Seven Paths to Our Energy Future

How to Navigate Peak Fossil Fuels. . .And Profit

By Chris Nelder
Friday, June 26th, 2009

I have dished out a healthy share of criticism about the paths we are taking into the energy future, so perhaps it’s time I offered some paths of my own. I will outline them as simply as possible, since the data and thinking behind them could fill a book.

First we must know where we’re going.

Credible models show that by the end of this century, essentially all of the fossil fuels on earth will be consumed—oil, natural gas, and coal. Presumably, whatever fuels do remain at that point will be reserved for their highest and most valuable purposes like making crude oil into plastics and pharmaceuticals, not burning it in 15% efficient internal combustion engines.

Consider the following world model for all fossil fuels:

Source: “Olduvai Revisited 2008,” The Oil Drum, by Luís de Sousa and Euan Mearns. Cumulative peak of fossil fuel energy is 2018. Data sources: Jean Laherrère for natural gas, Energy Watch Group for coal and The Oil Drum for oil. [This is an exceptional study and I recommend it to my readers!]

By the end of this century then, a mere 90 years from now, we’ll need to have an infrastructure that runs exclusively on renewably generated electricity, biofuels, and possibly nuclear energy. That’s where we’re going.

Fortunately, there is more than enough available renewable energy to meet all of our needs, if we can harness it. Unfortunately, we’re starting from a point at which less than 2% of the world’s energy comes from renewables like wind, solar and geothermal.

Hydro provides about 6%, and nuclear about 6%, but for reasons too numerous to get into here, some of which my longtime readers have already heard, I don’t believe either source will increase much in the future, and both could actually decline.

Our challenge then is to make that 2% fraction grow to replace about 86% of the world’s current primary energy, in 90 years or less.

We are currently at peak oil, a short, roughly 5-year plateau which goes into terminal decline around 2012. All fossil fuel energy combined peaks around 2018, less than a decade from now.

All strategies for accommodating the fossil fuel decline require decades to have any significant effect. The now-iconic study “Peaking of World Oil Production: Impacts, Mitigation, & Risk Management” (Hirsch et al., 2005) demonstrated that it would take at least 20 years of intensive, crash-program mitigation efforts to meet the peak oil challenge gracefully. Another study, “Primary Energy Substitution Models: On the Interaction between Energy and Society,” (C. Marchetti, 1977) showed that it generally takes decades to substitute one form of primary energy for another, and 100 years for a given source of energy to achieve 50% market penetration.

Therefore, we are going to have to accomplish most of the renewable energy revolution in a scenario of ever-declining fuel supply. In just 50 years, we’ll be working with about half our current energy budget. So in fact we may only have about 50 years to build most of the new renewable energy and efficiency capacity we will need to get us through the end of the century.

Another important factor is that exports will fall off much faster than total supply. (See my article on the oil export crisis from last year.) Foucher and Brown (2008) have shown that the world’s top five oil exporters could approach zero net oil exports by around 2031. Net energy importers like the US could be increasingly starved for fuel as decline sets in and accelerates, and net energy exporters could wind up shouldering much of the burden of new manufacturing. This factor means that we will have to front-load as much of our development as possible.

The final and most important factor is population. The few population models that actually take fossil fuel depletion into account assume that global population increases roughly out to the global fuel peak, and then stabilizes at that level or declines naturally while economic development promotes lower fertility rates and renewables and energy efficiency increase to fill the gap of declining fossil energy. I understand why this assumption is made—because the alternative is too ghastly to contemplate—and for the immediate purpose of this article I will go along with it. I will note however that history and scientific observation of populations suggest some sharp episodes of decline are more likely, and in my estimation we will end this century with a considerably smaller population than anyone forecasts, at some level well below today’s.

How, then, can we replace or offset through efficiency at least 40% of our current energy supply with renewables in the next 50 years, while fuel prices are rising and the global economy is flat or shrinking due to a lack of fuel?

Seven Paths to Our Energy Future

A proper model for achieving this goal would be a very large undertaking, the sort of thing that should be done by a team of experts with a budget. (Is anybody at the Department of Energy listening?) But I can identify some key pathways that are, in my estimation, no-brainers. Because the solutions going forward will be quite different for each country, I will limit my recommendations to the US.

1: Rail. Rail should be Priority 1, and should be granted the largest portion of public funding. We should begin as quickly as possible with light urban rail, and work over the next 40 years to build a comprehensive high-speed long-distance rail system.

Rail is by far the most efficient form of overland transportation we know, and moving people out of their cars and freight off the roads will yield real and immediate savings in liquid fuel consumption. Not only will this help alleviate America’s need for rapidly declining oil exports, it is a proven, fairly low-tech, sustainable and workable solution that would allow renewably generated electricity to be phased in over time with minimal disruption.

2: Rooftop Solar PV. Utility scale projects like giant solar farms in the desert and giant wind farms in the Midwest (or offshore) all face serious hurdles in siting, permitting, environmental impact, and transmission capability. Rooftop photovoltaic (PV) solar systems face no such issues and can be deployed right now, building capacity incrementally over time. PV has been proven in the field commercially for over 30 years and, speaking as a former residential and small commercial solar designer, I know that it can provide 50-100% of the needs of most small buildings.

Rooftop PV also has a capital advantage. Whereas utility-scale solar and wind projects need to secure large power purchase agreements in order to raise enormous amounts of capital that will be tied up for decades, small rooftop PV systems are purchased outright by the end-users, assisted by ratepayer-funded incentive systems. Simply getting projects done is considerably easier.

From a funding perspective, rooftop PV is arguably one of the easiest sources we can develop, and options are proliferating. Cities like Berkeley and San Jose are offering municipal bonds to finance local projects, which keeps the financing small, local, and low-risk. Third-party financing companies are springing up all over the country, making it possible for home and business owners to put solar on their roofs with no out-of-pocket expenses and pay them off at the same rates or less than they’re already paying to utilities, with nearly zero risk to all parties. End-users enjoy an additional benefit of having a known, fixed cost for their future power, even as fossil fuel prices skyrocket.

Another very important advantage is that rooftop PV is distributed, which contributes to the resiliency and robustness of the grid. In most modern neighborhoods, no grid upgrading is needed to support rooftop solar systems. More distributed power generation also means fewer points of failure: a cloud over here is compensated by clear sky one mile away. It also enables micro-islanding, which would allow most of the grid to stay up when there is an outage, instead of taking vast chunks of the country’s grid down along with it as we have seen in the recent past.

