What does our world's energy future look like? Does renewable energy feature as much in the energy production mix as many hope it will? Will natural gas and fracking help reduce our dependence upon oil and how will the world economy and trade fare as supplies of cheap oil continue to dwindle?
To help us take a look at this future scenario we had a chance to chat with Gail Tverberg – a well known commentator on energy issues and author of the popular blog, Our Finite World
In the interview Gail talks about:
• Why natural gas is not the energy savior we were hoping for
• Why renewable energy will not live up to the hype
• Why we shouldn't write off nuclear energy
• Why oil prices could fall in the future
• Why our energy future looks fairly bleak
• Why the government should be investing less in renewable energy
• Why constant economic growth is not a realistic goal
Gail Tverberg is an independent researcher who examines questions related to oil supply, substitutes, and their impact on the economy. Her background is as a casualty actuary, making financial projections within the insurance industry. She became interested in the question of oil shortages in 2005, and has written and spoken about the expected impact of limited oil supply since then to a variety of audiences: insurance, academic, "peak oil", and more general audiences. Her work can be found on her website, Our Finite World.
Interview conducted by. James Stafford of Oilprice.com
James Stafford: Do you believe that shale gas is the energy savior we have been hoping for and can deliver all that has been promised? Or have we been oversold on its potential?
Gail Tverberg: I am doubtful that shale gas will be the energy savior that we have been hoping for. There are several issues: (a) It is hard for US natural gas prices to rise to the point where shale gas extraction will truly be profitable, because of competition with coal in electricity generation. (b) While natural gas can be used for transportation, it takes time, investment, and guaranteed long-term supply for it really to happen. This will be a long, slow process, if it occurs. (c) People won't stand for "fracking" next door, if the end result is LNG for Europe or Japan. We have otherwise "stranded" non-shale gas in Alaska that would be a better option to develop and sell abroad.
If shale gas does come into widespread use, it will take many years. The quantity will be helpful, but not huge. Furthermore, it will still be natural gas, rather than the fuel we really need, which is cheap oil.
James Stafford: The old dream of US energy independence has been finding its way into the headlines again as a combination of resurgent domestic oil production, improvements in vehicle fuel efficiency and the shale boom have led many experts to predict that although it is unlikely, it's no longer the fantasy it once was. What are your thoughts on US energy independence?
Gail Tverberg: I think that the direction in years ahead will be toward reduced trade of all sorts. By definition, every country will become "more independent," including more "energy independent". Whether or not current lifestyles are supportable with lower trade is another question.
James Stafford: Japan recently made the announcement that they aim to phase out nuclear power by 2040. What is your opinion on this decision and on nuclear energy in general? Can the world live without it?
Gail Tverberg: The decision by Japan is worrisome, because there aren't many good replacement options available. Japan has volcanoes, so it may have an option to use geothermal as an option. Also, 2040 is far enough away that other options may become available.
Phasing out nuclear in other countries is likely to be difficult. In most countries, this will likely mean "less electricity" or "more coal." It may also mean higher electricity cost, and lower competitiveness for manufacturers. Germany has already started the process of phasing out nuclear. It will be interesting to see how this works out.
In general, I think we should be taking a closer look at nuclear, because we have so few other low-carbon options. There is considerable dispute about the extent to which radiation from nuclear is a problem. This question needs to be examined more closely. To use nuclear long-term, we need to find ways to do it cheaply and without a huge amount of hot fuel that needs to be kept away from people indefinitely.
James Stafford: Renewable energy continues to be a favorite amongst many politicians – yet advances are slow and expensive. Do you see renewables making a meaningful contribution to global energy production? And if so over what time period?
Gail Tverberg: I have a hard time seeing that intermittent renewables (wind and solar photovoltaics) will play a big role in maintaining grid electricity, because of the stress they place on the grid, and the high cost of needed grid upgrades to handle them. Renewables from wood and biomass are hard to scale up, because wood supply is limited and because biomass use tends to compete with food production. Renewables from waste (left over cooking oil, for example) are not something we can count on for the long term, as people stay at home more, and dispose of less waste.
All renewables depend heavily on our fossil fuel system. For example, it takes fossil fuels to make new wind turbines and solar panels, to maintain the electrical grid, and to repair roads needed for maintaining the grid system. Biofuels depend on our fossil fuel based agricultural system.
I expect that the contribution renewables make will occur primarily during the next 10 or 20 years, and will decline over time, because of their fossil fuel dependence.
Quite a few individuals living off-grid would like to guarantee themselves long-term electricity supply through a few solar panels. This is really a separate application of renewables. It will work as long as the solar-panels work, and there are still the required peripherals (batteries, light bulbs, etc.) available—perhaps 30 years.
James Stafford: Are there any renewable energy technologies you are optimistic about and can see breaking away from the pack to help us extend the fossil fuel age?
