Gail the Actuary Brings Depressing News

Gail the Actuary at The Oil Drum offers a tour d'horizon of our energy situation and it ain't pretty link: 'If a person were to listen to Energy Secretary Steven Chu or National Geographic's Aftermath: World Without Oil," she says, "one might think that our energy problems are fairly minor and distant. We can easily add sufficiently renewable energy to substitute for fossil fuels in a fairly short time frame. All we need to do is put our minds (and pocketbooks) to it." Sadly, no. The whole thing bears reading, but here are some excerpts:

4. Scaling up renewables to replace fossil fuels in current quantities does not look like it has much of a chance of succeeding, even in the long term.

One issue is the point made previously--it takes fossil fuels to produce renewables like wind and solar PV. Also, Figure 1 shows our success in scaling up so far has been quite limited. Scaling up ethanol further would require taking a huge share of our corn crop. Cellulosic ethanol isn't working out to date, and may never work out. Wood and other biomass is limited in supply, limiting production if it could be perfected.

There may be some particular applications of renewables which may turn out to work out well--for example, natural gas from waste, or biofuel from waste grease. But these tend to be limited in quantity.

Even if we were to, say, discover a way of producing biofuel from algae economically, it would years to work out the details of scaling production up, and a huge amount of investment (and fossil fuels to make tanks and other apparatus) to actually produce the biofuel in quantity. One would probably be looking at more than 30 years before the process could be scaled up sufficiently to start replacing a significant share of our our production....

6. If increased drilling is done in the US and offshore, is likely to have modest beneficial impact on oil supply, but it is highly unlikely that it will solve our problems.

Gary Luquette, President of Chevron North America Exploration and Production recently wrote:

The good news: the OCS [Outer Continental Shelf] has significant potential. Over time, it could add 1 million more barrels of oil and natural gas equivalent a day--potentially representing a fifth of the current total U.S. oil production. Advances in technology could increase that amount dramatically.

One million barrels of oil and natural gas equivalent is great--certainly more than what we are getting from biofuels or from wind or solar. If one adds additional onshore production, it could be more than this, perhaps another 1 or even 2 million barrels of oil and natural gas equivalent a day.

... Compared to world oil supply, an additional one million barrels of oil a day about 1% of world oil production. Compared to US oil usage, and additional one million barrels of oil a day is about 5% of US oil usage. So the additional oil supply would be helpful, (as would the additional jobs, and reduction in needed imports), but it wouldn't solve all of our problems. ...

7. Renewables tend to be high priced. If our big problem with oil is high price, renewables will not solve our problems.

Subsidies only hide high price--the cost to the economy is high, with or without a subsidy.

If we can find cheap renewables, it would be in our interested to expand them as much as possible. But expanding expensive renewables should be done with great caution, in my opinion. We have no guarantee regarding how long the renewables will last--wind is likely only to last as long as fossil fuels supplies are available. Just because an analysis is done assuming that wind (or another energy source) will have a 40 year lifetime doesn't mean it will actually last that long.

"

Forget About Greece and Ireland

Worry about states closer to home, that cannot print money. Gregor Macdonald pinpoints seven of them.

The seven states to make my list are California, Florida, Illinois, Ohio, Michigan, North Carolina, and New Jersey. Each has a population above 8 million people. Each has had to borrow more than a billion dollars, so far, to pay claims out of their now bankrupt unemployment insurance fund. Also, each state currently registers broad, underemployment above 15% as indicated by the U-6 measure for the States. And finally, each state is a large net importer of either oil, natural gas, electricity, or all three of these energy sources.

Let’s consider the overall predicament for residents of states like California, with its epic housing bust, Ohio and Michigan at the end of the automobile era, or North Carolina and New Jersey in light of the financial sector’s demise. Not only have states such as these permanently lost key sectors that once drove their economies, but, residents in these states are over-exposed to structurally higher energy costs. The prospect for wage growth in the United States is now dim. We are already recording year over year wage decreases in real terms. The culprit? Energy and food costs. My seven states are squeezed hard at both ends: no wage growth at the top, and no relief through cheaper energy costs at the bottom.

US wage growth in real terms has been stagnant for years. And the most recent decade of higher oil prices has been particularly punishing to states over-leveraged to the automobile like California, Florida, and North Carolina where highway and road systems dwarf public transport. While it’s true that states like Ohio and California produce some oil and gas, the size of their populations overwhelm any production with outsized demand for electricity and gasoline. In contrast, and as I mentioned, it will be revealing to see how this depression ultimately plays out in such states as Colorado, New Mexico, Wyoming, Oklahoma, North Dakota, and Louisiana which are all net exporters of energy.

Were it not for peak oil, gasoline prices would have fallen to a dollar during this depression as oil returned to the lows of the late 1990’s–if not even lower. Petrol at 90 cents a gallon would begin to chip away at the painfully decreasing spread between punk wages and energy input costs, currently endured by underemployed Americans. Natural gas and coal prices are also much higher than they were at the lows of the 1990’s. And I need not remind: while energy prices are very 2010, the American workforce has lost so many jobs that our labor force has indeed returned the 1990’s.

21st century energy prices overlaid on a 20th century economy? That’s no fun at all. The mainstream economics profession, perhaps unsurprisingly, still does not pay enough attention to the interweaving of long-term stagnant wage growth, higher energy inputs, and the resulting credit creation that OECD countries took as the solution to resolve that squeeze. Given that one of out of eight Americans takes food stamps, a visit to states like Illinois, Florida, Ohio, and North Carolina would reveal that the difference between 15 dollar oil and 75 dollar oil, and 2 dollar natural gas and 5 dollar natural gas is large

"Conservation will happen," adds a commentator, "but not in a nice way."

Update: Ritholtz is on the case.

Here's What's Happenin' All Over ...

From SacredCowTipper, via OilDrum, a site that monitors energy shortages worldwide. Cool word cloud, featuring pénurie de diesel and escasez de naftas, which has nothing (at least nothing direct) to do with North American Free Trade.