The Intractability of the Built Environment

If climate change worries you most, then you cannot be happy to learn that oil from Alberta tar sands is about to supply the biggest chunk of US oil imports. Indeed, if peak oil concerns you most, or if the future of the US economy concerns you most, you cannot be happy to hear this news either. For you economists, oil from Alberta is not cheap. It must reflect the massive amount of engineering required to establish a tar sands mining operation, and, the energy cost of cooking oily dirt to extract oil. For peak oil folks, that the world must turn to tar sands is just one more confirmation that the cheap conventional crude is now in decline. So what to do? First, let’s take a look at North America oil supply over the past 20 years. This is the oil produced by Canada, the US and Mexico:

Here in United States we like to outsource the extraction of our oil supply to anyone but ourselves. We don’t particularly want to see the results of our own demand for liquid fuels, the pull from our 300 million vehicles and our four million miles of highways. We’d prefer that someone else–preferably far away–despoil their own landscape. And we’ve done quite a good job over the past several decades to make sure that’s happened, as the amount of oil we’ve had to import from the Mideast, from Africa, from Mexico and Canada has skyrocketed. This background is helpful in framing the BP well blowout in 5000 feet of Gulf deepwater. The reality of our oil demand has now touched home. In fact, it’s washing up on our coastline.

In the previous world of Ricardian Comparative Advantage, the decline of North American oil supply didn’t matter so much. But now that oil is no longer a cheap widget that can be efficiently sourced globally, regional and domestic supplies have started to matter. Whether or not you agree with solutions like the Pickens Plan (opens to video page at the recent Milken conference), you at least have to give Mr Pickens credit for identifying the problem: a very nasty mechanism, if you will, of increased capital outflows for increasingly expensive global oil is now at work like a buzz saw on the US economy. And it’s only going to get worse from here.

If the solution to a problem is unsufficiently scaled to the size of the problem, then at best we can say it’s a token solution. And token solutions are what the US has been trying out for 40 years, on the matter of energy. 8 billion for High Speed Rail? Sorry, but the restoration of rail in this country is an 800 billion dollar project and that would be just for the first wave. Adoption of electric vehicles, as part of some cultural need to maintain US car culture? Sure, at realistic adoption rates you might be running mostly on EVs in 150-200 years. Switch the powergrid to 100% renewable resources like Wind and Solar in ten years? Not likely. But maybe if you are willing to withdraw the entirety of US armed services from overseas, devote the entire military budget for 10 years, and match that workforce with highly skilled workers from the private sector, then maybe you can make a dent by 2020.

When a politician tells you they want to solve for climate change while investing heavily in automobiles and highways, rest assured that is decidedly unserious. When former politicians claim you can have an all renewable powergrid in ten years, that is not helping anyone. When academics tell you that we can be operating in an all renewable world by 2030, but have nothing in their model to account for the energy needed to build that new world, that is simply not good enough. Nota bene: nearly all energy transition plans and especially plans to transition to alternative energy depend on economic growth. All those models assume there will be a sufficient inventory of growth that can be redirected to a different energy architecture. As you contemplate this, also realize that to construct a lower carbon-emitting future poses a question: what is the energy source that will be used, to conduct energy transition?

Perhaps a glance back up at the chart of North American oil supply will help clarify the problem. The United States occupies an enormous swath of the continent, and has added most of its current built environment during the fossil fuel era. The country was built on coal and oil. Indeed, it’s still running on coal and oil. And the intractability of this infrastructure is why energy transition is so hard. It is unserious therefore to say that it will be easy or quick to start running it on different energy sources. And I would suggest that anyone who makes that claim, or naively supports those who do, should be disqualified from the conversation. If you want political traction on climate change or peak oil issues–which are both problems of energy transition—then only an accurate confrontation with scale and time will suffice to make contact with the problem.

-Gregor

  • inegoveritas

    Very good piece Gregor.
    Most people want to believe we can have our “alternative energy” cake and eat it too.
    Human nature I guess.

