by David Fessler, Energy and Infrastructure Expert
Friday, April 23, 2010: Issue #1245
Picture the scene: It’s 1856 and the Industrial Revolution is just getting underway in the United States.
As America ratchets up its manufacturing and innovation and grows into a vibrant industrial hub, the driving force behind this growth is the greatest energy windfall in the history of the world…
The discovery and commercialization of oil.
Quite simply, it’s a time that heralds the “Age of Oil.” A new energy era.
Flash forward to 2010: We’re still relying mostly on oil to satisfy our energy demands. But the end of the “Age of Oil” is on the horizon and the world faces major energy problems. Supply. Demand. Cost. The environment. The list goes on…
These problems affect the prosperity of countries and people around the world.
That’s because when it comes to economic growth and the future of mankind, there is nothing more precious – and more crucial – than cheap energy.
Right now, however, this is a huge challenge. But for smart investors, this new world energy order holds some tremendous potential gains. It’s why I follow this critical sector – and why I’m about to launch an advisory service devoted exclusively to “peak energy.”
The crux of the energy issue centers on oil…
Oil: Cheap for 154 Years… and Now Dwindling
For the past 154 years, oil has provided one of the cheapest sources of energy that mankind has ever had. For the bulk of that period, we’ve never worried about supply, as it seemed endless and there were no other big users.
But we know fossil fuels aren’t infinite in supply. Some fear the oil peak has already passed and that reserves are dwindling. And with many more oil consumers – including China, India and other emerging nations – it’s now a battle to grab the existing oil.
Trouble is… it’s harder and more expensive to find, extract, and produce. Oil companies are struggling to meet the increasing demand.
We Want More Oil… But Can We Get It? Should We Get It?
Many politicians and industrialists scoff at the idea that we’re running out of oil. They argue that we just need to increase our exploration, drill more wells and extract more oil.
As an engineer, you won’t get an argument from me that new technology will help raise the recovery rates from existing fields and new ones when we find them. So, too, will more drilling, more pipelines and more storage terminals.
But in the end, it’s like increasing the dose of radiation for a terminal cancer patient. He might feel better for a while, but in the end, he’s still going to die.
Denial is the easiest way to dismiss the problem. Kicking the can down the road, as the cliché goes. But the bottom line is that oil is a finite resource. And those who say we aren’t running out are kidding themselves.
Foreign Oil Dependence for 30 Years = $7 Trillion
Of course, so-called “rogue nations” own a big chunk of what’s left – nations who see the United States as an oil addict, willing to pay anything to satisfy its “fix.” (After all, America is the world’s biggest oil consumer, blowing through one-quarter of the world’s 85 million barrel per day usage.)
And that addiction has come at a staggering cost. Over the past 30 years, the United States has spent over $7 trillion on imported oil.
Until 1970, we didn’t have to worry about our dependence on foreign oil. We only imported 25%. But now the figure is roughly 65% – and rising. In fact, we’re on track to spend $10 trillion more on imports in less than a decade, unless something is done.
China’s Oil Consumption and The Energy Equation
It didn’t take China long to figure out the energy equation. Its government-controlled oil companies have been quietly traversing the globe, acquiring as much oil as possible. They have to.
Between 2003 and 2009, China’s oil consumption has nearly doubled. It’s now the world’s second-highest oil consumer.
What’s more, if China’s current growth rate continues, it will consume the world’s available oil capacity by 2030.
So what are the options available for breaking away from oil’s stranglehold?
Piecing Together the Energy Puzzle
Ed Ayres, the Editorial Director of the World Watch Institute, articulates the problem best: “We face something so outside of our collective experience that we don’t really see it, even in the face of overwhelming evidence.”
The answer to the problem is really plural. There are several answers. Simply trading in your gas-guzzling Hummer for a Prius is a small step in the right direction, though not really enough.
And while it certainly involves ramping up alternative energy resources like solar, wind, geothermal and tidal, they can’t be increased quickly enough to make up the difference.
My answer: Taking advantage of our wealth of natural gas by converting as much of our transportation sector to run on it as possible.
Other options include increasing offshore U.S. oil and gas exploration, plus boosting clean coal technology.
It’s like completing a jigsaw puzzle. Find the right pieces, then slot them together one at a time. It must be done.
Is Ending Our Oil Dependence a Realistic Possibility?
In his book, The Long Emergency, James Kunstler writes: “The human race living off the draw-down of non-renewable fossil fuel resources is the equivalent of algae in a pond enjoying a temporary rush of nutrients in one brief session.”
Does Mr. Kunstler have a point, or are we just too entrenched in the politics of “Big Oil?” While there’s little doubt that we’re too addicted to fossil fuels, is ending our dependence on foreign oil a realistic possibility?
It’s interesting to note that after oil prices hit $147, renewable alternatives like geothermal, solar, wind-generated power and others burst onto the energy stage and quickly gained traction. But as their ups and downs prove, the transition won’t happen overnight.
We have to wean ourselves off foreign oil. I’m confident it will happen. But challenges and concerns litter the path to global energy resource-sustainability. And the socio-economic implications are unprecedented.
So, too, are the investment opportunities.
The energy sector promises to be the place to invest for decades to come. And next week, I’ll show you how to take advantage of these opportunities.