Utilities also win with rooftop PV, because it means they don’t have to spend an enormous amount of effort and money in search of enough clean, green kilowatt-hours to meet their renewable portfolio standards, nor spend it on beefing up their grids. It essentially costs utilities zero to take up energy produced this way; in fact it can be a net benefit to them because the homeowner ends up paying for the new smart meters they plan to deploy across their grids anyway (at a cost of tens of millions of dollars).

Feed-in tariffs (FiTs) that pay a premium for kilowatt-hours generated by rooftop PV have been employed with great and immediate success in Germany and Japan, to the point where both programs will be largely phased out within the first decade. Support for a national FiT in the US is still weak, but I believe it could become a reality if the public were educated about the success it has enjoyed elsewhere in the world.

3: Alternative Vehicles. Since reconfiguring our urban topology around transit and deploying light rail will take decades, we will need some transitional solutions that still allow us to get around in cars for a good many years. All-electric and plug-in hybrid electric vehicles are a two-fer: They can take advantage of growing renewable electricity supply, and they can function as a giant, distributed battery for intermittent renewable sources using vehicle-to-grid (V2G) technology. In time, V2G could provide the final link that allows renewable energy to fully displace fossil fuels.

We will need to begin building the electric vehicle charging infrastructure as quickly as possible to accommodate these new vehicles, but it needn’t be any more complicated than deploying a new row of parking meters. This I think is a good and proper use of public funding. The automakers themselves should be able to find adequate funding via the private sector, with perhaps a modicum of federal support for research to jump start next-generation development of batteries and propulsion systems.

Compressed natural gas vehicles are another transitional solution that would take advantage of domestic gas supply while cutting demand for imported crude.

Biofuels may also play a role, although I continue to be skeptical about how much they can truly achieve once net energy (EROI) and food-vs.-fuel tradeoffs are taken into account. Corn ethanol fails these tests, but to the extent that cellulosic biofuels pass them, they could take a substantial bite out of our demand for petroleum. Still, it will take a decade or more to scale it up to significant levels.

Before the global economic downturn, our replacement rate was about 14 million new cars and light trucks per year. We have about 250 million such vehicles now. At that rate (we’re well down from it now), it would take 18 years to replace the fleet, but we probably won’t maintain that rate while the economy shrinks and fuel prices rise. Therefore we should concentrate on a rapid, near term deployment of alternative vehicles, before it gets prohibitively expensive and difficult to do so, even if they wind up having all the sex appeal of a mass produced WWII Jeep.

Ideally, we will only have to replace a fraction of the current fleet, with the rest of the traffic having been moved to rail.

4: Efficiency. Most of the efficiency gains we can make are thermal: reducing the energy it takes to heat and cool buildings. These gains ultimately translate into less coal and natural gas demand, so they will do little to reduce our demand for oil, which must be our first priority. In the long run however, efficiency must make up for any shortfall in renewable energy production, so it must be pursued continually over many decades.

More efficient regular gasoline and diesel vehicles also belong in this category, and may reduce our dependence on oil if they are sufficiently efficient and the gains aren’t nullified by the Jevons paradox. In my view, anything under 25 MPG is simply pathetic at this point, and undeserving of any federal support. Incentives for more efficient ICE vehicles should be geared to produce the greatest possible gains in fuel economy, not the watered-down “Cash for Clunkers” bill we got, which will ensure another several years’ worth of inefficient SUV production.

5: Utility Scale Renewables. Rooftop PV may be able to fill the short-term supply gap if aggressively pursued, but in the long term we’ll need every renewable kilowatt-hour we can get. We’ll need large solar plants across the Southwest, and huge wind farms in the Midwest and offshore. Geothermal and marine power can also make major contributions in time, but they’re babies now, and will need public guarantees and funding to reach the level where they are commercially viable technologies.

6: A Beefier, Smarter Grid. In order to carry all the new renewable power, we’re going to need a bigger, more resilient, and smarter grid. The good news is that we already have most of the technologies we need in this area. All that we lack is the will and the funding to put it in place. In the same way that it took federal funding and initiative to create the interstate highway system, the grid will also probably need to be nationalized and its enhancement funded publicly in order to meet this challenge.

A key element of the new grid will be long-distance high-voltage direct current (HVDC) power lines to transmit the power from the large utility scale projects to the cities where it’s needed. This must be on the short- to medium-term agenda since it must be ready to take on real capacity within 20 years and be nearly full-blown within 40 years.

7: Keep Drilling. If we back off too much too soon from oil and gas production, it could leave us without adequate or reasonably priced fuel to accomplish this transformation, and sink the entire effort. I think we’ll need as much oil and gas (and to a lesser extent, coal) as we can possibly produce in order to pull it off. Just imagine how difficult it will be to produce a solar panel or a large wind turbine using only renewably generated electricity to mine the raw ores, crush them, transport them, smelt them down and turn them into stock, transport them again and turn them into end-products, then transport them a final time and install them. I think it’s safe to say that we have no idea how to do all that without liquid petroleum fuels.

The twilight years of hydrocarbon fuels are essentially upon us, but we’ll need them more than ever as they peak out and decline. We will have to keep drilling, and the oil business will have to be able to turn a fair profit.

At the same time, I have long maintained that after a nearly a century of commercial operation, the petroleum businesses should be able to get by on its own, without public subsidies of any kind. If that means the price of fuels goes up, then so be it. We’re going to have to start paying a fair value for those finite, rapidly disappearing resources some day, and price increases will only encourage efficiency and alternatives.

Just Do It

Turning these conceptual pathways into action will not be easy, and we may be forced into action before we have perfect clarity about where we’re going and what it’s all going to cost. Yet I have no doubt that if we move on these seven pathways as quickly as possible, we will make progress in the right direction. There will be time to fine-tune it later.

Over the long term, the economics of energy are clearly in favor of renewables. The costs of producing and burning fossil fuels can only increase, and the costs of renewable energy will fall for decades before stabilizing.

Finding the money to rebuild so much of our infrastructure will no doubt be a challenge. But if we’re willing to put a $2.5 trillion debt burden on the future to bail out the financial system, and untold trillions more to provide military protection for the oil resources that remain, perhaps it’s just a question of priorities. I have no doubt that the money would be better spent on building an energy infrastructure that will actually sustain us.

The successful pathways are the profitable pathways. Think rail, small solar PV, alt vehicles, efficiency, utility renewables, grid, and drill, baby, drill.

Until next time,

Chris

Related Articles

A related post by Hall’s graduate student (and all around great guy) David Murphy on The Oil Drum this week is also worth a read: “The Net Hubbert Curve: What Does It Mean?“

Have We Reached an Inflection Point in Economics History?

“Indeflation” and Energy

By Chris Nelder
Monday, June 22nd, 2009

A fierce debate now rages among economists, investors, pundits and the puppetmasters of fiscal policy: What’s next, inflation or deflation?

