Friday, October 5, 2007

Non-negotiable?

Here's an article from "Moneyweek," entitled "Why the End of Oil Could Spell the End of Suburbia." Nothing really new here - rising energy prices will continue to exert downward price pressures on low-density, high-consumption suburban housing tracts. This article - in a mainstream financial publication - continues to ratchet up the steady drumbeat of warnings that the American Dream is about to become the American nightmare.

Meanwhile, today's New York Times carries an article - also in its business section - raising the specter of the return of what was once called "stagflation." The cause: high oil prices. While several economists blithely opine that a U.S. recession would cause oil prices to sink (probably true), others point out that rising world demand (particularly from China and India) would put a fairly high floor under any drop in oil prices, making the prospect of further Fed cuts more unlikely and hence prolonging and deepening any such recession.

Lastly, here's a link that summarizes a recent article about rising costs of oil extraction that appeared in the Wall Street Journal. Noteworthy is that Cambridge Energy Research Association - a.k.a., industry shills - note that oil production costs have risen 80% in the past seven years. The finance firm Lehman Brothers estimates that production costs will continue to rise by $5-10 a barrel for the next several years. This is, very simply, a function of peak oil, and can be alternatively stated as EROEI: "energy returned on energy invested." Peak oil not only means that there is less overall oil, but that what remains becomes increasingly difficult and hence more expensive to extract. What we will experience as higher prices is actually a result of declining supplies of ever more inaccessible oil. We'll have less overall energy, and hence less overall wealth and less real economic growth as a result. Hence, "stagflation": economic stagnation combined with rising prices. This is something market-based economic theory doesn't account for very well, in significant part because it treats oil as just another commodity rather than the very lifeblood of the modern capitalist system. It remains to be seen whether capitalism is viable in the absence of growth, a possibility it has never had to confront since it is an economic system that has only existed during the fossil fuel age.

Most people assume we are just going to innovate our way to a new energy source and continue to live in our happy motoring paradise. Mackubin Owen - a conservative professor of National Security Affairs at the Naval War College (and sometimes contributor to "No Left Turns") - tartly dismisses this belief as "fairy dust" energy policy. Alternative, i.e., renewable energy forms simply do not carry the same energy punch as fossil fuels, and hence easily accounts for why we aren't rushing to adopt them. He writes: "The reason such energy sources need subsidies in the first place is that they have intrinsic shortcomings. Energy available from wind and solar is dispersed rather than concentrated - which means that windmill or solar-panel farms must be huge to generate much power. (Even then, clouds and/or lack of wind can slow or stop production, so utilities would need non-fairy-dust backup generators)." In short, alternative energies are both far more expensive and more unreliable than oil. At the point when these energies begin to "cost less" than oil, we will rush to adopt them. But, this means that we will actually have less overall external energy. To use adopt phrases of my colleague Joshua Mitchell, we will move back from "geologic" energy to "annual" energy. We will return to energy use provided annually by the sun and what is stored by living plants rather than the accumulated but non-renewable energy stockpiled by decaying plants over millions of years. We will return to an energy form that has been used by humans since their appearance on the earth until an exceedingly brief energy blow-out during the Industrial era.

Owen engages in a bit of wishful thinking in his own right, advancing the oil industry's fondest wish of opening up new production in the few remaining pockets of oil in the States. Even were we to pursue this strategy (and I think we will, eventually - humans don't have a good record of not extracting and consuming stuff they desperately want), it would provide only a few years worth of domestic energy at current consumption rates, and lower the price of oil only negligibly. We'd still be facing the headache of depleting resources, except that we would further exacerbate the problem by momentarily pretending that there was still plenty of oil and hence we could still build and behave delusively.


All these articles - published in mainstream outlets - suggest that Americans are going to find President Bush Sr.'s statement that "the American way of life is non-negotiable" may have been a bit premature, and that the "contract" is about to come up for re-negotiation. Mother nature is going to offer us a set of terms that we are going to find hard to refuse...

5 comments:

Anonymous said...

