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Peak Oil: Objects in Mirror May Be Closer Than They Appear

by Richard T. Stuebi

One of my favorite PowerPoint slides about the peak oil phenomenon comes from the dearly-departed Matt Simmons.  The slide depicted a mountain peak in an automobile rearview mirror, the implication being that we would only know for sure when peak oil production has been achieved after it has been achieved and followed by the inevitable decline.

Over the past decade, there has been a lot of debate as to when the date of peak oil would occur.  (It is worth noting that most of the argument has been about when, not whether, peak oil would occur.  Some of the more optimistic forecasters, such as Cambridge Energy Research Associates, have consistently projected peak oil a few decades out.  Some of the more pessimistic observers, such as long-time oilman Simmons himself, worried that peak oil would come much sooner, perhaps within a few years.

Now, according to a new parsing of the data in the World Energy Outlook 2010 by the International Energy Agency (IEA), it might be that peak oil production actually occurred in 2006 at about 70 million barrels per day.  This is a big shift from the IEA’s prior analysis in 2008, in which it projected that conventional oil production would slowly climb for decades to come.

To be clear, there is a bit of semantics at work here.  “Conventional” oil production represents black crude coming out of the ground in liquid form via wells, and that type of oil production may have peaked.  For sure, it’s getting harder to get:  big finds of conventional oil these days are the exclusive domain of multi-billion dollar big oil companies, working in the deepest places in the remotest places on the globe.

But, as you might have guessed by now, demand for transportation fuels (which historically are derived almost solely from oil) hasn’t peaked.  So, what’s backfilling the decline in conventional oil production?  Unconventional oil production – primarily tar sands from places like Alberta, and to a lesser extent natural gas liquids and (maybe more in the future?) coal-to-liquids – and biofuels are making up the difference.

What can declining conventional oil production mean?  For sure, it can only mean upward pressure on crude oil prices.  It also means that alternatives for crude oil in transportation markets become more economically appealing and more widely utilized.

However, the economics and availability of substitutes for conventional oil remains a great concern.  According to a recent study published in Environmental Science and Technology by researchers at the University of California, Davis, the stock market is projecting that the substitutes will not be economically-viable in large quantities at anywhere near the pace that they may be demanded.

Of course, the stock market is not a perfect predictor of anything.  However, if one accepts that the stock market reflects an incredible quantity of information processed by many very sophisticated market participants and further that on average stock prices are properly valued, the findings suggest that the market in aggregate isn’t seeing any huge near-term opportunities to replace oil in a major way.

If peak oil has indeed already occurred and if alternatives aren’t at the ready at competitive price points in meaningful volumes, then it is almost a virtual certainty that we will see some combination of significantly higher oil prices and/or oil demand destruction through reduced economic activity. 

It’s not a pretty picture staring back at us in the mirror.

Remembering Matt Simmons

by Richard T. Stuebi

It was barely reported, but on August 8, the cleantech world lost a very important messenger, Matt Simmons.

In 1974, Simmons founded the energy-focused investment banking firm Simmons & Company, which came to serve many of the most important oil and gas firms in the world. Simmons personally came to be known as a savvy and controversial analyst of the fundamentals of the petroleum industry, and advised not only corporations but also President George W. Bush on energy matters.

In the early 2000’s, with oil prices at low levels and while practically no-one else was watching or caring, Simmons exhumed the peak oil theory and gave it strong analytical support — and maybe more importantly, an unsurpassed level of credibility, as most proponents of the peak oil notion had been viewed as marginal extremists. Simmons’ 2005 book Twilight in the Desert is a must-read for anyone concerned about the future of energy, as it strongly makes the case that the decline of the massive Ghawar field in Saudi Arabia is inescapable — and with it, the prospects for ever-increasing oil production and petroleum-fueled economic growth can only be fantasy.

No doubt, Simmons’ views made him an unwanted commentator among many in the oil bidness. He had gradually stepped out of the firm he founded and made a global presence, in part because of some negative remarks he made earlier this summer about BP (NYSE: BP) in the wake of the Gulf oil spill. He had retreated from Houston to Maine, where he was a key figure in the formation of the Ocean Energy Institute to pursue offshore wind and other forms of ocean-based renewable energy. Although not a die-in-the-wool tree-hugger, Simmons was one of the few Texans that had seen the light that fossil fuels — regardless of their desirable energy density — were ultimately a road with a dead-end, and foresaw the need to begin moving to new forms of energy production.

I only met him once, but I will miss Matt Simmons, as he was a powerful force for good in the cleantech world.

Richard T. Stuebi is a founding principal of NorTech Energy Enterprise, the advanced energy initiative at NorTech, where he is on loan from The Cleveland Foundation as its Fellow of Energy and Environmental Advancement. He is also a Managing Director in charge of cleantech investment activities at Early Stage Partners, a Cleveland-based venture capital firm.

If Larry King Wrote My Column….

by Richard T. Stuebi

You heard it here first: the energy consultancy Douglas-Westwood is claiming in a May 11 white paper that “peak oil” may have already happened, as far back as October 2004, and that the oil price boom followed by economic collapse is indicative of how things will play out over the decades to come as oil supplies are unable to expand in the face of increasing demands. Stay tuned….

The American Wind Energy Association (AWEA) exposition WINDPOWER 2009 attracted 23,000 attendees to Chicago earlier this month. Glad AWEA didn’t ask me to do the headcount!….

