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The Real Energy Crisis

Five years ago we got the energy crisis wrong.  Predictions of peak oil and declining sources of petroleum supply convinced many of an impending geologic and strategic crisis:  the world was physically running out of recoverable oil and the remaining sources of significant supply were declining in number and located in politically unstable areas.  This crisis drove major investment into advanced batteries and electric vehicles, which were seen as the best and most flexible way to substitute other fuels for petroleum.

What many did not anticipate at the time were the great advances being made in petroleum production technology.  For as much as was invested in new battery technology over the past five years, the amount invested in new oil production technology exceeded the investment in batteries many times over.  That investment produced a return.  Today new petroleum production technology, such as fracking and ultra-deep water drilling, appears to have taken the urgency out of the energy crisis, at least as that crisis was originally perceived.  Unconventional crude oil seems plentiful.  It does not appear to be concentrated in a limited number of geographic areas.  Sources of possible supply seem diverse.

Today the crisis of five years ago has given way to complacence and even to energy optimism.  Both presidential campaigns recently assured us that energy independence is virtually around the corner.  All we need to do is drill. 

But while our understanding of the energy crisis five years ago may have been flawed (or more correctly, less than prescient), our appreciation that there was a crisis was not.  We just misunderstood its details.

The real energy crisis is neither a geologic crisis nor a strategic crisis.  The real energy crisis is a slow growth crisis.  Although the oil industry has figured out a way technologically to recover large quantities of unconventional oil, the cost of doing so will be staggering.  Conventional oil, which may cost $4-6 per barrel to lift out of a Saudi Arabian well, may cost more than $100 per barrel to lift out deep water deposits off the coast of Brazil.  And the lift costs will only go up, as each barrel of oil becomes progressively more difficult and expensive to recover.

The result is a hyper-inflation of energy costs, as the fixed, structural cost of petroleum spirals ever higher.  As more and more resources must be invested in petroleum production, fewer and fewer resources will be available for other productive parts of the economy. 

In ordinary markets, the market self-corrects by incenting substitution for a high priced commodity.  But the petroleum market is no ordinary market.  The energy needs of the transportation sector are almost entirely dependent upon petroleum; no easy substitutes are available.  As a consequence, as petroleum costs hyper inflate, the economy will slow as consumers compensate by using less energy.  This lowers demand for oil, which depresses its price, which in turn slows investment in alternate fuel technologies.

The solution is the same one we settled on five years ago:  find a way to substitute different fuels for petroleum in the transportation sector.  Advanced battery technology was then, and it remains today, the best, most flexible and most technologically feasible way to let different fuels substitute for petroleum.  But we must recognize that the nature of the real energy crisis is such that the market alone will not drive transportation sector consumers to substitution.  The real energy crisis will instead impose a vicious cycle of higher structural petroleum costs, slower economic growth and the lack of investment capital for alternate fuel technologies.

Governments around the world must not let that to happen.  They must re-double investments in advanced battery technology, the world’s best chance to reduce its dependence on petroleum for transportation fuel.  They must break the vicious cycle that condemns the world economy to ever slower growth until that dependence is broken.

James Greenberger's picture

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Jessee McBroom's picture
Jessee McBroom on Nov 12, 2012 1:38 pm GMT

Thanks James. This article is a pretty accurate assessment of the previous and current "Energy Crises". I can only add that the contingency plan for Global Warming mitigation also demands we adhere to the pursuit of alternative energy applications for electrical production as well as transportation applications and a curtailment or discontinuation of the use of fossil fuels for these purposes. This sould only serve to strengthen the urge to evolve beyond fossil fuels to meet our energy and transportation needs.

Edward Kerr's picture
Edward Kerr on Nov 12, 2012 2:08 pm GMT

James,

You outline the problem concisely. However, batteries alone will not likely solve all of the difficulties in the transportation side of our energy dilemma. It's true that electric vehicles are a good option for daily short distance travel (work, school, shopping etc...) Long haul travel, trucking, construction equipment and airplanes do not lend themselves well to battery applications. And, of course, there is the issue of atmospheric gas levels that the source of the electricity used to charge batteries entails.(the other side of our energy dilemma)

For long distance travel I believe that algal oil offers the best hope to continue to enjoy the benefits of liquid fuels in a carbon neutral way. Doubters or those with conflicting interests will say it can't be done but I can see no other way for us to move from "ancient sunlight" to "current sunlight" to supply the much needed energy that will allow us to avoid the slow decline that you predict without fowling our nest any further than we already have.

