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In 20 years I predict energy wars over oil and gas resources. By the time it becomes politically profitable to react to problems in the transport energy sector, it will be too late for significant development of alternatives and too politically risky not to fight over remaining supplies. -Len Gould (in EnergyPulse, Jan. 8, 2008)
I never contemplate the 'details' of energy wars, and that means the kind predicted for the future by Len Gould, as well as the one that Alan Greenspan -- the former director of the United States central bank (or Federal Reserve System) -- believes began in 2003, and to a limited extent is still taking place. For what it is worth, I have often preferred Dr Greenspan as a jazz musician rather than an economist, but even so there is no denying his intelligence, access, and the diversity of his interests. More important, I see no reason to disavow that energy wars are possible, and I cannot forget that the brilliant Professor Nicolas Georgescu-Roegen insisted that almost all wars have something to do with natural resources.
Armed conflict over an energy resource is a topic that I failed to consider in my course on oil and gas economics at the Asian Institute of Technology (AIT), but I was sufficiently alert to discuss a bizarre oil forecast for 2030 that was circulated earlier by the International Energy Agency (IEA). Their estimate -- since adjusted downward -- predicted a consumption of 121 million barrels of oil per day (= 121 mb/d) in 2030. When I commented on the improbability of this forecast -- employing what I knew about other production estimates -- the IEA director sent me an outraged mail professing that IEA forecasts were for consumption (and not, as I indicated, production). I found this strange, since almost all energy economics research dealing with oil concentrates on production, but since I never regarded the IEA seriously, it hardly makes a difference. As my colleagues at Uppsala University have reported, IEA publications are "political documents" designed to placate governments (and firms) that want to give the impression that oil production will remain high, and thus oil prices will be low.
In the lecture alluded to above, I put a linear approximation on a whiteboard at AIT which suggested that with a world output of 121 mb/d in 2030, Saudi Arabia would have to produce at least 20 mb/d. This approximation was based on a peaking of Gulf oil, as suggested by an article in the Oil and Gas Journal; the ongoing peaking of non-OPEC oil if Russia was excluded; and the aggregate peaking of non-OPEC oil about to occur, taking Russia into consideration. I sent this result to Professor Paul McAvoy of Yale University, and he assured me that I was wrong because Saudi Arabia would soon exploit four new fields. Unfortunately, Saudi Arabia appears geologically incapable and/or geopolitically unwilling to obtain a massive output from any new field, and according to the Energy Intelligence Agency (EIA) of the U.S. government, an increase in the oil supply due to e.g. an increased output in Brazil, and various non-Russian regions of the former Soviet Union, cannot compensate for declines elsewhere.
Assuming that the above is correct, or almost correct, then it is necessary to point out that 20 mb/d is exactly the amount that the Saudi government said they would not produce under any circumstance. They made this statement approximately 35 years ago, and have repeated it many times since. As noted in my book on oil (1980), I first detected this information about Saudi production intentions in an official U.S. government publication (1979), although I did not attach a great deal of importance to it until many years later.
Several of my students at AIT informed me that they had some difficulty accepting my conclusions about the future availability of oil. This was because I claimed that by 2030 the global production of oil would have peaked, by which I meant that it would have peaked many years before 2030, and possibly as early as 2015. Why not, when the director of the French oil major Total, Christophe de Margerie, has repeatedly said that the maximum global oil production will never be greater than 100 mb/d, and apparently challenges any corporate executive or decision maker who believes otherwise to discuss this subject with him in a public symposium. Someone else who finds the IEA projections dubious is professor (of physics) Kjell Aleklett of Uppsala University. He claims that by 2030 the peak will incontestably have taken place, and global oil production will only be 75 mb/d.
About the same time that I came into possession of the U.S. government document mentioned above, I obtained another publication with the same origin.. It showed 'possible' landing zones in the Gulf for paratroopers and marines in case the flow of oil from the Middle East abruptly decreased, and a military option was deemed necessary by one or more oil importing countries. Professor Douglas Reynolds of the University of Alaska also has some acquaintance with those materials, and according to him Dr Henry Kissenger had discussed the possibility of military intervention in one or more periodicals.
Landing zones in the Gulf is a topic without interest for me, but if it was I might stress that Alan Greenspan was once the most important financial bureaucrat in the world, and he made the following statement in his widely praised book (2008): "I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil" (page 463).
A comment is in order here, because there is a difference between the "everyone" a single individual (and his network) think that they know, and the everyone they actually know. Dr. Greenspan has a better grasp of energy realities and economic theory than most members of the financial community. He fully comprehends the role of energy in the global industrial/commercial structure, and especially the crucial significance of oil and gas. Accordingly, since the amount of easily producible oil available in Iraq is very large, he might have concluded that if the kind of people he meets socially and professionally were capable of performing a cost-benefit analysis, they would accept that another war in that country was well worth the trouble, even if they did not express this belief in public.
