America's Energy Future

New York Times headline November 12^th, 2012:

U.S. to Be World’s Top Oil Producer in 5 Years, Report Says

The article led with the news that: “The United States will overtake Saudi Arabia as the world’s leading oil producer by about 2017 and will become a net oil exporter by 2030, the International Energy Agency said Monday.”

  Such was the summary of the just released International Energy Agency (IEA) World Energy Outlook 2012 report, which among other things anticipated the political and economic dream of US energy independence.

 The report is a massive and expensive document that is not likely to make the best-seller list.  Its import, however, is stunning:  in more ways than one. 

  For business owners, politicians and the average consumer, this is fabulous news. 

  For the environmentally sensitive there may be a sinking feeling.  All should read the fine print.

What makes US energy independence possible and what does it mean to consumers?  Bottom line is that US fossil fuel resource development is driven by the rising cost of oil and gas.  There is a lot of oil and gas still left in the ground that has not previously been economically feasible to exploit.  The cost of a barrel of oil has more than quadrupled in the last decade (and peaked at half again that level) and this makes it now profitable to exploit  “nonconventional” energy products such as shale oil and gas, heavy oils, and Canadian tar sands.

Who says so?  The International Energy Agency (IEA) is an intergovernmental organization founded in 1974 in response to the ‘70s energy crisis.  The IEA was formed by the Organisation for Economic Co-operation and Development (OECD), which was formed in 1948, and reorganized in 1961 to include 34 of the world’s most developed countries, for the purpose of stimulating economic progress and world trade.  The IEA supports that mission by providing economic research related to world energy and offering policy advice to its members.

In this article I will review the proposal for US oil independence and the related issues of climate change, environmental challenges and renewable energy mandates implied by the IEA.  The article will conclude with a proposal for addressing our energy future at the local level.

American Oil

Up until the 1970s, the US was the world’s leading oil producer.  Then, as oil industry geoscientist M. King Hubbert predicted, we hit the peak and went into decline.  We then made big oil finds in Alaska and built a giant pipeline (finished in 1977) to bring it home. Alaskan oil peaked in 1988 and went into decline, barely more than a decade after being fully developed. 

US oil production peaked at 9.6 million barrels of oil per day by 1970 and declined to 4.95 million in 2008.   Contrary to conservative political opinion, US oil production rose steadily during President Obama’s first term to 5.7 million barrels a day, the first sustained period of growing domestic oil production since the Alaskan oil decline.  The US Department of Energy projects that daily output could reach seven million barrels per day by 2020.  This is still well short of Saudi Arabia’s nearly 11 million barrels per day, and that is the first flag on the play of the IEA report.  There are still a lot of questions that need to be fully examined before we pop the cork.

Let’s start with US oil production and consumption.  The US consumed nearly 19 million barrels of petroleum per day in 2011 (nearly 7 billion barrels per year out of 30 plus billion consumed world-wide).  This was down slightly from 2010 consumption due largely to a sluggish economy and rising gasoline and heating oil prices.

If we are producing only 6 million barrels of oil per day domestically, that leaves 13 million barrels of imported oil to fill the gap.  Those imports include somewhat more than 4 million barrels from OPEC countries (about half of which comes out of the Persian Gulf), one million barrels per day from Venezuela, more than a million barrels per day comes from Mexico, and more than three million from Canada.  The remainder comes from a long list of other countries.

Thirteen million barrels-equivalent of imported oil a day is a big stretch.  Let’s add another footnote from the IEA report:  Half of our energy independence will come not from production but from conservation, efficiency and renewable energy.  That condition requires a massive investment in both political policy (e.g. automobile mileage standards) and renewable energy development.

Sources of New American Energy

A major source of new energy for the US is shale oil and gas.  Shale is a hard, impermeable stone in which oil and gas are tightly bound.  It is released by a process called hydrofracking (or fracking, for short).  Petroleum-bearing shale is often thousands of feet underground and it takes a lot of drilling to get to it.  Oil and gas shale layers are only a few hundred feet thick so a technology was developed to turn the drill horizontal to surface for a distance of a mile or more.  Once the well is drilled, the hard shale is broken up by injecting high-pressure water, to which a number of chemicals are mixed, and sand to keep the resulting cracks open.  This technology has been around for a while but the cost was prohibitive until the 2008 oil cost spike dramatically changed the market. 
Oil can also be recovered from shale gas plays that contain “wet” gas--wells that produce significant amounts of petroleum and liquefiable natural gases such as propane and butane that come up with the gas. 

