The paradox that the independent oil company faces about finding new reserves is much the same as what the economy faces in bringing alternatives to oil on the market. As the thinking in the major oil companies is getting the light of day now, we can see what may be coming in the alternative fuel fields.

Watching BP who offers reports and testified in the UK Parliament over the past few years offers in part a guide to the thinking. A BP exploration consultant, Francis Harper was reported back in 2004, saying in London’s The Business newspaper that world oil supply would peak earlier than expected and the total useable resources was 2.4 trillion barrels. Those remarks didn’t match the 3 trillion barrel number by government bodies like the U.S. Geological Survey. He further offered that production peaking should take place between 2010 and 2020. While the peak itself isn’t so critical, the important matter is when non-OPEC production peaks the shift for the marginal production beyond demand passes to a progressively smaller number of unfriendly non-market oriented countries.

The 2.4 trillion barrel resource number seemed low to many. Yet, for some the number was 2 trillion making it seem still high. Straddling Mr. Harper’s number on the low is the oft-quoted Colin Campbell, a favorite of the gloom and doom crowd and Exxon Mobil a leader for the high side.

Last month BP was telling the UK Parliament that demand would peak with supply following thereafter. The driver would be the rush of increased prices and the new sources other than oil supplementing and replacing the petroleum role. Reuters quoted BP’s Peter Davis, “I believe there is a realistic possibility that world oil production will peak within the next generation as a result of peaking demand. I think we will run lower demand before we run out of supply.”

Here is where all three positions on the barrel resource numbers come together. While we as consumers view the price we pay and the sustainability of the price and availability as keys, the producers see the investment in oil production as the issue. Independent oil companies can choose to risk more for oil or for alternatives. That makes the concern the investment rates and efficiencies in the national oil companies or government oil companies – a very problematic forecast, indeed.

This shows the parallel thoughts at the upper reaches of independent oil company decision-making. The choices are to go for more oil or to go for alternatives and displace the oil from market share. Both offer major implications to the stockholders they must answer to. The choices over past few years have been to use in part profits to buy back stock to raise the reserve barrels per share (fewer barrels for fewer shares) to support the stock’s share price. But the sign down the road can be seen, the inability to replace reserves from those sold, will cross the line where price of oil won’t support the reserves left on the per share basis.

The free world’s economy is in much the same quandary.

As consumers, we think in prices first and in the long term the investment in tools like the car or appliance. Just like the oil company we’re faced with the parallel choices of more oil based investing or more alternative based investing. Does one choose for the highest fuel versatility or a hybrid or plunge ahead into an investment that has to have a large quantity of petroleum-based fuel? This point is critical to the economy, both up front and personal and to the manufacturers of things like cars. The press, the blogsphere, the government and especially the special interests are all watching and using their considerable powers to influence people to think their way.

But what is the right way? How does one know how to be “productively afraid?” I would offer some basics for the near to mid term. Carbon based fuels are going to be used for decades, likely for a lifetime or more. Much is made about the “hydrogen economy,” the renewable fuels effect on the environment, the trading of food for fuel and the tiresome and dopey CO2 based global warming muckraking.

Basic idea No. 1, none of these issues has any meaningful effect other than to obscure the facts and lure you to a falsehood. The people behind these efforts only seek to control you through controlling your access to fuels and energy. They are having serious and damaging effects, with carbon treaties and laws, postponing the building of electrical generating plants and a host of other delays and fogs that lose sight of the point, modern life needs energy and fuel supplies.

Basic idea No. 2 is humankind is part of the earth’s ecosystem and has a role in the planet’s carbon cycle. So, instead of the hysteria and blame, gloom and doom and other falsifications about CO2, we need to take responsibility and exploit the natural processes for both the biosphere and ourselves. That’s to say we need to make the best use of the carbon already available in the atmosphere and recycle cheaply and effectively. Its not that complicated, but the science and investment is going to be substantial. On the other hand, the “carbon reserve” in the air being recycled would be infinite, leading to an inexhaustible resource if we can develop our way to make effective processes. That leaves coming up with the energy to run the processes, which is the fundamental problem to making the transition quickly. If the energy to recycle CO2 were free, the recycled CO2 fuel making processes would overtake petroleum in short order.

Basic idea No. 3 is we need to come to grips with efficiencies of using energy and fuels. Our current tools are woefully inefficient particularly in the use of petroleum and coal. We’re not that good a burning things and getting the energy out. By no means is the automobile with 200 bhp using 200 bhp of energy. At an optimistic 20% efficiency, the car uses something more than 1000 bhp worth of fuel to get 200 bhp. Worse yet, the gross power production is rare and intermittent, with a huge investment in inefficiency for most of the time. This is the biggest problem facing the consumer. Tens of thousands of dollars in a device that might be 20% efficient in rare and intermittent moments that needs fed lots of expensive fuel even when its at even more inefficient low power.

Basic idea No. 4 offers that while continuous burning as in a electrical generating plant is much more efficient and lower in emissions than hundreds of thousands or millions of small burners, many of which are intermittent and even internally combusting like car engines, the energy lost is considerable and worth a great effort to capture and feed back into the system.

Being productive in one’s worries is worthwhile because we can choose for higher efficiencies. That’s when you’re not afraid anymore. You’ve traded the fear for action and moved your life into the future. A big part of that is not listening to the crowds of special interests that seek to control your energy future. You’re going be exhaling CO2 all your life, so until there is a fusion breakthrough that leads to a huge development out into cheap electrical power generation we’re going to need to be smart and more innovative about our role in the earth’s carbon cycle.

A big turning point is coming – when the car you buy “fills up” in a major way in the garage overnight and the auto fleet becomes more and more powered by electric base load, things will change for the better faster than anyone might think.

Now if we can just get the press and media to smarten up and get on board with the consumers instead of the special interests, things could get going much better faster. Then the oil companies could say with certainty – those investments would be better in the alternative field rather than chasing more oil.

Things are looking up, many more people grasp that electric equipment is much more efficient than an internal combustion engine. More hybrid automotive choices are coming. Mass production will drive down costs, batteries are going to be better and assisted with super capacitors, and we will learn to plug in the car at night. Now if I could just get the annual reports to measure the energy productive capacity and the sources instead of barrels of oil in reserve I could be quite smart in my stock choices!


2 Comments so far

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