I recently finished reading The Quest by Daniel Yergin. This book of over 700 pages has the sub-title, "Energy, Security, and the Remaking of the Modern World." I enjoyed Mr. Yergin’s previous book, The Prize, and I knew that this book discussed global warming. I was hoping that he would explain the scientific support for global warming and any basis for doubting it. He covered those subjects adequately enough for me to write a blog about The Quest.
However, when contemplating doing so, in addition to the scientific support for global warming, I felt that two other issues should be covered by the blog. The first is Peak Oil production and where are we going with the issue of energy sufficiency for the world. The remaining issue was the role of alternative energy. These three issues combine to form a necessary understanding of where the global economy can go and what standard of living the human race can expect to enjoy over the foreseeable future.
So this will be the first of three blogs. I intend to cover Peak Oil in this one, global warming in the second, and where energy is going to be in the future in the last one. Any facts and quotes are from the book and attributable to Mr. Yergin.
The concept of Peak Oil Theory is that the world is running out of oil and there will be an economic crash when it occurs. However, energy is a critical component of economic activity. Oil, natural gas, coal, and other ways of creating energy form the supply of energy in any year. The demand for each form of energy establishes how much of each is used in any one year.
Knowledgeable people have been predicting that oil production will decline for over 100 years. While it is inevitable that this will eventually occur, it has not occurred because developments in technology have expanded our ability to access supply and improve efficiency in the use of energy to extend the life of that supply.
Yergin believes (and it is his profession to study this issue in detail) that “The world has decades of further production growth (in oil) before flattening out into a plateau – perhaps sometime around midcentury – at which time a more gradual decline will begin.”
This forecast is not without risk, but the peak concept “assumes limited technological innovation and that economics does not matter.” In other words, this oil may only be available if the price rises sufficiently. The same issue pervades the development of all the other forms of energy. The pricing needs to be sufficient if it is to be developed. This is why oil wells routinely flare natural gas that comes up with the oil. The price of natural gas does not support the cost of capture and transmission. Environmental issues may prevent development but even they can usually be overcome at some level of pricing. Of course, high prices will affect economies differently.
How can Yergin be so sure that Peak Oil is so far off? In a traditional field only a bit more than 1/3 of the oil is pulled out with traditional methods. New technology has been developed over the last 20 or 30 years that significantly increases that percentage. It can be used on fields that were no longer producing as well as ones currently producing. Yergin estimates that this increases the known supply by 125 billion barrels. Oil Sands and hydraulic fracking are increasing North American supplies with the potential to be used elsewhere in the world. Then there are the underwater supplies to be found through the use of modern imaging techniques as has been done in Brazil.
In total, Yergin’s data shows that about 1 trillion barrels of oil have been produced since the start of the industry. Current economically accessible reserves total 1.4 trillion barrels with another 3.6 trillion potentially available depending on pricing, technology and environmental reasonableness.
The world uses about 93 million barrels of oil a day and is projected to use 110 million barrels a day in 2030. At that rate, the proved and probable reserves will last 33 years or 2045. Then the 3.6 trillion will start to be used.
That is the supply side. On the demand side, there are two overriding issues. The issue that will increase energy demand is the growth in automobile utilization as the emerging markets populations use their increased wealth to buy more cars and transport goods. Counterbalancing that, the developed world has already doubled fuel efficiency and can probably double it again before you even begin to consider the use of electricity in cars or the use of alternative fuels and that technology will move to the developing world rapidly.
So, the world is not going to run out of oil in the next 50 years and probably not in the next 100 years.
But the economics of energy will not be stagnant nor can the ecological issues be ignored. I will cover this in the next two blogs.
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