Facing our energy predicament
June 21, 2005
Steve Andrews’ business card says “consultant … focus on energy issues.” Perhaps “worrywart” might be a better word than consultant.When it comes to energy issues, and specifically the oil industry, Andrews could easily be mistaken for a pessimist. A realist is what he is. Because so few Americans really do worry about the future of petroleum supplies, it’s good there are people like Andrews who do.He discounts most of the rosier projections about oil supplies across the globe and believes changes must come sooner than later if the world is to avoid the cataclysmic consequences where demand far outstrips supply.The fact is the world is running out of oil.Today, for every barrel of oil “discovered” four barrels of oil are being consumed.Worldwide, it’s estimated that the peak for oil production will be in the next decade – some say sooner.It’s important to note that peak production does not mean running out. That will eventually happen, but peak production means at a certain point the oil supply, which is finite, begins to diminish. And because of changes in society, the downward side of the curve will be much, much steeper than the front.In America, the situation is bleaker. The country reached peak oil supply in the 1960s and the volume of oil being pumped from the earth in the U.S. today is far, far less than the nation consumes.The United States uses 21 million barrels of oil a day, which is nearly 25 percent of the world’s present production. The country produces just 7.5 million barrels daily.The analogy Andrews uses is a six-pack of beer. The six-pack represents all of the oil, discovered and undiscovered, in America. Four of the cans are already empty.For a nation that likes to consume, having two cans remaining is not, Andrews says, a pretty picture.Andrews was in Summit County earlier this spring for a presentation to the Summit County Rotary Club. Its title, “Our Petroleum Future: It Ain’t What It Used to Be.” In an interview following his presentation he talked at length about the coming oil crisis.Q: Why do you think most Americans are ignorant of the declining supplyproblem?A: First, our leadership, especially our political leadership, doesn’t level with us about our declining oil supply problem. I can only speculate why. For example, in December of 1998, Jay Hakes, EIA’s director, projected oil prices at $14/barrel for 2000 and added that they should remain low through 2007, thanks to a decrease in demand caused by the “Asian economic flu.” In the real world, oil prices averaged $29 during 2000 and are now on track to average $50 a barrel this year. As for the USGS (U.S. Geological Survey), back in the 1960s they developed oil resource figures to refute the “pessimistic perspective” of geologist M. King Hubbert as laid out in his now-famous presentation to the oil industry about U.S. oil peaking in 1970. Time and further studies proved the USGS to be wildly optimistic; I believe the same could be said of their 2000 World Oil Study, and indeed it has been heavily criticized by retired oil men both here and abroad.I should note that an amazing exception is Rep. Roscoe Bartlett (R-Maryland) who, last month, entered seven pages into the Congressional Record on the subject of peak oil. He’s also been on TV on this topic recently, and voted “no” on the House energy bill. In some cases I suspect our leadership understands that Americans are so addicted to cheap energy that they will strongly resist any effort to price that energy more in line with its long-term value. Higher energy prices are medicine, whereas politicians get re-elected based on their ability to distribute sugar.When the Clinton Administration proposed moderate new energy taxes in early 1993 – $0.14/gallon gasoline taxes, plus higher taxes on other forms of energy – corporate America rose up in arms to defeat it. Three years later, President Clinton and Senator Dole were competing for votes by promising to actually cut gasoline taxes, after a several-month spike in energy prices that spring. Politicians seem so focused on sound bites that they don’t really see the forest through the trees. Consider the situation when a panel of four individuals presented information to the Colorado House Committee on Energy and Transportation in March. I presented information about peak oil. The representative from Summit County asked the same question of all four panelists: Why does gasoline in Summit County consistently cost a quarter more up there than it does just down the hill in Golden? He didn’t seem genuinely engaged in the answers he was hearing because he kept on asking the same question. Later that evening the reason why became obvious: his question made the evening’s TV news. Second, it strikes me that Americans don’t know much about our looming energy problems because they assume plentiful energy supplies go with citizenship. We’ve historically been the land of opportunity, the bread basket of the world, with Texas, Louisiana, Alaska and other states providing energy resources and wealth of immense proportions. We’re incurable optimists, which has often served us well. We’re simply not used to thinking of our country as an emerging land of geologic limits. We now are net importers of food, let alone oil and natural gas, yet our citizenry seems unconcerned with some of these fundamental issues without extra attention directed to it by the media or the political system.Third, Americans figure out what’s important from a variety of news sources. A few of those with wide audience reach are clueless about the fundamentals of our energy predicament; exhibit A would be Rush Limbaugh’s apparent lack of detailed information. (I distinctly recall, during the 1996 energy price spike, Limbaugh opined that there were “hundreds of thousands of barrels of oil produced every day all over the world,” when the figure back then was well over 70 million barrels/day.)Other