Your stock portfolio isn’t the only thing that’s plummeted. According to a snippet in the March 2009 issue of Power, so too have PV prices fallen, by an estimated 10% since last October, with a further 15-20% decline expected in the coming year. Seems that, after several years of tight supplies, there’s now a glut in the market, due to collapsing demand in Europe….

Lots happening in DC these days. Looks like cap-and-trade requirements for carbon dioxide emissions are making real progress, embodied in the grandiosely called “The American Clean Energy and Security Act” (H.R. 2454) — better known as the Waxman-Markey bill. Cap-and-trade might even pass the House sometime this summer. Don’t think it’s going to be so easy in the Senate, though….

The U.S. Department of Energy (DOE) has created ARPA-E, to fund the initial evaluation of new whiz-bang ideas for energy, just like DARPA’s been doing for out-of-the-box defense gizmos for decades. One can only imagine what’s going to come out of that shop in years to come….

It also appears that the e-DII concept floated by Brookings earlier this year, to create Clean Energy Innovation Centers mainly affiliated with universities, is gaining traction, now having been tucked into the Waxman-Markey bill. Wonder what the national research labs, such as NREL, NETL, ORNL, LBNL and other alphabet soupers, think of this?….

Speaking of NREL, hats off to Joel Serface, who just completed a year’s residence there on behalf of uber-VC firm Kleiner Perkins to help accelerate technology commercialization and spin-outs from the lab. A year in Golden/Boulder is hardly hardship duty, but as Joel indicates in a recent post at this very CleanTechBlog site, it wasn’t enough time to make much of a dent in the bureaucracy….

Congratulations to my former colleague Cathy Zoi, who’s been tabbed by President Obama to lead the Office of Energy Efficiency and Renewable Energy at DOE. Wish her good luck: she’ll need it!….

Let’s hear it for Joseph Romm, now a Senior Fellow at the Center for American Progress. He calls ‘em like he sees ‘em. In a note in the May/June Technology Review, Romm claims “it’s not possible to have a sustained economic recovery that isn’t green” and calls our economic system a “global Ponzi scheme: investors (i.e., current generations) are paying themselves (i.e., you and me) by taking from future generations.” Whew!….

The U.S. Chamber of Commerce just released a study performed by Charles River Associates estimating 3 million jobs to lost in the U.S. by 2030 as a result of climate change legislation. Last year, the Chamber commissioned a similar study announcing a similar doom-and-gloom result. I’m not saying there won’t be job losses as a result of cap-and-trade – there certainly will – but I don’t think it’s going to be apocalyptic either….

Gotta hand it to Bob Galvin, former Chairman of Motorola. Not content to be retired, he has launched the Galvin Electricity Initiative to promote a “Perfect Power System” to help prevent future blackouts. In a sense, he’s trying to Galvinize the grid….

Last Wednesday evening, the Cleveland Chapter of the American Jewish Committee honored The Cleveland Foundation for its advanced energy initiative. Accepting the award on behalf of the Foundation was President and CEO Ronn Richard. A good time was had by all….

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become Managing Director of Early Stage Partners.

Thank Goodness for Contrarians

by Richard T. Stuebi

One of my favorite bumper-stickers of all-time reads “My Karma Ran Over Your Dogma”.

In addition to being a wonderful word-play, the one-liner reflects my deep disdain for those who are far-too-certain of their positions — whatever their positions may be. I haven’t done any statistical analysis, but I often find that the strength of people’s opinions is inversely correlated with their knowledge of the subject.

So, it’s actually a service to be reminded by intelligent people offering alternative views with substantial supporting evidence that what we think we really know may not actually be truth.

In the energy realm, I’ve encountered a number of articles by or about very accomplished and expert individuals who don’t subscribe to conventional wisdom.

For instance, in late March, the Sunday New York Times Magazine ran a provocative article called “The Civil Heretic”, profiling the Princeton mathematician Freeman Dyson, who has been the subject of significant and hostile criticism for suggesting (as has Bjorn Lomborg, author of The Skeptical Environmentalist) that too much concern is being paid to the phenomenon of climate change.

On the oil front, Ruchir Sharma, the head of emerging market research at Morgan Stanley (NYSE: MS) wrote an article in the April 20 Newsweek entitled “If It’s In the Ground, It Can Only Go Down”. Sharma doesn’t buy the peak oil theory, and argues that the long-term trend of declining oil prices will re-emerge.

Even if you disagree with their positions, you can’t say that they are stupid people. There are grains of truth in their arguments that we are all well-served to recognize and embrace.

As stated so beautifully in The Tree of Knowledge by Humberto Maturana and Francisco Varela:

“The knowledge of knowledge compels. It compels us to adopt an attitude of permanent vigilance against the temptation of certainty. It compels us to recognize that certainty is not a proof of truth. It compels us to realize that the world everyone sees is not the world but a world.”

We must be honest with ourselves in admitting that the future is not knowable with certainty in advance, and that all projections can at best be only grounded speculations. Being confronted by obviously smart and wise people who hold different views than ours about the future is a good exercise in humility for all of us. If we respond thoughtfully to considerate alternative views, we are driven to re-examine our own thinking and logic, and strengthen or alter it accordingly.

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become Managing Director at Early Stage Partners.

What Goes Down, Must Go Up?

by Richard T. Stuebi

as posted to Huffington Post

About 60 miles west of Cleveland, Cedar Point is world-renowned for its scary roller-coasters. However, Cedar Point has nothing on the oil markets.