On this veterans day '12

Ed

Michael Berndtson's picture
Michael Berndtson on Nov 12, 2012 2:09 pm GMT

Excellent Post. Unconventional extraction techniques aren't all that new and truly innovative. For instance the DOE looked into hydraulic fracturing for the Marcellus Shale back in the late 1970s/early 1980s during that energy crises. Based on research, pilot testing and initial development, the groundwork was layed for later innovation tweaks and variations on theme. Shale oil and gas sat fairly dormant from about 1985 to 2000, when oil inched down to almost $10 per barrel. The Bush administration came in and oil magically went up in cost as did gas, both reaching respective peaks around 2008. With help from Washington, federal environmental protection laws went under massive political work-arounds so fracking could be implemented at the State level almost at will. Then came magical financing taking a page from the go-go housing market of the 2000s. Followed by sales pitches of 400 to 700 trillion cubic feet of recoverable gas in the Marcellus alone. Only to be followed up by possibly more realistic estimates ranging from 80 to 140 trillion cubic feet. Only if we could harness the energy from financial bubbles.

Ralfy Mann's picture
Ralfy Mann on Nov 12, 2012 4:04 pm GMT

It's a combination of different crises, with some leading to others. We can look at articles like

http://ourfiniteworld.com/2012/10/25/an-economic-theory-of-limited-oil-s...

for some details.

Thus, the geologic crisis is still in place, thus requiring the need for other sources of energy. It's just that economic crisis is masking it.

There's also a transition period for using other energy sources.

http://www.businessinsider.com/131-years-to-replace-oil-2010-11

And this coupled with increasing demand needed to meet growth, lower energy returns from other sources of energy, and an eventual decline in conventional production, will make things more difficult:

http://www.energybulletin.net/stories/2012-10-01/how-much-oil-growth-do-...

Thus, we face the effects of peak oil even before oil production peaks.

 

Paul Ebert's picture
Paul Ebert on Nov 13, 2012 12:20 pm GMT

You said it much more graciously than I was about to do, Energy4All.  Thank you.

Paul Ebert's picture
Paul Ebert on Nov 13, 2012 2:22 pm GMT

Will we know, except in hindsight, when peak oil has occurred?  What is our confidence level that we have not already peaked?

Paul Ebert's picture
Paul Ebert on Nov 13, 2012 2:32 pm GMT

If electrical energy was abundant to the point of essentially being free - a condition for which there is at least one fairly realistic scenario, at least from a technological perspective - we could fabricate all of the fuel needed for transportation in the form of hydrogen or less carbon neutral forms such as methane.

Edward Kerr's picture
Edward Kerr on Nov 13, 2012 3:40 pm GMT

Paul,

You're correct in that claim but the first word is the fly in the ointment> If....Electricity is abundant but certainly not free. In fact, because of the exigent problems with burning fossil fuels, it's a lot more expensive that most people realize. When the atmospheric repercussions fully hit us the cost of our present energy paradigm will have a cost that no one will want to or be able to pay.

Hydrogen is the optimal fuel if it can be stored and used in a safe way. It is, as you know, highly volatile and explosions have taken lives in the past. It would require a complete retooling of our transportation system. Methane would also require a less complete retooling but a retooling none the less.

The reason that I like algal oil is that it is carbon neutral and is a "drop in" fuel to our present system with all of the ease and benefits of fossil oil. Of the three fuels here it will be the easiest to ramp out.

Regards,

Ed

Spec Lawyer's picture
Spec Lawyer on Nov 13, 2012 11:50 pm GMT

I concur strongly.   The current weak sales of Nissan Leafs and OK sales of the Chevy Volt do not indicate a failure.  The electrified vehicle market is just going to take off a little slower than many would like.  But the fundamental of high priced oil that is going to continue going up in price has not gone away.  We are merely on a plateau supported by new oil supplies that have only been made available due to higher oil prices.  The days of $2/gallon gasoline are gone forever (unless we have another major financial meltdown).  We need to continue to work on how we will transition away from oil based vehicles.