  • That is great. So here's a good economics question- what is the extra price/tax on carbon that will get us going in the right direction at the requisite scale?

  • Miles

    Thanks to slowing economy, oil is now plentiful and prices declining. This will make it even harder to achieve a consensus in the near future,since the necessary price signal won't be there.

  • gregor.us

    I'm not aware that oil is plentiful, or that prices are declining. The prices that matter to the economy–average annual prices–are significantly higher and have achieved a new price regime. Here are average annual prices for each year starting in 2001, with the final figure of 2010 being YTD:

    25.98
    26.18
    31.08
    41.51
    56.64
    66.05
    72.34
    99.67
    61.95
    80.05

    What is difficult indeed, and to your point, is that price volatility itself–more than price level–si the real killer to transition investment. But, that said, it's much more complex. For example, the cultural and analytical bias of those who control the capital is a big reason why we are not transitioning. Incoherent public policy is another.

    G

  • gregor.us

    The price on carbon model as a trigger for energy transition has two weaknesses, imo. Though, the model is valid intuitively and probably has its place within the total solution set.

    First, it's clear so far that neither developing nor developed countries will elect a carbon price high enough to trigger the outcomes expected by advocates. So, this combines both a socio-cultural limitation and political limitation with an economic limitation. For now, the best politicial leaders are able to do is adopt token agreements. And token agreements won't cut it, economically.

    The second problem is more foreboding. For, it is now clear to me that the entire Global Climate Change movement–just like everyone else–has been predicating their model on the assumption that the world has economic growth to draw from, in the entire range of cap and trade, carbon tax, or other schemes. This assumption is so embedded, and yet so crucial to the carbon tax model, that many don't see it.

    I'll be writing more about this.

    G

  • Pat

    Don Paul (ex CTO of Chevron) has a good presentation on “Scale” and noted that figures on biofuels and ethanol are always given in gallons/year so that they are not compared. The numbers below are not his, they are from the newspaper – i just converted to some common units. We consume about 20MMBBLS/DAY of oil in the US. We consume about 60 billion SCF/D of natural gas which is equivalent to about 10 MMBBL/D and 1 Billion short tons of coal per year which is equivalent to about 12 MMBBL/D. As of last year, the entire us production of biofuels (mostly ethanol) was under 0.8 MMBBLS/DAY and we do that only because of the massive tax benefit given to the producers plus burning enough food to feed over 300,000,000 people. This was at a huge cost that we could afford a few years ago that will cause our economy havoc.

  • Crocodile Chuck

    re: Energy Transitions: these have always been tumultuous through history; the impending one to be the first wherein we transition DOWN to less energy dense forms, ie from oil to coal, wind or solar. And, as you correctly note, the CAPEX for this alone will be tremendous.

  • gregor.us

    I'm surprised no one has yet has come on to challenge my swipe against EV adoption. Over at Seeking Alpha, however, a few commenters are very much living in the previous era of automobile turnover rates.

    In the previous era, we might have turned the passenger vehicle fleet over in 15 years. Those days are gone. For good. We are in a new era now.
    http://www.calculatedriskblog.com/2010/04/vehic

    And this does not even begin to address the exceedingly poor prospects for EV adoption on a standalone basis, owing to cost. Wait until Americans truly get their head around a very expensive vehicle that does not have alot of range.

    Like I said, I will buy one eventually. But I am not a good sample.

    G

  • Great article. Submitted it to Digg; hope that it expands your readership. Under Roosevelt, Oppenheimer got all the resources he needed to build an atomic bomb, but when it comes to transitioning away from fossil fuels, no US administration is able to forcibly make the case to the American people, even though the future of American society hinges on making the change. Instead, it takes an authoritarian top-down system such as China's to read the writing on the wall and take some action. Sad.

  • Militiades

    Another thoughtful article. Too bad I have to go to an obscure website to read about the real world difficulties of transitioning from a carbon based energy to other other forms.

