Energy Scarcity the New Driver in the World Economies

The last couple of years have been colder than most global warming fans have liked.  My opinion is that the verdict is not in yet -- is the CO2 in the atmosphere rising because the temperature is rising as part of the normal cycle (ice age, thaw, etc.) or is the plant warming because of excess "CO2 gases" in the atmosphere.  But, the details of this discussion are not the point of this discussion.

While I agree that the science behind global warming may be suspect, I believe that our dependence on foreign oil needs to be reduced, nevertheless.   I am one of the those people that believe in the peak oil theory --- that we have reached the maximum oil production for both for technical and political reasons while the demand continues to grow.   China in five years or so will be sucking as much oil as we do.  Our economy falling on its face has just provided a brief reprieve from this "upper limit" on oil production.  (As a corrosion engineer for the oil industry, I see the oil composition on future deposits (five years out), and it is not pretty.  There is a biased look at the International Energy Agency (IEA) report below. The IEA report is more science fiction than the global warming theory by the way. )

I was in Oman this year and witnessed first hand some of the wealth transfer that is occurring from the entire world to the middle east.   Awesome and scary.  Nothing good I am afraid will come of this wealth transfer.

And it is not just oil.  There is a global shortage of energy.  In our technology dominated world, we can do almost anything, except peace, with enough energy.  Grow food, move mountains, build sky scrappers.  But, for the rest of human history, energy is going to be increasingly scarce and expensive.  It is going to limit development in the foreseeable future -- certainly for the rest of my life time.   Back to oil which is on stage now.

I firmly believe oil prices will go through the roof again ($200/barrel) toward the end of 2009.  By 2010 "peak oil" will bump into (1) the declining value of our dollar, (2) projects delayed by the current shortage of demand for oil, and (3) a rebounding U.S. economy to produce what will be called a world-wide shortage of oil and energy.  Short of a new war, ENERGY may finally get the attention it deserves.

If sanity prevailed we would see an increased use of electricity versus other forms of energy and increased production of electricity from coal, natural gas, nuclear, and wind energy.   However, sanity will not prevail in the short-run and instead we will see only significant investment in natural gas (supplemented by LNG) and wind power.  Solar will increase also, but we will struggle to supply 5% of  our needs in my lifetime. On the flip side, there is plenty of room for more energy efficient in air conditioning, building design and for more efficient autos.

 I look at all of this reaction to global warming as a move in generally the right direction for the wrong reasons.  There are some more fundamental problems in our world economy that we are not addressing.  The American Consumer has been the driving force in the world economy for the last forty years.  However, the American Consumer is also the American Worker.  His cut of the pie on both a national and international basis has been declining ... and in the last ten years it has been declining substantially.  Availability of excessive credit allowed the American Consumer to spend more than the American Worker made for over a decade, but that party is almost over.  Improved education of our people can possibly stabilize the decline in the fortunes of the American Worker on the long haul, but another driver for the world economy needs to emerge in the short and intermediate term (0 to 10 years).  Dealing with the upcoming energy shortage could be the driver for the world economy, perhaps, but that seems a little like trying to apply a force with a wet noodle.  Instead, they are parallel problems with solutions needed for both.

Some argue that the Chinese, or Indian, or South American consumer will become the drivers for the world economy.  The current public opinion is that the government is going to be the "driver" in the short term -- now that is a scary thought that I won't go into at the moment.  But, this way of thinking is based on an old model of how the world's economies work.  I am not sure how all of this going to unfold, but whichever countries most sucessfully deal with rising energy requirements as traditional supplies shrink will own this century.  Yes, it is that big.  The consumer dependent model where everyone tries to convince the consumer that he needs what they are selling is near the end.  The new model will address obtaining energy and using it efficiently.  The retail industry will be hit soon and hard by this new reality.  Engineering services, both on the industrial and even for homeowners, should flurish as this new reality emerges. 

This entry is more to introduce the concept than claiming I have it all figured out yet.  Writing is my way of sorting through this messy subject.  Any comments to add clarity to my mind would be appreciated.