Has the most massive money-printing spree in history successfully stimulated the global economy and put it back on an upward course with rising inflation? Or are we still in a global downturn, temporarily masked by the stimulus, with prices, wages and employment still falling?

A comforting 30% gain in the major stock market indexes since the March lows has given renewed confidence to the “green shoots” trumpeters who dominate the airwaves and the press.

But grayer and wiser heads in the investing community—like Dave Rosenberg, John Mauldin, Nouriel Roubini, Gary Shilling, Peter Schiff, and Dave Cohen—have a more bearish view. The financial sector must now deleverage, they argue, which means liquidating assets, repaying debt, saving instead of borrowing, and contracting in general. In their view, the process will take years, not months, and what we have seen since March is a classic bear market rally.

Consider the data Rosenberg offered in a commentary last week in support of his deflationary thesis:

• Residential real estate still sports a 12-month supply of unsold inventory, and housing starts have staged a very weak recovery this spring.
• Every major industry posted a decline in May. Industrial production had its seventh decline in a row in May, to a level last seen 11 years ago. The Institute of Supply Management (ISM) index, a measure of manufacturing activity and a proxy for tech spending, is still falling.
• Employment slid in May to greater depths than were seen in the last two recessions, and “real organic personal income” fell for the second time in the last three months. Ultimately, recessions don’t end without rising employment, meaning consumers with money to spend.
• Prices are generally still falling. The Producer Price Index (PPI), used to evaluate wholesale price levels, is down 37% year-over-year “to a 50-year deflation low of -5.0.”

There are other signs that this spring’s green shoots may be browning. The Consumer Price Index (CPI), the Labor Department’s key measure of inflation, has fallen 1.3% over the past year, the largest decline in nearly 60 years, mainly due to the 27.3% crash of the energy index component.

Meanwhile, the consumer remains beaten and bruised. As my colleague Steve Christ pointed out last week, U.S. household net worth fell by $1.3 trillion in the first quarter, and household wealth is down 21.6% from its 2007 peak. Commercial real estate is contracting painfully, with prices plunging and vacancies and defaults soaring. Meanwhile, consumer credit defaults are still rising, even as rising interest rates have snuffed out the resurgence in home-buying.

Liquidity in the credit markets remains a problem as well. Banks simply aren’t lending out the Fed’s forced injection of fantasy capital. Indeed, they are entirely intent on paying it back as quickly as the Fed will let them, on the heels of secondary stock offerings and other measures they have taken to raise capital and reduce their exposure. (For a personal anecdote, I called Discover two weeks to take advantage of a recent 1.8% promotional offer on balance transfers they had sent me, and was told that they aren’t accepting any more balance transfers right now, from anybody, period.)

On the whole, I think the case for deflation and contraction is well made.

Commodity Inflation

At the same time, food and energy prices have been rising rapidly. Oil has rocketed from the low $40s to the low $70s in just four months, a roughly 71% gain. Soybeans rose about 50% over the same period, with most other grains gaining similarly. Normally, this would suggest inflationary fears, and indeed it has apparently drawn hedge fund money off the sidelines, out of bonds, and back into energy and commodities. (Energy analyst Dave Cohen did a great study of speculation in the current commodity cycle last week in “Bad Signs, New Bubbles.”)

I don’t want to make too much of the commodity resurgence, however. The market continues to price oil inversely to the dollar, and the dollar’s fall has been echoed almost perfectly by oil prices:

The dollar’s decline can be viewed as the proper result of printing trillions of dollars out of thin air, without new assets to back it—the inflationary thesis.

Indeflation

On the whole this year is looking a great deal like last year across the energy and commodities sector, with the same sort of inflation. But there is an important difference this year: The economy and the consumer are sick, very sick. Gasoline at $3 was a nuisance last year, but this year it really hurts.

Perhaps we should be zooming out on this picture, and considering the affordability of oil. Consider this 60-year chart from the blog of “Mr. Excessive,” which tells quite a different story:

The affordability of oil, as measured by the S&P500, peaked in 1999, and has been in decline ever since. Oil prices began rising sharply at that time, as the early effects of peak oil began to be seen. Global conventional oil production has been flat since 2005, despite a tripling of prices.

So is it inflation or deflation?

My pal Gregor Macdonald argued this question elegantly on his blog in April, and in a recent conversation asserted, I think rightly, that it’s not an either-or question. In fact, we’re seeing inflation (of prices) and deflation (of assets) simultaneously. Investor guru Doug Fabian has termed this “indeflation” and Izabella Kaminska of FT Alphaville has called it “compartflation.”

Instead of just looking at the dollar and inflation, we should consider that, as former International Petroleum Exchange head Chris Cook argued on The Oil Drum, energy is the only real currency. Our fiat money is but a distorted representation of it, and that energy is declining in real terms as oil, natural gas, and coal all become progressively harder to extract and of lower energy content.

Are We At An Inflection Point?

We now appear to be bumping our heads against an invisible ceiling, where the decline in real energy meets our pain tolerance for high prices. When gasoline hit $4 last year, it created real demand destruction because people simply couldn’t afford it with their evaporating dollars. Likewise, the spike in natural gas and coal prices ultimately translated into such high prices for basic building materials like cement and steel that demand was curtailed.

It now seems possible that we have reached an inflection point in economic history, where the price at which energy is high enough to sustain new production is the same price at which things become too expensive, leaving us no option but to downsize.

Academics including Charles Hall, Cutler Cleveland, and Howard Odum have explored the relationship between primary energy and economic growth exhaustively. Hall and his graduate student David Murphy graphically depict where we are now as follows:

Source: Murphy, D. and C. A. S. Hall (in press). “Year in Review – EROI or Energy Return On (Energy) Invested.” Ecological Economics

Until we understand this key point, we are going to continue to go through wrenching cycles like we experienced over the last year. Spiking energy and commodity prices lead to destruction of the economy, which then gathers itself at a lower overall level until prices spike again, and back around the wheel we go. As energy declines, the ceiling will get lower and lower, and it will take more and more money to buy the same things.

No amount of tinkering with monetary policy can change that. Unlike money, Btus can’t be printed out of thin air.

Unfortunately, neither the Fed nor Congress seems to have learned this lesson.

The Fed still thinks that tweaking interest rates, buying bonds, forcing banks to keep the fantasy money, hiding the stress test results and the like can somehow ease us into a manageable recovery.

A few bright bulbs in Congress suggested last week that we exchange 70 million barrels of light sweet crude oil from the Strategic Petroleum Reserve (SPR) for an equivalent amount of lesser quality heavy sour crude, in an effort to dampen oil prices. Aside from being a fundamentally bad idea, I continue to believe such a move would be utterly ineffectual. The maximum official rate at which the SPR can be drawn down is four million barrels per day, but I suspect the actual rate would be far lower. In any case, the price difference between the two grades of oil is fairly small, and the value of the swap would virtually disappear within a flow of 84 million barrels a day of globally priced oil.

