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Commentary: Peak Oil Demand—When?

Posted By NAEP Admin, Friday, June 9, 2017

By: Neil Markee
Editor in Chief-Purchasing Link

The Monday May 22, 2017 issue of the Wall Street Journal (WSJ)included a special section headlined “Innovations in Energy.” One of the seven articles in the section was titled “Get Ready for Peak Oil Demand.”  The article’s authors were Lynn Cook, Deputy Chief of the Wall Street Journal’s Energy Bureau and Elena Cherney, Global Editor of the Bureau.  Although there was no mention of natural gas, for the purposes of this article, I will treat oil and gas as one industry and source of nonrenewable energy—as the major companies who dominate that segment of the economy are the key players in both areas.

The article reads a bit like the depressing oil-availability predictions of a few decades ago.  You may remember the dire warnings about the impending crude-oil shortage as the world  ”recklessly” consumed its limited supply. “When it’s gone, there is no more,” I heard as I waited half asleep with other commuters lined up at the pump for my odd-day gasoline ration every other morning.   True enough, I guess, but the key questions from policymakers about how much remained, and when it would run out, were answered with estimates or guesses that seem anything but scientific. In practical terms, the answer was about as precise and useful for planning purposes as ”Sooner or later.”

At the time, despite a hard formation vacuum, the call for action by the media was sooner. Proponents seemed to have concluded that all the oil that could be pumped out of existing wells was being, or had been, pumped—although the industry knew that much oil remained in the ground after pumping had become impractical, given existing technology.  We heard most of the large, game-changing oil fields had been found and were being exploited, although undersea and much of the earth’s surface had not been studied in great detail. As ever, some naysayers wondered how the prognosticators were comfortable with their dire predictions, given there was probably no way to know how much oil was available globally or could be recovered eventually. With a few decades of hindsight, it’s clear the naysayers were onto something.

According to the WSJ article, “The world’s largest oil companies are girding for the biggest shift in energy consumption since the Industrial Revolution:  After decades of growth, global demand for oil is poised to peak and fall in the coming years.” Contributors to the debate basically agree that major investment will be required to serve the coming  market (presumably) profitably once the shift occurs, but no mention is made of how the resources might be invested. Opinions on when the peak would occur varied by decades.

 “New technologies that improve fuel efficiency are starting to push down the amount of gasoline and diesel that’s needed for transportation, and a consensus is growing that fuel  demand for passenger cars could fall as carbon rules go into effect, electric vehicles gain traction and internal combustion cars get re-engineered to be dramatically more efficient.” But the major unknown was what impact changes would have on demand in the developing world—and when.  

As I read the article, I began to wonder where higher education fit in. The cost of energy consumption on campus is a major budget-item, although I doubt total direct and indirect costs or consumption are consolidated and tracked by many institutions. And then, there is the question of what role higher education might productively play in any transition that might eventually occur, other than as a customer. Currently, the key issue is no longer product availability, but consumption.

Decades ago, the goal was to stretch availability via reduced consumption. Technology and newly discovered resources have shifted the debate and the participants in the WSJ’s current discussion were concerned with consumption-driven changes in demand, rather than availability. There was no mention of short- or long-term shortage. They were focused on how much would political action and technology reduce carbon emissions in developed and, maybe more importantly, the developing nations and globally.   The consensus in that regard seemed to be there would eventually be a substantial increase in consumption, but they spoke with less certainty as to when.

The environmental timeframe remains vague, as nobody really knows when the optimal time to act will be or when developing world demand would increase/decline substantially. They don’t anticipate a hard cutoff.  Big Oil understands that future profitability depends on investment anticipating the new reality.  There wasn’t much discussion of what structural changes might be needed to accommodate the market and they seem confident they would be able to successfully react to changing consumer demand.  The WSJ article was basically about when.  

The soft consensus on ”when” within the oil industry suggests we will see the peak in 15 to 50 years. Staying poised for that long could be a challenge.  I suspect these predictions are driven by the realities of huge oil-companies changing direction, given the time needed to react to political decisions, develop a major oilfield, build pipelines, bring refineries online, and establish distribution links.    

