For this week’s Energy and Capital, I offer highlights of the energy policy debate at the 2009 Offshore Technology Conference (OTC) in Houston, the world’s largest oil and gas industry conference and trade show.

The Great Divide on Energy Policy

It’s Time for An Honest Dialogue

By Chris Nelder
Thursday, May 7th, 2009

When I accepted the invitation of the American Petroleum Institute (API) to attend the 2009 Offshore Technology Conference (OTC) in Houston on their dime, I couldn’t resist the offer out of sheer curiosity. But I had little notion of how illuminating it would be, on so many levels.

This isn’t your ordinary, bland-slide-decks-with-boring-exhibits conference. It’s the cutting edge of the oil and gas business, or perhaps more accurately, the cutting edge of all industry: offshore, particularly deepwater (over 1000 feet of water) drilling. Giant machines, sprawling constructions of pipe and pumps and electronics and incredibly high-tolerance parts litter the sprawling exhibit hall. The speakers are top executives in the oil and gas industry, and policy leaders on energy and climate change. Some 60,000 people from all over the globe will attend this year’s conference. In short: It’s immense.

I could describe the utterly amazing technology on display here. I could share what I learned about the oil and gas industry’s deep commitment to safety and minimizing its environmental impact. I could inundate you with data and names and affiliations.

But that’s not what the discussion at this conference is about—not from my perspective.

The top issues of the energy industry revolve around policy more than technology. Should we drill ANWR and the Outer Continental Shelf (OCS)? Can we achieve energy independence? How can we grapple with climate change without destroying the economy, and the sources of energy on which we utterly depend? Can renewables supplant fossil fuels?

As critical as these policy debates are, I see little in the way of progress.

An Ironic Debate

I saw a parade of oil industry representatives plead for a transparent and fact-based public dialogue about our energy options for the future. We should step away from the all-or-nothing debate on fossil fuels vs. renewables, they said, stop demonizing any of our potential energy sources, and get serious about addressing our energy problem before it’s too late. As the head of the API said, “The energy issue will intensify until cooler heads prevail,” and the debate desperately needs to be depoliticized.

But in the next breath, apparently unaware of the obvious contradiction in it, I saw those same executives complain bitterly about the policymakers who stand in the way of their progress. I heard them discount the potential of wind and solar to meet our energy needs, while trumpeting the much smaller footprint of modern oil and gas production. I heard overblown claims about how technology will continually increase reserves, and how offshore drilling in America could solve our problems if only they were allowed to do it.

One executive decried the “cheap shots” taken at the oil and gas industry by climate change activists, and then a few moments later mentioned how much he liked a print ad that offered a false choice between offshore drilling and high gasoline prices.

I asked a panel of oil company executives how a potential 2 – 3 million barrels per day (mbpd) of new oil production from the OCS by 2030 (according API and EIA data) would figure against the background of steadily declining North American supply. The only response I received was that 2 mbpd is a lot, we’d be happy to have it, and if we don’t start drilling for it now, we’ll regret it.

I heard not one word suggesting that oil production may have in fact peaked, no mention of decline rates, nor any hint that there might be any limits on supply other than the political will to develop new sources.

The oil and gas industry does acknowledge that the burning of their products probably contributes to climate change. They are resigned to the fact that carbon will soon come with a price, and they are intent on helping to define how that will be done under the rubic that “If you’re not at the table, you’re going to be on the menu.” At the same time, they seem to have a greater appetite for a political approach to the climate change debate than an objective evaluation of the data.

The green side of the debate is, unfortunately, no better. An attendee stood before a panel of major oil company executives and ask how the energy industry could engage more fruitfully with policymakers and the public on climate change, then admitted that she had boycotted a recent local presentation by T. Boone Pickens about his energy plan for the country simply because he was an oil baron. She considered it an act of conscientious objection.

The contradiction of her position apparently escaped her as well, along with the fact that of all the oil barons in America’s history, Boone is arguably the most forward-thinking and realistic, and a major proponent of moving beyond oil. Her story offered a classic demonstration of how too-principled positions on energy so quickly lead to stalemates.