The other bit of new legislation, a “Cash for Clunkers” bill that passed last week, also appears to be completely toothless. I supported the idea until I learned the anemic requirements of this bill, which would offer $3,500 vouchers for a mere 2 mpg gain in fuel economy for light trucks and SUVs, and $4,500 for a 5 mpg improvement. Cars would only need to gain 4 to 10 mpg to qualify.

Suffice to say that I still have very low expectations that our national leadership will offer any tangible, effective methods to significantly reduce our consumption of petroleum. I certainly do not see them coming to grips with the near-certainty that by 2012, the world’s oil supply will go into terminal and relentless decline.

Looking internationally, finance ministers for the Group of Eight (G8) expressed concern over the influx of capital into the commodity sector after their meeting last weekend. In a communiqué, the group stated, “Excess volatility of commodity prices poses risks to growth. We will consider ways to improve the functioning and transparency of global commodity markets, including considering IOSCO [the International Organisation of Securities Commissions] work on commodity derivative markets.” Ministers have asked the International Monetary Fund (IMF) and the International Energy Agency (IEA) to suggest new ways to monitor and regulate the oil markets, in an effort to limit speculation and dampen future volatility.

If done very carefully, such an effort could moderate the boom-bust cycles ahead, and give the world a crucial measure of slack in which we can sustain the long term investment horizon needed to transition to a renewable energy infrastructure. If done hastily or badly, it could starve the energy markets of capital, or cause unintended and probably worse effects.

I think that as it is now constituted, the market is inadequately equipped to face this inflection point of indeflation, and history is no longer a useful guide. We’re entering uncharted territory while the risk of peak oil is still priced at approximately zero.

So what does all this mean for investors?

First, it means long-term investing in a diversified portfolio of stocks is probably not going to be a good strategy for a long time to come (if ever); it’s time to play defense and look for low-risk yield. Second, it means that investing in oil and commodities will continue to be the name of the game for many years, but investors must watch the signs I have identified here carefully to know when it’s time to dive in and time to jump out as we churn through these cycles under a dropping ceiling. And third, it means that we all need to learn to live at a lower level, eliminate debt, build savings, and buckle up for a long and bumpy ride.

Until next time,

Chris

Arctic Oil and Gas Challenges

Who Will Win the Race to Develop the Arctic?

By Chris Nelder
Friday, June 12th, 2009

Arctic Oil and Gas Potential

Is There A Bonanza Waiting At the North Pole?

By Chris Nelder
Friday, June 5th, 2009

The Arctic Circle, which circumscribes about 6% of the earth’s total surface, is one of the last regions of any significant size to be explored for oil, and for good reason: It’s locked in ice for much of the year, far from support and distribution lines, and is one of the most extreme environments on earth. Whatever oil and gas is extracted from the top cap of our planet will be the most expensive and difficult oil ever produced.

Yet the prospect of new oil production from the Arctic is attracting renewed attention as the world becomes increasingly cognizant of the end of cheap, easy oil, and the security and economic risks associated with the expensive, difficult oil that remains. Exploration opportunities are diminishing every year, as the world continues its 40+-year-long slide down the backside of the exploration bell curve.

With global warming causing the polar ice pack to break up and retreat, it has become possible to sail ships through the Northwest Passage for the first time in recorded human history. (When it was last open is not known, but it could have as recently as the Medieval Warm Period from 1000-1300 AD, when Norse and Icelandic explorers settled Greenland, or distant as the last inter-glacial period, 120,000 years ago.) Thus it now seems at least physically possible to tap the fossil fuel resources of the Arctic.

More specifically, the focus now is upon offshore resources in the Arctic Circle, in continental shelves under less than 500 meters of water. Onshore areas in the region have already been explored, with some 40 billion barrels of oil (BBO), 1136 trillion cubic feet (TCF) of natural gas, and 8 billion barrels of natural gas liquids having been developed, primarily in the West Siberian Basin of Russia and on the North Slope of Alaska. Deepwater basins in the Arctic Circle are considered weak prospects as they lack the appropriate source rock structures.

The important question now is: How much remains to be discovered up there?

In an effort to answer this question, the United States Geological Survey (USGS) in cooperation with an international group of geological experts from Canada, Demark, Greenland, Norway, Russia, and other governmental agencies has just completed an effort to round up the available data on the Arctic region and assess its potential, known as the Circum-Arctic Resource Appraisal (CARA). Their summary report, “Assessment of Undiscovered Oil and Gas in the Arctic,” was released last week.

Much of the area is as yet unexplored, so an innovative approach to assessing the area and extrapolating from the limited data available was required. In order to have some way of evaluating the “very sparse geological data” on the area, the evaluators used “analogs” from the real world as comparison samples.

The team divided the area into 69 Assessment Units (AUs) that contained at least 3 km of sedimentary rock, since such source rocks are where the vast majority of oil is found. It limited its assessment to resources thought to contain at least 50 million barrels of oil, or 300 billion cubic feet of gas (50 million barrels of oil equivalent, or MMBOE). According to the report, fields larger than 50 MMBO make up more than 95% of the world’s known oil and gas resources by volume, so the limit gives us a good approximation without pretending to more detailed understanding than is warranted by the data. It also considered only conventional oil resources, excluding unconventional resources such as coal bed methane, gas hydrates, oil shales, heavy oil and so on.

Most importantly, it presented its results “without reference to costs of exploration and development.”

Maps of the resources reveal their uneven distributions: Sixty percent of the oil is concentrated in just six AUs, predominately in Alaska, and two-thirds of the undiscovered gas is in just four AUs, predominately in Russia.

Figure 1: CARA Assessment of “Mean Estimated Undiscovered Oil” in Arctic Circle
Source: “Assessment of Undiscovered Oil and Gas in the Arctic,” Gautier et al., Science, May 2009.

Figure 2: CARA Assessment of “Mean Estimated Undiscovered Gas” in Arctic Circle
Source: “Assessment of Undiscovered Oil and Gas in the Arctic,” Gautier et al., Science, May 2009.

A range of probabilistic estimates were developed for the assessment units, which were then aggregated into the summary report. Estimates of undiscovered resources are customarily stated in terms of a range of probabilities. The median, P50 estimates (50% probability) are usually reported in the press, but they’re often shown to be optimistic once a given resource is produced.