Most people assume we are just going to innovate our way to a new energy source and continue to live in our happy motoring paradise. Mackubin Owen...tartly dismisses this belief as "fairy dust" energy policy.

Yeah, Owen is really well versed on science...not.

This "doom" view was often said about farming before the industrial revolution, but the discovery of the engine by Newcomen completely changed the picture (economic growth start to double every decade not thousand years). Nobody guessed it - it came out of nowhere. And when they began to fuel factories, this threw a monkey wrench into all of Malthus' carefully organized arguments.

Right now, fusion is the next best thing. This is not "fairy dust". The sun does it every day, converts matter to energy. It seems a logical, reasonable position new energy sources will be sought out and improved. You just can't fund that research on peanuts; you must have high energy costs to create the need for it.

Of course, there has been no real national effort to seek fusion because energy is so cheap. When it gets more expensive, we could see another Manhattan project for fusion.

Newcomen would have never built his engine unless the coal mines were flooding. Nobody is going to go after fusion until we need to. But don't count mankind out. History is littered with one-dimensional arguements that have failed due to something new.

One example: oil was first drilled in search for kerosene, to be used for lighting. Today, we have just discovered new LED lighting that uses 1/10 the energy of previous LED. So be careful! Conservation and tweaking how we use oil alone could push the energy crisis out by decades or more. You and I might be dead before peak oil really puts the squeeze on us.

Look, I agree peak oil is real (I log oil wells for a living). But don't fall into a one-track mindset. Personally, I thought the '70s were the "big adjustment", and we've had another 40 years already.

if you look at your post just a week or two ago about the doom and gloom stock market: well, it's at record highs again...

Oengus said...

Have you read James Howard Kuntsler's book entitled "The Long Emergency" yet? In it he tries to tackle the issue of what exactly happens when our hyper-suburbanized society runs out of cheap energy. According to him, it's not going to be a pretty picture.

Patrick Deneen said...

M_David:
Your view from the fields is always welcome, and you're right: we might just innovate our way out of the problem. Isn't it legitimate to ask, what if we don't? You're playing with fairly high stakes to wager that the fate of civilization is going to hang on whether we figure out how to harness fusion.

As to the stock market, its rise has had something to do with the Fed's cash infusions and rate cut. Just as has the predictable other consequences of a falling dollar and rising gold and oil prices. Good days to be in the oil industry, but maybe not if you're a basic wage earner.

Basically, past performance is no guarantee of future results.

And to Oengus: yes.

Anonymous said...

Isn't it legitimate to ask, what if we don't?

Absolutely. I would give it at least 50/50 the world will face a massive, world-changing energy crisis within the next 20 years. How's that for a pathetic, wimpy prediction? :-)

Good days to be in the oil industry, but maybe not if you're a basic wage earner.

Again, I agree 100%. And the potential stagflation will simply ruin the basic wage earner if oil gets much past $200/bbl.

The cognitive elite in all fields are living the dream these days (the top 20%). The bottom 25% are suffering badly, with social decay following at an astonishing rate. And every year that 25% gets bigger. A republic cannot survive like this. I cannot see an endgame here that is good.

Unknown said...

I second m_david's take. There's nothing certain (let alone fast) about the effort to develop fusion, but it hasn't hit a definite roadblock yet. Though you'd never know it from people who have been getting smiles with "your grandpa's energy of the future" for decades, or who figure it must be a nuclear-industry mirage. (Actually the nuclear industry is virtually silent about fusion. At best no one will make money from it until after everyone there has retired, and meanwhile every mention of fusion points up how fission, which they are selling, isn't really what we'd want. So fusion has had precious little lobby beyond the researchers...)

Besides, it's either gear up for the fusion push - or believe too much in the solar income and reap the whirlwinds - or go deep into coal liquefaction and nasty breeder reactors. You've got to do something. Here I should suggest a 2002 Science article, which asked which technologies would be adequate to enable real global warming abatement with China's consumption growing. The capacities mentioned are just as relevant to "what do we do as we run out of oil?" You can find it in PDF at http://people.mcgill.ca/files/christopher.green/981.pdf