelance shippers called "jobbers" haul the gas. And even though much of the station's petroleum does in fact bubble from Marathon's oil patches, the company as often purchases its oil from Exxon Mobil, Iraq's Southern Oil Co. or Venezuela's PDVSA, a swaggering national oil company with its own patriotic song.

A single mom with a hard-edged life, Vargo is one part in a ruthless business that earns a pittance from gasoline sales (oil companies and refiners snatch the bulk of the fuel's profits). Her station's income comes from the incidentals of frantic modern life: cigarettes, energy drinks, stay-awake pills, the Lotto, and sweet and salty snacks.

The clerks are a motley group. Many are the working poor. Some can't pay their bills. Several live with their parents.

Vargo drives to work in a car she can't afford — a white Chevrolet Suburban that churns out a ruinous 10 miles a gallon and rides so high that she has to boost herself into the driver's seat as if jumping into a saddle. Her two-hour daily commute, about 40 miles each way from Lockport, is roughly double the national average.

"I don't feel safe in small cars," Vargo said defensively.

The only perk for the station employees is free coffee. There are no discounts on gas.

From the ocean's floor

In 1940, the United States was the Saudi Arabia of the world. It produced 63 percent of the planet's oil. Today, it generates 8 percent.

About one-third of Vargo's fill-up on a recent day came from the last major pool of crude remaining in oil-starved America: the basement of the Gulf of Mexico. Trace it from seabed to suburbia, and you X-ray America's aging industrial innards.

It started 9,000 feet inside Earth's crust, in Miocene Epoch rocks that have the consistency of oil-soaked beach sand. The rocks simmer near the boiling point of water. This is known in the business as the "pay zone."

From that hellish place, the crude was sucked up into a 4-inch drill pipe that punctured the Atlantic floor near a submerged hillock called Viosca Knoll 786. It shot up 1,750 feet of pipe to an offshore production rig and was shunted ashore to a huge tank farm in St. James, La. There it began its long journey to the Midwest in a pipeline big enough for a person to walk in, albeit hunched over — a 632-mile-long artifact of our oil dependency that will doubtless astound future archeologists.

Arriving at the Robinson refinery in southern Illinois, it was cooked and cooled for five days inside 23-story towers. Then it gushed through 16- and 12-inch fuel pipelines for three days until it reached a 40-year-old tank farm near O'Hare International Airport. Finally, it traveled its last 12 miles to the South Elgin Marathon inside Howard Dunbar's truck.

"Takes a bit of power to bring it up," hollered Ferrell Martin, 52, a senior mechanic aboard Petronius, a drilling platform that juts above the gulf's waves near Viosca Knoll. "Our generators could electrify a small town."

The platform, co-owned by Chevron and Marathon, came on line in 2000. It cost more than $500 million to build, nearly what the United States shells out every 24 hours to buy imported crude. A masterpiece of high technology, it pumps the energy equivalent of 60,000 barrels of oil and natural gas a day — a gusher that matches Pakistan's national output and is only slightly behind Italy's.

More than 100 such gargantuan structures dot the gulf. As do an estimated 6,500 other oil-related features such as wells, pumping stations and helipads, not to mention some 30,000 miles of submerged pipelines tangled like spaghetti across the gulf floor.

"A whole new game"

One man who keeps Michelle Vargo's gas-guzzling Suburban rolling doesn't have an oil worker's rough hands. He sits in a red granite skyscraper in Houston.

"No question, we're facing a whole new game," said Jeff Rutledge, a sandy-haired New Orleans native and the senior geophysicist for Marathon. "Sure, there's a lot of resources still out there, but they're getting riskier to invest in, much harder to find and more expensive to reach."

At Marathon's technology and exploration department, desks are piled with what look like old eight-track tapes: computer drives that contain volumes of exploration data that beggar belief. Seismic surveys, the industry's main tool for locating oil, involve setting off small shock waves at Earth's surface and recording millions of "echoes" from the rock below.

Progress reports from 10 to 20 of these fantastically pricey, high-tech quests from Africa, Russia and the North Atlantic land on Rutledge's desk every day.

According to industry optimists, such Herculean efforts to squeeze out Earth's last high-quality oil are the best retort to doomsayers who worry the world is running on empty.

In the gulf, for instance, Petronius' 19 wells do things engineers couldn't dream of a quarter-century ago. They snake downward through almost 1,800 feet of seawater, bore vertically through a mile and a half of rock, then veer off laterally under the stony seabed for distances of up to five miles.

Such whiz-bang technology has encouraged the U.S. Minerals Management Service to boost the Gulf of Mexico's potential oil reserves by 15 percent, to 86 billion barrels. That's enough, in theory, to meet U.S. demand for another decade. Much of that, however, lies in deep, environmentally sensitive waters near the Florida coast and is prohibitively expensive to extract using current technology.

Many oil executives say environmental restrictions and stingy foreign governments keep valuable reserves locked up.

The United States gulps one-quarter of the crude pumped on the planet, industry critics point out, yet it sits atop just 3 percent of the globe's reserves.

"You can drill in the Arctic National Wildlife Refuge, on every continental shelf and atop every hill in America for that matter, and you still won't reverse the fact that our oil production is in permanent decline," said Rep. Roscoe Bartlett, R-Md., a senior member of the House Science Committee. "We're just sopping up what's left, digging ourselves into a deeper hole."

Bartlett belongs to a small but suddenly influential band of pessimists who are ringing alarm bells over peak oil.

The perilous "peak"

The theory of peak oil is based on the studies of M. King Hubbert, a pioneering U.S. geologist who correctly predicted in the 1950s that America's huge crude output would "peak," or hit a ceiling, in 1970.

Nobody disputes that oil will peak; the debate is over when. The output of all reservoirs begins to decline after about half of their oil is extracted. Today, peakists cite anemic oil discoveries since the 1980s, plus ominous drop-offs in production in major fields in Kuwait, China and Mexico, among other places, as evidence that the world, too, is reaching its fateful peak.

Estimates of when we will hit this milestone vary from "we've passed it already" to the U.S. Geological Survey's latest calculation of 2044 — hardly a reassuring date, given that rocketing oil prices and their attendant social chaos would stagger the industrial world well before that reckoning.

Using available technology, Rutledge said, Petronius' bounty likely will shrivel in 12 to 15 years.

"Just sinking away"

Ferrell Martin's ancestors had fished and trapped the watery maze of Bayou Terrebonne, a fabled swamp about 60 miles southwest of New Orleans, for more than 200 years. But today, Louisiana's lush wetlands, the richest in America, are dying, crumbling into the sea.

Home from his usual two-week shift aboard Petronius, Martin knelt at the bow of a bass boat steered by one of his numberless bayou relatives, trying, again and again, to get the boat unstuck from hidden bars of mud.

"I can't even find the same fishing holes anymore," Martin said, fanning away mosquitoes. "The whole place is just sinking away."

The U.S. Geological Survey thinks land in and around Bayou Terrebonne is starting to sag like a deflating wineskin as fossil fuels are pumped out in massive quantities. In some places, it has settled 11 inches. For a landscape that is in many cases only a few feet above sea level, the implications are ominous. Erosion and subsidence have eaten away at least two miles of coastline near Ferrell Martin's modest house in Montegut, La.

He recognized the irony: Oil has yanked thousands of once-impoverished Cajuns into the middle class, but it is now helping swallow their ancestral homes.

"Everything's a trade-off, I guess," Martin said.

This, too, gets burned up by the cars in South Elgin: a clod of southern Louisiana.