At the turn of 2007/2008, oil was at the cusp of $100/barrel — a price that was considered a kind of mythical barrier, due to its three-digit numerology. Well, it took just a day or two into 2008 to broach that level, and by July, oil was approaching $150/barrrel — an increase of 50% in 6 months, and fully 6 times the levels that prevailed just 5 years previously in 2003.

Then, the bubble burst, violently: in just the six months since the summer, oil prices have collapsed, falling by about 75%, to below $40/barrel.

I am reminded of the classic Vince Lombardi film clip, in which he yells out incredulously from the sideline, “What the hell’s going on out here?” People ask me, as if I should know, because I’ve been involved in the energy industry for over two decades, but alas: I can’t figure it out. And, I’m not alone.

For instance, consider the December 10 presentation given by Matt Simmons in Houston. Simmons has impeccable credentials, having served as an analyst of the oil industry for nearly 40 years — and it seems as though he’s incredulous as to what he’s seeing.

Simmons laments (like many others of us) that the recent collapse in oil prices — as inexplicable as it’s been — is not a good thing. For Simmons and others in the oil industry, low oil prices have caused major investment projects to be deferred. For those of us more on the cleantech side of things, low oil prices cause the alternatives to oil to become less economically or financially attractive.

To Simmons, it is especially frustrating that the decline in oil prices have nothing to do with fundamental realities. Simmons notes that plummeting prices haven’t been driven by any material declines in global demand, backing this with the comment that “all signs still say [the oil market is] ‘very tight'” — admittedly cryptic, but Simmons has access to all sorts of data from innumerable sources in the oil industry worldwide.

After asking plaintively “why do we know so little about an issue so critical to our well-being?”, he pulls no punches with his stark conclusions: “Crude oil has peaked” and “Its future decline could be swift,” giving credence to his warning that “What goes down can come right back!”

The logic of his analysis suggests that oil prices cannot sustain for long at $40/barrel. Simmons has often said that oil at even $150/barrel is still incredibly cheap — 22 cents/cup — and that Americans really need to get a grip on how valuable the stuff is, and thus how expensive by all rights it really ought to be.

In an October 2008 report entitled “Ratcheting Down: Oil and the Global Credit Crisis”, Cambridge Energy Research Associates recently developed an estimated supply curve for the various sources of oil worldwide, and to achieve production rates at current levels of about 85 million barrels per day, CERA’s work indicates that prices of at least $100/barrel are eminently justifiable.

For you investors out there, all of this is good justification for making a bet on oil prices going up from current levels. Maybe you can make a killing.

At the societal level, though, the implications of peaking oil production are troubling. A really negative take on the prospects is offered by an open letter written by Nate Hagens to President Obama, posted on The Oil Drum, one of the most comprehensive resources concerning peak oil issues on the Web.

As for Simmons, he’s less hyperbolic than Mr. Hagens, but not a whole lot more optimistic. He invokes the perspectives of the new leadership at the International Energy Agency — “Current energy supply trends are patently unsustainable,” “Future of human prosperity depends on how we tackle our energy issues”, Consequences of policy/investment inaction are shocking”, “Massive investment required”, and “Time is running out and time to act is NOW!” — and closes his presentation by declaring that “‘Yes We Can’ solve this bleak energy future, but we now need to sprint into hasty retreat from our addiction to oil and gas.”

How comfortable are you in ignoring such well-substantiated warnings from an oil patch veteran like Simmons?

So, for those of you clamoring for low oil prices, at current levels or even lower, don’t bet on it. $40/barrel is likely to be an aberration.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become a Managing Director at Early Stage Partners.

When In A Hole, Stop Digging

by Richard T. Stuebi

I never cease to be amazed by the frequency and vehemence of opinions expressed on energy and environmental matters by people who are spectacularly underinformed. So in this exposition about oil, let’s first begin with a Top Ten List of clear-cut facts.

1. World oil production (which is essentially equal to consumption) is at approximately 85 million barrels per day, or 31 billion barrels per year — and has essentially remained at these levels continuously since mid-2005, even though oil prices have doubled (from about $60/barrel) since then.

2. The U.S. consumes about 25% of the world’s annual oil production, implying U.S. demand levels of about 21 million barrels/day (almost 8 billion barrels per year), but holds under its territory only about 2% of the world’s proven oil reserves of 1.2 trillion barrels.

3. In contrast, the Oil Producing and Exporting Countries (OPEC) control almost 80% of the world’s oil reserves, yet produce only about 40% of annual oil supplies.

4. OPEC production was 31 million barrels/day in 1973, and 32 million barrels/day in 2007, despite the world economy having doubled in the intervening years.

5. OPEC includes among its members the following countries that are unstable, corrupt and/or unfriendly to the U.S.: Saudi Arabia, Iraq, Iran, Venezuela, Nigeria.

6. The Middle Eastern members of OPEC represent over 75% of total OPEC capacity, of which the single largest player (without which the world oil markets would collapse) is Saudi Arabia, alone accounting for 22% of the world’s remaining proven oil reserves.

7. This year, the U.S. will send an estimated $700 billion to the Middle East to purchase oil — more than the U.S. defense budget (about $600 billion).

8. An unknown portion of these proceeds, but widely-agreed to be a significant amount, funds anti-American (and anti-women, and anti-Semitic, and anti-homosexual, and so on) sentiment — including outright terrorist activities.

