Energy and the Fossil Fuel Situation: Douglas Woodard

Introduction:


Probably the first point that needs to be grasped is that, while many assume that market processes will raise prices in anticipation of shortages and automatically encourage the development of renewable sources of energy, this is in fact unlikely.

In a recent article, Douglas B. Reynolds of the University of Alaska at Fairbanks reviews the economic literature and concludes in his abstract

"...The problem is that the true size of the resource base is never known. Society does not know if technology is actually overcoming scarcity or not until demand for a resource outstrips supplies. It is even possible for a price shock of incredible magnitude to surprise an economy within one or two years after a hundred years of declining prices and increasing production."

See his article "The mineral economy: how prices and costs can falsely signal decreasing scarcity" in

Ecological Economics Volume 31, Issue 1 October 1999, pp. 155-166

The abstract can be read on the website of the publisher, Elsevier, at

http://www.sciencedirect.com/science/journal/09218009

Access to the full article requires purchase or a subscription. If you can visit a university library, most have electronic subscriptions to Elsevier journals accessible on the library's computer terminals.

The journal is published by the International Society for Ecological Economics,

http://www.ecologicaleconomics.org

It appears that the world's production of conventional oil will peak sometime in the period 2005 to 2015. The peak will probably be flat-topped and about 10 years after the centre of the peak a decline of around 3% per year will be established.

The world natural gas peak is predicted for about 15 years after the oil peak. However, the leading countries for natural gas reserves are Russia and Iran. North America is not well favoured. The North American natural gas peak is probably occurring now. Due to certain characteristics of natural gas wells, the peak will be sharper than for oil.

Reserves of unconventional oil in the form of tar-like bitumen deposits occur in northern Alberta and in Venezuela. Alberta has accessible reserves equal to about 10 years of world oil consumption at current rates, with a further 60 years worth for which accessibility is doubtful to unlikely. Venezuela has about as much again.

One problem with these bitumen deposits is that about 15% (at present) of the gross energy available in the bitumen must be consumed directly to extract and process the material to oil. A much higher capital investment is needed than for conventional oil wells, and this plant requires aditional energy for its construction. Therefore, the "net energy" (please remember this idea) available from "tar sands" deposits is less.

This problem of declining net energy also appears in drilling deeper wells on land and in accessing oil and gas deposits under the sea. Some fossil fuel deposits will be left in the earth, because getting them out would devour so much energy that the effort would be profitless in energy terms alone.

Probably the net energy yield of tar sands will decline in future.

As the tar sands deposits are landlocked, transport from them is expensive and the bitumen is mixed with sand and other materials, processing must take place near the deposits. This means that the air pollution from burning very large amounts of fossil fuels will be concentrated in northern Alberta and northwestern Saskatchewan, which will be especially serious in winter. It is estimated that the extraction of the roughly 300 billion barrels (oil equivalent) which appears to be accessible with current or foreseeable technology will result in the creation of a lake of oily water and sludge the size of Lake Ontario. Thus the exploitation of the tar sands on a very large scale would involve the relegation of much of northeastern Alberta and northwestern Saskatchewan to the status of continental sacrifice areas, to be destroyed for the benefit of the urban lifestyles, and the "car culture" of the more densely inhabited areas of the continent.

Due to the high capital investment needed, labour requirements and environmental factors, industry opinion seems to be that the tar sands will be exploited in a different pattern than conventional oil, much more steadily over a period of 100 years or more.

However, social and political pressures as other sources of fossil fuel decline, may clash with economics and the environment. The energy economics will likely win, but there may be some "collateral damage" in this battle. If the process by which future American leaders learn from reality follows the same pattern as for the current administration, which is to say they learn through high-impact collisions, the outlook for Canadians is not good.

At this point you should start to switch to the central source for information on the fossil fuel problem, the website

http://www.oilcrisis.com

Give your attention especially to the list on the left hand side of the page. Among the experts, Campbell, Deffeyes and Laherrere are especially pertinent.

Among the sites, particularly Oil Analytics, and within that site particularly the discussion of "Net Energy".

As well, video and audio interviews, and some transcripts of interviews with experts on fossil fuels and other environmentally related topics can be found at

http://www.globalpublicmedia.com

 

The crucial information:

The most important source of hard information about the world fossil fuel situation comes from the relationship between world oil discovery and oil production and consumption. The declining curve of oil discovery crossed the rising curve of oil consumption about 1980. Discovery is now below 40% of consumption in most years. This is not a situation that can continue indefinitely. As reserves are drawn down, eventually consumption must be constrained by discovery. See especially a recent messsage to the energyresources list by Jean Laherrere:

http://groups.yahoo.com/group/energyresources/message/29923

ASPO newsletter

A useful source of information is the newsletter of the Association for the Study of Peak Oil, edited by Colin Campbell:

http://energiekrise.de/e/news/aspo.html

 

A new book on oil decline is scheduled for publication in Canada in April. A knowledgeable person who has had the opportunity to read an advance copy recommends it highly:

The Party's Over: Oil, War and the Fate of Industrial Society, by Richard Heinberg (New Society Publishers)

See the review at http://groups.yahoo.com/group/energyresources/message/29716

The (slowly) searchable message archive and files at

http://groups.yahoo.com/group/energyresources

contain much useful information amid a large amount of chitchat
and political comment.

