October 20, 2008

They Don't Understand Energy: It's a Liquid Fuels Crisis

By Julian Dunraven, J.D., M.P.A.

Honorable Friends:

In the last presidential debate, we heard a great deal from the candidates about the "energy crisis," and how they would solve it. They gushed so enthusiastically about wind, solar, biodiesel and nuclear power that you might have thought that the "crisis" we face was a shortage of coal. Of course, we know we have plenty of that, so perhaps they were trying to demonstrate how we could be more environmentally conscientious. What they most assuredly did not do, however, is offer any suggestions for solving the real energy crisis or, more appropriately, the liquid fuel crisis called Peak Oil.

Our cars, trains, ships, and planes, in short the vehicles maintaining our global economy, all run on oil. No number of windmills, solar panels, and nuclear plants will change this. The problem is that oil is running out and becoming more difficult to produce, but demand for oil continues to grow at an alarming rate.

Currently, oil production stands at about 86 million barrels/day. Most long term predictions say that oil demand will reach 125 million barrels/day over the next 20 years. This incredible increase will be pushed not only by continuing growth in the West., but by the rapidly developing economies of Eastern Europe, China, India, and the Middle East.

Unfortunately, we cannot meet the demand. Most of the world's mature oil fields have already peaked in production and have been in decline since 2005. OPEC nations are struggling to simply maintain their current production despite the best efforts of technological improvements in oil extraction which have taken decades to create. If we can believe that we still have 1.2 trillion barrels in proven reserves, then it is likely we can last 5-15 years before demand exceeds supply and oil becomes unavailable at any price. If we reach that point, then the global economy comes crashing to a halt in a disaster which will make our current economic crisis seem mild by comparison.

To avoid this unpleasant fate, the first step is to understand what we are facing. The articles, and interviews of Matthew Simmons, perhaps the leading scholar in this field, would be good places to start. Obviously, we need to find a viable alternative to oil and set up an infrastructure to match. Though there are many theoretical possibilities, none have been perfected for industrialization. To buy ourselves urgently needed time, we will have to drill for any drop of oil we can feasibly access. Unfortunately, it takes about 3-4 years minimum to set up, and most of the rigs we have now are dilapidated. Thus, we are under incredible pressure to increase what oil supplies we do have access to, as well as finding some alternative to oil. If we run out of time, the only option we will have for accessing the oil we need is war, war for a resource the whole world will be seeking.

Though our presidential candidates both seem to have a poor understanding of this issue, Barack Obama is clearly the more dangerous of the two. He opposes expanding drilling domestically and off-shore unless it proves necessary in the future. Just to buy time, we need it now. He also calls for a $1,000 tax rebate to every family for energy costs. Add this to the additional stimulus check he supports for the middle class, huge tax increases on 70% of all businesses, and countless new spending proposals he has refused to cut despite the hard economy. Though he has not said where he intends to get the money for this, I expect him to announce a merger of the Treasury and Hasbro any day now. After all, they can print Monopoly Money far more efficiently than we print dollars, and they will have about the same worth by the time Obama stops spending. Unfortunately, we cannot begin to deal with the liquid fuel crisis if we bankrupt the nation before it even hits.

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