by Lewis Tagliaferre
Although prices for gasoline have been driven down temporarily by political pressure, the long-term outlook for oil-based products is based on geology that will ultimately drive the future. Use of oil for heating buildings and generating electricity will likely become more problematic with each passing winter. I believe that an ounce of prevention is worth a pound of cure, so perhaps you will agree that the limited time available for intervention should not be wasted.
In a radio commercial I heard recently, Chevron said that the world consumes two barrels of oil for every one being discovered. Common sense would say that this condition cannot go on forever. Oil experts are calling the situation “accelerated depletion.” Despite technological improvements, ultimate recovery from the average new oil field discovered will be less than from the average field discovered previously, according to U.S. government reports. There are options, but many more educated consumers are required to implement them, as well as increased influence by state governments. Understanding oil markets could help apply common sense to the present and, thus, preserve the future health of this economy and the lifestyle it supports. Change happens whether we are ready or not.
New discoveries of huge, easily exploitable oil fields are most likely a thing of the past. “All the easy oil and gas in the world has pretty much been found,” says William J. Cummings, ExxonMobil’s spokesman in Angola. “Now comes the harder work [of] finding and producing oil from more challenging environments and work areas.”
The question of how much oil is left actually breaks down into three risky and uncertain parts:
- How much oil is there in known oilfields (mapped out, proved, and capable of being extracted)?
- How much oil remains to be added from new discoveries and enhanced recovery techniques?
- How fast can the oil be refined and delivered to local fuel tanks?
The fine print in all published figures is laced with disclaimers and uncertainties. Experts suggest that estimates of reserves are being inflated for political motives. A lack of transparency in oil markets and poor-quality information contributes to volatility and uncertainties. While there is debate about the timetable, predictions about world oil production place the peak sometime between now and 2030. After we have hit the structural production peak of oil worldwide, the trajectory of prices will be relentlessly upward, with only temporary respites. The future oil market is highly dependent upon actions mitigating demand taken in the present and unpredictable new technologies. In both, the United States is falling behind.
U.S. annual oil production peaked at about 3.5 billion barrels in 1970-1971, fulfilling a disputed prediction by Shell geophysicist Dr. M. King Hubbert (1903-1989) in 1956. U.S. output has followed his predictions for decline precisely since then, in spite of frenzied attempts opposed by conservationists at exploration offshore and in protected public areas and enhanced recovery technology. He concluded, “When the energy cost of recovering a barrel of oil becomes greater than the energy content of the oil, production will cease no matter what the monetary price may be ... the end of the oil age is in sight.”
Every enhanced production technique invented has been implemented in American oilfields. But, it has all made no difference to the production bell curve calculated by Hubbert. The United States is just about halfway down the second half of the curve now, according to output numbers posted by the Washington, D.C.-based Energy Information Administration (EIA) (http://tonto.eia.doe.gov/dnav/pet/hist/mcrfpus1m.htm). In other words, it may have used up some three-quarters of its original endowment of economically recoverable oil. Now, oil imports amount to about two-thirds of U.S. demand and continue to increase. Domestic gasoline refinery capacity has been exceeded also, so about 13 percent of auto-grade fuel is imported now, too. Switching to new diesel and electric-hybrid, fuel-efficient engines could help reduce that trend, but there are not enough educated consumers to make that happen here ... yet. Diesel-powered autos account for up to 70 percent of sales throughout Europe, but few are available in this country (though more are coming that will meet U.S. clean air standards after 2008).
Increasing oil demand from rapidly growing countries in Asia (including China and India) and the critical political conditions in the Middle East make it extremely likely that demand among Western nations for the remaining oil reserves will become increasingly competitive. But, so long as the nations comprising the Organization of the Petroleum Exporting Countries (OPEC) and their business partners seek to maximize profits, there will be continuing emphasis on use of oil and its derivatives, gasoline, diesel, and jet fuel in personal and commercial transportation. After all, it costs a lot of money to sustain worldwide terrorist organizations and to maintain the lifestyle to which they have become accustomed. This is the first international threat in which we are financing both sides. But, politics being what it is, no one is talking about that.