A goal without a plan is a dream -Antoine de St. Exupery
The EIA has apparently calculated that OPEC earned 575 billion (U.S.) dollars in oil export revenues in 2009, a relatively depressed year, and might earn more than 700 billion this year. If this is true, I choose to believe that OPEC's future strategy is almost identical to the one I would employ if I were in their place. I am sure that this confession will win me neither friends nor employers, however as we said in the United States when I was a boy, I would rather be right than president! To be explicit, OPEC's announced intentions are almost the same as those predicated by the late Howard Chenery of Harvard University, who together with Professors Tinbergen and Fritsch (the first winners of the Nobel Price in economics) was the most sophisticated development economist of the 20th century. His book on the analytics of economic development, written with Paul Clark of the Rand Corporation (1962), was used at the African Institute for Economic and Development planning (Dakar, Senegal) when I taught there, but it appears to have been ignored by later generations of teachers and students because of its heavy content of linear programming and input-output analysis.
Although not immediately obvious, Chenery's approach was similar to that recently adopted by several major (and perhaps minor) oil firms, and theoretically reduces to the following: in an inter-temporal framework, more emphasis will be placed on short-term profits than the expansion of exploration, and attempting to designate a future production scheme in the light of increasing uncertainty about the availability of reserves. The mathematics here is straightforward, and seems relevant even though -- for example -- the EIA estimates a demand increase of 1mb/d this year, 1.47 mb/d in 2011, and almost certainly more later.
OPEC's 'management' is also concerned with short term profits, but not for the same reason. The more far-sighted OPEC personalities and/or theoreticians have as an ultimate goal the use of oil incomes to reconfigure the economic structure of OPEC economies -- i.e. to move from being producers of petroleum to producing oil products and petrochemicals, and to a certain extent beyond. An intention of this nature logically means restricting the production of oil! Assuming that every barrel of oil reserves that is not produced now will be produced later, then many of these 'future' barrels will be transformed into oil products (e.g. naptha), and a large fraction of these items into petrochemicals. As the last Shah of Iran mentioned, "crude oil is too precious to be burned up in the air."
What about the consumers of oil: do they have a strategy? If we think of consumers as a group, they do not have a strategy: they have a dream. Their dream features a gradual rearrangement of the global oil picture so that the price of vehicle and aviation fuel descends to that experienced eight or ten years ago, and stays at that level. The genesis of this fantasy is a profound indifference to what has taken place in the great world of oil over the past few decades. Just the sort of deficiency that I told my students they should avoid if they preferred a passing to a failing grade. They were also told to learn the following perfectly!
Output in the U.S. peaked at the end of l970 at a value of about 9.5 mb/d -- which is approximately the present output of Saudi Arabia and Russia, the largest producers of oil in the world. When that peaking took place there was still an enormous amount of oil onshore or directly offshore the United States. Production then dropped to 7.5 mb/d, but when the giant Prudhoe Bay field in Alaska came on line, the total output in the U.S. turned up. Unfortunately however, the previous peak was never attained. Instead, total U.S. production stopped short of that peak and once again began to decline. Today U.S. output is approximately 5.5 mb/d, and it is almost certain that it will continue falling. The U.S. oil production experience is both a model and a paradigm for what will take place on the global level, and conceptually involves no more than intertemporal profit maximization!
Now find and examine production curves for the 300 largest oil fields in the world, and after satisfying yourself that a majority of these curves have turned down or flattened (i.e. plateaued), ask how is it possible, in these circumstances, for anyone to sincerely believe that a global peak will not take place. Please note very carefully the word "sincerely". What it means in the present exposition is that there are people who know better than I do that a global peak will arrive, but have excellent reasons -- of a career and financial nature -- for claiming the opposite. For example, at least one of my best students in Bangkok was informed by his supervisor that it was taboo to engage in wanton chatter about 'peak oil'.
A supposed peak oil sceptic at an influential consulting firm has employed the picturesque word "garbage" to describe the work of peak-oil believers. If you encounter him some fine day, remind him that the output of the U.S. has peaked, as has production in the UK and Norwegian North Sea. Given the opportunity you should also mention that what was the second largest field in the world just a few years ago -- the Cantarell field in Mexico -- is declining at a startling rate. None of this is likely to upset him, because his organization claims that the production of oil will reach 115 mb/d by 2030, and moreover will remain at that level through 2050. This kind of forecast is not even wrong -- it is psychopathic.