The largest shale oil play is the Bakken deposit in North Dakota, Montana and Canada.  Estimates of recoverable reserves run from four to as much as 18 billion barrels.  The amount that can be recovered depends on the price of oil on the market and steady advances in recovery technology (which is expensive).

At the middle range of eleven billion barrels of recoverable oil in this formation, how long would it last?  Given that we consume seven billion barrels of oil per year, seven into 11 translates into mere months of additional oil future.  In reality it will take ten to twenty years to develop this field and production will, according to some estimates, peak at between a half-million and a million barrels per day – possibly five percent of our annual demand.  How long that peak can be maintained is guesswork.

The Bakken is one of several tight-oil fields in the US.  Care should be taken to distinguish tight-oil in shale from “oil shale” which is a waxy substance that is far from feasibly recoverable at this time.  Tight-oil is actually high-quality light oil and can be readily processed by existing refineries.  The US Energy Information Administration estimates that the eight major tight-oil formations could produce 1.3 million barrels per day by 2035, or ten percent of our oil requirement assuming no increase in demand.

Reserves will also be developed by enhanced technologies in existing fields and offshore development along the US and Alaskan coast.  We must remember, however, as in the case of all oil developments, at current levels of technical and economic feasibility, we will reach a peak level of production.  Each new level of recovery technology represents both higher cost at the pump and a reduced return on energy investment.  It takes increasingly more energy to develop each barrel equivalent of fuel. 

Oil and gas are nonrenewable resources and a point of diminishing returns will be reached as shown on this IEA chart.  We must keep in mind that even the experts disagree about how much oil there is and what can be recovered so a lot of the estimates are in fact guesswork.  IEA prediction of the petroleum future is based largely on estimates of “undeveloped” and “undiscovered” reserves.  These are potential fields in which the amount of recoverable petroleum is far from certain.  In short, we are playing a very risky game.

World energy markets:

Not only is the US ramping up fossil fuel production, so too is much of the rest of the world.  We have a large share of (but, by no means, the only) nonconventional oil and gas reserves.  Much of the expected increased production will result from new technologies in old fields – reserves that were heretofore technically and economically unfeasible to produce. The IEA, for example, points out that Iraq, emerging from decades of political and economic instability, is dramatically increasing oil production.  Most of that will go to fill the growing demands of Asia, particularly China and India.  World oil demand is expected to increase by twenty to thirty percent over the next twenty years.

This rise in demand has two implications:  Energy cost and global warming.  To whatever extent the US becomes energy independent, the price we pay for petroleum products will not be independent of the world market.  We will pay world market prices.  Development of nonconventional fuels, and alternative energy resources for that matter, depends on the global price of oil.  Only now, at the current rate of just under $100 per barrel, can these resources be exploited.  The IEA expects the cost of oil to rise over the next decade to at least the equivalent (2012 dollars) of $125 per barrel.  That could mean increases in the cost of gasoline, diesel fuel and heating oil to $6 or more per gallon.  It should be noted, however, that previous estimates of future energy cost have been woefully short of what they actually became.  The cost of energy will also increase as the economy recovers and demand rises.

Environmental Consequences

The second issue is the effect of increased emission of greenhouse gases.  The IEA warns that unless the level of greenhouse gas emission stays within current levels, the door on stopping global warming at a 2 degrees Celsius (3.6 degree Fahrenheit) temperature increase will close within five years.  Greenhouse gas emissions, however, continue to rise despite economic softness.  They rose dramatically during the last decade and hit a record in 2011.  The World Bank, less optimistic than the IEA, sees a minimum 3 degrees C. and others 4 degrees C. (7.2 degrees F.) as a more likely scenario.  The amount of climate change we have seen with a less than one-degree C. change gives many a disquieting feeling. 

Burning more fossil fuels will produce more carbon dioxide, but carbon dioxide is only part of the greenhouse gas picture.  Natural gas is touted as relatively green because it produces half the CO₂ as oil, but natural gas is methane and methane is an even more powerful greenhouse gas than CO₂.  Leakage of methane into the atmosphere from wells, distribution and as a result of Artic warming, that will release methane from permafrost and deep water, will become a significant factor in climate change. 