9. About 99% of the energy consumed by the U.S. transportation sector derives from petroleum.

10. The vast majority of American citizens live and work in a manner requires oil-fueled transportation to maintain their basic lifestyles (commuting, shopping, etc.)

So, here we are, the United States of America, utterly reliant on one strategic commodity supplied mainly by a powerful cartel that doesn’t hold American long-term interests at heart. What is our response to this predicament?

We complain. We complain about high energy prices, and ask the government to do something about it. When, in fact, there’s very little the government can do about energy prices. OPEC makes it abundantly clear that we are price-takers, not price-setters. Why else would President Bush travel to Riyadh, hat-in-hand, to effectively beg the Saudis to supply us more oil? And, how else could the Saudi’s rebuff their best customer?

This, of course, is the same President Bush that declared famously in 2006 State of the Union speech that the U.S. is “addicted to oil.” Factoring in all the negative connotations of the word “addiction”, that’s a strong statement, coming from a proud Texan.

As Thomas Friedman so aptly noted in a recent editorial, the President has revealed his implicit strategy for dealing with our addiction to oil: “Get more addicted to oil.”

You might ask what else we might do, beyond pandering to our pushers.

Cutting demand certainly helps. Unfortunately, we can’t quickly/easily/cheaply reconfigure our infrastructure of buildings and roads, so we’re stuck for a long time with the landscape we’ve created: we’ll unavoidably need to move around lots of people and goods for quite a while. (See Fact #10.) So, our need for vehicle-based ransportation will not diminish rapidly.

The recent passage of Energy Independence and Security Act of 2007 tightens fuel economy standards to improve efficiencies of new vehicles – including, for the first time, SUVs. And, higher fuel prices are clearly beginning to discourage U.S. demand.

Unfortunately, U.S. demand-reduction measures won’t help much in the grand scheme of things. First, over its 35 year history, OPEC has clearly learned an ability to withhold production to keep oil prices high: when others produce more, OPEC produces less. (See Facts #3 and #4.) Second, the incessant growth in energy demand from the developing world (most notably, China and India) will probably eat up any declines in oil demand the U.S. might be able to achieve on its own.

So, this leads us to what has become the hottest topic in the Presidential campaign: drilling for more oil in the U.S.

You’ve probably seen the bumper stickers: “Drill Here, Drill Now, Pay Less”. I recently overheard someone in a bar claim with pride that the recent modest drop in oil prices can be attributed to OPEC’s cowering in fear now that the U.S. is getting serious about drilling for more oil domestically.

Get real. As Executive Director of the Institute for the Analysis of Global Security Dr. Gal Luft, arguably one of the most knowledgeable observers of the world oil situation, said in a recent speech in the Cleveland area: “Go ahead, drill all you want, it won’t make any difference.”

This is because the U.S. only has about 3% of the world’s reserves, but demands 20% of current world production. (See Fact #2.) Bluntly, we want way more than our share of the oil allotment, but there’s no way around this inconvenient truth: we can’t change our geography or our geology. (This reminds me of another bumper sticker: “What’s Our Oil Doing Under Their Soil?”)

It is true that there are significant reserves untapped offshore in the Gulf of Mexico, in Northern Alaska (Arctic National Wildlife Refuge, ANWR), and elsewhere in the U.S.: in ANWR alone, perhaps as much as 16 billion barrels. This sounds like a lot, and at $120/barrel, it is financially worth a lot. But, even with a bonanza of 50 billion new barrels heretofore inaccessible, this only supplies current U.S. requirements for not even 7 years. It supplies global requirements for less than 2 years.

Moreover, as noted previously, OPEC is capable of reducing its supply to compensate for whatever incremental production the U.S. is able to achieve, thereby nullifying the effect of the U.S. exertions to open up these assets to extraction.

With this as backdrop, let me ask a simple question: is it worth pinning the country’s hopes on a multi-year project to drill some new holes, only to find that it doesn’t solve our underlying problem? According to analysis by the U.S. Department of Energy, opening up new areas to drilling “would not have a significant impact on domestic crude oil and natural gas production or prices before 2030. Leasing would begin no sooner than 2012, and production would not be expected to start before 2017.” This doesn’t sound to me like any significant solution for our dilemmas.

It sounds like all I’m offering is problems, not solutions. Well, what do you expect? With a long-held conviction to pursue an energy policy of “cheap oil, at all costs”, the U.S. has painted itself into a nasty corner. Everyone wants easy answers, but unfortunately there are none.

One ray of hope is offered by unconventional hydrocarbon production. The U.S. is the so-called “Saudi Arabia of coal”, with hundreds of years of reserves at current demand levels (although this “runway” would be reduced dramatically by a concerted move to coal-based fuels for transportation). In addition, the U.S. holds huge amounts of oil-equivalents in the form of shale in the Rocky Mountains, estimated to be far larger in quantity than the oil in Saudi Arabia. Both of these sources can technically be extracted and converted into transportation fuels — but possibly at significant financial and environmental costs. Hopefully, new technologies under development will eliminate (or at least significantly) reduce these costs — but if not, are we willing to pay them?

More fundamentally, I believe that Dr. Luft is onto the central problem: unless and until we sever the link between transportation and petroleum, the U.S. is doomed to declining power and ultimate subjugation.