The USGS report estimates undiscovered Arctic oil and gas resources as follows:

Interestingly, an analysis by respected petroleum geologist Jean Laherrère in March 2008 on The Oil Drum estimated that the Arctic would contain 50 billion barrels of oil and 1000 TCF of gas, putting his estimates just above the P95 estimates offered by the USGS. Laherrère is one of the fathers of the modern peak oil study, a man with deep experience in the global oil and gas exploration and production industry, and his estimates are usually quite accurate.

To give a sense of scale to these numbers, world oil consumption is around 30 billion barrels per year, and world gas consumption is about 110 TCF per year. So the Arctic may contain anywhere from a 1-3 year supply of oil and a 7-27 year supply of gas.

However, these are merely estimates of “original oil and gas in place.” Typically, only 25-35% of that amount is economically recoverable using current technology. So the Arctic may in fact have perhaps a 4-month world supply of recoverable oil, and around a 2-year supply of gas.

In reality of course, the resources wouldn’t be found or produced all at once, but rather in chunks, over time, and would have far greater implications for the nations that lay claim to it (for example, Greenland) than for the world as a whole. “With respect to oil, there’s nothing that we see in the Arctic that suggests this preeminence of oil within and around the Gulf states would be significantly shifted,” said geologist Donald Gautier, lead author of the survey.

Given the scarcity of actual drilling data and the reliance on analogs and statistical simulation for this survey, our understanding of the Arctic’s hydrocarbon potential will no doubt evolve as fresh prospecting gets under way. In terms of the all-important production rate however, it seems safe to assume that although the Arctic’s resources will be most welcome to the nations that possess them, they will amount to little more than a trickle of very expensive hydrocarbons within the context of enormous world demand.

Exploration and development of oil and gas from the Arctic Circle is a foregone conclusion. The world simply needs hydrocarbons too much, and the remaining prospects are few. But to exploit it will require technologies that don’t yet exist, enormous amounts of capital, and a high tolerance for risk. In other words, the price of oil will have to be high, and stay high, to make the effort worthwhile.

Next week we’ll take a look at some of the companies that are working to explore and develop the Arctic, and the cutting-edge technologies they are developing.

Until next time,

Chris

Oil Implications for Cleantech Investors

What Cleantech Investors Need to Know About Oil Prices

By Chris Nelder
Wednesday, May 27th, 2009

The price of oil is set daily and globally by a complex interaction of many factors, including supply and demand, relative valuations of currency, speculation in oil futures, delayed feedback loops, economic growth rates, money flows of large investors, geological factors, geopolitics, and many more.

Oil shot to $147 in 2008 because of a particular highly leveraged alchemy of those factors, and it fell to the low $40s today as the leverage unwound and global recession took its toll on demand. Such volatility makes for an extremely cloudy investment outlook, particularly when the investment horizon is measured in decades. That volatility is likely to increase in the coming years.

In order for cleantech investors to succeed then, they must have a deep and rigorous understanding of these factors and be able to anticipate oil prices.

Here are a few essential clues to reading the oil markets. (See also my article of last week, “Updated Oil Price Outlook.”)

Global Oil Production Has Peaked

The rate of global conventional crude oil production has been stuck at roughly 74 million barrels per day (mbpd) since 2005, despite a tripling of oil prices over that period, ending oil’s long history of supply growth. This is predicted by peak oil models, which describe how oil production grows, peaks, and then falls in a rough bell curve shape for any given oil producing region. All increases in “oil” supply since 2005 have come not from regular conventional crude, but from unconventional liquids such as heavy and deepwater oil, oil sands, natural gas liquids, and biofuels, bringing the world supply of “all liquids” to between roughly 84 and 86 mbpd since 2005 (Energy Information Administration, April 2009 International Petroleum Monthly).

Figure 1: World Oil and Gas Production Profiles, 2008 Base Case
Source: Colin Campbell, ASPO Newsletter No. 96, Dec. 2008

A close study of the all liquids peak reveals a bumpy plateau from roughly 2005-2012, after which oil production will go into terminal decline. The absolute peak will likely prove to have been July, 2008.

The International Energy Agency (IEA) projects that under normal circumstances with regular maintenance and investment, simple depletion of mature fields will cut about 5% from the global supply each year, which is far in excess of what new oil projects may hope to offset.

While the world is certainly not “running out of oil,” since nearly half of it is yet to produce, the world has definitely run out of cheap and easy oil. From now on the oil we produce will be progressively harder to get, and more expensive. This point has been emphasized in recent years by the CEOs of nearly all major oil companies, as well as the major oil data providers like EIA and IEA.

Production Cost

The cost of producing oil varies widely between under $20 for old projects in Saudi Arabia, to $100 and up for sources like oil sands and shale. The global average cost of a new barrel of oil production capacity has been estimated at between $60-80.

Figure 2: Oil Production Costs
Source: Cambridge Energy Research Associates

The domestic budgetary needs of producers also play a role, with OPEC producers needing at least $50-60 oil, and Russia needing $70.

Future production costs will be even higher. Credible experts maintain that oil will have to remain above $100/bbl before investors will commit to the expensive and risky marginal projects that will deliver the oil we need over the next several decades.

Figure 3: Oil Production Costs and WTI Price
Source: CIBC World Markets, StrategEcon Jan 23, 2009

Saudi oil minister Ali al-Naimi has warned that the world needs $75 oil to sustain ongoing investment. Current prices “are wreaking havoc on the industry and threatening current and planned investments,” he said.

With oil selling for half the new production cost, only older conventional fields are currently profitable. Well-capitalized companies like Chevron and Shell can afford to continue investing with such an uncertain horizon, but marginal producers have been forced to lay down their rigs and cut back on development as credit availability fell along with prices.

Consequently, projected new oil production for 2012 and beyond may not materialize, for a lack of investment now. It typically takes 2-10 years for oil production to commence once a project has broken ground.

Under-investment is precisely what the IEA warned about in its World Energy Outlook 2008, in which they said the world would need to invest over $1 trillion dollars per year for the next 22 years just to maintain current supply levels. Under the current credit crunch and low oil prices, that kind of investment is simply not happening. This is likely to accelerate the global decline rate to 9% and above, according to the IEA.

Oil Is Priced At The Margin Of Supply

A thin, roughly 3% margin in spare production capacity is the prime mover of the oil markets. Supply remained flat while demand grew from 2005 through the first half of 2008, driving spare capacity from over 2 mbpd to less than 1 mbpd, which precipitated a spike in oil prices. When demand fell sharply with the global recession, spare production capacity grew to more than 4 mbpd, and prices overshot well below the production cost.

When the global economy recovers, perhaps in the 2010-2011 time frame, spare production capacity will collapse to a thin margin, and prices will spike again. BP Chief Executive Tony Hayward said in November, “Increased demand will stretch the system to its limits, and this will cause another upward spike in the price.”