As a longtime advocate for renewable energy and a former solar system designer, I have been to my share of “green” conferences. I have often heard the utterly unrealistic claims of renewable energy advocates, and listened to them vilify the oil industry. They seem to have as little appetite for the facts on fossil fuels as the fossil fuel industry has for objective evaluation of renewables.

So while I agree with the conference speakers who called for a balanced, non-demonizing policy debate, what I see is both sides—the green/climate change side and the fossil fuel side—retreating to their corners, throwing up walls of propaganda, and demonizing the other side.

The middle ground, where truth and progress reside, feels virtually empty.

I am left to ponder, once again, why that is. And once again I come to the conclusion that you can’t make policy without politics. What we have here is simply political maneuvering with each side trying to gain an edge by overstating their positions, in hopes that when the dust settles, they’ll be left holding something. It is most emphatically not a neutral and balanced dialogue.

In fact, there is no dialogue at all. Cleantech people go to cleantech conferences, and oil and gas industry people go to oil and gas conferences, and rarely do the two crowds mix. In the halls of Congress there is much shouting, but little listening. At the end of the day, it is the art of political compromise, not data, which drives policymaking.

The oil and gas industry remains mired in denial about the peak and decline of its products. Renewable advocates are still lost in a dream about quickly replacing fossil fuels with green energy and an infrastructure that runs on it. Climate change concernists continue to pin their hopes on visions that cannot possibly be realized in the time frames they need. No side trusts the other.

Ten Inconvenient Truths

Allow me then to stake out a bit of middle ground, based on what I believe to be the objective facts, in an effort to bring the parties together and perhaps make some actual progress on the policy front.

1. We have extracted nearly all of the world’s easy, cheap oil and gas, and now we’re getting down to the difficult, expensive stuff. The largest untapped resources that remain are in extreme places like deepwater and the Arctic, and marginal formations like shale. As a result, global oil production has for all intents and purposes peaked. Natural gas production will also peak in 10 to 15 years. Neither technology nor high prices will change that. Therefore we must begin to replace those fuels with renewables, and use what remains much more efficiently, with the expectation that most of the world’s oil and gas will be gone by the end of this century.

2. Drilling for oil and gas drilling in the OCS and ANWR must and will be done; our need for those fuels is simply too great to pass them up. An additional 2-3 mbpd will put a dent in the roughly 12 mbpd we now import, but if we drill for it now, it won’t come to market for 10 years or more. By that time, it probably won’t even compensate for the depletion of conventional oil in North America, nor will it do much to reduce prices. But it will be crucially necessary, and producing it won’t make an ugly mess of the environment.

3. Renewables are clearly the long-term answer, as is an all-electric infrastructure that runs on its clean power. However, it will likely take over 30 years for renewables to ramp up from a less than 2% share of primary energy today to 20% or more. They probably won’t even be able to fill the gap created by the decline of fossil fuels. Oil and gas currently provide about 58% of the world’s primary energy, and they will remain our primary fuels for a long time to come.

4. It will take many decades to reconfigure our transportation systems to run on electricity. It will take decades to fix our wasteful, leaky built environment so that it doesn’t need as much energy to begin with. None of the solutions will come quickly or easily.

5. Neither renewables nor fossil fuels nor nuclear power alone can bring “energy independence.” Indeed, if independence means isolating ourselves from the rest of the world’s energy commerce, it might not even be desirable.

6. We must pursue all sources of energy immediately and aggressively if we hope to meet our future needs, and pitting one against another is counterproductive.

7. Nuclear power will not grow significantly in the next several decades, as nearly all of the existing reactors will need to be decommissioned within the next 20 years, and a new generation of reactors must be built to replace them. After we do that, a renaissance for next-generation nuclear energy may be a possibility but it will only happen after we have confronted the crises of peak oil and peak gas. It may produce no net reduction in emissions at all.

