Now don't get me wrong. I am not suggesting that BP is blameless. Nor am I suggesting that oil spills are a good thing. Far from it. The company's management of the Macondo well was beyond pathetic. If BP had invested a fraction of the talent, money, and focus that it invested to clean up the mess created by the blowout into actually drilling the well properly, the accident would never have happened. Further, the fact that the accident happened in the warm waters of the Gulf of Mexico rather than in the Arctic was a key reason the oil disappeared so quickly. A blowout in a region where waters are cold or icy could have devastating, long-term effects. And finally, it's readily apparent that the oil industry as a whole must take safety more seriously. That is certain to happen in the wake of the Macondo accident, but the industry should have been more diligent all along. Sure, the accident happened at BP, a company whose safety history is among the worst in the industry. But by being lax on safety, BP hurt the image of the entire oil and gas sector.
While it's difficult to image the general public ever changing its dim view of the oil business, the spill created by the Macondo blowout did not last long. In mid-August, researchers announced the discovery of a previously unknown microbe that just loves the taste of crude oil in the summer.
2
And by that time, there was almost no evidence that the blowout had even happened. No oil was floating on top of the water. No more oily birds. The main economic damage in the region from the Macondo well accident was not a result of any spilled crude. Instead, it was a result of the Obama administration's “permitorium” on deepwater drilling. Shortly after the blowout, the administration declared a moratorium on drilling the Gulf in order to conduct a safety review of the rigs in
the region. While that ban was lifted in early October, by mid-November federal officials were still loathe to approve new permits for drilling in water depths greater than 500 feet.
3
The result of the slow permitting process: deepwater rigs were leaving the Gulf, and tens of thousands of jobs were left in a prolonged state of limbo.
The Obama administration has used the Macondo accident to hamper the continuation of offshore drilling in the United States. Never mind that about 36 percent of all U. S. oil production comes from offshore, and, of that 1.8 million barrels per day of offshore oil production, about 66 percent comes from federal leases.
4
The accident in the Gulf of Mexico, awful as it was, given the loss of life and the tremendous waste of resources, will turn out to be a small blip in the global history of energy use. That assessment will not find favor among the ardent opponents of hydrocarbons. But the reality is that the modern world runs on oil, coal, and natural gas. And while those fuels take a toll on the environment, they are indispensible. In this epilogue, I'll do a quick rundown of the major developments that have occurred with respect to oil, coal, natural gas, nuclear, and renewables since
Power Hungry
came out in hardback. And given that oil is the world's single most important energy source, that's where I'll start.
Oil
For those who doubt the primacy of oil, the news headlines in the fourth quarter of 2010 provided plenty of reminders. For instance, in September, China's crude oil imports hit a record 5.7 million barrels per day, an increase of 24 percent over levels a year earlier. Yes, you read it right: an increase of 24 percent. But even with those huge imports, China was experiencing widespread shortages of oil products, and the country's oil reserves were being drawn down at alarming rates. In April 2010, China had stored enough oil and oil products to meet demand for about 36 days. By late October, those stores had fallen to just 16 days, and the
Wall Street Journal
reported that “that number is falling fast.”
5
In early November, the International Energy Agency (IEA) released its World Energy Outlook, which predicted that by 2035, global oil demand will reach 99 million barrels per day, an 18 percent increase over
the 84 million barrels per day that was consumed in 2009.
6
And while the IEA offered three different scenarios in its outlook, in all but one of the scenarios, oil will still be the world's most important fuel in 2035.
7
The importance of coal to the global economy can be best understood by looking at just one country: Pakistan. The average American uses about 18 times as much energy as the average Pakistani. And that lack of energy availability in Pakistan is a direct contributor to that country's ongoing poverty and instability.
Secretary of State Hillary Clinton recognized that fact in October 2009 on her visit to Lahore. During that visit, she told her Pakistani hosts that they should burn more coal. Yes, you read that right.
During her visit to the Governor's House in Lahore, she said “The more economic development, the greater the energy challenges.” She went on:
I asked Minister Qureshi whether there had been any prohibition nationally under developing your coal deposits. Now, obviously, that is not the best thing for the climate, but everybody knows that. But many of your neighbors are producing coal faster than they can even talk about it. It's unfortunate, but it's a fact that coal is going to remain a part of the energy load until we can transition to cleaner forms of energy.
So getting the resources to exploit your coal as opposed to being dependent upon imported energy is a choice for you to make, but it is certainly a choice that your neighbors have made. And that's something that should attract foreign investment and should attract capital investment within your own country. And we don't know how we're going to proceed on the climate change issue. We're working hard to come to some framework before Copenhagen, but coal will be, for the foreseeable future, part of the energy mix. And if you have these kinds of reserves, you should seek the best and cleanest technology for their extraction and their use going forward.
8
Clinton's endorsement of increased coal consumption in Pakistan came just a few days before Obama greeted European officials in Washington
to talk about the need to do something about reducing global carbon dioxide emissions.
But for Pakistan, concerns about carbon dioxide emissions are of scant importance when compared to the dire need for more electricity. As Clinton told her hosts, “Pakistan has to have more internal investment in your public services and in your business opportunities.” But if that's to happen, it will require more cheap, abundant, reliable electricity, a commodity that is all too scarce in Pakistan, a country that has about 180 million people but has just 20,000 megawatts of installed generating capacity.
9
By comparison, France, with about 61 million people, has 112,000 megawatts of electric generation capacity.
10
About a year after Clinton visited Lahore, Pakistani news outlets reported that about 2 billion tons of coal had been discovered in Sindh province in southern Pakistan.
