Posted by Big Gav
Jim Puplava at "Financial Sense" has a long article on the energy crisis (a bit too long if you ask me - however there is plenty of detail and a number of good diagrams). I'd disagree with some of his points (more refineries needed in the US ? is that really the best thing to be investing in to create long term energy security ?) but on the whole it is worth reading.
It also includes the most memorable phrase of the wek - "SOS - Stuck On Stupid".
I believe we are in the first stage of a developing crisis that will lead to further and even larger crises down the road, if not war. The first crisis, which we now find ourselves in, is related to the approaching peak and decline of non-OPEC oil production. This predicament is behind much of today’s high oil prices. Other factors include the combination of growing demand, driven mainly by China and the United States, and restricted output from Iraq.
The inability of non-OPEC production to meet incremental demand after its projected peak after 2010 precipitates the second crisis when OPEC spare capacity runs out. As non-OPEC production declines, OPEC capacity will have to increase just to stay even, much less to increase supply. The third crisis arrives when OPEC production peaks. Many expect this to occur in the next decade. Of the eleven members of OPEC, several have already reached their peak—Indonesia, Iran, Kuwait, Nigeria, Iraq, and Venezuela. As mentioned earlier global oil discoveries replaced only half of the oil produced last year. We stopped replacing the oil we consume each year in 1985. We have been running energy deficits since then. This tells me that the second stage of the energy crisis could soon be upon us.
The US now finds itself in an eerie parallel to the energy crises of the 1970s. In viewing the past crises I find similar parallels and list them as follows:
* Political turmoil in producing countries (Iraq, Saudi Arabia, Iran, Nigeria, Venezuela, Indonesia)
* High Import Concentration (Saudi Arabia, Venezuela, Nigeria)
* Declining US oil production
* High dependency on oil imports (58%)
* Low capex spending by oil companies
* Low inventory levels
The US has now left itself vulnerably exposed on the energy front. We are more dependent today than we were during the crises of 1973 and 1979. Oil production in the US has fallen each decade, falling 40% since its peak in 1970. As a result of this decline imports now represent 60% of our energy needs. Even more worrisome is that even if we could import all the oil we need we wouldn’t have the refinery capacity to process it. As demand has increased we now have to import more of our refined energy products due to capacity constraints. The ability to import refined gasoline will be limited by the new environmental standards ,which are unlikely to be adopted by foreign refineries.
What we in the United States have yet to deal with is the fact that the era of high energy and mineral abundance is gone. Whether we will be able to maintain our present standard of living is questionable. At present we are financing that living standard with borrowed money, most of it from overseas. This presents a problem. According to Dr. Walter Youngquist, in order to maintain our standard of living, each person in the US requires 20 tons of mineral resources each year. Since our ability to produce these resources diminishes each year, we have to rely on imports to provide them. This in turn impacts our balance of payments. This cannot go on forever.
We need to seriously look at our whole energy infrastructure in transportation, our energy power plants, the electrical power grid and alternative sources of energy. Does it make sense to be building natural gas power plants, if US and Canadian natural gas production is in decline and we’re unwilling to allow natural gas exploration or LNG terminals to be built? We need to be exploring new technologies for developing coal into gasoline as well as sources of electricity. Rethinking nuclear power is another option that should be explored along with wind and solar. With non-OPEC oil production close to peaking the clock is ticking with not a minute, hour, or day to waste. God help us, if Matt Simmons is right. In that case, we move quickly to the second and third stage crisis in energy. And if that happens, then it is war.
We should also be rethinking the transportation of goods in this country. The cost of trucking goods coast-to-coast will be too expensive and impractical as oil prices escalate. The movement of goods by rail and boats is far more energy-efficient. This means it is time to rebuild our rail system which is a shadow of its former self. Our transport sector relies on oil for 97% of its energy needs. It also accounts for 68% of our oil consumption. Alternative forms of transportation such as mass transit in our larger cities and more fuel efficient cars—hybrids and diesel—should also be explored. And to ameliorate the bottlenecks in gasoline we need to agree on only a few varieties of environmental grade gasoline. Do we really need 50 different varieties of gasoline? Does every major city or state need its own version of environmentally clean gasoline? Can’t the experts agree on one formula? A Heinz-57 approach to our environmental needs is not only costly and inefficient, it is also insane.
As Matt Simmons points out in his book “Twilight in the Desert”, the purpose of “Plan B” is to buy time until “Plan C” where a new source of energy is developed or invented. “Plan B’ is essentially a series of bridges that buys us time in the period of transition to a new form of energy. It means doing everything that works. We know that wind and solar work as do coal and nuclear. But none of these sources of energy is a silver bullet. The problem regarding oil is there is no energy replacement on the horizon that can replace it. Creating new forms of energy is no easy task. We’ve only done it twice in the last 1,000 years. Coal replaced firewood and oil replaced coal. As the price of oil and natural gas inexorably rise all other forms of energy become more competitive. Finding a new source of energy to replace fossil fuels may be the most daunting task ever to face mankind but it needs to be done. Otherwise it will be forced upon us. Once the world arrives at peak oil, rationing and conservation will become the norm. This is why “Plan C” is critical. Getting to “Plan C” involves accelerating R&D efforts which should begin immediately and that means today.
The ideas expressed in this update may startle and stun but they are real. The US now finds itself facing the first of many energy crises to come. We should have been working on “Plan B” years ago. While a few experts admit we have problems, Washington (especially Congress) and the mainstream media are caught up in denial and the blame game. In the words of General Honore, they are still “stuck on stupid.” Politicians love to point figures at everyone but themselves. In trying to assess blame they avoid dealing with the issues at hand. There are three basic reasons that we have crises:
1. Failure to anticipate a problem before it arises.
2. Failure to perceive the problem once it arrives.
3. The tendency by society’s elites to perceive the wrong problem, which distracts from the real problem at hand.
This failure and avoidance is why we find ourselves stuck in a crisis. Many of the issues ofnew sources of energy, declining refinery capacity, and bottlenecks in the electrical grid system have been evident for decades. It seems it takes a crisis to bring them to the forefront. Let’s hope we can get beyond “stupid”, it could mean the difference between peace and war.