Water is another serious problem.  Fracking requires millions of gallons of water per well and wells may be repeatedly fracked as production falls off.  Many shale oil sites have limited surface water and must draw on already depleted aquifers.  Fracking also produces toxic wastewater that must be treated and disposed of.  Groundwater contamination by chemicals and methane is already hotly debated.

Pipelines are another issue; they frequently break. 

Climate denial is a well-funded industry in the US, and while it has an emotional appeal to a very large part of the US electorate, it flies in the face of fact.  It is mostly ideology and even dogmatic and, when it draws on facts, cites the exceptions rather than the rule.  Thousands of climate scientist are in essential agreement and a large majority of Americans currently believe in climate change, especially in the wake of Sandy and other extreme storms and weather-related events.  The US Department of Defense believes in climate change and acknowledges the need to plan to meet consequential threats.  The World Bank believes in it.  Lloyds of London, a world-class insurance house, has basically said that corporations that do not adapt to climate change are very risky investments.  The insurance industry is reeling under the impact of storm damage.  It is increasingly becoming inarguable that humans are the cause of global warming.  The fact is that the world is getting warmer and it is happening faster than expected.

The IEA took pains to address climate change.  Unless significant international policy initiatives are put into place by 2017, they have warned, a 450 ppm level of CO₂ will be "locked in."  CO₂ levels reached 391 ppm in October 2012 and are increasing at a rate of at least 2 ppm per year.  At 450 ppm, which we will hit by or before 2040, world temperature will increase to 2 degrees Celsius with a level of consequence climate behavior scientists see as significant, especially for poorer economies around the world.  The IEA seems pessimistic that this curb can be put in place.

Between November26th and Dec 8^th, 2012, the annual UN Climate Change Conference, held in Qatar, ended predictably in deadlock.  The standing objective of cutting OECD greenhouse gas emissions by 5% from 1990 levels was reiterated over a background chant of the mantra of Growth.  The poor nations are demanding 100 billion USD equivalent, per year to mitigate climate impact, a plea that was punctuated by a tropical superstorm bearing down on the Philippines.

Mitigation

The IEA advises the same solutions environmentalists do for mitigating the effects of greenhouse gas emissions:  Conservation and renewable energy.  In order to achieve its goal of energy independence the US must become more efficient and develop alternative energy resources.  The US currently uses nearly twice the energy per capita as many developed nations such as Germany, the UK and Japan.  We use a quarter of the world’s oil.  The US, however, does not have a comprehensive national plan for developing renewable energy resources.  Indeed, renewable energy incentives are being reduced.  Our national priority is oil, gas and biofuels (a mere trickle of total fuel demand).  The objective of doubling automobile gas mileage will help.  Wind and solar farms will continue to be built, but at the current level we will add perhaps one or two percent per year to our energy resources from renewable production.  As mentioned above, half of US oil dependence must come not from production but from conservation.  We must create a national energy mandate on the level of a Manhattan Project if we are to achieve energy independence.

The irony of the resistance to conservation and renewable energy is that they are good business.  From Paul Hawken and Amory Lovins, starting 20 years ago, to Van Jones and others today, the list of renewable energy visions is remarkable.  We have workable business models for creating a new energy industry.  Granted, it takes public incentives and investments, but so does the fossil fuel industry.  And, yes, it could involve carbon taxes, but those revenues could be invested into the enterprises that produce a lot of jobs.  Ditto fees assessed to offset environmental consequences of fossil fuels.  But the job of creating a new energy economy will depend on businesses and that means both a more resilient economy and jobs.

American prosperity has been built on not one but two energy economies:  Steam then oil.  Renewable energy could rebuild it once again.  Amory Lovin’s 2011 Reinventing Fire (see review) outlines a business-driven model for achieving energy dependence by 2050 that is not only sustainable but would greatly strengthen our economy.

Summary

The IEA fossil fuel future is technically and economically feasible and politically desirable.  It is certainly good news to corporations that reap huge profits from fossil fuels.  It is good news to the consumer who really hopes that progress will go on forever, that the lights will stay on, the house stays warm, and two cars are always gassed up and ready in the garage.

At least half of the oil and gas reserves are still in the ground but the easy takings are mostly gone.  As the cost of energy increases non-conventional energy reserves become marketable.  Pump prices will go up.  But there is also a growing hidden cost, one that will be assessed against the environment and will have to be paid by our children.