Right now, just about every car and truck sold in the U.S. is constructed to run only on a petroleum-based fuel. Since each vehicle has about a 16 year operating life, and since over 7 million new vehicles a year are sold in the U.S., each consuming hundreds of gallons per year, every additional year that virtually all cars sold in the U.S. are oil-dependent “locks in” tens of billion barrels of U.S. aggregate demand for oil.

Dr. Luft’s solution: eliminate the strategic value of petroleum, by taking low-cost and rapid steps to make vehicles fuel-flexible. Only with competition among fuel types for the transportation market will OPEC lose its stranglehold on our economy.

As has been widely documented, it is possible to make gasoline powered vehicles able to run on a limitless variety of alcohol/petroleum blends with the addition of equipment that is about $100 per vehicle. Dr. Luft and other luminaries (e.g., James Woolsey, Robert “Bud” McFarlane) have formed the Set America Free Coalition to promote the Open Fuel Standard Act, which would require that 50% of all vehicles sold in the U.S. in 2010 must be fuel-flexible. According to Dr. Luft, the major automakers say this is doable.

(Interestingly, Dr. Luft claims that the big oil companies are discouraging their affiliated retailers from installing ethanol-capable pumps. This sounds like something worth investigating.)

In addition, Dr. Luft argues compellingly for the end of ludicrous U.S. agricultural policies that tax imported ethanol (but not, notably, imported petroleum or petroleum-based fuels) and that place quotas on sugar imports. The effect of these policies is to discourage or prevent the possibility of cost-effectively importing sugar-based ethanol from over 100 countries in the tropics around the globe where sugar (a highly efficient feedstock for ethanol production, much better than corn) can grow abundantly.

These countries tend to be poor, based on subsistence agriculture, and they are being killed by high oil prices. In Dr. Luft’s view, this represents “the worst regressive tax in history”, and he thinks we should send a few hundred billion dollars a year to those countries – “some of whom still like us” – instead of to OPEC countries. As an incidental benefit, this would increase economic aid to the developing world by about an order of magnitude.

(As an aside, Dr. Luft is convinced that the now-heated arguments against ethanol — food vs. fuel, too-lucrative incentives — are overhyped bunk, and has some interesting analyses to prove his point, but that is a subject for another day.)

So, it seems that some important answers to our energy crises may be found in skewed agricultural policies — a non-intuitive target for critical attention. If you want to take this on, contact Dr. Luft: he is looking for fellow revolutionaries to help us claw our way out of the hole we’ve dug for ourselves with our oil addiction.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

A Boon(e) for Wind

by Richard T. Stuebi

It’s been about a year since T. Boone Pickens announced that his investment firm BP Capital Management (note that BP stands for “Boone Pickens”, and thus the company bears no relation to the oil behemoth BP) planned to invest about $6 billion to install the world’s largest windfarm of nominally 4,000 megawatts in western Texas.

When a man like T. Boone Pickens — a billionaire, an oilman, an ardent capitalist — makes such a play, the corporate and finance worlds take notice: clearly, wind isn’t just for tree-huggers anymore.

Sure, Pickens is into wind so that he can make a lot of money, but now he’s taking even bigger stances. In early July, Pickens announced the so-called “Pickens Plan” — a massive lobbying campaign targeted towards DC with the key theme of reducing America’s dependence on oil. And, he wants YOU! to join his campaign.

Pickens — remember, he’s a self-described oilman — says that he thinks that oil production has peaked, and that “this is one emergency we can’t drill our way out of.” For Pickens, the answer is: renewable energy. “If we create a new renewable energy network, we can break our addiction to foreign oil.”

It must be pointed out that, at least until vehicles fundamentally fueled somehow by electricity are widely in use, adding more wind energy to the U.S. supply base is going to displace almost no oil consumption. That said, with a move towards plug-in cars (hybrids or pure electrics), or hydrogen-powered vehicles, electricity from wind and other renewables can (someday) achieve what Pickens dreams of.

In any event, it’s hard to fault anyone who wants to elevate the importance of the energy debate in national politics. If he wants to spend some of his money not on wind turbines but on other forms of hot air, more power to him.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. (Note that Mr. Stuebi has no professional relationship whatsoever with BP — either the oil company or Mr. Pickens’ firm.)

"A Special Report on the Future of Energy" by Mother Jones

by Richard T. Stuebi

I’ve never been a fan of the periodical Mother Jones – it’s always seemed a bit too “alternative” for me. That said, I was recently given a copy of the May/June 2008 issue – a special report on the future of energy – and was surprised by the quality and balance of the articles.

I particularly found “The Seven Myths of Energy Independence” by Paul Roberts (author of The End of Oil) to be a compelling read. To him, the seven myths are:

1. Energy Independence Is Good
2. Ethanol Will Set Us Free
3. Conservation Is a “Personal Virtue”
4. We Can Go It Alone
5. Some Geek in Silicon Valley Will Fix the Problem
6. Cut Demand and the Rest Will Follow
7. Once Bush Is Gone, Change Will Come

I think many advocates are well-advised to really reflect on #7. Bush is unquestionably the bête-noire of all things environmental, but he’s only a part of the problem – and arguably not even the biggest part. Congress and the entrenched interests completely stymie good energy/environmental policy. A new President will help, but won’t be a simple cure-all, for what ails us in the energy and environmental arenas.