Decisions based on assumptions are risky, and that is what those involved here are considering, on behalf of their huge companies.  These major stakeholders have access to the best information and have vast experience in the existing industry. Reliable consumption information is available concerning the industrialized nations and that market is well understood. But Big Oil is global.  They know anticipating consumption changes in the developing segment of the market is much more difficult.  Changes brought by political action, technology  and  improving standards of living via increased reliable  power distribution, transportation, education, and other advances are not easily  calculated and could more than offset reductions  in developed nations.

Participants recognize that disruptive technologies are certain to occur and are unpredictable by definition.  These will alter the options available and may play a transformative role at some unpredictable time.  The article mentions better batteries.  We need scalable technology that allows modest-to-vast, safe, and inexpensive storage of electrical energy.  The Holy Grail in power storage is proving difficult to find.  One contributor suggested that something five times as efficient as our best current approach could transform transportation and renewable power generation and make climate change seem more manageable.  Betting the farm on unforeseen, new technology is tempting and risky for big energy companies but they may have to make key decisions and huge investments before the future is clear enough.  The potential rewards for those who make the correct call and act on it in time will provide all the pressure and heat needed to keep the pot boiling.

As I tried to adjust my lens to shift the focus to higher education to better understand how any or all of this applies to colleges, universities, and related health care facilities, I concluded  we have at best, a foggy view of our energy needs over the next few decades.  We basically agree there must and will be major changes in energy consumption on campus and globally.  We assume there will be transformative advances in technology and hope they will present attractive options not now available.  But for all involved, what they will result in is unknown, and relying on wishful thinking is not a sound approach to planning.  We know we would be well served to start now to prepare for whatever the future holds—if only the way to go was clear. Like many in the oil and gas industry, we are apparently content to wait a bit for the fog to lift some before we make and implement those key decisions and investments, because so much is at risk.

I soon understood, probably along with campus decision-makers, that I had more questions than answers and lacked data. Has any institution appointed a manager, director or vice-president for energy consumption management?  Is one needed?  Moving to renewable sources of energy is a long-term goal for many institutions.  What would be the effect on institutional budgets if a shift to non-subsidized renewable sources became necessary now—versus in a decade or two? How long is “long-term?”  

The question of what to do is a scientific, engineering, and political challenge.   Higher education has long been in the business of providing the world with solutions to the former.  Hopefully the globe’s environment will prove resilient enough to allow the time needed to develop a workable solution attractive enough for the political community to sell to their constituencies.   Many on campus see the oil and gas industry as a major part of the problem but given our common need for viable solutions, maybe we can find ways to work together, rather than standing at sword-point as the clock ticks. It’s probably reasonable to assume, as the oil companies have, that oil and gas will continue to be our major source of energy worldwide for at least the next few decades and the developing nations (Including their segment of higher education) are going to increase their consumption of the carbon producing fuels we are all dependent on today. To date, even the most effective, politically viable reductions in carbon production among developed nations have failed to offset anticipated increases elsewhere.  Changes to date have accomplished little more than shifting the center of carbon production marginally around the globe. Probably our professors can help answer the factual questions about growth in energy consumption in the developing world but can we help create a politically acceptable solution and an effective sense of urgency?    

There was no discussion concerning total global energy consumption beyond the next several decades. Contemplating even a few decades of energy-consumption growth assumes the existence of other massive renewable energy sources, if we are to phase out nonrenewable oil and gas.  If the future is not to be powered by oil and gas and nuclear is off the table on political grounds, what will be the new dominant sources of energy?  Participants were apparently hardheaded business professionals.   I suspect, as they see it, no viable such source is on their horizon now.  I think they believe there will be no peak and following reduction in foreseeable future decades until another source is available.   On the other hand, some say time is running out and calling for action now. I think this is where I came in.

What’s happening on your campus?  

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