01 March 2010

My Grandchildren's World Part II: Water and Peak Oil

One of the safer predictions one can make is that during the lives of my children and grandchildren, the price of oil will, on average, rise.

The supply of fossil fuels is finite. Our economic system systemically depletes easier to access supplies of fossil fuels before harder to access supplies of fossil fuels. Countries outside the developed world are rapidly increasing their demand for fossil fuels at a pace that is outstripping the capacity of the developed world to maintain its standard of living and become more efficient in using fossil fuels.

Peak oil is the concept that at some point, annual production of oil is going to go down, rather than up. There is considerable empirical evidence that we are closing in on this point. There is no evidence, however, that demand will go down. If supply can't grow as fast as demand does (something necessarily true if supply is falling), then prices will increase.

This doesn't mean that we will simply run out of oil. It will be possible to buy gasoline for uses where it is worth $25 a gallon for a long time. Instead, what you will see is that people make increasingly dramatic decisions to reduce their oil consumption in favor of substitutes, as the price of oil rises.

At some price, people will favor more fuel efficient vehicles over less fuel efficient vehicles. At a higher price, public transportation and freight rail (which are more fuel efficient than any low occupancy/small freight load vehicle) will see much higher use. At some price, electric and natural gas powered vehicles will make more sense than gasoline powered vehicles. At some price, biofuels and liquid and gaseous products of coal will make more sense that petroleum source fuels. At some fuel price, living in a central city makes more economic sense than commuting. At some oil price, organic agriculture makes more sense than agriculture based on petroleum based fertilizers, pesticides and farm machinery.

European and Japanese economies, whose tax structure produces fuel prices roughly double what they are in the United States, provide us with a sneak preview of what kinds of choices will be made when rising oil prices drive up the price of oil based fuels.

The task of predicting the impact of peak oil is simplified by the fact that it is overwhelmingly used in a small number of ways: for cars and trucks, for heating oil in the Northeast, for trains and planes, for farm machinery and boats, to power industrial processes, for plastics, and for fertilizers and other chemicals.

Non-petroleum fuels for home heating and industrial processes are already widely used, so the way heating oil and industrial process power needs will adapt to higher oil prices is easy to predict. Natural gas (and cousins like propane) and electricity can easily step in to replace them. Trains, planes, farm machinery, boats, plastics, fertilizers and other chemicals are high value, low volume uses compared to cars and trucks and have few good substitutes apart from organic farming, so high prices for oil are likely simply to make the associated goods and services more expensive without greatly restructuring these industries other than encouraging organic farming.

The big, complex part of understanding peak oil really boils down to what changes will happen to motor vehicle use and activities that flow from motor vehicle use as gasoline and diesel prices rise. In the analysis I've conducted before, a critical cutoff, with current technology, is the likely transition from gasoline based cars and trucks to electric cars and trucks, at least for local transportation where rail is not practical, at about $8-$16 a gallon (compared to about $2.50 a gallon in the U.S. today).

Bio-oils can be good substitutes for petroleum, but require different fuel crops, a great deal of land, and are sensitive in usefulness to the agricultural methods used (i.e. need to be produced in low energy ways to produce net energy outputs).

Note that peak oil does not meaningfully impact anything that currently runs on natural gas or electricity, except to the extent that natural gas and electricity supplies are diverted to transportation needs. Outside Alaska and Hawaii, very little electricity is generated with petroleum, and Hawaii uses far less petroleum in transportation than the rest of the nation.

One way to understand the Industrial Revolution is as the point at which we transitioned from non-fossil fuels to a coal based economy. In this view, there was then a second phase of the Industrial Revolution when we transitioned from a coal based economy to one in which petroleum played a major part. In any energy based view of our economic history, the next stage in our economy is a post-petroleum economy.

In this energy based view of modern economic eras, one of the big challenges facing my children and grandchildren will be to find a way to sustain a decent standard of high technology living in an economic environment where petroleum is far more expensive than it is today. The race is one to develop technologies and production capacity for those technologies to allow us to transition relatively painlessly to a more sustainable energy infrastructure and energy price influenced economy. If gasoline prices went to $16 a gallon tomorrow, our economy would be in a crisis. If this happens in fifteen years, after we've put lots of plug in electric vehicles on the roads and have the capacity to build or convert more quickly, it might not be a big deal.

This hope is not an impossible one. Our capacity to produce electricity with coal, nuclear power and renewable energy sources like hydroelectric, wind, and solar sources has advanced immensely from where it was sixty years ago. These sources are now capable of producing far more energy at a far more reasonable price than they could in the pre-petroleum era.

We have also learned to be profoundly more efficient in how we use energy in areas from lighting to superconducting materials to insulation to water heating to regenerative braking on vehicles to low energy ways to recycle raw materials rather than producing new ones.

Some of our strides in conservation as a concept have allowed us to heat water and to heat our homes with less energy. This together with an increased recognition of the immense waste that is involved in buring off natural gas from oil wells, and improved natural gas storage and transportation technologies, may postpone "peak natural gas" (due sometime later than peak oil) as well. And, at some price, it makes economic sense to produce natural gas substitutes from coal, which we have a supply of for the foreseeable future (subject to concerns about global climate change and other downsides of pollution intrinsically linked with fossil fuel consumption).

The lessons we've learned about doing what we need to have done with less energy have been paralleled in our understanding of new ways to conserve water. We've learned about the importance of xeriscaping and drip irrigation in arid areas. We've learned to do everything from washing clothes to washing dishes to washing cars to flushing toilets with less water. We've discovered ways to cycle water faster with gray water technologies, and ways to turn unuseable water into useable water with new desalinization and water purification technologies.

The worlds that Steam Punk culture have been envisioning are, in part, visualizations of what post-petroleum worlds might look like. They would have some echos of the pre-petroleum technological order (which would not be a complete collapse of modern civilization) modified by alternative technologies that have developed with the cheap oil glut we enjoyed in the 20th century. Modern windmills and nuclear power plants, in particular, are game changers limiting our tendency to regress without cheap oil.

Another big impact of peak oil will be on how the economic development of developing world and Third World is colored by rising oil prices. Countries like China and India (those two alone make up more than a third of the world's population) are just on the brink of transitioning to much higher gasoline powered automobile use, and to greater use of petroleum fueled industrial processes (from coal) and rising oil prices will impact what choices those countries make in the process of developing (e.g. more passenger rail v. more roads) and how fast they develop. The demise of cheap oil is likely to bias the development choices made everywhere and to slow economic development in many places that are currently moving in a petroleum dependent direction.

Then again, countries that develop in the first place on the assumption of expensive oil make experience less economic trauma as oil prices rise than those that were reliant on petroleum and have to be weaned from it.

Yet another impact of peak oil is the likely collapse of economies reliant on oil production as their supplies run out, one by one, with some countries seeing dramatically declining oil production much more quickly than the world oil markets as a whole do, and others experiencing it later. Countries like Saudi Arabia, Kuwait, Sudan, Libya, Iraq, Iran, Venezula, and Nigeria, to name just a few, could be particularly impacted, as could U.S. States like Texas and Alaska. Pressure will also mount to sacrifice the environment to allow oil production where it had not been previously permitted as prices rise.

Many of these countries are non-democratic, and the capacity of leaders to sustain a non-democratic regime has a lot to do with the ability of leaders to secure economic ends without mass cooperation, something that ceases to be possible when oil supplies wane and taxes must be imposed on the general economy to pay for public services.

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