Table 1: World Oil Supply, Demand and Balance (mbpd)
Source: US Dept of Energy (history), CIBC World Markets (forecast)

Volatility

In the coming decade, we should expect a series of cycles like the one we saw over the last 12 months. As supply remains flat and begins to decline, demand will dictate the price. As global demand increases along with economic recovery, spare production capacity will quickly diminish to almost zero, and prices will spike again, causing demand to crash and prices to fall. As these cycles continue, we may expect volatility to increase.

For cleantech investors, this is both good news and bad news. Poor price visibility will tend to restrict investment capital in the oil patch until such time as the global oil price stabilizes above $70 a barrel. At the same time, the predictability of the renewable energy cost structure will increasingly favor it. For example, investors may come to view a modest 4% return on a third-party solar financing arrangement as a very desirable and stable investment.

For oil investors, current prices are an unquestionable bargain. Oil infrastructure providers and companies with sizable reserves now offer the investment opportunity of a lifetime.

Ultimately, the decline of oil, followed by the peak of natural gas and coal in roughly the 2020 - 2025 time frame, means that renewable energy and energy efficiency technologies probably cannot grow fast enough to fill the gap. Therefore, the growth opportunity for those sectors is essentially unlimited for the foreseeable future.

For detailed data, charts, and analysis on the peaking of fossil fuels and the renewable renaissance, investors may want to explore my exhaustively referenced book, Profit from the Peak (Wiley, 2008). My second book, co-authored with my colleagues Jeff Siegel and Nick Hodge of Green Chip Stocks, is Investing in Renewable Energy (Wiley, 2008) and offers a more detailed focus on renewable energy and cleantech.

Until next time,

Chris

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Joshua Tree National Park: Just a few photos from a quick loop hike and drive through the park and the nearby wind farm. Perhaps I will get around to uploading my large collection of older photos of this magnificent park some time.

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Updated Oil Price Outlook

Weighing The Factors Affecting Oil Prices

By Chris Nelder
Wednesday, May 20th, 2009

Offshore Oil and Gas Technology

Challenges and Solutions for the World’s Most Extreme Projects

By Chris Nelder
Wednesday, May 13th, 2009

The 2009 Offshore Technology Conference (OTC) in Houston sported the most massive exhibit hall I have ever seen, including huge trucks, enormous steel parts weighing many tons, drilling rigs, giant generators and pumps and other assorted gear that makes offshore drilling possible. This week, I take a look at some of this amazing technology.

Greg Evans, “Offshore Eiffel Tower,” Acrylic/Canvas

Reporting from the conference last week, I explained why the oil and gas industry must strive under increasingly challenging conditions to maintain or increase their production rates. The world’s largest, cheapest and easiest to produce resources have been exploited, and the best untapped resources that remain are in extreme places like the frozen Arctic, or under a mile of ocean water, or in marginal formations like shale.

The oil and gas industry is constantly in pursuit of new technologies that will allow them to develop these remaining resources, like horizontal drilling and fracturing, advanced seismic modeling, remotely operated devices, and subsea systems.

Nowhere is the technology more advanced than in deepwater drilling and production, with modern hardware incorporating everything from giant versions of low-tech nuts and bolts to the ultimate in high-tech hardware and software.

Modern Marvels

Consider the hardware I saw on our tour of Cameron International Corp (NYSE: CAM), the world’s top supplier of subsea components. In search of the elusive “unobtanium,” Cameron engineers at the Houston facility perform metallurgical miracles, designing and testing deepwater drilling parts against the most tortuous of conditions—temperatures that fluctuate by 500 degrees, under pressures of up to 30,000 psi (by comparison, your household water supply has about 60 psi)—twisting and bending the steel at up to 5 million foot-pounds of pressure to simulate the real-life conditions of a floating drilling rig, all in an effort to prevent oil spills and blowouts in undersea drilling operations.Everything is double- or quadruple-redundant to guard against dangerous and costly failures.

Their “blowout preventers,” for example, are high-tech marvels, incorporating microprocessors, super high tolerance parts, electric motors, seals and other components in a unit that sits on the seabed under incredible pressure and temperature, waiting to disconnect the wellbore from the production system in seconds without spilling a drop of oil on command from an operator miles away.

Cameron Blow Out Preventer (BOP)

Other Cameron products include “Christmas trees” (stacks of valves and fittings that control the flow of fluids from an oil well and prevent their release into the environment), seals, chokes, compressors, control systems, completion equipment, pipe connections, robotic remotely operated equipment to connect equipment at depths divers can’t reach, and subsea systems that can separate salt, water, and gas from oil all on the seabed. Their equipment is routinely deployed today in water depths of over 7,800 feet. Not surprisingly, one of Cameron’s top customers is one of our long-term favorites, Transocean LTD (NYSE: RIG) the king of offshore drillers.

I got a glimpse of the software end of advanced drilling technology on a tour of Halliburton’s “Real-Time Decision Center and Visualization Center.” As a former software engineer and architect, what I saw their systems do took my breath away. Halliburton (NYSE: HAL) engineers and their customers can now plot and steer the path of a drill bit from a half a world away, coordinate petabytes of data from disparate sources in real-time, collaborate with engineers in far-off locations, and examine 3-D models of the rocks they intend to drill. Such technology has enabled Halliburton to drill seven hits out of nine attempts in the most extreme drilling conditions in the world-an impressive success rate.

Other major industrial companies at the conference like industrial giant FMC Corporation (NYSE: FMC) demonstrated the capabilities of their floating production storage and offloading (FPSO) systems, which enable the development of deepwater fields in places like Brazil and the U.S. Gulf of Mexico. These systems can collect the oil from multiple wells on the seabed, connect their output to a central “manifold” system, do the processing to remove the water and gas, pump the oil to the surface, and load it directly onto tankers.

Outlook Solid

With an uncertain outlook on oil and gas for the next few years, one might think that the purveyors of these high-ticket items would be suffering from falling orders, and to be sure they took their hits along with the rest of the equities market through the end of 2008. But all found their bottoms starting in 2009, and have staged an impressive rally in the last two months as they followed the broader market up:

The fact is that deepwater production is now the name of the game in oil and gas. If we want it, we’re going to have to go there to get it. Oil producers know this and are still pouring billions into its development annually, in the expectation that over the decades that it will take to develop these fields, their investments will pay off handsomely.

In a technical session at the OTC conference, Baker Hughes Inc. (NYSE: BHI) observed that the drop in oil demand in the last big downturn in 1983 was 24% off the peak, whereas demand has only declined 4% in 2009. “The easy oil has been found,” declared BHI CEO Chad Deaton, and when the economy rebounds the supply problem will be more intense than ever. He believes that $100 a barrel pricing is needed to ensure future supply, a point I have emphasized in this column (see “The Sleeping Threat of Low Oil Prices“).