There are two arguments for developing renewable energy.  The first, of course, is that eventually we will run out of a nonrenewable resource; in a matter of decades at most.  Economic optimists say that the market will take care of that but that market is “free” by definition only.  We need to consider that a new energy economy will take decades to create.  It will require considerable human and capital resources.  There is no time to waste.

The second argument is the social, political and economic impact of climate change.  Not changing the current world energy policy will result in at least two and more likely four or more degrees rise in global temperature.  That is enough to more than change the dynamics of the global weather system for hundreds of years to come.  One to two meter sea level rises are certain.  So are shifting patterns of droughts and floods, incidents of violent storms and steady migration northward of growing seasons and habitats (agriculture is heavily impacted by climate change).  Conflicts will occur requiring military intervention.

We have a choice to make.  Do we, like Dr. Faustus, sell our soul for a few decades of power?  Do we wait until the crisis is extreme enough to mobilize emergency measures?  Do we accept the tragic cost and injustice to the less advantaged peoples of the world?  Or do we choose to create a sustainable future for the generations to come?

By 2030 there could be nine billion people struggling to live on this planet.  A third of us now live in the rapidly growing economies of China and India, and many other countries are on the same path of progress.  A number of powerful international agencies have the objective of insuring that all the people of the Earth are lifted out of poverty to become players in the world economy.  This progress will require every measure of oil, gas, coal and every other resource that can be exploited.  We really need to think deeply into the implications of population growth and development on the future of the planet.

We have the capacity to change.  We have at least as much collective genius as we had to create the first two energy economies.  We have more knowledge, more education, vastly improved communications and information technology and a wealth of human experience.  To suggest that we should not choose to change is, well, absurd.

A Proposal

We’ve all heard of Margaret Mead’s famous statement that not only can a small group of people change the world, that, indeed, only a small group can.  There is ample evidence in every area of life that this rule is true.  By implication, the place to produce change is in one’s local community.  One good reason is that a community is about as big a “problem” as the human mind can embrace.  While never easy, it is certainly clear that we have better prospects to organize for change where there are people we know, who share a sense of place and a common identity.Transition Centre advocates the Transition Towns model as a promising grassroots community development program focused on creating and implementing a local plan for a sustainable future.  Founded in 2006, there are already nearly 450 Transition Town initiatives around the world.  Thousands of people in many communities have shared their experience to help this movement grow.  The results can be found in The Transition Companion, a second-generation guidebook for forming local, grassroots initiatives (click for review).  The objective of the TT model is to create an Energy Descent Action Plan (click for review) for the community, a plan to achieve actual and realistic local energy independence over the course of 20 years.  Here is where you start (click here). 

A grassroots community initiative does not require the consent of state legislatures, the Federal government, or the support of multinational agencies.  It doesn’t even initially require the approval of a local council.  It does not take a lot of money to start.  It just takes a few people who have a common commitment.  It is a private initiative to serve the needs of the community. There is much that can be done at the local level.  Local communities are capable of transforming themselves by creating strong, sustainable, local economies.  Local foods are a still largely untapped market.  Local manufacturing and business need to be reestablished.  There is a substantial literature and web presence to draw on for projects and programs.

Every community has interest groups, local governance, educational institutions, associations, religious organizations, and others that are committed to its future wellbeing.  These are the assets we have to use if we can organize them to pursue a common objective.  It is hard work, it takes time, it will have its share of upsets and personality conflicts.  But our history is one of community achievement.

Our challenge is clear.  Our economy is based on energy.  How we live and what we consume defines our use of energy.  The cost and availability of energy defines the scope of our lifestyle.  Our economy is challenged.  Our energy future is uncertain.  Environment and climate are high on the list of public concerns.  By employing the principles of our democratic society, especially in terms of how we work to meet our collective needs, we have an unsurpassed model of defining what our future and the future of our children and grandchildren might be.  There are challenges, but challenges are opportunities. 

We revere our pioneer and immigrant ancestors for the challenges they overcame, the sacrifices they made and the struggles they endured to create a better life for us all.  There is that same element of adventure in the challenges that lie before us, and there is a profound sense of satisfaction in knowing that we are doing something important and doing it together as a community. 

Bill Sharp

Transition Centre www.transitioncentre.org