Peak Oil: Energy & Growth

An observation worth noting … and pondering, from James Greenberger:

The real energy crisis is neither a geologic crisis nor a strategic crisis.  The real energy crisis is a slow growth crisis.  Although the oil industry has figured out a way technologically to recover large quantities of unconventional oil, the cost of doing so will be staggering.  Conventional oil, which may cost $4-6 per barrel to lift out of a Saudi Arabian well, may cost more than $100 per barrel to lift out deep water deposits off the coast of Brazil.  And the lift costs will only go up, as each barrel of oil becomes progressively more difficult and expensive to recover.
The result is a hyper-inflation of energy costs, as the fixed, structural cost of petroleum spirals ever higher.  As more and more resources must be invested in petroleum production, fewer and fewer resources will be available for other productive parts of the economy.
In ordinary markets, the market self-corrects by incenting substitution for a high priced commodity.  But the petroleum market is no ordinary market.  The energy needs of the transportation sector are almost entirely dependent upon petroleum; no easy substitutes are available.  As a consequence, as petroleum costs hyper inflate, the economy will slow as consumers compensate by using less energy.  This lowers demand for oil, which depresses its price, which in turn slows investment in alternate fuel technologies.

It seems fairly obvious, doesn’t it? The “surge” in oil production and the imminent arrival of “energy independence” touted by industry spokespeople rarely includes any discussion of this vital component to energy production and what that means for all of us.

For all the benefits of magic technology and human ingenuity as repeated endlessly from Page One of the denier’s playbook, we don’t have the surge in production from tight oil and in shale gas if prices aren’t high enough to justify the investments by fossil fuel industry. If there aren’t reasonable expectations of profits, no company out of the goodness of its corporate heart is going to be fracking anything or anywhere.

There is another end to that same stick: high prices justifying increased investments are also high prices to consumers. Sliding past that explanation serves the industry’s purposes, but the same comprehensive explanation of all factors lacking in other aspects of this great production increase seems MIA here as well.

At some point, we’re going to have to collectively make some determinations about where we allocate financial and production resources as we decide what kind of energy policy we will need this century and beyond. In order to do so, citizens need all facts and a better understanding of what’s involved and what is at stake.

As I have insisted in numerous posts, the public bears responsibility for educating themselves. But if key sources of information conveniently omit important parts of the story, citizens cannot make informed decisions. That only leads to more problems down the road.

I still think there are better strategies to pursue.

Peak Oil Matters