Or, as Karen A. Harbert, the Executive Vice President and Managing Director of the Institute for 21st Century Energy (a department within the U.S. Chamber of Commerce) put it, “We’re going to be wishing for $4 gas if we don’t get our act together.”

The oil and gas industry faces numerous challenges in addition to prices that are too low. For one, a lack of qualified personnel plagues the business from end to end. A majority of the personnel are over 50, followed by a 10-year gap before reaching the next tier of 35-40 year olds who could take their places—the result of a sharp decline in petroleum geology students during the 80s and 90s. Technical, regulatory and political challenges, delivery scheduling issues, and cost control are major hurdles for the industry as well.

Taken together, the picture for offshore oil and gas development is clear: demand will remain high, and the prices for oil and gas will have to rise for the industry to meet it.

In future columns, I’ll share more insights from the OTC conference, including the technical challenges of drilling in the Arctic, the enormous complexity of developing new oil and gas megaprojects costing billions, and some promising new ideas for storing and delivering energy from far-offshore wind farms.

Until next time,

Chris

 
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The Great Divide on Energy Policy

It’s Time for An Honest Dialogue

By Chris Nelder
Thursday, May 7th, 2009

When I accepted the invitation of the American Petroleum Institute (API) to attend the 2009 Offshore Technology Conference (OTC) in Houston on their dime, I couldn’t resist the offer out of sheer curiosity. But I had little notion of how illuminating it would be, on so many levels.

This isn’t your ordinary, bland-slide-decks-with-boring-exhibits conference. It’s the cutting edge of the oil and gas business, or perhaps more accurately, the cutting edge of all industry: offshore, particularly deepwater (over 1000 feet of water) drilling. Giant machines, sprawling constructions of pipe and pumps and electronics and incredibly high-tolerance parts litter the sprawling exhibit hall. The speakers are top executives in the oil and gas industry, and policy leaders on energy and climate change. Some 60,000 people from all over the globe will attend this year’s conference. In short: It’s immense.

I could describe the utterly amazing technology on display here. I could share what I learned about the oil and gas industry’s deep commitment to safety and minimizing its environmental impact. I could inundate you with data and names and affiliations.

But that’s not what the discussion at this conference is about—not from my perspective.

The top issues of the energy industry revolve around policy more than technology. Should we drill ANWR and the Outer Continental Shelf (OCS)? Can we achieve energy independence? How can we grapple with climate change without destroying the economy, and the sources of energy on which we utterly depend? Can renewables supplant fossil fuels?

As critical as these policy debates are, I see little in the way of progress.

An Ironic Debate

I saw a parade of oil industry representatives plead for a transparent and fact-based public dialogue about our energy options for the future. We should step away from the all-or-nothing debate on fossil fuels vs. renewables, they said, stop demonizing any of our potential energy sources, and get serious about addressing our energy problem before it’s too late. As the head of the API said, “The energy issue will intensify until cooler heads prevail,” and the debate desperately needs to be depoliticized.

But in the next breath, apparently unaware of the obvious contradiction in it, I saw those same executives complain bitterly about the policymakers who stand in the way of their progress. I heard them discount the potential of wind and solar to meet our energy needs, while trumpeting the much smaller footprint of modern oil and gas production. I heard overblown claims about how technology will continually increase reserves, and how offshore drilling in America could solve our problems if only they were allowed to do it.

One executive decried the “cheap shots” taken at the oil and gas industry by climate change activists, and then a few moments later mentioned how much he liked a print ad that offered a false choice between offshore drilling and high gasoline prices.

I asked a panel of oil company executives how a potential 2 - 3 million barrels per day (mbpd) of new oil production from the OCS by 2030 (according API and EIA data) would figure against the background of steadily declining North American supply. The only response I received was that 2 mbpd is a lot, we’d be happy to have it, and if we don’t start drilling for it now, we’ll regret it.

I heard not one word suggesting that oil production may have in fact peaked, no mention of decline rates, nor any hint that there might be any limits on supply other than the political will to develop new sources.

The oil and gas industry does acknowledge that the burning of their products probably contributes to climate change. They are resigned to the fact that carbon will soon come with a price, and they are intent on helping to define how that will be done under the rubic that “If you’re not at the table, you’re going to be on the menu.” At the same time, they seem to have a greater appetite for a political approach to the climate change debate than an objective evaluation of the data.

The green side of the debate is, unfortunately, no better. An attendee stood before a panel of major oil company executives and ask how the energy industry could engage more fruitfully with policymakers and the public on climate change, then admitted that she had boycotted a recent local presentation by T. Boone Pickens about his energy plan for the country simply because he was an oil baron. She considered it an act of conscientious objection.

The contradiction of her position apparently escaped her as well, along with the fact that of all the oil barons in America’s history, Boone is arguably the most forward-thinking and realistic, and a major proponent of moving beyond oil. Her story offered a classic demonstration of how too-principled positions on energy so quickly lead to stalemates.

As a longtime advocate for renewable energy and a former solar system designer, I have been to my share of “green” conferences. I have often heard the utterly unrealistic claims of renewable energy advocates, and listened to them vilify the oil industry. They seem to have as little appetite for the facts on fossil fuels as the fossil fuel industry has for objective evaluation of renewables.

So while I agree with the conference speakers who called for a balanced, non-demonizing policy debate, what I see is both sides—the green/climate change side and the fossil fuel side—retreating to their corners, throwing up walls of propaganda, and demonizing the other side.

The middle ground, where truth and progress reside, feels virtually empty.

I am left to ponder, once again, why that is. And once again I come to the conclusion that you can’t make policy without politics. What we have here is simply political maneuvering with each side trying to gain an edge by overstating their positions, in hopes that when the dust settles, they’ll be left holding something. It is most emphatically not a neutral and balanced dialogue.

In fact, there is no dialogue at all. Cleantech people go to cleantech conferences, and oil and gas industry people go to oil and gas conferences, and rarely do the two crowds mix. In the halls of Congress there is much shouting, but little listening. At the end of the day, it is the art of political compromise, not data, which drives policymaking.

The oil and gas industry remains mired in denial about the peak and decline of its products. Renewable advocates are still lost in a dream about quickly replacing fossil fuels with green energy and an infrastructure that runs on it. Climate change concernists continue to pin their hopes on visions that cannot possibly be realized in the time frames they need. No side trusts the other.

Ten Inconvenient Truths

Allow me then to stake out a bit of middle ground, based on what I believe to be the objective facts, in an effort to bring the parties together and perhaps make some actual progress on the policy front.