Gail Tverberg: The technology that is probably best is solar thermal. It works like heating a hot water bottle in the sun. This is especially good for reducing the need to use fossil fuels to heat hot water in warm climates. But even this is not going to do a huge amount to fix our problems, especially if they are primarily financial in nature.
James Stafford: Renewable energy innovation has been coming under fire lately, with the Solyndra scandal and now Tesla motors are looking to be in trouble - both of whom were backed by government loan guarantees. Do you believe the government should be investing more or less in renewable energy companies?
Gail Tverberg: Less. I think we should be looking for inexpensive solutions. Anything that is high-priced starts with two strikes against it.
Also, I think if the true picture is considered, the amount of environmental benefits of renewables is very low, or perhaps negative. Their higher cost tends to make countries using them less competitive, sending production to China or other Asian countries where coal is the primary fuel. This may raise world carbon dioxide emissions.
Since 2000, world carbon dioxide emissions have increased far more than would have been expected based on prior patterns. A major cause seems to be the shift in industry to Asian countries, as countries attempted to reduce their own carbon footprint.
James Stafford: In a recent article you mentioned that the world economy is currently suffering from high-priced fuel syndrome. Would you be able to let our readers know a little more about this? And also if there is anything that can be done economically to help move beyond this syndrome?
Gail Tverberg: High priced fuel syndrome is primarily (but not entirely) a problem of fuel importers. It has symptoms such as the following:
• Slow economic growth or contraction
• People in discretionary industries laid off from work
• High unemployment rates
• Governments in increasingly poor financial situation
• Declining home and property values
• Rising food prices
Part of the problem seems to occur when fuel prices rise, and people cut back on discretionary spending. The result is layoffs. Fewer people pay taxes, and more collect unemployment benefits, causing financial problems for governments. The other part of the problem seems to be lack of competitiveness with countries (such as China and India) that use a cheaper fuel mix.
While oil is the fuel with the big price-problem in the US, high-priced natural gas contributes to the problem in Europe and Japan. High-priced renewables also contribute to the problem.
To keep costs down, we really need to consider cost first when considering alternatives to oil. Alternatives that need subsidies or mandates are likely to be a problem. Thus, in the US, natural gas right now might "work" as a substitute, but not offshore wind.
Regarding the competitiveness aspect, tariffs on international trade might help, but would reduce world output.
James Stafford: What is your position on peak oil? Have we already reached the peak in oil production? Or do you side with Daniel Yergin in saying we have decades more of production growth?
Gail Tverberg: I think the peak in oil production will be determined based on financial considerations. Such a peak is probably not very far away, because we are already experiencing lower economic growth and the governments of several countries are in dire financial straits.
As the oil price gets too high (or already is too high), governments of oil importing nations will be increasingly stressed by high unemployment and low revenue. Any way of fixing this problem (higher taxes, government layoffs, or reduced programs like Medicare, Social Security, and unemployment insurance) is likely to lead to lower disposable income and less "demand" for (that is, ability to pay for) products using oil.
With lower ability to pay for products using oil, the price of oil will drop. Fewer producers will be able to extract oil at this lower price, and the supply of oil will decrease.
James Stafford: What is your view on our energy future? Is it as bleak as some commentators point out – or is there a ray of hope for us?
Gail Tverberg: I see the future as fairly bleak. The big issue is the way high oil prices affect the economy, leading to recession, joblessness, and huge government deficits. The issue is really a lack of cheap oil.
This is an issue that can't be expected to go away, even with new (high priced) oil supply in the US, or with the possibility of more natural gas supply. We are right now experiencing adverse financial impacts from high oil prices, but these impacts are being disguised by artificially low interest rates and huge amounts of deficit spending.
I find it hard to see much of a ray of hope for avoiding some kind of discontinuity, because the problem seems to be already at hand. For example, I see Europe's current financial problems and the US's fiscal cliff as being a direct result of lower energy affordability, especially oil, in recent years.
James Stafford: We recently published a news piece on a broker who in a drunken stupor managed to move the oil markets. What do you believe moves oil prices – is it supply and demand or energy market traders – or a bit of both?
Gail Tverberg: I think that over the long run it is mostly supply and demand that moves prices. (Of course, demand has to be read as "affordability". People who are paying higher taxes can afford less oil products, so "demand" less.)
There may be some short-term impact of energy market traders, but it is likely quite small as a percentage of the total.
James Stafford: If oil prices continue to rise do you see Americans changing their driving and energy consumption habits?
Gail Tverberg: I think some changes will take place, but they will not be as fast as many would like. New car buyers are likely to be unwilling to pay large upfront costs for fuel-saving features, because they may not own the car for very long. Getting their money's worth will depend on getting a high resale price for the car.
People in poor financial condition are more likely to make big changes. People who lose their jobs may sell their cars, and share with others. Teenagers who don't get jobs will not buy a car. People with low wages and long commutes will look for people to share rides with.
