Some Thoughts on Oil and the Near Future

I take for granted that Bush and his friends have managed to ease pressure on gasoline prices just in time for the election. But that's a sideshow. Despite the volatile prices of oil—and that volatility will continue for some time—we have a problem that has little to do with Bush or the problems in the Middle East; the real question for the immediate future is how soon and how much our political leaders will start addressing our energy future.

Paul B. Brown of The New York Times has an article on the future of oil:

THOSE falling prices at the gasoline pump may only be temporary. Indeed, they could signal the start of an era in which, forecasters say, “the death of cheap, abundant crude might unleash war and plunge the world into a second Great Depression.”

“Peak oil is a reality,” says Willem Kadijk, a hedge fund adviser quoted by Bloomberg Markets magazine. He is just one of many who believe that global oil production is now at or near its peak, and the only place to go is down.

“Once the flow crests and starts to decline, and some geologists say it already has, oil will no longer be able to slake the world’s growing thirst for energy,” Deepak Gopinath writes in summarizing the argument. “The result will be the oil shock to end all oil shocks.”

The price of a barrel of crude oil, which closed yesterday at $58.68, “will spiral to $200 — and keep rising,” he writes.

Representative Roscoe G. Bartlett, a Maryland Republican, has formed the Congressional Peak Oil Caucus to draw attention to the issue. “The world has never faced a problem like this,” he told the magazine.

The nation’s oil companies dispute the assertions. An Exxon Mobil spokesman says the company’s geologists expect global oil production to keep rising for at least the next two decades.

The irony is that Exxon Mobil may be partially right about oil production rising. The fundamental problem is not oil production, though there have been significant production problems and the world certainly hasn't produced enough oil to meet demand in the last couple of years. The fundamental problem is that we're not finding enough new reservoirs of oil and we're not likely to find oil in the abundance that we did in the era 40-60 years ago (see post on gap between production and oil discoveries).

So, technically Exxon Mobil may be right about production. Let's say we're back in the 19th century and you discover gold in California's Sierra Nevada; that's different than the mining activity that we can describe as production. For a while you can discover more gold deposits in the Sierras while others are producing gold from the sites already found. Generally, the more discoveries, the more gold produced per year. When discoveries level off, you're still producing gold from the older mines. In fact, at any time, you can increase production of gold simply by mining more extensively and, in a sense, more rapidly (that's how strip mining for gold came about). But that won't change the amount of gold in the Sierras. You can dig gold fast or you can dig it slow but you reach a point where you can see the writing on the wall: at some point, production is going to start falling simply because there isn't enough gold to justify continuing digging. Costs begin to outstrip any chance of profits.

California's gold bonanza ended a long time ago but California went on. Not to make light of economics, but the world discovered paper money which is a good enough substitute fo gold. Despite the technological ability to increase oil production, increased production simply means that the world's oil reserves will empty out all that much faster. And there are other factors to consider. With oil, the costs can be subsidized, but the ultimate factor is that when the energy put into extracting energy exceeds the amount of energy you get back, you have a problem. It's means you have to find a substitute. We're discovering that finding a substitute for oil is not going to be all that easy. It's going to take time.

Like gold in California's Sierras, we can see the writing on the wall when it comes to oil. We know we have to do something. Actually, we have seen the writing on the wall for thirty years and not much has happened.

Curiously, many countries around the world see the writing on the wall but, so far, the United States is lagging behind when it has the money and the ingenuity to be the one leading on the issue. Here's a post in The Oil Drum on what Scotland is thinking of doing:

In this short post I am inviting input from the TOD community on Scottish plans to become a "tour de force" in hydrogen fuel cell technology and as a hydrogen producer and exporter.

This is an excerpt from an article that appeared in The Press and Journal (October 11th 2006), a newspaper serving Aberdeen and northern Scotland:

The vast economic and energy potential of hydrogen was revealed yesterday in a report which found that it could earn £500million a year for Scotland and sustain 10,000 jobs.

Hydrogen and fuel-cell technology will almost certainly have to be exploited if Scotland is to reach its target of 40% of energy coming from renewable sources by 2020, according to the report by the Hydrogen Energy Group.

Despite this, it warns that investment in the sector in Scotland, and the UK as a whole, has been "comparatively negligible" in stark contrast to the US, Japan and some other European countries.

The report states that the hydrogen economy urgently needs about £2.5million a year over the next three years. It recommends support for projects, including those for remote communities, and an inter-university research centre to create fuel cell and hydrogen-based intellectual property.

I keep hearing criticism of hydrogen since, after all, it's not a source of energy, but rather a carrier of energy that has to be produced by using more energy than it gives back. But a nagging problem throughout the world is that not all energy is easy to get to market; if handled right, there may be ways that hydrogen can be used to get energy to consumers.

In California, in the same Sierras I just spoke about, there are hydroelectric dams that provide California's day-time energy needs. Late at night, there is considerable spare energy to draw from throughout the region from various sources. So the power companies frequently use that spare, unused energy, to pump water back into the reservoirs for the next day.

One of the problems of wind power and tidal energy is that it's not distributed evenly throughout the day or even throughout the seasons. If someone can store all that energy in some form, it would put more of the natural energy of the earth to use. Scotland has an abundance of potential wind power and tidal energy; using that abundance to create hydrogen just might make sense.

Come to think of it, there's plenty of wind on the high plains but there's are not good transmission lines in place to utilize all that energy and even if there were, there's still the problem of what to do with the excess energy at two in the morning. Perhaps the excess wind power can be used to make hydrogen that can be incorporated into the process of making ethanol. It's not the most efficient method but it's vastly preferable to letting all the wind power go to waste. Hydrogen could be a transitional method of storing energy until better batteries and other energy storage systems are developed. Anyway, it's something to think about.