The current plateau of oil prices is NOT a reason to give up on our efforts. It is temporary at best.  In the long term, the price of oil will continue its march higher as the old easy oil fields deplete and the demand from China and other developing nations grow.  

Spec Lawyer's picture
Spec Lawyer on Nov 13, 2012 11:56 pm GMT

Edward, you are quite correct that long haul transportation & aviation do lend themselves to battery-based solutions.   But every new electrified light-duty vehicle that replaces an oil-based light-duty vehicle frees up more oil for those long haul transportation & aviation applications.  

We are not running out of oil any time soon . . . but it will become more difficult to extract and in more demand such that only those activities that really require oil will out-bid other uses.

Nathan Wilson's picture
Nathan Wilson on Nov 14, 2012 3:52 am GMT

James, you've done a great job articulating the problem, but there are other solutions which are better suited to the 70-95% of the transportation industry that will not willingly switch to high-cost/limited-range battery powered vehicles (cars with long range, trucks, trains, boats, earth-moving equipment, and stationary off-grid generators). 

Compressed natural gas (cng), methanol (made from biomass, coal, or imported as a natural gas product), and ammonia (made from any energy source) are all viable transportation fuels.  The only things preventing their use are infrastructure rollout and availability of automobiles purpose-built with extra large fuel tank capacity.  We can conquer both of these impediments using less national will than it takes to fight an oil war.

Ammonia vehicles are our best hope for carbon-free personal transportation.  Ammonia is the only practical fuel which can be made from coal, gas, or biomass with supply-side carbon capture and the technology exists today.  Because ammonia contains only nitrogen and hydrogen, it will probably always be the cheapest fuel that can be made from solar, wind, or nuclear power (capturing CO2 from the air to make hydrocarbon fuel will certainly increase the cost).  When ammonia is made from solar power, the energy yield per acre is 40x higher than for biofuel (wind yields 6x more than biofuel) and the water use can be orders of magnitude lower than with biofuel, so the technology is much more scalable, without impacting food production.   Like methanol and diesel, tolerance for higher compression ratios allows ammonia powered internal combustion engines to achieve higher efficiency than gas engines.

In short, ammonia can fulfill the hydrogen economy dream, without the prohibitively high cost of fuel cells and the problems of hydrogen storage and transport.

http://nh3fuelassociation.org/

Rick Engebretson's picture
Rick Engebretson on Nov 14, 2012 12:25 pm GMT

Our public dialog has been crippled by excessive claims.

We were going to grow corn everywhere, forever, and fuel and food for everybody. We were all going to own big houses, worth more every year. We were going to fight wars against evil, and create peace and brotherhood. We were going to give money to the needy to end need. We were going to borrow money to finance growth and reduce debts. We were going to have windmills, solar panels, and batteries everywhere for a "clean energy" solution. And the latest whopper is we will fracture the earth and have abundant oil. Coming soon, tax CO2 and we will save the climate.

If humans ever again rediscover how the earth works to provide food, water, air, energy, shelter, they will learn how insane our public dialog has become.

We needed a stable, growing battery technology infrastructure. But in over-selling yourselves you can't blame public caution.

Paul Ebert's picture
Paul Ebert on Nov 14, 2012 1:05 pm GMT

Very interesting, Nathan.  Thanks for pointing this out.  Yet again, I find myself asking what is keeping this from moving forward?  How can we do a better job of moving these technologies into mainstream use?

James Greenberger's picture
James Greenberger on Nov 14, 2012 4:07 pm GMT

Rick:

Batteries and electric vehicles were not oversold five years ago; the energy environment in which they were expecting to operate was simply misanticipated.  By way of example, the Chevy Volt really is a great car.  It would be a better car if its battery had a higher energy density.  But it is just fine for what most American consumers use a light vehicle to do.  With the price of gasoline at $3.85 per gallon, the Volt is still too expensive for most consumers.  But if gasoline was $12.00 per gallon, consumers' calculation would probably be different and there would be no talk of oversold battery technology. 

Jim

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