11
The wealthy countries of the world may want to talk about carbon dioxide and climate change, but developing countries like Pakistan are more interested in pulling their citizens out of dire energy poverty. And that means burning more coal.
On November 10, 2010, the Energy Information Administration announced that the amount of gas in storage hit an all-time record of 3.8 trillion cubic feet. That volume of gas was a full 10 percent above the average amount in storage in the United States over the previous five years.
12
The reason for the surge in gas storage, according to the EIA: “robust domestic production.”
Ah, now that's an understatement. In August 2010, U. S. natural gas production totaled 1.85 trillion cubic feet.
13
That's an increase of 21 percent over the level achieved in June 2005, the month that Lee Raymond, the famously combative CEO of Exxon Mobil, declared that “gas production has peaked in North America.”
As I discussed in
Power Hungry
, neither Raymond nor anyone else foresaw the shale gas revolution. But by November 2010, the full impact of the new gas paradigm was starting to come into focus. The most obvious indicator of America's sudden gas riches could be seen in the price of the commodity itself. With record amounts of gas in storage, the
spot market price for natural gas at Henry Hub was about $3.50 per thousand cubic feet, a level that many in the industry believed was simply too low to be sustainable.
14
(There is widespread belief that natural gas prices need to be in the $6 to $7 range for production levels to be sustainable over a long period of time.) And while the full-year production numbers weren't available, it was clear by late 2010 that the United States would likely set a new annual record for production, thereby eclipsing the record achieved in 1973 when U. S. gas production peaked at 21.7 trillion cubic feet.
15
With the United States awash in gas, it has become apparent that the country will remain awash in methane until it does more to stimulate demand. But, given the lackluster economy, for natural gas demand to increase, gas will have to steal market share from coal or oil. And given the many problems facing coal in the electricity generation business, natural gas will be the fuel of choice. In August 2010, the Tennessee Valley Authority announced that it would shutter nine of its coal-fired power plants with a combined capacity of 1,000 megawatts and replace them with gas-fired units. In announcing the move, TVA President and CEO Tom Kilgore said that “replacing some coal with other, cleaner fuel sources allows a reduction in air emissions including carbon.”
16
The TVA move heralds a much broader trend in the United States away from coal and toward gas in the power generation sector. Better still, it appears that the Obama administration has finally begun to understand the merits of natural gas. During his press conference on November 3, 2010, a day after the Democrats took a brutal beating during the mid-term elections, President Barack Obama uttered two words that have been missing from nearly every energy-related discussion he has had since he began running for president.
Yes, Obama actually said the words “natural gas.” And he didn't mention solar, or wind, or geothermal.
Obama's mentionâ“we've got terrific natural gas resources in this country”âshould not be overly noteworthy. But throughout his first two years in the White House, the president has been almost completely silent about the potential for gas to make a difference in the U. S. energy mix.
17
While it would be foolish to assume immediate, significant changes in federal policy toward gas based solely on Obama's November
3 press conference, there is no doubt that a number of trends favor increased use of methane both in the United States and around the world. The most important trend favoring gas: price. And some forecasters are predicting an abundance of cheap gas for the next decade. On the day that the IEA released its World Energy Outlook, the agency's chief economist Fatih Birol said that the world is oversupplied with gas and that “the gas glut will be with us 10 more years.”
18
While that may be true, the gas industry must contend with significant opposition, particularly with regard to concerns about the possible dangers of hydraulic fracturing. Those concerns will not be alleviated quickly. And the industry will have to be far more open and transparent with regard to that technology. It may also face more regulation. But as I write this in late November 2010, it appears the industry will be able to deal with those concerns.
Electricity
The essentiality of electricity to modernity is incontrovertible. The corollary to that point is also obvious: given that hydrocarbons (and coal in particular) are essential to the production of cheap, reliable electricity, there is no chanceânoneâthat the world's developing countries (China and India in particular) will ever agree to emission limits on carbon dioxide.
Those facts were underscored by the most recent data from the IEA that forecast that global electricity demand will soar by some 80 percent by 2035. Meanwhile, the IEA expects primary energy demand to grow by 36 percent over that time period. Of that total, oil demand will grow by 19 percent, coal by 20 percent, and natural gas by 44 percent.
19
Electricity supplies are closely tied to the world's most serious problem: widespread energy poverty. The latest IEA data show that 1.4 billion people, about 20 percent of the world's population, do not have access to electricity. And about 85 percent of those people live in rural areas.
20
The IEA's latest outlook included this amazing paragraph:
Electricity consumption in sub-Saharan Africa, excluding South Africa, is roughly equivalent to consumption in New York. In other words, the
19.5 million inhabitants of New York consume in a year roughly the same quantity of electricity, 40 terawatt-hours (TWh), as the 791 million people of sub-Saharan Africa.
21
Unless or until the countries of the world can provide near-universal access to cheap, abundant, reliable electricityâmuch of which will have to be generated by burning hydrocarbonsânearly all of the talk about limiting carbon dioxide emissions is simply a waste of time.
Wind Energy
Since the release of
Power Hungry
, two major developments have occurred in the wind energy sector. First, it is readily apparent that the wind sector faces a massive problem with regard to wind turbine noise. Second, the industry is being hammered by the persistence of low natural gas prices.
On page 85 in Chapter 8 of
Power Hungry
, there are two paragraphs on the issue of wind turbine noise. I added the paragraphs to the manuscript for the hardcover edition at the last minute and only did so after doing some hurried research on the matter. Since then, it's become obvious that the wind industry is running scared about the noise issue, and it's apparent that the problem is far more widespread than the wind boosters are willing to admit. Here's a fuller explanation of the issue.