The Russian output may be close to peaking, and a director of one of the largest Russian firms says that his country will never produce more than 10 mb/d. This may or may not be correct, but in any case Russian exporters will do an increasing amount of business in Asia, to the detriment of European importers. Oil importers everywhere though can consider the following. The discovery of conventional oil peaked in l965. In the early l980s the annual consumption of oil became larger than the annual discovery, and at the present time only about 1 barrel of (conventional or near-conventional) oil is discovered for every 3 consumed. According to a British Petroleum document, of 54 producing nations only 14 still show increasing production. 30 are past peak output, while output rates are declining in 10. To claim that all of this bad news does not imply an eventual peaking, is the same as implying that the (oil) whole is less than the sum of the parts, which is a myth that no intelligent observer would rush to endorse.
One more thing needs to be mentioned here: regardless of production, there will be a downward pressure on exports, as OPEC countries 'consume' larger amounts of their oil output in both consumption and investment activities.
Speculation vs. Fundamentals, and Final Remarks
On the few occasions when I dream about oil, those dreams show me insisting, often in non-academic language, that oil price movements of the last two years can be explained by supply and demand, or fundamentals, and not speculation.
But regardless of what I say, or how I say it, there are always persons who refuse to share my belief that fundamentals -- in the broadest possible sense -- are the items on which to focus. Fadel Gheit, the 'senior' oil analyst at Oppenheimer, ostensibly claims that supply and demand have not determined oil prices for years. That influential gentleman posits that the financial market, speculation, is behind price movements over the past few years. As it happens, that claim was first circulated by OPEC, because it is in their economic interest to do so. Please try to remember that OPEC has morphed into a genuine and strong cartel, with a decisive influence on the price of crude oil, and since this is made clear virtually every day, they have no choice but to pretend that someone else is responsible for high oil prices. Wouldn't you do the same thing if you were in their place? For instance, with demand weak, the price of oil is still rising. My favourite short comment on the present topic begins with a diagram of oil prices, provided me by one of the most important oil economists, David Cohen (2009).
In this diagram we see a genuine oil price spike -- associated with the first Gulf war -- and a spike-like movement at the end of the last century, caused by OPEC cutting production by about 1,500 b/d, together with cold weather in the large oil importing countries. Other genuine spikes took place in l973-74 as a result of the nationalization of oil by OPEC members, and in l981, due to a change in the government of Iran. After 2004 we get a sustained rise to late 2008
The most important of these occurrences was the spike-like movement at the end of the century, because that demonstrated to the OPEC management what solidarity and knowledge of the oil market could accomplish in a situation where oil production was peaking in such important producing regions as the North Sea, and new large discoveries of reserves were NOT taking place.
Then, in 2003-04, the escalating oil demand of China and India gave OPEC its opportunity, and they took advantage of it. What about speculation? In the diagram, in the background to the price movements from 1991 to the beginning of the new century, there was plenty of speculation, with smart speculators registering excellent incomes and bonuses; but from 2003 speculators -- or traders as they prefer to be called -- did not have to be particularly smart. What they had to do to make serious money was to recognize that demand was outrunning supply, and one of the reasons for this is OPEC and its agenda becoming the determining factor on the supply side of the oil market, which they still are!
Unlike the situation when I wrote my oil book, the futures market now occupies a pivotal role in the pricing of oil (for reasons that cannot be discussed in this short note), but if the actions of speculators or traders or dealers in physical oil have not been validated by fundamentals, a price movement of the steepness shown in the diagram could not possibly have happened! Some algebra might be useful here, but it will be excluded because neither algebra nor anything else can convince the new chorus of hard-line populists who are resolutely determined to blame 'Wall Street' for the present macroeconomic meltdown, as well as the failure of the oil price to collapse as a result.
In my textbooks (2007, 2000) I might have said that there still remains a great deal to be explained about the oil market, but as far as I am concerned that is no longer the case. To use a favourite expression of President Richard Nixon, it is all perfectly clear. Given the likely future demand, oil is scarce, and that commodity will become scarcer as the global motoring population increases!
As for the prediction of Len Gould at the beginning of the present contribution, large or small wars for energy materials are something that definitely could happen, but when possible it would be best if they were avoided, since they are extremely expensive. Alan Greenspan may have been correct in attributing the Iraq war to oil, since after the fall of Bagdad the only building in that city receiving maximum protection appeared to be the oil ministry, however it must have occurred to him (and others) that it would have been more economical to finance very large investments in the oil and tar sands of Northern Alberta than to continue to prosecute a war for years after it was won. Moreover, there are some large Iraqi oil fields that are ripe for exploitation, in that they contain large quantities of easily accessible oil, and apparently Big Oil has been welcomed back into Iraq for the first time since oil assets were nationalized in the early seventies.