media outlets may suffer attention deficit disorder the way much of their reading and listening public does; I’ve followed the peak oil story since I interviewed M. King Hubbert (the father of this concept) back in March of 1988, and have noticed that only recently has this previously-mundane story gained traction in the press.Fourth, Americans would prefer to listen to promoters of alternatives who assure them that their particular solution can dissolve our long-term energy problems. Economists buttress this notion with their free-market platitudes.Finally, most industry players don’t particularly want to level with the American public about our looming energy problems. Three reasons come to mind. First, oilmen are optimistic by nature, which is a good thing given how many dry holes they’ve had to get past in order to supply us with ever-growing amounts of energy. Second, they don’t always seem to be complete systems thinkers … Third, they may believe that stock values might be harmed if the industry warned the public too directly about our long-term energy problem. Q: Why wouldn’t the marketplace and the price of gasoline drive a necessary curtailment of consumption?A: The marketplace will indeed change our gasoline consumption habits. But given the lack of planning plus the lead-time required to make a smoother transition to the mix of what could follow, the transition could be enormously painful from social, economic and political standpoints. If we proceed down a business-as-usual market-driven path, with a continued emphasis on more production rather than on efficiency and new types of production, I feel many citizens may feel ambushed and lash out, some violently, towards the parties they feel are “causing the problem.”Consider the following comments from a 2/05 report for the Department of Energy written by Robert L. Hirsch et al, called “Peaking of World Oil Production: Impacts, Mitigation, & Risk Management.””As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.” The marketplace can be extremely disorderly, especially given the huge subsidies that are pulling us back in the direction of yesterday’s technologies. Those subsidies and that line of thinking are providing an enormous anchor, buffering energy costs to consumers and thus slowing down the potential rate of change towards efficiency and proven alternatives to gasoline.Q: How do you answer those who suggest there will be inevitable advances in technology or alternative fuel development that will offset the demand for oil?A: Too often, those who suggest there will be inevitable advances in technology or alternative fuel development that offset the demand for oil simply aren’t aware of the proximity of the peak oil problem or the amounts required to make much of a dent in our current demand of 84 million barrels a day let alone projected demand growth to well over 100 million barrels a day. If we had two decades plus better information driving a firm commitment to change, my confidence level would rise substantially. Short of those circumstances, I don’t believe our current level of movement toward change will be sufficient to avoid a major if not massive economic impact.Here is a question that should be asked:If you buy into the perspective of the silver bullet crowd, and it turns out their optimism doesn’t pan out, how might you lose in terms of decisions you make over the next few years? Conversely, if you decide that those warning about peak oil constraints are right that time is probably too short to avert major change, how would that effect your key personal and professional decisions between now and 2010? Q: What are four or five things individuals can do?A: I’m guessing that daily world production of liquid fuels will reach a plateau soon, eventually peaking between 2010 and 2015, and then moving into decline. In planning terms – airports, highways, and other major transportation infrastructure – that’s tomorrow.To help accelerate change in the face of this looming peaking in world oil, individuals can reinvent their buying patterns. They should place a premium on efficiency and durability in everything they buy, especially when making large purchases, and most particularly when buying cars. Tell dealers to call when and only when they have a more efficient vehicle that will provide the required transportation service.Next, individuals can learn enough about our emerging new energy paradigm to challenge their elected officials to change ingrained habits. Changing the process takes time; the best chances for near-term change are at the local, regional and state levels. But without a mutual education process, elected officials will continue coming up with yesterday’s solutions to tomorrow’s problems – a match that simply won’t get the job done. Individuals should plan for a future that gradually supplies them with fewer liquid fuels, and at much higher prices, for the foreseeable future. Businesses heavily reliant on such liquid fuels – especially the tourism industry – need to carefully assess the impacts of that constrained and expensive liquid-fuels future on their expansion plans.Factoring transportation constraints into housing purchase decisions will probably be one of the hardest and last things for people to internalize as they contemplate our changing energy future. Outside factors such as the rate of development of alternative fuels and alternatively-fueled vehicles, the rate of commitment to higher efficiency for gasoline vehicles, the vagaries of the business cycle will impact any individual’s confidence level in their long-term housing decisions. Peak oil may lead to a heavy revision of the real-estate mantra “location, location, location.” Given the looming reality of peak oil, personally I have sincere regrets about building a highly-efficient, off-grid house at nearly 10,000 feet, about 14 miles from the nearest town; I built an award-winning home in a non-sustainable location.