Wednesday, June 27, 2007

The Future of Oil, Gasoline and Natural Gas

The fact that Iran, Nigeria and a handful of other oil-producing countries are raising the price of domestic fuel (or at least trying to) should alert Americans that times are changing. Domestic gasoline prices for oil-exporting countries is still less than elsewhere but, clearly, the writing is on the wall.

No one can predict exactly where gasoline prices will go in the next three to ten years. There is still plenty of oil to produce but the world's population is growing and it's no longer certain that oil production can keep up with population nor is it certain that oil production can keep up with the economic growth of countries like India and China, let alone the continued growth, though slower, of countries like the United States.

Now we've known for over thirty years that oil is not as plentiful as we once thought it might be and we now have the additional problem that the world, because of accumulating knowledge about climate change, can hardly afford to burn oil in the quantities we have been doing so for the last fifty years. We've had thirty years to innovate our way out of a known supply problem and now we have a climate problem on top of that, and the most innovative country in the world has instead been resting on its laurels, at least in the alternative energy and transportation sector, and it's frankly no longer certain that the U.S. is committed to being the leader in innovation, not when so much of our wealth is concentrated in the hands of so few people who like the status quo just as it is.

I was glad to see the recent bill passed in Congress to raise auto mileage but it's a bill that should have passed 13 years ago and just might have if it had not been for Republicans like Newt Gingrich and right wing agitators like Rush Limbaugh. We've lost valuable time. And we may lose more time because of inattention. I was one of the first to point out a potential problem that may blind many Americans to the problems we're facing when it comes to our future. As oil gets harder to find and harder to produce, prices will spike during different periods, just as oil is spiking now (though this time largely because of problems in the Middle East and Nigeria). High oil prices are going to force poorer countries out of the energy markets. As poorer countries are forced out, prices will drop, at least temporarily and, human nature being what it is, a fair number of average Americans, business people and politicians will nurse the illusion that we don't have a problem. But, indeed, we do have a problem and it would be foolish and even heartless for the most powerful nation in the world to ignore the added time that the falling consumption of oil in poor countries gives us to find a solution, not just for the world, but for ourselves, since we are after all more dependent on energy for our way of life than any other country in the world.

The Oil Drum has a primer on Peak Oil. It's fascinating how the term "Peak Oil" is sometimes distorted in certain quarters. If oil were food, people would understand the situation more clearly. If the world's population rises, food production must also rise. Food production is not a steady thing. Food production rises and falls; a certain amount of safety can be built in by having plenty of food stored for production shortfalls. If food production begins to fall for too long a period and there isn't enough food stored after awhile to go around, bad things begin to happen. One very good thing about food is that it's renewable. Oil is not. "Peak Oil" is simply the proposition that at some point our ability to produce oil worldwide will begin to fall (that is, one year we will reach the all time peak for oil production and no year after that will match that year and on average yearly production will steadily fall at some uncertain rate) and most people in Peak Oil believe the time will approach in the next two to twenty years or that we passed the 'peak' in the last year or two. There is already strong evidence that what we call light sweet crude may indeed have already peaked, but the evidence is obscured by the other forms of fossil fuels that are produced. Because there is in particular growing concern that the Middle East may not have the oil reserves they claim to have, most responsible people who look at these things and who are concerned are trying to make the point that we need to start making adjustments now whatever the date of "Peak Oil" may be.

Here's an excert from the primer on The Oil Drum:
9. When was peak oil first predicted?

M. King Hubbert, in 1956, first predicted that US oil production for the 48 states would peak in 1970. This prediction turned out to be correct, to everyone's surprise. He also predicted a world-wide peak around 2000.

10. Will alternative energy sources be able to make up for the shortfall in petroleum production?

At this point, it seems unlikely that they will make up the shortfall.


At this point, there does not seem to be any "silver bullet" for replacing the lost oil production. Oil is unique in its abundance, its high energy density, and its portability. There do appear to be a number of possible silver bee-bees, however. These include:

• ethanol from corn,
• ethanol from sugar (generally imported),
• biodiesel,
• cellulosic ethanol from biomass, and
• coal-to-liquid.

None of these appears to be very scalable, especially in a short time-frame. In addition, there are other drawbacks -- cost, environmental damage, and for coal-to-liquid, climate change issues. Indirect approaches to circumventing the shortage, like using battery operated cars, may be part of the picture as well. If these are used, they will probably need to be phased in slowly, as existing cars are retired. It is likely that conservation will need to be part of the mix.

We need major research to tackle these problems and we need to start making changes. I should note that the very first person who ever drew my attention to these problems was a Republican. He was a smart man and a former oil executive. I'm not sure he would recognize the current Republican leadership and its failure to take on the future. The Democrats are coming around on these issues but they've been slow to do so. In the next five years, we have a lot of work to do.

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Anonymous S.W. Anderson said...

Indeed, we do have a lot of work to do.

I suggest that one thing we should do is nationalize the refinery industry. Let the federal government build, operate and maintain all the petroleum fuels refineries, in the public interest.

The petroleum industry has used this chokepoint in the fuel supply as a convenient means for regular rounds of price gouging.

Golly gee, they say, time to shut down this refinery for cleaning, that one for maintenance — and whoops, sorry 'bout that dollar-plus price increase. Aw, gee, it's just one of those things.

Prod them about building more refineries and they whine about all the Draconian permitting, safety laws and environmental regulations. As if they lacked the resources to buy a few Pacific islands and build their refineries well out of reach of all of that, if they cared to.

But why should they? The shortage of refining capacity is a bonanza for them.

Obviously, it's time for the screwing to take place in the opposite direction. Nationalizing the refinery biz would do exactly that.

9:17 PM  
Anonymous Anonymous said...

I should note that the very first person who ever drew my attention to these problems was a Republican. He was a smart man and a former oil executive.

Who was he?

11:47 AM  

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