Perhaps I should confess my belief that things have played out so that Iraq will remain a staunch member of OPEC, and abide by its quotas. The reason I believe this is that it makes both economic and political sense. The IEA now says that non-OPEC production -- which is about 60% of total crude output -- will peak this year, but they cannot accept a global peak of crude by 2030. This is not just wrong, but in terms of secondary school mathematics ignorant -- although the brilliant energy analyst Gregor MacDonald confines his judgement to "silly", and provides some numerical evidence that non-OPEC production has already peaked (2010). Moreover, when on the subject of economic sense, it might be wise to remember that the key variable for the oil importing countries is not production in the OPEC countries and elsewhere, but exports from those sources. Consumption in the oil exporting countries is set to rise almost everywhere, and this could mean a stagnation of exports even if output in those countries increased.
Something else that I would like readers of this contribution to ponder, is that a larger production from that unfortunate country than the one realized today, whether it was or was not related to almost any conceivable output quota for oil that OPEC would have assigned Iraq, might have sufficed to avoid the disastrous macroeconomic events of the past (and coming) two years.
Banks, Ferdinand E. (2008).'The sum of many hopes and fears about the energy resources of the Middle East'. Lecture given at the Ecole Normale Superieure (Paris), May 20, 2008
______ (2007). The Political Economy of World Energy: An Introductory Textbook. London and Singapore: World Scientific.
______(2000). Energy Economics: A Modern Introduction. Boston and Dordrecht: Kluwer Academic.
______ (1980). The Political Economy of Oil. Lexington and Toronto: D.C. Heath.
Chenery, Hollis B. and Paul G.Clarke (1962). Interindustry Economics. New York: Wiley
Cohen, David (2009). 'Mr Market gets it wrong again'. 321 Energy.
MacDonald, Gregor (2010). 'Officially, peak non-OPEC in 2010. Really? Seeking Alpha (January 15).
Eltony, Mohamed Nagy (2009). Oil dependence and economic development: the tale of Kuwait. Geopolitics of Energy (May).
Greenspan, Alan (2008). The Age of Turbulence. London and New York: Penguin Books.
Kubursi, A.A. (1984) 'Industrialisation: a Ruhr without water'. In Prospects for the World Oil Industry, edited by Tim Niblock and Richard Lawless. London and Sydney: Croom Helm.
Subcommittee on International Economic Policy (of the United States Senate), (1979). 'The future of Saudi Arabian oil production.' (April)
For information on purchasing reprints of this article, contact sales. Copyright 2013 CyberTech, Inc.
Excellent, among your best, which is saying a lot. That last sentence is like a porcupine in a bale of wool, difficult to sort out but worth any effort.
Ferdinand E. Banks 4.7.10
Thanks Len. Actually there is a lot here from my previous work, because the oil story is pretty straightforward and clear, and what I wanted from my students is that they MEMORIZE a large part of the above, and forget about trying to be cute. For instance, there are actually smart individuals walking around who think that OPEC doesn't count for anything.
The time has come for everybody to get the message. For instance, any number of concerned citizens have come to the conclusion that Iraq is going to come riding to the rescue where the oil price is concerned, which may happen, but not if there is ONE Iraq instead of two or three. I mean, the algebra is so simple that even Dick Cheney or George W. might be able to handle it. I also wonder if our political masters realize that the oil price has touched $86/b in a weak global economy, and are wondering what is going to happen if/when the world economy gets back on the rails?
Adrian Lloyd 4.8.10
Once again a good article Fred, it puts into words what a lot of people involved in energy finance feel in their guts, despite what governments, most oil majors and the IEA say. I am certainly seeing a lot more interest in projects (such as coal to liquids) that require a higher oil price (>$100 per barrel) to be bankable.
My guess is that our political masters (and the oil majors and the IEA) all realize that the oil price has touched $86/b in a weak global economy, and are actually bracing themselves for what is going to happen if/when the world economy gets back on the rails. However they are all keeping quiet, because none of them want to tell the electorate that they are going to have to pay more for gas and heating oil (and electricity) at a time when the unemployment rate is rising, taxes are going up and wages are frozen or falling.
Is it just my cynicism, or has anyone else noticed how every time the oil price rises suddenly, someone in power renews the attack on China for not letting its currency rise against the greenback?