Although crude oil from Mexico and tar sands in Northwest Canada can be obtained over land, most of it is transported across oceans in giant tankers, which soon could become targets of terrorists. (The Strait of Hormuz, located between Iran and Oman, is by far the world’s most important chokepoint. Nearly one-fourth of the world’s total oil consumption moves out of the Persian Gulf through this strait every day. Closure of the Strait of Hormuz would dramatically affect world oil markets, sending oil prices spiraling and restricting access to oil products to only the wealthiest buyers.)
Squeezing more oil from reluctant wells will require a lot more investment in production infrastructure. Most drilling rigs are more than 30 years old. Goldman Sachs estimates investment will need to be triple the level of the 1990s to sustain production growth (to $1.4 trillion over the next decade), and no one is predicting that because it would require commensurate price increases. Oil producers are feeling squeezed because prices cannot rise much higher without threatening world GDP, and increasing costs could reduce company profits. Key questions are the viability of solutions, the roles of government and the private sector, and how rapidly the switch to new technologies must be in order to maintain the lifestyle of this country. Are you beginning to get the picture?
The alternatives to oil for commercial space heating all are problematic. Increasing U.S. demand for natural gas must be met by more LNG imports as I described earlier. I heard the chairman of Dow Chemical lament recently that 80 new plants will be sited overseas because domestic prices for natural gas have tripled in 5 years. Nuclear power options are accompanied by grave concerns for safety and storage of radioactive waste, so no new nuclear power plants have been approved for 3 decades in the United States. Coal is plentiful, but it raises issues about global warming, and mining it will become increasingly costly to ensure worker safety. Coal-to-liquid (usable in any diesel engine, either in pure form or blended with conventional diesel fuel) methods, proved since the 1920s and used commercially in South Africa, have been proposed, but Congressional action launched by Sen. Dick Lugar (D-IN) to make them happen is languishing. Although other technologies are in the pipeline, oil conservation obviously is the wild card in space heating. That leaves renewables ... yes.
Here, we are talking stuff like hydro, solar, biomass, wind, hydrogen fuel cells, etc. And, that leads to a need for more Renewable Portfolio Standards (RPSs). A renewable energy portfolio standard is a state policy that requires electricity providers to obtain a minimum percentage of their power from renewable energy resources by a certain date. Those supporting renewable energy that could displace fossil fuels are ridiculed by some oil producers and their stockholders as naïve wishful thinkers. But, others believe they offer feasible solutions.
The Blair administration in Great Britain published a report in 2003 that concluded: “It would be technologically and economically feasible to move to a low carbon-emissions path, and achieve a virtually zero-carbon-energy system, if we used energy more efficiently and developed and used low-carbon technologies.” The British government report placed its emphasis on solar energy and hydrogen rather than nuclear power. Of solar energy, the report concluded: “[It] alone could meet world energy demand by using less than 1 percent of land currently used for agriculture.”
In the United States, renewable energy standards are a state-by-state affair. Although the U.S. Department of Energy pays lip service to renewables, Congress has not issued any mandates for reducing demand for foreign oil, possibly because it is sensitive to the economic and political consequences. Recall how quickly gasoline prices at the pump were lowered after they rose to more than $3 per gallon last summer and SUV sales went into a slump. Although the market responded normally as buyers switched to more fuel-efficient vehicles, automakers were not ready to switch if that meant reduced profits. Ford’s reliance on SUV sales has caused it to become financially unstable and thousands of its workers to lose their jobs. The bottom line is that state legislatures must act aggressively if production of renewables is to be increased.
You can check on the status of renewable incentives in your state on the Web at (www.dsireusa.org). Perhaps you will find some news there that will help your bottom line.