8. It is quite possible that even our best efforts on all fronts will not achieve the carbon emission targets we have set. Climate change must be confronted via a unified policy on emissions and energy supply, which is to say that in our zeal to control emissions, we must take care not to squelch the production of the oil and gas that constitutes the majority of our energy supply, at least until we have something to replace it. To do so could have unintended and paradoxical consequences, like impeding the manufacture of renewable energy devices, and contributing to tight supply situations that once again cause fossil fuel prices to skyrocket and further damage the economy. Rather than emphasizing the uncertainty on climate change data, and fomenting fear about the cost of mitigation, all sides must come together in a depoliticized dialogue strictly based on neutral scientific analysis.

9. We should use accurate and unbiased models of the future growth and decline curves of all forms of energy for policymaking—models based on historical data, not faith. If the data says we’re likely to recover another 1.2 trillion barrels of oil worldwide and no more, then we should not assume that future drilling and technological progress will somehow turn that into 3 trillion barrels of recoverable oil.

10. Carbon emissions will soon come with a price. Drilling the remaining prospects for oil and gas will be expensive: From the decision to invest until first oil is produced, it can take 10 years and $100 million dollars to drill the first well in a new deepwater resource, using rigs that cost $1 million a day to run, and the production platform can cost as much as $5 billion. Deploying thousands of wind turbines and square miles of solar will be expensive, slow, and difficult. Replacing millions of inefficient internal combustion engine vehicles with electric and plug-in hybrids will be expensive. Rebuilding the nation’s rail system will be hugely expensive. In short, the good ol’ days of cheap electricity and gasoline are likely gone forever, and all the solutions going forward will be expensive.

I share the industry’s concern about energy illiteracy, but it cuts both ways. It’s true that as long as oil and gas provide the majority of our energy supply, we must continue to invest and drill for it, and the industry must work hard to educate the public and policymakers about that. But to claim that limits on drilling are the only problem, or that renewables cannot provide the energy we need in time, exploits that illiteracy and deliberately confuses the debate.

The fact is that there are good people and good intentions on all sides of the issues, and none of them wants to destroy the environment or the economy.

As I see it, neither the fossil fuel industry nor renewable boosters are yet willing to come out of their corners and work with each other in an honest fashion to develop a truly viable path forward on energy. Until both sides put aside their exaggerated claims and partisan bickering, the public will remain confused about the true options and continue to use politics, not neutral data, as their guide. That cannot produce good policy, and it does all of us a grave disservice.

Such unhelpful contentiousness, denial, and cheating on the numbers is a luxury we can no longer afford. Our energy and climate change problems are real, they’re urgent, and they’re getting more so every day. It’s time to set the tactics of the last war aside, wring politics out of the dialogue, and start grappling in an honest and direct way with real solutions. Nothing else will do.

Next week, I’ll dive back into energy data, and share some observations about the impressive technology and the potential of offshore drilling.

Until next time,

Chris

Postscript

I was among a group of bloggers the API invited to the conference, and it was a pleasure to share some intelligent dialogue with them about energy and politics. If we were running the show, I daresay we’d be making more progress on policy. Most of them write for right-wing political blogs, so I found the conversation more stimulating than I would have had I been talking to an echo chamber of congruent opinion. In particular, I thoroughly enjoyed long chats about energy late into the evenings with energy investing journalist Byron King of Whiskey and Gunpowder and The Daily Reckoning (among others) and the stellar energy analyst Tony “ace” Eriksen of The Oil Drum. Other bloggers in our group included Tim Hurst of Ecopolitology, Bruce McQuain of QandO, Alan Stewart Carl of Donklephant, Jim Hoft of Gateway Pundit, JR Hoeft of Bearing Drift, Joy McCann of Little Miss Atilla, Kevin Holtsberry from RedState, and Nick Loris from The Heritage Foundation’s The Foundry.  If you read the comment threads on their posts linked here, you’ll see ample demonstration of my point: nearly all view the energy and climate change debate through a lens of politics, rather than data or science. Oh well, I can dream…

P.P.S. I don’t know if he read this piece or not (and if he didn’t it’s quite a coincidence) but David MacKay wrote a strikingly similar piece for CNN a week later: Commentary: Let’s Get Real About Alternative Energy, in which he admonished us to understand the “simple arithmetic” of various energy sources and to reorient the public policy debate to one based on data. McKay is a professor of physics at the University of Cambridge and the author of a new book, Sustainable Energy – Without the Hot Air.

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