Bob Amorosi 4.8.10
Our political masters (most of them) probably know fully well that Fred's well-written article here is true, and you are correct they usually don't say much of anything about it to the public. Instead our political leaders are sending messages about it to everyone indirectly by phasing in new rules for the economy in an attempt to wean the public gradually off oil, and it will probably take decades to achieve.
The incentives to wean us off oil, and other energy goals, include wide ranging changes to tax rules and industrial standards such as higher fuel-efficiency targets for auto manufacturers, higher taxes on gasoline and heating oil, potential carbon taxes or carbon emission cap&trade laws, and tax breaks for R&D in alternative energy sources.
The question of when the global economy will get back on the rails is a very tough one to answer accurately. It may never get back to what we had because our North American economy has been under constant restructuring for decades away from manufacturing of goods and services to largely a consuming economy. Recessions tend to wring out the excess manufacturing employment where the lost jobs are then gone forever. This is unsustainable in my humble opinion because over time North American consumers will lose their purchasing power to buy all foreign-made products and services, or alternatively our governments will go bankrupt with unprecedented debt levels trying to sustain our standards of living. Worse, we may be in for both of these disasters.
The educated and prominent people and agencies denying the future of oil prices, that Fred correctly writes about in this article, are hiding their heads in the sand over it. Much of the public and some industrial sectors don’t want to hear the truth about the future of oil, so they get told what they want to hear instead even though it is often hot air.
Adrian Lloyd 4.8.10
I agree with what you say. If nothing else, the (global) contraction of the broad money supply and continuing shortage of affordable debt finance for business tells me that the recovery will be long and slow.
In the face of the refusal by “surplus” nations such as Germany and China to increase imports/domestic consumption, it seems to me that the only long-term option for deficit nations is to consume less and save more, even if this is contrary to the Keynesian economic doctrine which all OECD countries now appear to be following.
I therefore think recovery is going to be very painful, ultimately involving higher taxes, lower government spending and falling standards of living for Joe Average. My fear is that rising oil prices are not just going to be part of that pain, but have the potential to slow down or even derail the recovery.
Jim Beyer 4.8.10
Kudos to Len for the quote! For all of our sakes, I hope he is wrong.
For a business plan, I did some back-of-the-envelope calculations to produce the cheery result that if the U.S. totally converted its automotive fleet (passenger & light truck) to PHEVs, it could forgo oil imports entirely. As a first order approximation, I do believe this analysis is still true. The U.S. imports about 60% of its oil, and about that much is used for transportation, though some is used for heavy trucks, aircraft, ships, and for Warren Buffett's new train set.
Unfortunately, there are a number of problems to this scenario. Market realities or market forces or market players (market something, it's not a technical issue....) have conspired to stall the advance of this technology, even preliminary sense. The Toyota RAV-4 EV was (and is) a fine all-electric vehicle, and it was produced over 10 years ago!! Similarly, the EV-1 was produced by GM and worked well enough for what it was. NiMH battery packs were (and probably still are) good enough technology to get EV and PHEV vehicles off the ground and eventually in place as consumer products. The EV development effort by Ford,GM,and Toyota was derailed by CARB in 2003.
The point I'm trying to make is not to cry over the spilled milk that was the EV development effort of the late 90's, but to point out how market forces were able to derail such a prominent technology to the detriment of everyone (including the executives behind the derailment). I hate to sound all Commie (I'm not) but Noam Chomsky (who I hate, just to be clear) makes a point how very large corporations can act almost psychotic in that they can function in no one's long term interests, even their own.
So while it should be not be technically difficult to survive the demise of oil, just as we survived the demise of whales (PHEV + nuclear power = carbon-free energy independence :QED) I have concerns that large market players may keep the needed technical and infrastructure advances from being put in place in a timely fashion.
Obama gets a gold star (or at least a bronze one) for allowing off-shore drilling and upping MPG regulations (though a gas tax would be better). I think his financial and energy people at least know what's up, in a general sense anyway. Cheney undoubtedly did too, but for some reason thought it was a good idea to do the Iraq war on-the-cheap. It wasn't.
Ferdinand E. Banks 4.8.10
I agree too, Bob: there is something very wrong about this restructuring away from manufacturing. Proving that it is wrong though would be pretty tough, because arguing in favor of consuming rather than producing it is the kind of operation at which the looney-tunes can shine. I remember when the first oil price shock took place. A brilliant nutter in one of my classes said that the remedy for industrial countries was to cut down their energy usage: a low energy paradise struck him as the ideal arrangement, and as soon as possible.
