Long Term Energy Supply

Commentary, Energy, Les Routledge

A leading bank has predicted that the world will run short of oil by 2060.

HSBC does not mean to scare you in its latest report, but it does point out that we are facing a massive energy crunch. That’s because the bank is just not optimistic there is much oil left  in the world – in fact a mere 49 years of the black gold on current consumption levels.

While the article sounds scary, read a bit further into it and discover their finding is related to conventional supplies of oil.  If prices stay at current levels or higher, unconventional oil such as tight oil and oil sands becomes profitable.  Unfortunately, the article fails to mention how long those reserves will last.  I have a suspicion that if oil sands supply from Canada alone is added to the mix, the crunch point is put off well into the future.

Natural gas is expected to be abundant with recent estimates that North America has an adequate supply for over 100 years are current rates of consumption.  By 2060 (i..e. 50 years from now), I have strong suspicion that technology will have advanced sufficiently to produce a fuel of sufficient energy density from natural gas to meet the needs of a lot of the transportation sector.  Add in potential improvements in battery systems and hybrid drive systems and I think it is safe to say we will still have personal automobiles on the road in 50 years from now.

The article indicates that at $150 per barrel, bio-energy comes into its own.  What the article does not tell the reader is that is based on the economics and technologies of today.  Has anyone asked what is going to change in the world to suddenly stop improvements in crop genetics, production processes, and energy conversion systems and thus freeze our current state of technology for the next 50 years?  When in the history of industrial society has such a collapse in our systems of innovation occurred in the past and lasted for 50 years?

Let’s suppose that more liquid energy is required in 20 or 30 years time.  Is there any reason to expect that technology improvements in bio-energy will stand still between now and then?  Both the potential production of bio-mass per unit of land and the yield of energy produced per unit of that bio-mass has been trending up for the last 30 years.  What is going to stop that process of technology discovery, development and process innovation?

In terms of electrical energy, the assumption about price very much dictates available supply.  The difference in potential supply of electricity with a real price of 10 cents per kwhr is quite different than the potential supply with a real price of 20 cents per kwhr.

At 20 cents per kwhr, nuclear energy will look fairly attractive.  While it is tough to get people to realize it today with the media scare still rumbling about Japan, the hard reality is that nuclear energy is one of the safest forms of electrical energy production in the world.  Any form of energy production has safety issues that cause fatalities.  Alternative energy supplies like coal, natural gas, or hydro are not risk free, so why should that standard be applied to nuclear energy?

While renewable electrical energy has been getting a rough ride recently, one would be challenged to find an informed analyst who would not believe that wind, bio-mass and bio-gass energy can be profitable at a price of 20 cents a kwhr.  At current rates of technology improvement, even solar could meet this hurdle within the next 10 years.

Projecting that the real price of electricity will need to double in 50 years to pay for sufficient supply sound alarming.  Hwoever, try putting that amount in perspective.  If consumers achieved a 1.5% growth per year in a combination of real income and electrical energy efficiency improvements, they would be spending the same amount of their income on electrical energy priced at 20 cents in 50 years time as they are today.

I will go out on a limb and suggest that the combination of improvements of energy supply technologies & systems, real income gains, and efficiency improvements will result in the average global consumer spending less of their disposable income on electrical energy in 50 years than they are today.  Check back with me in 50 years and we can compare my prediction with those predicting the end of the world due to peak energy.

Perhaps the most significant risk of my scenario not occurring is government policy leaders believing end-of-the-world predictions and adopting policies that destroy wealth, economic progress and social peace.