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Houston, Do We Have a Problem?

February 08, 2006

By Max Schulz

If we really are addicted to oil, as President Bush famously charged last week in his State of the Union address, then it stands to reason that the 25th CERAWeek meetings now underway in Houston ought to have the feel of an open-air drug market.

CERAWeek is the brainchild of Dan Yergin, Chairman of Cambridge Energy Research Associates and author of a Pulitzer Prize winning history of the global oil industry. This annual affair brings together top brass from all over the oil industry, from Big Oil bigshots at ExxonMobil and Royal Dutch Shell to OPEC's national oil companies to small private players and wildcatters. It also brings in representatives from Wall Street, international banking, chemical companies and manufacturers, the information technology industry, academia, and Silicon Valley venture capital circles.

It's a pretty seedy group of pushers and junkies, to use terms out of the president's new lexicon. These people represent "the problem" Bush decried in the State of the Union.

You would think given the international attention lavished on Bush's oil addiction crack that it would be a chief topic of conversation at such a confab. Strangely, however, it's not. What is interesting is the degree to which most speakers and other CERAWeek attendees seem to regard the president's energy pronouncements last week as trivial.

Is this the delusion of addicts who, as the Sierra Club's Carl Pope would argue, don't want to acknowledge they have a problem? Perhaps. More likely, it is a telling and grounded commentary by those with financial stakes worth many billions of dollars in the world's energy future.

One theme emerging from the first day of the conference is that the future is a whole lot more positive than the peak-oil faddists and eco-alarmists -- or for that matter, President Bush -- would have us believe.

Even Saudi Oil Minister Ali al-Naimi, who has a vested interest in promoting the idea of world oil supply scarcity, acknowledged in his remarks that the planet contains plenty of conventional oil reserves left to be used. This statement is all the more surprising given the consensus that 21st century global economic growth will significantly boost overall demand for oil.

Energy experts here are stressing that issues of global supply are of much less concern than issues of infrastructure and capital investment -- deliverability, not availability, as al-Naimi put it.

Worries about the world running out of oil seem overwrought when one factors in the emergence of new technologies to recover resources that were inaccessible a generation ago. ExxonMobil executive Stuart McGill pointed out that technology is changing the definitions we use to describe energy markets. Revolutionary engineering advances like six-mile horizontal directional drilling have turned previously unconventional oil reserves in Russia's Sakhalin region into eminently conventional ones. The same goes for ultra-deepwater drilling in the Gulf of Mexico. Oil rich tar sands in Alberta, Canada -- where a barrel of oil can be recovered for less than $20 (depending on the price of natural gas) -- underscore Yergin's point about "the widening definition of oil."

There is a somewhat related flipside to the notion we aren't running out of oil, which is that there isn't much in the way of practical alternatives to fossil fuels on the horizon.

Renewable energies like wind and solar power generate a fraction of one percent of total U.S. energy, and this despite decades of massive government subsidies. Proponents of these technologies vow they will make tremendous strides in coming years. This is certainly possible, but they start from such a low baseline that if use doubles or even triples in the next two decades, they still will not crack the one percent barrier.

All of this points to the massive size and scope of the energy industry and of global energy challenges. The world consumes 80 million barrels of oil a day, with the U.S. using a quarter of that. In the future we'll need a lot more. Policymakers and politicians who want to displace a substantial amount of that oil use are going to have to come up with something better than switchgrass, corn, or wood chips.

Try nuclear energy. As my colleague Peter Huber pointed out in Friday's Wall Street Journal, an expansion of nuclear power could displace the natural gas used in conventional electricity generation. That gas, in turn, could be applied to heavy trucks, delivery vehicles, and buses displacing perhaps as much as 1.5 billion of the seven billion barrels the U.S. consumes annually.

That is a substantial savings. It's also realistic, economical, and doable. What it will require is a willingness to confront the hard facts about energy, and the political courage to resist the temptation to pander with rhetoric worthy of Carrie Nation or Billy Sunday.

Original Source: http://www.tcsdaily.com/article.aspx?id=020806E

 

 
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