Which brings me to another article in the issue: “Congress’ Top 10 Fossil Fools” by Chris Mooney, profiling the “foes and thwarters of renewable energy”. In his list, they are:

1. Senator Pete Dominici (R-NM)
2. The Southern Company (NYSE: SO)
3. Senator Mary Landrieu (D-LA)
4. Representative Joe Barton (R-TX)
5. Senator Jim Bunning (R-KY) and “Coal-State Dems”
6. Representative John Dingell (D-MI)
7. Senator Lamar Alexander (R-TN)
8. Senator Ted Kennedy (D-MA)
9. Senator John Thune (R-SD)
10. Senator John McCain (R-AZ)

Probably no surprise that there are more R’s than D’s on the list, but I was really surprised at the omission of Senator James Imhofe (R-OK), and by the inclusion of McCain. Apparently, the League of Conservation Voters gave the impending Republican Presidential nominee a rating of 0 (that’s right, zero) last year “because McCain missed every single environmentally relevant vote”, including ones in which he could have been the tie-breaker to overcome a filibuster on the 2007 clean-energy bill. Alas, what could have been…

Other good articles in the issue include:

“The Greenback Effect” by Bill McKibben on why markets aren’t necessarily antithetical to the environment, but can be the driving force for environmental solutions.
“Breaking the Gridlock” by Jennifer Kahn on how the smart-grid could be the major enabler for energy efficiency.
“The Nuclear Option” by Judith Lewis – a reasonably fair and balanced view of the pros and cons of nuclear energy, without the expected hyperbole.
“Tar Wars” by Josh Harkinson, which paints a not-at-all pretty picture of what’s happening to the landscape in Northern Alberta as the tar sands are mined to make oil.
“Put a Tyrant in Your Tank” by Joshua Kurlantzick, profiling the bad guys leading many of the major oil producing nations – who are financed every time you fill up at the pump.

Lots of interesting nuggets to be found in the sidebar boxes too. For instance, did you know that 30% of the electricity supply at the infamous Guantanamo Bay Naval Base is provided by wind turbines?

Well worth spending $5.95 at the newsstand, pick up the May/June 2008 Mother Jones.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

What I Read on My Summer Vacation

by Richard T. Stuebi

In the spirit (though not the length) of a back-to-school book report, I dedicate this column to reviewing three energy-related books that I read in the last few weeks as the dog-days of summer wound to a conclusion.

Cape Wind

I first read Cape Wind by Wendy Williams and Robert Whitcomb, which profiles the eponymous offshore windfarm in Cape Cod, and provides a behind-the-scenes look at the mischief that has so far thoroughly stymied its progress.

The story makes just about everyone involved in the local, state and federal political arena look awful – petty, elitist, short-sighted, unprincipled. The list of bad guys is headed prominently by Senator Ted Kennedy (of course) and Governor Mitt Romney of Massachusetts, but less obviously also includes players such as Senator John Warner of Virginia and Congressman Don Young of Alaska. (Alaska! You are absolutely right to ask: “Why Alaska?”) The only person emerging from the story smelling like a rose is Cape Wind’s lead developer, Jim Gordon, who is portrayed as truly heroic.

The book reads quickly and well, and is getting good reviews, even from usually not-so-wind-friendly places like the Wall Street Journal. However, I am concerned that the book comes off a little too much like an in-house PR piece for the developer of the windfarm: I put the book down sincerely questioning the authors’ objectivity. The tale seems so one-sided, it’s hard to believe that it could be really accurate. If it is, our political system is in dire shape, and our prospects for good energy/environmental policy are dim.

The Grid

I most recently finished The Grid by Phillip F. Schewe, a very readable history of the electricity industry. This was the first text I have found that, in less than 300 pages, spans the mad-scientist inventors Edison and Westinghouse and Tesla, through less-known but equally pivotal industry giants such as holding company progenitor Samuel Insull and TVA legend David Lilienthal, into the turbulent days of Enron and deregulation.

The book does a particularly good job reconstructing the 1965 Northeast blackout (not much different from the 2003 version), touring the reader through massive nuclear (Indian Point) and fossil steam (Ravenswood) powerplants, and accompanying a distribution crew on a routine but not-to-be-taken-lightly line repair job in Idaho. Most interestingly, Schewe weaves in contemporary commentary and observations from social critic Lewis Mumford, whose writing excerpts offer an insightful countering perspective questioning the contribution of energy technology to the fundamental advancement of humanity.

The author’s writing style was not to my taste (for reasons that alas I can’t pinpoint), and I think the electricity industry still deserves a more gripping seminal treatment comparable to the gift Daniel Yergin gave us of the oil industry in The Prize, but until then, this will suffice pretty well.

The Long Emergency

In between, I read a thought-provoking but highly disturbing tome entitled The Long Emergency by James Howard Kunstler. Its premise is not unique: peak oil + climate change = end of the industrial era = return to pre-industrialism. Indeed, one of my recent posts covered this very topic.

However, Kunstler’s writing is incredibly powerful, with pithy snippets about every other line, and some of the directions he explores are truly distinctive. For instance, he argues that mankind’s one-shot exploitation of the non-renewable fossil energy inheritance is but a reflection of the entropy mechanism inherent to our universe (as described in the Second Law of Thermodynamics), and that escalating energy extraction/use only accelerates the rate at which our world winds down.

Kunstler is somewhat hopeful about the ability of the human species to adapt and survive, though not in its current social structures and industries/economies, and not at anywhere near current population levels. And, he is clearly pessimistic about the transition: basically, Kunstler doesn’t think there’s enough time or enough remaining energy to avoid cataclysmic change characterized by mass famine, economic depression, drought, migration, war, etc.

