Tuesday, April 17, 2007

Peak Oil Law Center: Surveying the Future Landscape

The peaking of global oil production, or Peak Oil, will cause major changes in every facet of society, to include changes to the legal environment. As a brainstorming exercise, here is a survey of probable legal ramifications of Peak Oil:

Corruption Competition: The Foreign Corrupt Practices Act (FCPA) prevents US businessmen from bribing foreign government officials. Chinese businesses have no such burden. Will a scarce energy environment force modifications to the FCPA out of recognition of the need to compete with unrestrained actors such as China and India?

Infrastructure Attacks and Private Military Corporations: Peak Oil will increase the ROI for energy infrastructure attacks. While this will increase cost and risk to energy exploration and production companies, it will also increase the willingness to take on these costs and risks. One result will be an increase in demand for the services of Private Military Corporations (PMCs). The laws governing PMCs are ill-defined and changing quickly.

Regulation Juxtaposition – Peak Oil vs. Global Warming: In the broadest terms, the regulatory response to global warming will be to increase regulatory burden on energy exploration & production, whereas the response to Peak Oil will be to loosen the reigns. Which will win out? The one area that seems to win under either scenario is “efficiency,” though Jevon’s Paradox suggests that may not be a wise response.

Exploration in the Arctic, Antarctica, and Beyond-Continental-Shelf Regions: International-law issues surrounding newly joined contests for scraps of rock in the arctic will heat up, as will the debate surrounding resource extraction from Antarctica. Did you know that Canadian and Danish warships came face-to-face over this issue a few years back? And what law governs beyond-continental-shelf oil reserves, anyway?

Nationalist Energy Subsidies and “Free-Trade”: Can Mexico’s protectionist constitutional clause that grants PEMEX a monopoly withstand a WTO challenge? Does US selective protection of sea lanes, or re-denomination of Iraqi oil in dollars represent a non-tariff barrier to trade? What about “diplomatic” and “political” pressures that end up piping oil or gas toward one market, and away from another? What about bio-fuel subsidies, or Venezuela’s increasing moves towards nationalization? What about Chinese development aid in Africa or US subsidy of an LNG terminal? The phrase “non-tariff barrier to trade” is a potentially malleable legal tool. Peak-Oil is an inherently mercantilist phenomena, and it will spawn legal conflict with free-trade treaties and policies.

Geo-Political Risk Insurance: Energy scarcity and rising energy prices will drive exploration and production in increasingly unstable environments. Geo-political risk insurance is emerging as a result, but the legal issues involved are often novel and always complex. Force Majeure clause, anyone?

Futures & Derivatives Markets: There is a huge, untapped domestic & international market for “consumer derivatives”--combinations of traditional energy futures bundled together and then sliced into very small packages to be sold to individual consumers to hedge against personal or small-business exposure to energy price changes. Want to lock in $3.00-a-gallon gasoline for your Suburban until 2012? Or heating oil, natural gas, even electricity? This may be the next financial instrument phenomenon along the lines of the “sub-prime mortgage” revolution, complete with all the legal issues of selling complex financial instruments to “Joe Commuter.”

Is the legal community prepared for the changes that Peak Oil will bring? I don’t think so. In a quick survey of all 11 law review articles every written (at least according to LexisNexis) containing the phrase “Peak Oil,” two have earnest discussions of Peak Oil (but don’t discuss any legal ramifications), five have off-hand references, and four only mention the term in a footnote. Peak Oil will change the legal landscape… expect a regular stream of “Peak Oil Law Center” articles in the future.


Anonymous said...

I would worry more about news along these lines to show up in the near future:

Gulf oil bourse to open soon

The Gulf Petroleum Exchange will begin operating in the near future, said the Saudi Oil Minister Ali Naimi after a meeting of the GCC sunday.

Ali Naimi said Saudi Arabia and the Gulf Cooperation Council have decided to establish a Gulf Dinar based oil exchange on the Persian Gulf in Dubai, UAE, because "there was no such oil trading body in the region."

