Oil shortage drives investment in more oil

As I’m sure you’ve noticed, gasoline is getting more, not less expensive. Indeed, on a per gallon basis we’ll like hit $3 by the Summer high driving season here in the United States. Of course, Europe has always had expensive gasoline, but in the U.S. we sort of take pride in our ability to get up and go, and to have as few barriers in our way when going.

The need for gasoline drives the need for the oil to make it of course. With oil reserves reported to be falling, logic says that the time to think through our alternatives is now, (see counter argument that we have more not less oil at this link here or go see an interesting article that oil may actually be a renewable resource at this link here) Those alternatives could and likely should be in alternative energies that are (a) more sustainable, (b) get the U.S. more energy independence.

Instead, economics says that scarce but highly demanded commodities are of high value. So, investment is being done in heavy crude, new methods to pull out more oil out of old wells and snatching the oil trapped in shale and sand! That’s right. The real little talked about investment in energy is not in solar, wind, hydrogen, or bio - it’s in oil. It’s really all about economics, as oil prices have gone up, it’s driving more thought and investment in finding more oil. The dollars are now in chasing this scarce commodity to get in on the higher prices. In case you hadn’t noticed, oil company profits are at a record high.

I don’t have a personal beef with this approach or with anyone making a profit, it’s what makes free markets work. But it strikes me as odd that on one hand we can be talking about our energy independence and the need to develop and rely on renewable sources, but then be determined to drive further investment into oil. I’d prefer someone just saying “hey we are hooked to oil and it’s not going to change, here’s how we’re trying to be more energy independent. It involves more oil, not less, and here’s how - oh and we are still looking at how we do clean energy from coal, hydro, solar, wind, etc.”

Go take a peak up to our Northern Neighbor to see what’s happening up there for a glimpse of this at work. The shale/sand oil thing in Canada is drawing huge investments.According to the March 27th 2006 WSJ article entitled “Oil Giants Turn Sludge into Gold”, Canada’s northern forest contains at least 174 billion barrels of recoverable oil; that’s enough to keep the planet running for five years. Indeed Canada becomes the 3rd largest holder of reserves in the world with shale/sand oil. And that is drawing enormous investment; $70 billion dollars over 10 years by a number of worldwide energy companies - ChaChing! Ah, but there’s no free lunch. This is heavy oil, not that sweet stuff from the Saudi Peninsula that is less expensive to get and process. This heavy crude generally costs more to produce and it takes more energy to turn into gasoline. Another downside, it releases up to 3x more greenhouse gases.

Just for grins, here’s some comparisons of oil investments with solar and wind. Keep in mind that Canada shale/sand oil alone is seeing $70 billion investment over 10 years. That works out to $7B per year!

• Solar: According to a December 28, 2005 MSNBC report, “Venture capitalists embrace solarenergy” (click to that link here) a “whopping” $67.7 Million was invested for just the first three quarters of 2005. On the good side though, a November 29,
  2005 article in Renewable Energy Access entitled “BP Plans New Division with Clean Energy Focus” (click to that link here)
  indicates that British Petroleum (BP) is investing about $200M peryear over the next three years in Solar

• Wind: Wind energy saw investments of approximately $1.5B in 2005, according to a September12, 2005 article from Dow Jones (click to the article here). That’s alota turbines spinning for sure.

But the story doesn’t just start and end there with the economics of oil. New technologies that allow old oil fields in the U.S. to be amazingly more productive are being developed and brought on line. Can you believe that California could soon be pumping enough oil to pump up U.S. reserves an amazing 2.5% . I bet the Governator never pumped that much iron in all his bodybuilding days! What makes this amazing feat of natural resource strength possible are new technologies and computer models that make it possible to squeeze even more oil out of existing supposedly declining sites. You can read the details at this link here (wow!)

The point to all this is that until the economics makes sense we won’t be seeing a wholesale move to renewable, more environmentally friendly resources any time soon. While the logic of it makes sense (”Hmmm, more renewable, environmentally friendly resources means that perhaps our world will be healthier to live in for our children, and for the other species here, sounds like good stewardship of the planet to me….”) the economics will beat logic every time in this scenario. Hopefully that will change sooner rather than later.