As for off-shore drilling, I suspect that it won't offer much, but I agree that it should take place. It says something about the importance of oil. As for rising oil prices slowing down the recovery, a few months ago I was prepared to argue that before the supreme court, but I confess that I have forgotten most of the details. What I hope is that the OPEC people realize that it is also in their interest to restrain the rise in oil prices, and they are always saying that they are willing to do what is necessary, but I don't believe them. Now that the money is rolling in again, it is only human to want more.
Yes, Cheney understood energy issues, and so did Alan Greenspan. Even so, they will not get my vote. I think that Obama does too, and if he doesn't, Summers does. But Mr O has got to think about a second term, and so he has to say and do some things that may not make sense to those people in this forum who, unfortunately, prefer logic and historical evidence to pie in the sky. The president has a lot to do in order to bring about the energy economy that we need and deserve.
Bob Amorosi 4.8.10
There are indeed looney people and politicians out there that believe less manufacturing of goods and services is simply inevitable and not necessarily a bad thing for a restructured economy in North America. I cannot bring myself to believe such hogwash, and the average Joe consumer in the US (and Canada) cannot accept this either. I’m sure everyone in the US today probably knows someone who is in pain and increasing hardship from having permanently lost their industrial job, and cannot find anything comparable.
Among other things, a plentiful and cheap energy supply would help North American industry be more competitive in future global markets for goods and services. But sadly for oil, and for electricity too, cheap abundant energy will increasingly become just nostalgia over time in North America.
I must admit large or even small nuclear plants could have provided a lot of cheap abundant electricity especially for our industries. It is wrong for our electricity planners to totally discount building at least some nuclear down the road simply because the up-front costs to build them are painfully high. Like anything else that is procured, if the up-front costs are too high for the purchaser to bear, there is always room to negotiate deals for financing, payment schedules, and bulk pricing deals for buying several units. There is no good reason why the same cannot be attempted with nuclear plant manufacturing industries.
So on this note Fred I can relate to and understand why you are such a big proponent of nuclear plants. The above comments are also the underlying reasons why I am a big proponent of any new technology for consumers that could help them manage their electricity bills, become more energy efficient, and mitigate some effects of rising energy prices down the road.
Ferdinand E. Banks 4.8.10
Bob, I don't see the problem in financing nuclear. Think of how many reactors could have been constructed in the US if they had finished with those two crazy wars immediately after winning them.
This kind of nonsense is visible everywhere. Sweden has a highly educated population that can understand fairly complex logic, but why then do they send billions to EU parasites in Brussels instead of to healthcare/medical-research facilities in Sweden? Let me put this another way: if the money that goes to Brussels is correctly used in Sweden, then the average length of life can be increased. I cant imagine many people saying that they dislike that idea.
As for the decline of the industrial sectors, the theory might be that the Chinese will take charge of industrial production, perhaps with the help of India. The rest of the world will supply them with energy and other raw materials. Sounds a little odd, doesn't it, but while surfing the TV screen for news last night, I came across a US 'something' in which the word 'horney' was used half a dozen times by some twenty year olds. I can imagine anyone listening to or taking part in garbage like that who would be seriously interested in Kirchoff's Law.
Bob Amorosi 4.9.10
Fred, I agree there have been untold billions of dollars blown away on wars in the last 20 years by the US that would have been far better invested at home to revitalize their industrial sectors. It is sobering to think how much could have been spent on simply rebuilding and modernizing the US electricity grid, including adding many new nuclear plants. Tragically it would seem their passion for war and entertainment, especially sex scandals, gets far more attention, and money.
I don't look forward with much hope for the next generation's future in North America.
Jack Ellis 4.9.10
Fred, this was an excellent article. Unfortunately for Len, Australian filmmakers have already told this story. Rent Mad Max III and you'll see what I mean. Pretty sobering.
If you liked Fred's article, then I recommend you buy and read "Twilight in the Desert" by Matthew Simmons. It's an excellent book that makes many of the same points Fred does, but using hundreds of Aramco technical papers as his primary source.
As for the comments on nuclear power, I think new reactors will be built, but the 1,000 MW behemoths are an endangered species. They're too expensive, entail too much financial risk, are too difficult to site, and require too many skilled people to run. If the NRC can get off the dime, I predict smaller reactors that can easily be built in a factory and shipped fully assembled to the site in a truck or rail car will become the power supply of choice...sometime before I leave this earth.
Ferdinand E. Banks 4.9.10
Building reactors or parts of reactors in factories is the way to go, but those reactors don't have to be as small as transformers or washing machines. Look at the construction of aircraft carriers in the US in WW2 and you see what can be done. As for getting skilled people, that is just a matter of pay and allowances. The goal should be a reactor constructed and ready to supply grid power in about 3 years.
Did you say leave this earth, Jack? When Americans leave this earth they go to Paris. No problem with nuclear there.