While I appreciate Kunstler’s wisdom and expansive disparate set of knowledge and insight, I’m not totally sold on some of his conclusions. As an example, as long as the amount of solar radiation provides more than enough energy to the Earth’s surface to supply all of mankind’s energy needs (with a few orders of magnitude to spare), I believe there ought to logically be a way to maintain a standard of living similar to what we have now – it will just cost more. I don’t think Kunstler has some of his facts straight, which always causes me to be a little shy about buying everything a writer tries to sell. For certain, Kunstler makes a lot of assertions that are not backed up solidly by facts, therefore exposing his arguments to question.

Unlike Kunstler, I’m somewhat optimistic that the combination of technological innovation and market forces (under a big assumption: that policy allows market forces to work, prices energy appropriately highly, and doesn’t provide incumbents huge protective barriers against the impact of innovation) can allow us to colonize a very attractive future. Kunstler doesn’t seem to incorporate an economic view in his thinking, whereas I believe energy prices with increasing scarcity and the resulting downward force in demand will ameliorate (though not eliminate) the pain of transition. However, I admit that it would require a huge allocation of global economic capacity towards the rapid implementation of a new energy paradigm to completely smooth the transition, and present markets with their pricing signals and investment incentives aren’t making that happen as urgently as it probably should.

Therefore, ultimately, I agree with Kunstler that the ending of the conventional energy age will be extremely painful for many constituencies, who are blindly accelerating into the wall with voracious consumption. I agree that exurbia lifestyles spreading across the U.S., especially across the southern half of our country, will someday be viewed as a cul-de-sac of history, burdening us with enormous social costs due to the massive infrastructure investments that will become untenable. I agree that life will tend to become more localized, less materialistic, simpler.

In summary, I tend to agree with Kunstler on the general direction and trajectory of our collective situation, but he and I do differ in degree regarding the likely pace and magnitude of the impending discontinuities.

All three of the above books get my “thumb’s up”, but if I had to recommend just one, it would be The Last Emergency. Read it and see. Or, actually, read it and think.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

Plan C

by Richard T. Stuebi

I have a great deal of respect for Matthew Simmons, founder of the energy investment bank Simmons & Company International. Simmons is a frequent speaker, and one of his most often-quoted lines is that, when it comes to the possibility of declining oil production in the near-future, “There is no Plan B.”

Late last year, a non-profit organization from Southern Ohio named The Community Solution wrote a white paper in which they described a so-called “Plan B”. In their Plan B, new technologies are pursued aggressively in the vision of enabling society to transition to an alternative energy future. This presumably would represent the majority view of the clean-tech community, including the readers of this blog.

According to The Community Solution, the fly in the ointment is that Plan B only slightly slows the inexorable path to human extinction implied by “Plan A” (status quo consumption). The Community Solution essentially argues that Plan B is unsustainable, that Plan B still implies too much consumption of resources for the planet to bear forever.

For The Community Solution, the only true path of enduring sustainability comes with “Plan C”, what they call “Curtailment and Community.” Much lower consumption of all resources, much more local economic and social interaction.

In a video, The Community Solution points to Cuba as an example of how Plan C can work. With the collapse of the Soviet Union in the early 1990’s, Cuba no longer had its industrial and economic benefactor, and oil import quantities fell by more than 50%. Out of necessity — some might say desperation — agriculture, commerce and transportation all had to be reinvented on the fly to cope with a dramatic curtailment in energy resources.

In my view, Cuba has many fine things to recommend it: food, music and cigars come to mind. However, economic policy under the Castro regime is not one of Cuba’s long suits. It is doubtful that the average American will be impressed by Cuba’s energy “revolution” in the past decade and say, “Gee, that’s wonderful — I’d like for that to happen here.”

Selling Plan C to the U.S. seems pretty much like a lost cause to me, and in any event I don’t think Plan B is necessarily as doomsday as The Community Solution portrays it. Although I agree that we’re far too materialistic and our society would benefit from more modest values, I do not endorse Plan C, and instead I vote for Plan B. What do you think?

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

Peak Coal?

by Richard T. Stuebi

One of the more passionate debates in the energy community these days centers on the concept of “peak oil”. Peak oil does not mean oil supplies running out; rather, the term “peak oil” refers to the moment in time when oil extraction levels reach their maximum, followed by a long decline — no matter how much oil prices rise and no matter how much new technology is applied in an attempt to lift more oil from underground.

For those who know a fair amount about petroleum geology, supplies and economics, there is a general recognition that peak oil will occur at some point in the future: the debate is when — a few months from now, a few years from now, or a few decades from now. Peak oil is impossible to predict with high confidence because there’s no “dipstick” in the ground to tell observers how much oil is really left in each of the fields — and even if there were, there’s no absolute way of knowing how much of the remaining oil can be yielded due to geologic issues.

Most agree that, once the peak oil moment occurs, the world will begin its transition away from oil for transportation fuels — whether it has prepared for that moment or not. In other words, if we haven’t meaningfully eased our dependence on oil, the decades after peak oil will truly be tumultuous for the modern mobility-reliant culture upon which the human species currently is based.

