September 17, 2007

Why I think energy prices will climb

I've had a few people question one of my underlying assumptions, one that makes a huge difference to what I see happening in Dryden in the future. In general, I see energy prices going up, especially gas prices.

Ethanol won't save us from this problem, because the crops we're using for it (corn) require energy-intensive inputs, from tractors to fertilizer and pesticides. Brazil has a better approach with sugar, though I worry how well that can work in the long run because of soil issues. Cellulosic ethanol sounds better still, but despite the enthusiasm of venture capitalists it isn't nearly here yet - and it's not an easy thing to do.

There used to be lots and lots of natural gas, but utilities burning it to generate electricity means less for the rest of us, and natural gas fields have a nasty habit of stopping suddenly. Hydrogen won't save us either, because it only changes the form of the energy, and doesn't ever earn us free energy. We've already burned the best and most easily reached coal, so that's not going to get any easier. Nuclear power remains the one wildcard out there, though it lacks a critical ingredient right now: trust.

So what's wrong with oil? Aren't oil price hikes just a conspiracy of OPEC and oil companies?

No, not really. Those could cause short-term shocks, but not long term increases. There are two basic problems: increasing demand, and flat - eventually declining - supply. Both of those lead to higher prices in the long term.

This interview with the retired chairman of Shell does a better job of summarizing than I can:

world energy demand is continuing to rise. It's rising because of increases in population, and that population is not only becoming more numerous but more wealthy as well. As it becomes more wealthy per capita energy use increases too. So the world energy demand is just rising relentlessly. In parallel, we have clearly got tightening supplies of fossil fuels. We know that in an ultimate sense reserves are finite; they're not being made any more, if I can put it that way. And I think we know enough about the world to say the majority - perhaps not all - but the majority of the big oil and gas fields have been discovered. Modern exploration methods are just so effective that it would actually be hard to miss any of those. So we think that the big supplies have all been found - or should I say the big easy supplies. It's worth pointing out the world is never actually going to run out of oil, what it's going to do is run out of cheap, accessible oil....

what really matters is the gap between gap in production and demand. I don't know whether there is going to be a peak in world oil production, whether it's going to plateau and then slowly come down. It could well plateau within next 20 years and I guess I would be surprised if it hadn't. The thing is that demand is almost certainly going to outstrip availability, for whatever reason, and that is what is going to cause us difficulties. We're never going to run out of oil, it's simply going to become too expensive to use as we traditionally have....

given the nature of our infrastructure, and that we're totally dependent on oil for making the internal combustion engine work, it is going to be at least 30 years, 40 years before we can more to a different sort of economy....

we are just about to enter hot water, quite serious hot water. And the danger is that we sit there blissfully like the frog in the pan of water gently heating on the stove until - as the Irish would say - it wakes up to find itself dead. In other words we may be sleepwalking into a problem which is actually going to be very serious and that it may be too late to do anything about it by the time we are fully aware...

In Dryden, I worry that we're building a lot of things, especially new isolated houses, that aren't going to make much sense for their owners if the price of gasoline climbs and the cost of commuting grows. I don't think we can stop people from making those kinds of investments based on their expectations from the past, but I do think we need to be ready with options for a different kind of future. Allowing cluster subdivisions, for instance, would make it easier to concentrate population so it can be more easily served by public transportation or carpools. Allowing household alternative energy, which the Town Board approved last year, lets people take better advantage of the wind resources around them instead of coal burning at AES Cayuga. We also need to rebuild the old neighborhood store infrastructure, though I'm not sure that's something we can do before energy prices climb.

It's going to be an interesting few decades.

Posted by simon at September 17, 2007 8:29 AM in
Note on photos


Becky said:

Another problem with ethanol is rising livestock costs (this includes dairy, as well as meat). Most farmers feed their livestock corn in at least one form, but they're getting priced out of the market.

Also, the rise in corn prices has convinced people to grow corn in inappropriate places (like western KS), where more energy is spent to produce the crop than is produced with the crop.

Steven Bissen said:

Ethanol from corn is NOT the answer. Cellulosic ethanol is. Cellulosic ethanol is ethanol from biomatter like grass. Check out the lastest (Oct. 2007) National Geographic. Biomatter for cellulosic ethanol can be created using land that is not suitable for farming.