1. We have extracted nearly all of the world’s easy, cheap oil and gas, and now we’re getting down to the difficult, expensive stuff. The largest untapped resources that remain are in extreme places like deepwater and the Arctic, and marginal formations like shale. As a result, global oil production has for all intents and purposes peaked. Natural gas production will also peak in 10 to 15 years. Neither technology nor high prices will change that. Therefore we must begin to replace those fuels with renewables, and use what remains much more efficiently, with the expectation that most of the world’s oil and gas will be gone by the end of this century.

2. Drilling for oil and gas drilling in the OCS and ANWR must and will be done; our need for those fuels is simply too great to pass them up. An additional 2-3 mbpd will put a dent in the roughly 12 mbpd we now import, but if we drill for it now, it won’t come to market for 10 years or more. By that time, it probably won’t even compensate for the depletion of conventional oil in North America, nor will it do much to reduce prices. But it will be crucially necessary, and producing it won’t make an ugly mess of the environment.

3. Renewables are clearly the long-term answer, as is an all-electric infrastructure that runs on its clean power. However, it will likely take over 30 years for renewables to ramp up from a less than 2% share of primary energy today to 20% or more. They probably won’t even be able to fill the gap created by the decline of fossil fuels. Oil and gas currently provide about 58% of the world’s primary energy, and they will remain our primary fuels for a long time to come.

4. It will take many decades to reconfigure our transportation systems to run on electricity. It will take decades to fix our wasteful, leaky built environment so that it doesn’t need as much energy to begin with. None of the solutions will come quickly or easily.

5. Neither renewables nor fossil fuels nor nuclear power alone can bring “energy independence.” Indeed, if independence means isolating ourselves from the rest of the world’s energy commerce, it might not even be desirable.

6. We must pursue all sources of energy immediately and aggressively if we hope to meet our future needs, and pitting one against another is counterproductive.

7. Nuclear power will not grow significantly in the next several decades, as nearly all of the existing reactors will need to be decommissioned within the next 20 years, and a new generation of reactors must be built to replace them. After we do that, a renaissance for next-generation nuclear energy may be a possibility but it will only happen after we have confronted the crises of peak oil and peak gas. It may produce no net reduction in emissions at all.

8. It is quite possible that even our best efforts on all fronts will not achieve the carbon emission targets we have set. Climate change must be confronted via a unified policy on emissions and energy supply, which is to say that in our zeal to control emissions, we must take care not to squelch the production of the oil and gas that constitutes the majority of our energy supply, at least until we have something to replace it. To do so could have unintended and paradoxical consequences, like impeding the manufacture of renewable energy devices, and contributing to tight supply situations that once again cause fossil fuel prices to skyrocket and further damage the economy. Rather than emphasizing the uncertainty on climate change data, and fomenting fear about the cost of mitigation, all sides must come together in a depoliticized dialogue strictly based on neutral scientific analysis.

9. We should use accurate and unbiased models of the future growth and decline curves of all forms of energy for policymaking—models based on historical data, not faith. If the data says we’re likely to recover another 1.2 trillion barrels of oil worldwide and no more, then we should not assume that future drilling and technological progress will somehow turn that into 3 trillion barrels of recoverable oil.

10. Carbon emissions will soon come with a price. Drilling the remaining prospects for oil and gas will be expensive: From the decision to invest until first oil is produced, it can take 10 years and $100 million dollars to drill the first well in a new deepwater resource, using rigs that cost $1 million a day to run, and the production platform can cost as much as $5 billion. Deploying thousands of wind turbines and square miles of solar will be expensive, slow, and difficult. Replacing millions of inefficient internal combustion engine vehicles with electric and plug-in hybrids will be expensive. Rebuilding the nation’s rail system will be hugely expensive. In short, the good ol’ days of cheap electricity and gasoline are likely gone forever, and all the solutions going forward will be expensive.

I share the industry’s concern about energy illiteracy, but it cuts both ways. It’s true that as long as oil and gas provide the majority of our energy supply, we must continue to invest and drill for it, and the industry must work hard to educate the public and policymakers about that. But to claim that limits on drilling are the only problem, or that renewables cannot provide the energy we need in time, exploits that illiteracy and deliberately confuses the debate.

The fact is that there are good people and good intentions on all sides of the issues, and none of them wants to destroy the environment or the economy.

As I see it, neither the fossil fuel industry nor renewable boosters are yet willing to come out of their corners and work with each other in an honest fashion to develop a truly viable path forward on energy. Until both sides put aside their exaggerated claims and partisan bickering, the public will remain confused about the true options and continue to use politics, not neutral data, as their guide. That cannot produce good policy, and it does all of us a grave disservice.

Such unhelpful contentiousness, denial, and cheating on the numbers is a luxury we can no longer afford. Our energy and climate change problems are real, they’re urgent, and they’re getting more so every day. It’s time to set the tactics of the last war aside, wring politics out of the dialogue, and start grappling in an honest and direct way with real solutions. Nothing else will do.

Next week, I’ll dive back into energy data, and share some observations about the impressive technology and the potential of offshore drilling.

Until next time,

Chris

Postscript

I was among a group of bloggers the API invited to the conference, and it was a pleasure to share some intelligent dialogue with them about energy and politics. If we were running the show, I daresay we’d be making more progress on policy. Most of them write for right-wing political blogs, so I found the conversation more stimulating than I would have had I been talking to an echo chamber of congruent opinion. In particular, I thoroughly enjoyed long chats about energy late into the evenings with energy investing journalist Byron King of Whiskey and Gunpowder and The Daily Reckoning (among others) and the stellar energy analyst Tony “ace” Eriksen of The Oil Drum. Other bloggers in our group included Tim Hurst of Ecopolitology, Bruce McQuain of QandO, Alan Stewart Carl of Donklephant, Jim Hoft of Gateway Pundit, JR Hoeft of Bearing Drift, Joy McCann of Little Miss Atilla, Kevin Holtsberry from RedState, and Nick Loris from The Heritage Foundation’s The Foundry.  If you read the comment threads on their posts linked here, you’ll see ample demonstration of my point: nearly all view the energy and climate change debate through a lens of politics, rather than data or science. Oh well, I can dream…

P.P.S. I don’t know if he read this piece or not (and if he didn’t it’s quite a coincidence) but David MacKay wrote a strikingly similar piece for CNN a week later: Commentary: Let’s Get Real About Alternative Energy, in which he admonished us to understand the “simple arithmetic” of various energy sources and to reorient the public policy debate to one based on data. McKay is a professor of physics at the University of Cambridge and the author of a new book, Sustainable Energy - Without the Hot Air.

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