James Stafford: A short while ago Forbes ran a piece on Thorium as possibly being the biggest energy breakthrough since fire and both China and India have announced their intentions to develop thorium reactors. What are your thoughts on thorium as a possible replacement for uranium?
Gail Tverberg: From everything I have heard, it is still a long ways away—at least 15 years. If it would work, it would be great.
James Stafford: In another article you have linked energy to employment and recession. Are you suggesting that without growth in energy production the economy will not grow, and employment levels will not rise?
Gail Tverberg: It takes external energy to make anything that we make in today's economy. It takes energy to operate construction equipment, or to operate a computer, or to manufacture and transport goods. Even making "services" requires energy.
So if we have a lot less energy, today's jobs are likely to be impacted. It is possible that we can create more half-time (and half-pay) jobs, but the result will still be that the world will be a lot poorer. We can still do jobs that don't require external energy (such as make a basket out of reeds, or wash clothes in a stream), but our productivity will be much lower than when electricity or oil was available to leverage our production.
James Stafford: What is the most pressing matter that will affect the world in your opinion? food shortage, water shortage, energy shortage, climate change, etc?
Gail Tverberg: I think the immediate problem will be financial, but caused by high-priced energy.
The big concern I have is that financial problems will lead to political disruption. The natural tendency of countries with less energy supply is to break into smaller units—for example, the Soviet Union broke up into Russia and its member nations. There is now talk about whether Catalonia can become independent from the rest of Spain, and whether the Euro can hold together. If breakups become a major pattern, even spreading to the New World, it could make international trade much more difficult than today.
Financial problems could also lead to debt defaults and rapidly shifting currency relationships. These, too, could lead to a reduction in international trade.
James Stafford: Economic growth is what the public expects, anything less is treated as a recession, but is constant economic growth a realistic goal? Is it achievable?
Gail Tverberg: Constant economic growth is not a realistic goal. We live in a finite world. This is obvious, if a person stops to think about it. There are only a finite number of atoms in the earth. There are interrelated biological systems on earth, and humans are one part. Humans cannot become too numerous without destroying the ecosystems that we depend on.
In a finite world, it is clear that eventually extraction will become more expensive. When we first started extracting fossil fuels, we started with what was easiest (and cheapest) to obtain. As we move to more difficult locations, such as deep under water, or the Arctic, the cost becomes more expensive. It is these high costs that seem to be disturbing economies now.
It appears to me that we are now hitting some version of "Limits to Growth". Most economists haven't figured out the connection between the economy and the natural world, so are oblivious to our current predicament.
James Stafford: If the transition from fossil fuels to renewable energy is ever actually made, what do you believe will be the effect on GDP?
Gail Tverberg: I don't see renewable energy as being sustainable on its own. If it were, we might expect a GDP level of perhaps 10% or 15% of today's GDP.
James Stafford: Other than a severe reduction in the global population what solutions are available to humanity as it reaches the limits of the planet?
Gail Tverberg: Unfortunately, solutions seem few and far between. Our biggest problem seems to be a lack of time to fix a financial problem that seems very close at hand.
A partial solution for some people may be a reduced standard of living combined with local agriculture.
Regardless of what happens, we do have quite a lot of "stuff" that humans have made that will cushion any down slope—roads, houses, clothing, and tools, for example. Many people would like a solar panel or two for their long-term use. We also have knowledge that we did not have on the upslope.
The past 10,000 years for humans has been real miracle, first with the discovery of agriculture, and later with the discovery of fossil fuels. If there is a Guiding Hand behind what is happening, there may be other miracles in store, as well.
James Stafford: In your opinion, who will make the better president in terms of energy policies and saving the economy, at the upcoming elections?
Gail Tverberg: The last presidential candidate that I had real enthusiasm for was Ross Perot in 1996. He would have put the United States (and the world) on much more of an isolationist path. In retrospect, this is the one thing that would have helped put off the predicament we are in today, because it would have slowed world economic growth, and with it the extraction of resources. World population would probably be lower now, too.
In this election, I would probably slightly favor Romney, because he seems to have some grasp of the issues we are up against. As I look at the numbers, it is absolutely essential that we start cutting programs, if we are to balance the budget. As bad as fossil fuels may be, they provide our jobs, our food, light, and heat so we need to continue to extract them. We don't seem to have very good alternatives at this time. Even what we consider renewables depend upon fossil fuels.
In the next four years, I expect we will find ourselves doing a U-turn on economic growth. I don't think either candidate (or for that matter, any leader) will be able to handle this well. Ideally, the new leader should be looking at the issue of how to deal with a low-energy future. Do we move to local agriculture, and if so, how? If rationing is done, how should it be done? If there are not enough jobs for everyone, should we go to more part-time jobs?
Romney has been accused of flip-flopping, but in some ways, with such big changes coming, I think that what we need is someone who is willing to change his views with changing circumstances. We seem to be headed for truly uncharted territory.
James Stafford: Gail thank you for taking the time to speak with us.
By. James Stafford of Oilprice.com
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