Michael Keller 4.12.10
No worries ... technology and human ingenuity will save the day. There is, of course, a small matter of drop-kicking large numbers of Washington politicians over the side, but that too is underway.
Len Gould 4.13.10
Micheal, it isn't the politicians who need to be drop-kicked, its the lobbyists.
Jim Beyer 4.13.10
I'm not even sure this is really the politicians' fault.
Jim Beyer 4.13.10
I'm not even sure this is really the politicians' fault. Assuming peak oil is real, how is this expressed to the public without panicking them? Cheney tried to address it (or at least stave it off) by invading Iraq, not to steal the oil, but merely to get it on the market. Note that the Republicans didn't push for off-shore oil drilling, because they knew it wouldn't do anything. Note how both democrats and republicans can speak easily about the vague dangers (or lack thereof) of global warming, but not a peep about peak oil, even though the evidence for peak oil is MUCH stronger; probably indisputably so.
You could argue they could raise MPG requirements for vehicles, but this is bass-ackward as well. The only real way to curb consumption is to tax it, which would be very unpopular.
I guess the Republicans did push for fuel cells over batteries. As I mentioned earlier, CARB (California Air Resources Board) set back EV development by about a decade, which was not the best move for us overall (why not BOTH EVs and FCVs?) A conspiracy buff might think that the hydrogen push was an effort by oil companies to maintain control over a huge market they may soon lose to the electric utilities. But you can't swim against inferior technology.
Also, I'm not sure what building (or not building) nuclear power plants has to do with peak oil. We can support many hundreds of thousands of PHEVs with the existing grid (that is, long enough to know if we need to add more capacity just because of them). On the other hand, should the economy stall as oil gets pricey (nearly $3 per gallon, and it's only April....) then we will have plenty of generation capacity to run an economy that is barely functioning.
bill payne 4.13.10
Byron King's admonition
If you thought the US had a problem with imported oil, now you know that there's an issue with uranium fuel as well. Of course, I'm not the only one who knows this. It's a national security issue, and I can tell you that things are about to change in a very big way.
If we see oil over $100 real soon now, and we might, it is likely to do in Fred's arguments. Migrating off oil to a very significant degree between now and a peak oil production in 2030 (if that turns out to be real) is doable. The key is an oil price the public really dislikes. Ironically, it will motivate support for nuclear power, not just wind and solar, to insure our electric cars can be recharged when we want.
Self appointed environmentalists may go into a tither, but high priced oil will force additional base load energy - nuclear - into being, and go a long way towards solving global warming (if its real) in spite of those self appointed sorts. Peak oil seems like a huge serendipity for the world. Yea, we could use more coal all night long to charge cars, but that seems like a political lead balloon. The road from here to a natural gas and nuclear future may be a bit rough, but we survived the 20th century, and it was pretty ugly in many ways. Price is a great facilitator as long as politicians can't manipulate it too much. And OPEC seems to have more power than our politicians on the price of oil.
Fred sees the problem. I see the opportunity it is cloaking.
Len Gould 4.14.10
Bill. I must say your effort applied seems admirable. That said, your argument "PNM doesn't provide the heat rate figures for solar and wind, therefore all calculations are bogus" is simply nonsense.
How should anyone compute "heat in" to a wind generator? How do you do it?
Do you demand that PNM must set up precisely calibrated insolation measuring instruments alongside every photocell installation simply to prove that the manufacturer's claims for efficiency can be verified from raw data by every amateur engineer out there?
I'm sorry, but there's nothing here.
Jim Beyer 4.14.10
A few points.
First, I think oil has ALREADY PEAKED. I think it peaked in July, 2008. History will prove this assertion right or wrong -- but I certainly believe oil will peak before 2030 if it hasn't already. This makes migrating from oil a bit more problematic.
Second, many so-called environmentalists are already coming around to nuclear power. The main sticking points for them relate mostly to costs, which are understandable, if probably inflated.
Third, again, I don't see building nuclear power plants as immediately addressing shortages of oil. They would only come into play if and when (hopefully when) PHEVs are widespread, which remain problematic in terms of economics (batteries) and in any case, will not impact the market significantly for at least a decade. A better case could be made for running more cars on natural gas, which could be accommodated with a lower cost premium to the consumer.
Dean Tibbs 4.14.10
Jim, it seems that nuclear power is much more expensive in the US than elsewhere. Perhaps that is not really the case, but if it is then it is being driven by the just say no to everything group (aka self appointed environmentalists). High priced oil would/will have the advantage of inspiring the public to sweep them out of the way. That is good in many ways. And while natural gas produces only half as much CO2 as coal, nuclear produces none.
