The high energy prices that have put this year into the record books have also fostered the rebirth of a concept most Americans aren’t comfortable with — conservation.
This time it’s not just about sweaters and fireplaces. It’s about energy efficiency. And it’s hot. Homeowners are bulking up with extra attic insulation and talking about setting their thermostats lower. Motorists are downsizing or at least thinking about it.
Oil and gas producers are using new technologies to pull crude and methane out of old fields or coal seams. Startup companies are making natural gas and diesel fuels from coal, methane from biomass, hydrogen from water, and ethanol from corn and now, even straw.
Wind and solar companies are optimistic as never before. And car makers are designing and producing hybrids, dual-fuel gasoline-ethanol cars and even fuel- cell-powered vehicles.
What could go wrong?
Energy prices could plummet.
That would kill off promising new technology companies, eradicate sentiment for more efficient cars and homes and return the nation to a life of energy gluttony — until the real crisis arrives.
“Most of these companies are small, untested. They may have brilliant ideas, but whether they can commercialize them mainly depends on the maintenance of high oil prices,” said Charles Maxwell, senior energy analyst with Weeden & Co. in Greenwich, Conn., and an independent adviser to institutional investors.
It happened before, he said, after the crises of the 1970s and early ’80s — when gasoline was scarce and seemed exorbitantly priced. Oil companies and the Energy Department forecast that oil would soon cost between $80 and $100 a barrel.
They had it wrong. Energy entrepreneurs blossomed, only to be wiped out when the bottom dropped out of the crude markets in the middle ’80s and the nation was awash in $10-a-barrel foreign oil.
This time really is different, say Maxwell and a growing chorus of analysts who think the Oil Age is entering a new era.
Global oil production will not keep ahead of galloping global demand, they say, and total production levels could peak and then gradually but irreversibly decline despite new exploration, just as U.S. oil production peaked in 1970 and now declines annually.
Time estimates for this nightmare scenario — when total global production permanently heads south– range from a few months from now to a couple of decades. About 40 percent of the energy analysts and geologists agree that the clock is ticking, Maxwell said.
The major oil companies and the U.S. Department of Energy, however, predict that over the next 20 years world oil production will increase by 70 percent — from 70 million barrels per day to 120 million — to meet anticipated demand.
Nonsense, said veteran oil geologist Henry Groppe, a Houston-based independent analyst who began his career in 1945 and who is today a consultant to global corporations as well as to nations. “Total crude oil production may have peaked this year,” he said, “or perhaps will peak next year.”
Trouble is, the public may not immediately notice it, he said. Globally, things will appear to even out over this decade because producers are turning to natural gas liquids to fill the gap in crude supplies. And developing nations are replacing oil-fired power plants with coal-fired boilers, a move that will save millions of barrels per day.
Reducing oil consumption — either by switching fuels or by conservation — is crucial in the long run, Groppe said.
Even if consumption is reduced, crude prices probably will stay above $50 per barrel, he said, because the cheap and easy- to-find oil has already been tapped, new fields are small, and new wells are enormously expensive.
Maxwell is even more price pessimistic. “I see the price of oil consistently going up faster than inflation,” he said. “It will become more and more expensive.”
James Schlesinger — who served as CIA director in the Nixon administration, defense secretary in the Nixon and Ford administrations, and energy secretary in the Carter administration — said the nation is already “plagued by energy insecurity.”
In testimony this month before the Senate Foreign Relations Committee, Schlesinger urged lawmakers to begin preparing for declining supplies and increasing prices in the coming decades. “We are faced with the possibility of a major economic shock and the political unrest that would ensue,” he said.
For the present, gasoline prices are likely to stay in the $2-to-$2.25-per-gallon range, but they will remain volatile because there is little excess crude or fuel capacity in the world.
Frequent price spikes followed by temporary declines in the coming years could easily blind the public to what is happening, said James Halloran, energy analyst with National City Private Client Group in Cleveland. They will believe what they hope — that the problem has been solved.
“Conservation is fine as long as you don’t have to change your lifestyle,” said Halloran. “What people want is cheap energy, and they will not change until they are forced to.”
Revisiting old oil and gas fields with new production techniques, drilling deeper wells, producing oil from tar sands and synthesizing motor fuels from natural gas could delay real shortages, he said, and maybe buy enough time for new technologies to mature.
But the other side of the equation — using less — is key if en ergy is to remain a managed problem rather than mushroom into a crisis. And societal changes would be evolutionary, said Halloran, not revolutionary.
And that’s the dilemma.
“In a free society, you can’t get anybody to do something today because there is going to be a problem tomorrow,” said Groppe, the independent analyst.
© 2005 The Plain Dealer
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