Oil and the limits to growth
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An excellent paper by the oil and gas industry investment banker Matthew Simmons, on the Club of Rome, the "Limits to Growth", and the world's supplies of oil and gas. See

http://www.greatchange.org/ov-simmons,club_of_rome_revisted.html

Other papers by Matthew Simmons and his colleagues can be read at

http://www.simmonsco-intl.com

(You will need a recent Adobe Acrobat Reader there.)

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For an overview of the outlook for fossil fuel production in Alberta:

http://www.eub.gov.ab.ca/bbs/products/STs/ST98-2002.pdf

Natural Resources Canada has a publication on the energy outlook:

http://www2.nrcan.gc.ca/es/es/energypicture/index_e.cfm

For Canadian natural gas, see the publications of the Canadian Gas Potential Committee at

http://www.canadiangaspotential.com/papers.html

 

 

Implications:

 

Given that the near term supply of natural gas in North America is unlikely to maintain existing consumption let alone provide for increases, proposals for switching coal fired electricity plants directly to natural gas are mistaken. The very real pollution concerns of coal burning will have to be dealt with in other, longer-term ways as described below.

Given the declining supply of fossil fuels and the high capital investment required for renewable energy, we need

 

1. maximum exploitation of opportunities for energy efficiency and energy conservation with special attention to the removal of institutional barriers to market function in this field, which discourage people and businesses from taking advantage of profitable opportunities for saving, and the development of methods to loan capital for efficiency improvements to those who have difficulty paying up front but can pay from the savings in consumption.

 

2. Rapid development of renewable energy through

* gradually incorporating in the prices of fossil fuels, through taxes, the costs which extracting and burning them imposes on the public, or, in economists' language, internalizing the external costs of fossil fuels.

* using the tax revenue to at once pay generators of renewable energy for the costs to the public which the use of renewable energy avoids. As shown by the experience of Denmark, Germany and Spain, a consistent and reliable policy of this kind is the best way to ensure investment in renewable energy converters and to spur development of the technology.

* using the same mechanism to apply to fossil fuels the costs of their foreseeable future scarcity, and to transmit to the generators of renewable energy their future cost advantage in that condition of fossil fuel scarcity. It would be wise to do this in a cautious, step by step way. It would be unwise not to do it at all.

* In general, the use of market mechanisms is essential to the kind of complex, integrated and highly innovative adaptation to a renewable energy future that we need. However, this process depends completely on appropriate prices incorporating "external costs". These will not be supplied by private markets. They require collective action through governments, in the form of taxes. Given that North American governments have been slow in grasping necessities, improvements in governance and a more effective democracy are needed. Proportional representation and the reform of political financing are the first steps, and they are already starting to get underway. Everyone who wants a sustainable future for our grandchildren should get behind them and push.

 

3. In addition,

* Where renewable energy is already cost competitive, as for partial heating of water and buildings, it would be sensible to use regulation to enforce its use to the extent that it is cost competitive. The higher capital cost needs to be compensated by making loans available where necessary.

* We need to encourage the use of heat storage both short term and seasonal.

* We need to encourage combined heat and power plants in all sizes including those for single family dwellings, and we need to integrate such plants into the electric grid and provide for their coordinated switching among electrical generation, heat generation for immediate use, and heat storage.

* We need to ensure that the incentives for energy saving felt by owners of buildings and equipment are also felt by those who build and purchase structures for rent or sale to others.

* Transportation patterns, land use planning, the education of planners, engineers, and technicians and their codes of professional practice all need to be brought into line with the new energy realities.

* A major barrier to the operation of market mechanisms for the switch to energy efficiency, conservation and renewable energy, is the lack of reliable information. Government has a crucial role to play here, for both businesses and households.

 

While there are still considerably larger reserves of coal than of oil and gas, the net energy return from coal is inferior and will continue to decline. It is not an accident that a great increase in consumption standards in industrial countries occured in the 1950's and 1960's during the switch from coal to oil.

Burning coal also produces much more CO2 per unit of energy released (and especially per unit of net energy obtained) with a correspondingly much larger effect on climate change. Attempts to sequester CO2 would decrease net energy considerably.

It should be clearly understood that we need to start the transition to renewables at once in order to build our capacity to capture renewable energy with cheap fossil fuel energy while it lasts.

It also needs to be clearly understood that energy conservation and efficiency are and will continue to be cheaper than any other source of energy, and we need to exploit them fully to minimize the need for costly investments in the supply of renewable energy.