Natural gas already peaked, but now we have a lot of it Funny thing about technology. So fueling vehicles with it is a no brainer. Probably will start with fleets. If oil gets really expensive then long-haul truckers will find the Wizard of Omaha turning his train set into electric trains, forcing them to find a lower cost fuel. But with enough substitution, natural gas prices will rise towards oil prices. I would bet someone that it will be very dynamic, but I doubt anyone here would take the bet.
In the 19th century man made fertilizer obsoleted starvation as population control (except where artificially created by politics). We also ran out of oil in the 19th century, and had to find a crude substitute. If scientists can produce bugs that make liquid fuels from CO2 (and technology has ruined so many linear forecasts), or we find large amounts of crude in places we learn to extract it from at those high prices, maybe Malthusians will be frustrated without nuclear. Might not be what the climate needs though.
Key point is that big problems are also big opportunities in disguise. The ride could be bumpy between the two, so it may be wise to secure a good suspension. I plan to buy a plug in hybrid when they become available. Range is not so important. Having an option to use electricity for short trips will insure a smoother economic ride.
Chris Neil 4.14.10
War does not appear to be in OPEC's interest. Neither does massive switching from oil to alternatives. OPEC has a tough balancing act: trying to make oil prices as high and revenue as high as possible without causing too much fuel switching or war. There wasn't any talk of war when oil prices hit $147/bbl in 2008, but there was a lot of effort to switch to alternatives. OPEC may want oil price to increase to something like $100/bbl to $120/bbl, but perhaps not too much higher than that. But if demand grows too high, OPEC could lose control of prices.
Don Hirschberg 4.14.10
IDKWTAM Or: I don't know what this acronym means. ***** PNM Public Service Company of New Mexico ***** PNM People's National Movement (Trinidad) ***** PNM Perpustakaan Negara Malaysia (National Library, Malaysia) **** PNM Price Negotiation Memorandum **** PNM Perinatal Mortality (statistic) *** PNM Pop'n Music (music game) *** PNM Peripheral Dysostosis-nasal Hypoplasia-Mental Retardation *** PNM Pulse Number Modulation ** PNM Progressive Networks Metafile (URL of Real Audio File in .ram files) ** PNM Pamantasan Ng Makati (Makati University, Philippines) ** PNM Power Company of New Mexico * PNM Patientnämndens kansli Mariestad (Swedish) * PNM Parallel Neighborhood Model * PNM Platform Noise Monitoring Manual * PNM Paysagiste Nouveau Monde (French: New World Landscape)
and 65 more.
Ferdinand E. Banks 4.15.10
Chris, I understand what you are saying, but a balancing act when the price of oil is $80/b or more is a lot different then it was 5 or 6 years ago when OPEC was trying to get the price up to the top of a 22-28 dollar range. Personally, though, I don't have anything against those lovely OPEC people. They are just doing what you and I and the other people in this forum would do if we were in their place. They are just doing their thing, and now it is up to us to do ours..
Of course, that might not turn out nice in the end, because on the basis of the discussion in a seminar I attended yesterday with engineers, executives, think-tankers and some incredibly naive students who found themselves in the contregation, it's not easy to be optimistic. To put it mildly.
I see that a couple of powerful environmental organizations have yesterday filed suit against the Canadian Federal govt. to shut down all oil sands projects which produce tailings ponds on the basis of a calculation of theirs of the rate of toxin leakage from the ponds into the environment. According to an analyst on BNN, this is going to be a serious issue. So who can benefit by pulling Alberta's 1.3 mmbpd off the market?
If the feds try to do anything to these projects, Alberta will simply separate from Canada. Is that the goal?
Don Hirschberg 4.17.10
Len As to the Alberta question, I'd say it depends on whose ox is getting (Al) Gored.
My acronym finder gave 64 possibilities for BNN. None seemed to fit.
john Marsh 5.29.10
This stripping action limits the usefulness of aicp practice test carbon dioxide for pH control. Large amounts of carbon dioxide may be required because it's all lost across the cooling tower. The use of carbon ardms practice test dioxide may have future environmental impacts in terms of greenhouse gas emissions. Injection points are critical. The gas must be injected into the circulating water after the water leaves the tower. Carbon dioxide can be injected into the discharge side of the cooling tower circulating water pumps or asvab practice test into the cooling water supply header just before the condenser. In either case the carbon dioxide can lower the pH in the pipes and condenser, but pH will again increase when the water passes through the tower. Carbon dioxide can be used to protect the condenser, but pH of the cooling water passing through the cahsee practice test tower fill and in the tower basin cannot be adjusted and scale formation may result.