PERSPECTIVES: Fiddling While Oil Burns?

An op-ed entitled “The World Has Plenty of Oil” by Nansen Saleri appeared in the Wall Street Journal on March 4, 2008. Mr. Saleri, formerly head of reservoir management for Saudi Armco and now head of a Houston-based oil industry consultancy, sought to assure readers that gloomy forecasts about oil’s future are misguided.

Yet, rather than being assured of a rosy outlook, my reaction was that the sky is, indeed, falling.

Mr. Saleri has bona fide credentials, and he forecasts that the world will reach its oil production peak between 2045 and 2067. His forecast is more optimistic than others that predict an earlier date for peak oil production.*

Regardless of what forecast is correct, our children and grandchildren are certain to inherit the consequences of profligate use of the world’s oil over the past 100 years. Even if you do not view past oil usage as wasteful, it’s inarguable that oil’s past availability at prices that now look quite cheap has contributed to rapid depletion of this natural resource.

Saleri observes that “The world is not running out of oil anytime soon. A gradual transitioning on the global scale away from a fossil-based [read: “oil-based”] energy system may in fact happen during the 21st century.”

I’m a long-time observer of and participant in the energy business. I wrote the book Strategic Energy Supply and National Security, published in 1973. The first oil crisis occurred later, in October of that year. (The second oil crisis occurred in 1979.) A key premise of the book was that the U.S. was overly dependent on imported fuel and that this had far-reaching implications, including economic impacts. While every U.S. president since Nixon [pres. 1969 to 1974] has supported programs for “energy independence,” in the grand scheme of things, too little has been accomplished. And the need for constructive policies and action is, today, far greater than in 1973.

One bit of good news is that markets work. In the same edition of the Wall Street Journal that carried Saleri’s op-ed, a table of data on U.S. auto sales showed that overall sales were down 1% from a year earlier. The four reported subcategories of sales tell a story. Changes were: small cars, +4.9%; midsize cars, -0.1%; large cars, -26.3%; and luxury cars, -9.1%. While legislating CAFE (corporate average fuel economy) standards for cars sold in the U.S. appears to have been minimally effective as a tool for conservation, high fuel prices are motivating consumers to alter behaviors. The point is that consumers of all types – businesses, industries, and individuals – will conserve if they have an economic incentive to do so.

Yet, as effective as markets are, they likely are not entirely sufficient for undertaking the enormous transitioning that’s needed to keep wheels turning and the economy functioning. Bold vision is needed, along with courageous political leadership. Effective policies and programs must be developed and implemented. And far greater attention must be given to public education and debate.

And tradeoffs will be required. Changing the way energy is provided will involve large costs and, yes, compromises. We can’t have it all one way … along with yin, there’ll be some yang. Pollyanna thinking won’t do it. Individuals and organizations need to engage and be engaged in creating effective approaches and bringing to life meaningful solutions.

Hydro’s role

We have a wonderful endowment of natural resources. Yet, if viewed by the standards of other advanced nations, North America’s hydropower resources – for both conventional and pumped storage – are woefully underdeveloped. Owing to the operational benefits it can provide, more hydro is needed to help integrate increasing quantities of wind energy into electrical networks – a task which, to date, has been well-served by hydro facilities already in place. Further, in the long term, new waterpower technologies – ocean, tidal, and stream power – can aid in the transition to energy’s new future.

Existing developments demonstrate hydro’s capability to provide large amounts of renewable energy. Along with making improvements to existing facilities, there’s potential for adding much additional hydro capacity – to provide power, energy, and other valuable services, and in a manner that is environmentally, socially, and economically sustainable. Our industry has the opportunity, as well as the responsibility, to do what we can toward ensuring an energy-sufficient future.


*Mr. Saleri, banker Matthew Simmons, and others have been debating oil’s future in a blog hosted by the Wall Street Journal on the Internet at: 12/big-peak-oil-debate-redux/. Simmons is author of Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.

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