Jerome a Paris comments on the NPC report

Published on 22 Jul 2007 by European Tribune. Archived on 22 Jul 2007.
Facing the Hard Truths about Energy - the NPC report, commented
by Jerome a Paris

The hard truths

The report notes five main truths:

Coal, oil, and natural gas will remain indispensable to meeting total projected energy demand growth.

The hard truth here is that overall demand for energy is expected to keep on growing significantly over the next 2 decades. What is left unsaid, but made obvious, in the Executive Summary, is that we will have very little control over that demand: the OECD's demand, which makes up 56% of world demand, is predicted to grow by 10% in their central scenario (from 245 quads to 275 quads), whereas demand from the rest of the world is expected to double, going from 44% to 60% of total demand (and from 200 quads to 400 quads).

The report mentions later that it is impossible to treat energy as a national issue - it is a fully global industry, and we will be impacted by what happens elsewhere. Well, the first, stark, lesson, is that whatever happens on the demand side, as a whole, will be decided, to a large extent, elsewhere.

I've been writing a lot about how we should focus energy policy on demand, which we control, rather than on supply, which we do increasingly less. Well, a major proviso of that is that we certainly do not control global demand anymore. That does not make our domestic efforts irrelevant, quite the opposite, but it shows that any sane policy should focus on the demand in other parts of the world, something that will require a lot more cooperation and diplomacy than we seem willing to engage in right now.

The second part of that "hard truth" is that it's pretty likely that we will overwhelmingly continue to burn hydrocarbons to satisfy that growing demand - because that's what we already do, and because a lot of that demand comes from sectors that overwhelmingly use hydrocarbons: transport (with skyrocketing car use in the emerging world) and electricity generation (where burning coal, gas or oil is the default choice).

The world is not running out of energy resources, but there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources relied upon historically. These risks create significant challenges to meeting projected energy demand.

This is the point that has led to many headlines and was discussed in my earlier diary. Depending on how you look at it, it can be seen as either an acknowledgement of peak oil (significant challenges to meeting demand), or a dismissal of it (not running out of energy ressources). Coming from the NPC, it does seem to be an unsually candid effort at acknowledging the increasing tensions on the supply side that are chronicled on places like The Oil Drum or my "Countdown to $100 oil" series.

In fact, the Executive Summary includes a half-page summary of the debate on peak oil, which can be described to be reasonably fair in the presentation of arguments, and their supply scenarios include those prepared by the ASPO (Association for the Study of Peak Oil), one of the main peak oil groups.

So I'd chalk this report as a major step forward in the acknowledgement that there is indeed a supply problem for both oil&gas. This article this morning in the Independent has a good round up of quotes and comments on this.

The age of cheap oil is gone. That point long made by the peak oil advocates is essentially acknowledged.

To mitigate these risks, expansion of all economic energy sources will be required, including coal, nuclear, renewables, and unconventional oil and natural gas. Each of these sources faces significant challenges—including safety, environmental, political, or economic hurdles—and imposes infrastructure requirements for development and delivery.

That's probably where the report is most disappointing. It essentially says that we'll be able to respond to the challenge by producing (or rather, extracting) more energy, even if it's getting more difficult. The order in which these sources are listed shows that the industry is still expecting to work on the same model as before, with more big utility centralised production. There is no mention of the need for energy demand (it is elsewhere in the report, but not here, where it matters), and an essentially upside down order of priority. As I have said many times, we should focus our efforts first on energy demand reduction, then renewables, then nuclear, then hydrocarbons.

The only notable point is that unconventional oil&gas is last in that list. And the Executive Summary includes an explicit acknowledgement that these sources are unlikely to provide any significant relief by 2030.

“Energy Independence” should not be confused with strengthening energy security. The concept of energy independence is not realistic in the foreseeable future, whereas U.S. energy security can be enhanced by moderating demand, expanding and diversifying domestic energy supplies, and strengthening global energy trade and investment. There can be no U.S. energy security without global energy security.

With energy being one of the most internationalised and globalised industries, this may sound like a pretty basic fact, but in the context of the US political debate, and the regular mention of the words "energy independence" in various politicians' programmes or speeches, it is quite useful that this reminder be included here. There will be no autarchic solution, and no way to avoid an energy crisis coming from elsewhere even if the US were self-sufficient - because prices are set globally, and reflect the global supply and demand balance. It should also act as a warning that there will be no possibility for any isolationist foreign policy in the foreseeable future, and no way to avoid the ripples from what happens in the Middle East, the main exporter of energy sources worldwide.

A majority of the U.S. energy sector workforce, including skilled scientists and engineers, is eligible to retire within the next decade. The workforce must be replenished and trained.

This is, to some extent, a localised problem (as many other parts of the world have surpluses), but it is nevertheless a real one in the medium term, and it might have a very noticeable impact on other political debates - watching the Texas oil managers pleading for a more open immigration policy (as the report already does) might be entertaining - and offer the Democrats a real political opportunity on that topic.

Policies aimed at curbing CO2 emissions will alter the energy mix, increase energy-related costs, and require reductions in demand growth.

The elephant in the room, and the embarrassment of the NPC on the topic is palpable, as this is presented last, with a warning that the report expresses no opinion on climate change. What is significant is that the industry essentially concedes defeat - while not acknowledging the reality of climate change, they note the ineascapable political reality that something will be done to lower carbon emissions, and the report thus focuses on how to do this in what they see as the best way. Again, a major acknowledgement.