We need to understand that fossil fuels are now required to maintain the food supply as well as the incomes of almost everyone on the planet. Therefore, freeing ourselves from dependence on fossil fuels in time is not just a matter of preventing pollution and climate change, but, in David Suzuki's words, "It's a question of survival".

 

 

The international scene:

 

An obstacle to attempts in Ontario and in Canada generally to dealing with our energy problems is the attitude of the current administration in the United States. Given that we live in a world economy, that 40% of Canada's GDP is involved with trade with the U.S., and that the U.S. with 5% of the world's population burns 25% of its fuel a substantial part of which it obtains from Canada, and that we are obliged by several treaties to share our fuel resources with the rest of the world and especially with the United States, the determined lack of realism in U.S. energy and foreign policy will impose limits on our ability to deal effectively with our own problems independently. In case you have not realized just what the policy of those in control of the U.S. for the time being is,

The National Security Strategy of the United States http://www.whitehouse.gov/nsc/nss.html http://www.whitehouse.gov/nsc/nss.pdf

background at http://www.nssg.gov/Reports/reports.htm

and related, in book form

The Grand Chessboard: American Primacy and Its Geostrategic Imperatives, by Zbigniew Brzezinski (Basic Books, hardcover 1997, softcover 1998)

For interim internal strategy, see the statement of the White House press secretary on 8 May 2001, on the President's position on the question as to whether Americans needed to change their lifestyles to reduce energy consumption:

"That's a big no. The President believes that it's an American way of life, and that it should be the goal of policy makers to protect the American way of life. The American way of life is a blessed one."

This is said to be an extract from a draft copy of the Pentagon's 1992 budgetary planning guide (written when Dick Cheney, now Vice-President, was Secreatry of Defense), quoted from Year 501: The Conquest Continues, by Noam Chomsky [sorry, no citation provided by author---Editor].

"The US must hold global power and a monopoly of force. It will then protect the new order while allowing others to pursue their legitimate interests as Washington defines them. The US must account sufficiently for the interests of the advanced industrial nations to discourage them from challenging our leadership, or seeking to overturn the established political order, or even aspiring to a larger regional or global role."

..."we will retain the preeminent responsibility for addressing selectively those wrongs which threaten not only our interests but also those of our allies or friends. The United States alone will determine what are wrongs, and when they are to be selectively righted."

See http://www.zmag.org/chomskycampbell.htm

 

 

 

 

 

 

 

 

While there may not be much that we in Canada can do to influence events in the U.S. directly, we can do our best to serve as a model of good policy, good action, and good governance, across the back fence.

In the words of Edmund Burke, "Example is the school of mankind, they will learn at no other."

Those seeking information on the details of a sustainable energy future will find the following sites among the best of the many that exist:

The David Suzuki Foundation

http://www.davidsuzuki.org

The Pembina Institute

http://www.pembina.org

The Wuppertal Institute for Climate, Environment, Energy

http://www.wupperinst.org

The Tellus Institute (U.S.)

http://www.tellus.org

The Union of Concerned Scientists (U.S.)

http:www.ucsusa.org/


The Rocky Mountain Institute (U.S.)

http://www.rmi.org

Sustainable Minnesota (U.S.)

http://www.me3.org

"*Feasta* aims to explore and promote the characteristics - economic, cultural and environmental - that a society must have in order to be truly sustainable" (Ireland)

http://www.feasta.org

Remember that the details must fit with the words of Donella Meadows, Herman Daly and their colleagues:

"...the most important distinction we shall make... is the one between *growth* and *development*.

'Following the dictionary distinction... TO GROW means to increase in size by the assimilation or accretion of materials. TO DEVELOP means to expand or realize the potentialities of; to bring to a fuller, greater, or better state. When something grows it gets quantitatively bigger; when it develops it get qualitatively better, or at least different. Quantitative growth and qualitative improvement folow different laws. Our planet develops over time without growing. Our economy, a subsystem of the finite and non-growing earth, must eventually adapt to a similar pattern of development.'

"We think that there is no more important distinction to keep straight than that one. It tells us that, although there are limits to growth, there need be no limits to development." (Ref. 1)

Reference 1. Beyond the Limits. Donella H. Meadows, Dennis L. Meadows, and Jorgen Randers. White River Junction, Vermont: Chelsea Green, 1992. Page xix.

Central portion quoted from Robert Goodland, Herman Daly, and Salah El Serafy, introduction to "Environmentally Sustainable Economic Development: Building on Brundtland", (The World Bank Environment Working Paper, No. 46, July 1991, 2-3).

Doug Woodard is 60 years old, was born in Alberta, grew up in Quebec, lives in St. Catharines, Ontario and has been a Green Party member most of the time since 1984. He has been thinking Green and trying to work his way deeper since about 1947.