Ten Inconvenient Truths
Written by Hugh Sharman   
Thursday, 28 April 2011

We recommend our readers to down-load and read (and comment upon) the current article published by the European Energy Review at  http://www.europeanenergyreview.eu/site/pagina.php?id=2929

Matthew Hulbert's important paper opens up a veritable Pandora's box of disturbing questions with the likelihood that many resulting answers will add to the growing list of no less disturbing "inconvenient truths" kicked off by Mr Hulbert.

Even if there were a scientific basis for doing away with fossil fuels on the highly questionable basis that these can entirely be replaced by so-called "low carbon technologies" (meaning to most "renewables", as new nuclear fights for its political life), the state of development of most of these in terms of supplying reliable and affordable electricity and energy and feed-stocks for manufacturing, transport and heating is, unfortunately, almost devoid of real content.

Even though fossil fuels have increased in price by a factor of roughly ten (oil) and five (internationally traded coal) since 2001, investment in new renewables seems ever more reliant on tax payer or consumer subsidy.  The renewable energy industry seems incapable of addressing the extreme intermittency of their resources intelligently.  The whole business sometimes seems to be more a moral or religious crusade than a truly serious attempt to address the pressing challenges and problems of the 21st Century.

With the greatest respect to the author, he seems to accept that there really is a significant cushion of surplus extraction capacity in Saudi Arabia, while accepting the obvious fact that there practically no such thing in the rest of OPEC.  Does this cushion really exist?  Because of the intense secrecy surrounding the publication of OPEC's economically recoverable hydrocarbon reserves, OECD energy analysts are reduced to accepting the assertion of this surplus as if it were a verifiable fact.  In fact, it is so unverifiable, that energy analysts often write about it in terms more suited to describing a witches brew or a magic potion.  Indeed, Saudi Arabia's behaviour throughout this current oil price supply crisis, strongly suggests that, despite its supposed concern over the obviously deleterious economic effects high prices are having its customers, it is not making this supposed surplus capacity available to us, most likely because it cannot. 

Mr Hulbert is quite right to emphasise the essentially political nature of this current oil supply crisis and the complete helplessness of our politicians and Government bureaucracies in the face of the political developments in MENA and other oil extracting economies. But he does his case no favour by denying  intractable and highly inconvenient geological facts.  Demand for oil is a prerequisite for economic growth in all industrial economies. While demand for oil continues to grow in Asia, it seems likely that global extraction capacity, at cost and price levels that are affordable to our economies has simply "maxed out". In other words we seem to be on the edge of "affordable peak oil" when depletion rates will exceed affordable and timely hydrocarbon extraction rates. The energy-importing States of the OECD, especially financially enfeebled Europe, simply cannot afford oil at $120/b let alone some of the fantasy prices currently being quoted in even serious financial newspapers and trade journals. We saw that in 2008; one of the consequences of that price spike was catastrophic demand destruction and wide-spread economic ruination.  Our enfeebled and debt-laden economies cannot afford the almost certain double-whammy now threatening.

To this oil supply crisis, the recent entry of China into the sea-borne coal market underlines the need for the OECD's coal-users and importers to be aware that "unaffordable" coal might be just around the corner.  But that will be the subject of another in DimWatt.

The flimflam around shale gas (though not in Mr Hulbert’s paper) makes no mention of the fact that for the time being and most of the foreseeable future, the USA depends on importing conventional Canadian gas and many of its shale gas properties are losing money.  Political concerns, some admittedly spurious, may prevent its development in Europe. Because compressed natural gas can be used as transport fuel and indeed is widely used already as a transport fuel, the small surplus of gas on the global market will be harnessed for transport applications, so re-closing the oil/gas price ratio at its historical level of one.  The use of gas in transportation is more likely to raise the value of gas than decrease the price of oil.

In the face of these immediate and impending challenges, it is inexplicable, to me at least, that our fading and weak economies in the OECD are led by politicians and bureaucrats still mouthing hysterical concerns over man-made global warming, while comforting themselves with the dangerous illusion that renewables will not only take over the functions presently delivered by fossil fuels but add to our prosperity by creating new industries and “jobs”.

 

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