These types of concerns have never been raised about the supplies of coal. It has been widely assumed that there is an abundant supply of coal (especially in the U.S.), enough to last for centuries. Coal has been increasingly viewed as the “backstop” fossil fuel: plentiful, cheap, known. As long as we can deal with coal’s environmental issues, particularly CO2 emissions, we can always fall back to coal — not only for power generation, but for producing transportation fuels as well.

A recent essay by Richard Heinberg brings these important preconceptions into question. In his essay, “Burning the Furniture”, Heinberg reviews a recently released study by a German organization named Energy Watch Group, in which it is asserted that worldwide coal production will peak in the next 10-15 years.

Without having access to the report, it’s hard for me to opine on the quality of the analysis behind this conclusion. However, if the analysis is basically sound, and the conclusion is directionally valid, this insight is a very, very big deal.

If true, the world energy markets will not be able to rely upon coal as a safety net. The coal plants being built every week in China will face depleting supplies and increasing prices. Price volatility in coal markets will increase dramatically. CO2 emissions will not increase exponentially — the fuel to produce those emissions will be shrinking. Hydrogen and renewables will have to come to the fore, faster and in greater scale — and if these technologies are not economically viable, then there will be forced reductions (e.g., curtailments) in energy use. The U.S. (not the Middle East) will become the geographic region with extreme geopolitical leverage in energy.

If oil and coal both are near the end of their eras, then the world as we know it will change so profoundly, it is hard to imagine. One thing would be for certain: good opportunities for cleantech.

Essay: “Burning the Furniture”

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

What’s Up with ConocoPhillips?

by Richard T. Stuebi

On the clean-tech front, ConocoPhillips (NYSE: COP) seems to be striving to take the lead among U.S. oil companies. In just the last two few weeks, COP has made two announcements of significance.

ConocoPhillips is not yet in the league of Wal-Mart (NYSE: WMT) and General Electric (NYSE: GE) as major players that are driving environmental improvement on a mass-scale through the aggressive pursuit of capitalism across their core businesses.

But at least COP has gotten off the dime: they aren’t denying the existence of climate change as a real issue, and are recognizing that they need to start shifting their perspective if they want to continue to be a relevant energy company in the future.

Its peers among U.S. oil majors, ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX), have also begun making strides on the green-front.

The contrast between the three of them and the major U.S. automakers — General Motors (NYSE: GM) and Ford (NYSE: F) — is stark. The auto companies are stuck with tenuous competitive positions due in large part to their strategies for focusing on high profit gas guzzlers (e.g., SUVs and performance cars), and as a result they are fighting Federal pressures to tighten auto fuel efficiency standards. In general, they don’t want to hear about climate change.

The historical solidarity between the companies involved in oil supply and in oil demand seems to be breaking down.

Presumably, it’s at least partly because the oil companies are in better shape than the auto companies: with huge profits, the oil majors have more degrees of freedom to think more proactively. However, I think it’s also because the oil companies are increasingly coming to the view that reduced oil demand is unavoidable in the future — not just for environmental reasons, but simply because supplies will be challenging to obtain. COP, XOM and CVX are probably beginning to plan what they will look like as companies in a post-oil world, and that plan is consistent anyway with carbon limitations.

Interestingly, most of the independent U.S. oil producers and refiners — many of which are enormous companies in their own right — are laggards on the environmental front, alongside the U.S. automakers. What will it take for the U.S. oil independents to begin to see the light? Do they not see a future for them beyond oil?

Richard Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

Crude Impact

by Richard T. Stuebi

A few weeks ago at the Cleveland International Film Festival, I had the opportunity to serve on a discussion panel for a recently-released documentary entitled Crude Impact.

Crude Impact aims to portray all of the various social ills — political instability in the Middle East, corruption and poverty in the developing world, air pollution and environmental degradation, sprawl and traffic — associated with modern society’s reliance on oil. After establishing all of the disturbing challenges associated with oil, Crude Impact closes with a somewhat perversely optimistic punchline: “peak oil” — the maximum rate of extraction from our planet for the finite stock of oil that was left from pre-history — is surely coming, and no matter what economic or geopolitical crises that phenomenon will precipitate, at least the decline of oil will put an end to all of the miseries that oil underlies.

On balance, I give Crude Impact a “thumbs-up”. Without falling into despair, it clearly tells a number of stories related to petroleum through various lenses, and weaves these stories together to paint an overall damning picture of oil in a compelling manner.

I might suggest double-billing Crude Impact with An Inconvenient Truth, which focuses on the planetary impacts of global climate change without spending much time on the primary culprit: our seemingly insatiable desire to consume fossil fuels. Crude Impact seizes unflinchingly on this root cause, and is effective in reinforcing a sense of urgency to further commit to reducing our use of energy generally, and oil in particular.

The one criticism I have of the film is that it places a lot of blame for propagating oil demand on a variety of social segments — governments in the U.S. and worldwide, oil companies, auto manufacturers, the media — without fingering the ultimate precipitator: the consumers who have been completely complicit all along the way in creating our energy and environmental crises. The makers of Crude Impact tend to shun ascribing responsibility to the viewer, the average citizen, for any of the planetary woes we face due to society’s oil addiction.

If we are to have impact in changing the world for the better, we can’t fall prey to the passive negativity of laying all of the fault on other bigger parties that are supposedly more powerful than the individual. We have to own up to our role in causing our current problems, by being undemanding and unquestioning consumers. Once we see vividly our integral part in the drama, we lose the sense of being hopeless victims, and can act with much deeper resolve towards changing our path forward to a more hopeful future.

Richard Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.