    The traditional media seems to think you can wave a magic wand and …poof… all your problems will be solved if you just have the political will to move in that direction. It would take enormous sacrifice by the living generations of people to make the transition for the benefit not yet born. A foresight by a magnitude that have never shown that level of altruism in human history.

    Not going to happen. The track record of civilizations are inevitable collapse. This one will be no different for the same reasons. Too many people to be supported by the limits of their technology of the time. I had hoped the highly educated American President Obama might show some promise but I have found him to be a typical politician. Not the educator that Americans and the rest of the world so desperately needed. The collapse will almost certainly come in this century regardless of our personal desires to see continuity. That said I used the word “almost”. Maybe we can get an extra century or two, hope springs eternal.

  • “a very nasty mechanism, if you will, of increased capital outflows for increasingly expensive global oil is now at work like a buzz saw on the US economy. And it’s only going to get worse from here.”

    Actually, at that point, things will get better, not worse. Once oil reaches a certain price, then the vast amounts of US shale oil become economically viable, as, too, would gas- and coal-to-liquid processes. Once the peak of cheap oil has been passed, then the pendulum swings the other way. At that point, the US not only stops transferring dollars overseas in return for oil, it also becomes a major energy exporter and sucks money back in. Win-win.

    Welcome to the Second Age of Oil. Or, perhaps more precisely, welcome to the Age of Shale.

  • gregor.us

    Thanks for the welcome to the Age of Shale, as you call it.

    I will restrict my remarks to Shale Oil, as found in the Colorado Green River formation. I will not, in my response, be referring to oil from shale regions as found in say the Bakken formation of North Dakota.

    OK. It doesn't matter if oil goes to 1000 dollars a barrel. Because Shale Oil is a seriously negative EROEI resource, whose extraction at scale would require more electricity than we could provide–or that we would decide to provide. And, it would make the Third Reich's negative EROEI conversion of coal to liquids look fantastic, by comparison. Over the past 5 years I have:

    1. See Oil Shale recovery/technology presentations made by various people and companies, like Raytheon.
    2. Read the technical papers.
    3. Seen the work done so far by Shell et al, and read that history.

    It's never going to happen. Not at scale. In fact, the fascinating thing about Shale Oil recovery is that its prospects actually worsen, at scale. The experiments so far have generally been restricted to cooking the kerogen out of the rock after removal. At scale, however, you are talking about in situ extraction.

    If your comments instead were about oil from shale regions, then the Bakken is already proving that we do not need super high oil prices to extract that oil.

    Hope this helps.

    Final word: if there was any recent work in the last 6 month on the recoverablility of Oil Shale that mattered, I would know about it.

  • gregor.us

    You got it. Let's consider that the vast majority:

    1. Has no idea we have entered another energy transition.
    2. Is unaware that the previous two energy transitions were marked by going from lower to higher energy-density sources. And, that this transition is quite the opposite.

    See the comments upthread from those who believe in the glory of the price signal, as the savior that triggers a new set of wonderful energy solutions.

    G

  • gregor.us

    Indeed.

    There is also the Eames classic: Powers of Ten

  • gregor.us

    What's quite notable in the green/climate blogging and journalist community is that the illiteracy on Scale and Math and Energy is so widespread, that they don't even see how the resources devoted by any American President and Congress to the Auto-Highway complex dwarfs the tokenism of any climate change legislation, or current iterations of public transport initiatives, or Dept of Energy alternative energy initiatives.

    Our “best and brightest” are of course a huge part of the problem.

    G

  • Nice to see the message from Peak Oil and Archdruid leaking elsewhere for a change.

  • Neil_Shirtliff

    Great information about the negative energy balance of the kerogen shale plays. I am wondering, though, what the fundamental difference is with the Bakken shale district that makes that oil feasible to extract.

  • Neil_Shirtliff

    Great information about the negative energy balance of the kerogen shale plays. I am wondering, though, what the fundamental difference is with the Bakken shale district that makes that oil feasible to extract.