"The GPEX could help many countries transact petroleum under more favorable conditions," he said.

He did not say exactly when the GPEX oil bourse would open.

The official also said that senior officials from the Oil Ministry and the Gulf Cooperation Council will meet with members of the GCC Energy Commission in the near future to discuss issues related to making the groundbreaking project operational.

Naimi said the Saudi Oil Ministry and a number of other GCC bodies have made large investments in the project.

The oil bourse would transact petroleum, petrochemicals and gas in various non-dollar currencies, primarily the Gulf Dinar. It would also establish a Gulf Dinar based pricing mechanism for oil trading, or oil marker as it is called by traders.

The three current oil markers are all US-dollar denominated.

The two major oil bourses are the New York Mercantile Exchange (NYMEX) in New York City and the International Petroleum Exchange (IPE) in London. The Gulf Petroleum Exchange (GPEX) in Dubai would establish a fourth oil marker, denominated by the Gulf Dinar.

By Neville Parker 1 April 2007

Khaleej Times

Jeff Vail said...

Bart at energybulletin.net makes an excellent critique of my jab at efficiency via Jevon's Paradox:

"One suggestion - it would be good to see exactly what "Jevon's Paradox" means and not accept the common misinterpretation that "efficiency is counter-productive." The modern name for the phenomenon is the "Rebound Effect." It is the observation that with efficiency, prices go down and demand can rebound. The extent of the rebound depends on the situation, and as far as I could determine, not many studies have been done to quantify it. Typical numbers might be 10-40%. But who really knows? Currently most of the talk about Jevon's Paradox is pure speculation. In any case, the effect can be controlled through custom and regulation. (http://www.ncseonline.org/nle/crsreports/energy/eng-80.cfm?&CFID=8528214&CFTOKEN=36683570)"

I agree, but worry about the effects of limiting the scope of analysis when calculating "rebound effect". Here's my response:

"I have a few issues with some of the rebound effect calculations, however: It seems reasonable that when we improve energy efficiency for a certain use, say hot water heating, that the resulting decrease in demand/price has only a partial rebound, as suggested by the studies. However, from a larger perspective, when we make *anything* more energy efficient, we free up consumer power--consumer power that is ultimately spent on something, and since one can argue (as I did in my "cost-estimated EROEI" article here: http://www.jeffvail.net/2006/11/energy-payback-from-photovoltaics.html ) that anything we buy is essentially comprised of energy, all that we're really doing is redistibuting what energy we use, not reducing overall use. Efficiency gains in natural-gas powered hot water heaters may reduce natural gas demand, but I think they don't reduce total energy consumption--they may just free up consumer power (that would be spent on the natural gas) to buy something made of plastic, instead. I think that this spiral can only be escaped when we consciously try to build quality of life with less energy, rather than try to maximize our quality of life at any cost, as I argued in "The Design Imperative" ( http://www.jeffvail.net/2007/04/design-imperative.html ). Anyway, my intent is not to bicker. Your point is well taken, and I've got an article in the works discussing Jevon's Paradox from a macro-perspective that will hopefully make this same argument, but more clearly!"

Anonymous said...

Hey Jeff --

John Michael Greer's article, this week, discusses the 'long view' on energy in relation to Jevon's. Don't know if you read him, but you may want to check it out ;-)


Anonymous said...

Chinese businesses have no such burden. Will a scarce energy environment force modifications to the FCPA out of recognition of the need to compete with unrestrained actors such as China and India?

It will be interesting to see this play out. We have seen a foreshadowing of our response, whether it be violating the FCPA or changing it all together, with the Kyoto Protocol. Though China and India were signatories, they weren't expected to handicap their industry with the environmentally sensitive regulations others were expected to adhere to.

Though the US signed it, we have not implemented it. Since the FCPA is already implmemented, the regulations will probably be easily violated without much outrage if not significantly modified.

-Smitty Broham

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