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So What's New? 2008 Energy Crisis

Jul 8, 2008
America had an energy crisis starting in 1973 with the Arab oil embargo. Unfortunately we didn't seem to take it all that seriously as it was fairly short lived. Certainly the United States didn't learn much from it.

The 1970's energy crisis led to greater interest in renewable energy and spurred research in solar power and wind power. It also led to greater pressure to exploit North American oil sources, and increased the West's dependence on coal and nuclear power. The energy crisis of the 1970's caused the United States to step up and begin conservation efforts and explore alternate energy sources. It was thought that if oil prices continued their uphill climb, these alternate sources will without a doubt become economically and politically superior to oil.

The 1970's energy crisis was brought into focus by President Carter's message to the American people on April 18, 1977 and by his message to the Congress on April 20, 1977. Although the President spoke of the gravity of the energy situation when he said that it was "unprecedented in our history," his messages triggered an avalanche of critical responses from national political and business leaders. Fast forward to 2008 and you still hear from our so called "leaders" that American can work through the crisis just fine. That would be nice but don't count on it. America is just as unprepared for an energy crisis in 2008 as it was in 1973.

Electric, fuel cells, hydrogen, and ethanol are all touted as a replacement for expensive oil. But the energy that they produce is also expensive. Then they require massive infrastructure changes like finding new ways to manufacture, transport, store, and sell fuel. For example, you won't go on a long road trip in your electric car until there are reliable and affordable places along the way to plug in and recharge.

Electrically is not free, however it is produced. Now electricity is produced by the energy sources of today, primarily coal, nuclear, and hydroelectric. Every facet and aspect of our lives can be controlled when energy is controlled. Governments that control energy sources and technology will become all powerful in tomorrow's energy starved world.

Oil futures speculation is only tangentially relevant to an honest discussion of the price of oil. In fact, it is harmful because it undermines and replaces a reality-based appraisal of the problem. Oil refineries operate at 98 percent of capacity and have no room for error or catastrophe, as witnessed by the Katrina fallout. Also, the two primary reasons refineries haven't been built in 31 years are because environmental regulations make construction cost-prohibitive and because those same regulations prevent oil companies from drilling for more oil, which would increase production to an amount that would allow (cost wise) the expensive refineries to be built.

Oil companies culled domestic production 20 years ago because they couldn't make the kind of profits they wanted. They shut down refinery development and started mothballing and selling off production plants. Now that the high price of oil is here, probably to stay, politicians are talking about taxing "excess profits". It takes a lot of money to explore, drill for, transport, and refine oil. It also takes a lot of money to develop alternative energy sources. Take away the "excess profits" from the oil companies and everyone will suffer as a critical energy shortage develops.

Oil companies continue to receive $18B per year in incentives (tax breaks, no-royalty drilling), despite record profits. More of that oil company profits and/or tax breaks should to go fusion/solar/renewable energy research. Oil consumption by power generators is extremely small and is limited to a few East Coast states that have little capacity to turn to coal. To the extent that oil consumption could be reduced further, it would require increased reliance on natural gas, a fuel already in short supply.

Production in some Gulf of Mexico gas fields is decreasing 25%-50% per year. Obviously these conditions will lead to price increases for fuel. Production by the Organisation of the Petroleum Exporting Countries fell by 350,000 barrels of oil a day last year. The production situation is even more challenging in the market-oriented nations of the Organisation for Economic Co-operation and Development, where many existing basins are maturing fast.

The effort to develop alternative energy sources is increasing as oil prices increase. Wind energy is one source of energy that is talked about a lot. Windmills are not ideal for power generation. They only generate it when the wind blows - which may not be when you want the power. Wind and solar simply aren't complete answers, because they aren't 24x7 solutions, and battery technology to store power in non-trivial amounts for non-trivial amounts of time doesn't exist (ask any laptop user).

Oil supplies are uncertain. Demand is not, it keeps on climbing as China, India, Brazil, Russia, and other nations enter a rapid development stage. The cost of oil will keep going up. The US has been there before, in the 1970's. Unfortunately, we have spend over 30 years since then dreaming that all would be OK, that any oil crisis would be temporary, that we could control events.

The United States is wrong. The oil crisis of 2008 will not go away. The world has changed and there is no going back. Increased energy demand from the rest of the world along with decreased production from major oil fields will keep supplies tight and prices high even if the US and the Euro zone enter into deep recessions.

We learned little to nothing from our last energy crisis. Serious conservation in the US market has been a bad joke for 30 years. Now we will pay. That way that Americans live will have to change. The next few years will not be happy ones for many Americans.

A "Marshall Plan" for the production of alternative energy sources and for the conservation of the energy we are now producing is sorely needed. With the right effort and dedication American can do it. Ultimately, the massive effort to produce alternative energy will provide many new opportunities for jobs, new industries, and for investment. Unfortunately, as many Americans are still in denial, it will take a horrible crisis and then years to ramp up the effort. In the meantime, hard times they are a coming.
About the Author
Learn more about the coming energy crisis and its consequences for the way we will live and work at Crisis News Analysis
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