Friday, August 21, 2009


Will “OPEC Greed” Wean the World off Oil?

Times Online has a rather misguided, or rather confused, article titled “Opec’s greed will herald the end of the oil age,” with the more explanatory subtitle “If producers keep prices high even when demand is slack, the world will be surprisingly quick to wean itself off fossil fuels.” That got me to actually read the article, because the world might as well wean itself off water if we realize that weaning ourselves off fossil fuels means the end of civilization as we know it.

The thesis seems to be that OPEC is cutting its own throat by pricing oil so high (which begs the question of why non-OPEC producers don’t sell their oil for $5/bbl, but we’ll ignore that for now). Lack of investment, it is claimed, is behind these high prices, and the author dismisses peak oil. But the idea behind peak oil is that, as easily accessible oil is depleted, we must move on to developing more expensive oil sources. This need for higher investment, and the need for oil-producing countries to balance their budgets and feed their burgeoning populations, are behind higher oil prices. After seemingly arguing against this, the author then goes on to acknowledge that high oil prices are needed for investment in the paragraph beginning “That [the lack of oil field development] will change over the next decade or so, if prices stay high” [my emphasis]. And that, dear reader, is exactly the point of peak oil. Higher oil prices are now required to sustain the development of new oil fields. And further, the author seems ignorant of the fact that oil infrastructure is literally rusting away. That too will require astronomical investment if the flow of oil is to be sustained.

So, what happened to weaning ourselves off oil? The claimed need for new investment to keep the oil flowing is just an acknowledgement that we aren’t anywhere close to doing that.

Ah, but technology will save the day!
When the 1970s oil shocks gave Japan a second whammy after a sharp revaluation of the yen had given it a first, its Government and industry set about transforming themselves from cheap clunker-producers into the world’s leading makers of semiconductors, consumer electronics and fuel-efficient cars — all within ten years.
And how did Japan accomplish this wondrous transformation? With cheap, abundant fossil fuel energy, of course. Fuel-efficient cars embody much fossil fuel energy, just like any other industrial product, not to mention the construction and maintenance of the roads they use. And semiconductors embody a shockingly huge amount of energy.

The usual forecasts, based on extrapolation of past trends, do not see electric cars or non-fossil fuel power plants having a really big impact for another 20-30 years. Imagine, though, the effect on innovation of oil at $100-200 a barrel, of hundreds of thousands of Chinese (and Japanese, European and America) engineers trying to do for solar power and for car batteries what has been done in the past decade for mobile phones and computers.
I’m sure there will be a lot of innovation at high oil prices, but the author seems blind to the total dependence on fossil fuels to make all these things. It’s the same simplistic argument that, if fossil fuels are too expensive, we’ll switch to electric vehicles, to renewable energy, and to nuclear power, while totally ignoring the fact that none of these things would be possible without fossil fuels.

In that sense, people like this former editor of The Economist are just dragging us into a deeper hole with their false promises of technological innovation saving the day.

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