At this writing the energy and fuel demand for transport fuels in the developed nations is declining. Gas-guzzlers get parked, trucking gets better organized, and airline flight routes get cancelled. Consumption demand goes down. Special interests sue, lobby in Congress, bureaucrats regulate and investment is increased non-productively and paybacks are strung out over a longer periods of time. Investment demand goes down.

In places like China, the largest developing market is the least transparent about information that can be used by everyone for analysis and forecasting. What is known is some basic and rather dated material. China has come into rapid development without much concern for the long term reinvestment needed to control things like pollution which may well wreck their joyous Olympic hosting. We do know that the policy was to skip efficiency and pollution efforts at worst and at best use U.S. or European standards and equipment that are quite old.

Chongqing - No Visible Horizon

The result is that China is at one fifth of the efficiency of a leader like the U.S. Moreover they now have an installed base of this quality of energy and fuel using tooling. Growth has its problems in tradeoffs, and the appetite for energy in the growth has been an important part of the demand that pushed prices higher. What are China and others are doing about this?

In China’s case the government has prioritized improving air pollution by closing hundreds of small coal fired electrical generation plants and steel mills. The fuel economy standards are on the rise, as well as consumption taxes on their versions of gas-guzzlers. They have started to push building operators to install florescent lighting. This is getting a bit done, but as with any government it runs at cross-purposes.

The government has issued the famed communist “decrees” for reducing the amount of energy used while it remains subsidizing gasoline, diesel and electricity. China’s gasoline prices equate to about U.S. $3.40 a gallon, close to the mandated 18% increase from a few weeks ago. But consumption and auto sales are not slowing. (An aside – In Hong Kong gas runs better than $8 and shows poor results in driving down auto sales in a place where there is almost no place left to drive or park. So it isn’t so easy, even for a single party, dictatorial system.)

In contrast to this is the industrial sector trained to work with subsidized prices. Lifting price controls on energy and fuels can force companies to move to lower cost competitors such as Vietnam. Losing thousands of jobs is not good for a one party state.

Perhaps the most bewildering issue is the power generation field. Here China leads the world with 152 gigawatts of renewable sourced power equal to 15% of U.S. capacity. But 80% is still fueled by coal that is both mined in country at an annual cost of about 4000 deaths and since 1992 imported, too. China’s coal fired electrical generation is likely the largest air polluter in the world with a growing bad reputation and at any time we could see the acid rain issue reform on a never before seen scale across the Pacific Ocean. This plus the underground coal fires burning an estimated 20 million tons per year are spilling more effluents into the air. China’s answer is use diesel – an incredibly inefficient method abandoned in the U.S over forty years ago that moves more pressure to the transport fuels sourced from oil.

That’s just China. India is going through a similar set of issues and while developing more smartly and more intellectually vs. manually work, still is increasing price pressures. The list of developing counties has grown since the demise of the Soviet Union and the change in China from hard communism to one party socialism. The countries are at various stages of development each making choices for energy supplies and fueling options based on the national circumstances.

While the U.S. and others in the developed world look to move on with level or declining oil use and perhaps a drop in coal use China is increasing electrical demand by about 10.3% annually since 1990 with no slowing down in sight.

Its clear that for supporting the current economic status in living standards in the developed world and feeding the growth in the developed world much more energy will be needed. But more important is to get competition going to drive energy and fuel costs lower.

Not only does the U.S. and the other developed countries need to add to the support in research and development, but also the governments need to answer the issues of the investment costs of every source. Long delays, huge regulatory expenses and other government sourced expenses for actions and inactions need addressed.

For consumers and investors it matters a great deal because in the end that money will be non productively invested and paid back over time with higher ongoing prices and longer term payouts that limit the turnover rate of capital. It may come to pass very soon that the needs for capital will not be answered because the rate of technological change may add risks to investments that could be profitable in shorter terms but are not viable when considering barriers, delays and extra costs leveled from bad government policy.

The competition in demand is two fold, the prices for the products and the competition for the investment. Demand is falling off for both, and this is a disaster in progress for everyone. Here’s the shortest list I can come up with for meetings with Congresspeople:

Get anything, everything, oil, coal, nuclear, wind, solar, renewables, alternatives – all of it adequately incentivized to overcome the tax code disaster.

Get the regulatory system fixed to get investment quickly in and out. The faster in the cheaper, the faster out capital can recycle into new technology. Better, faster, quicker!

A short list, I know. But we’re dealing with Congress people remember? If it’s too long or complex, it won’t fly at all. The individuals might get it, but by the time it comes from you to Congress on to the media then to regular voters the mains points will be lost. Its time to make some demands for good government before government destructs our living standards our nest eggs and hopes for our children.


1 Comment so far

  1. Charles Barton on August 7, 2008 8:55 AM

    Thanks for calling attention to underground coal fires. This is a solvable problem, indeed far more easily and inexpensively solved that building a viable post-carbon electrical generating system. Stopping the fires would make a significant cut in annual CO2 emissions.

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