Thinking
Outside the Box
The
Looming Energy Debacle
Adam
Smith to the Rescue
by Dr. Chuck Ormsby
Oil has recently
flirted with price levels near $100 per barrel. Average
gas prices exceed $3 per gallon nationally. The
world’s conventional oil production is probably near
its peak level and may be maintained for only 15 to 20
more years before beginning its inexorable decline.
This would be bad enough except that the world’s
population is growing at over one percent per year,
adding approximately one billion people every sixteen
years. Even worse, third world countries are rapidly
industrializing and increasing their demand for oil. The
current price spike may temporarily abate, but the
inevitable is … well … inevitable!
Eventually, demand will outpace the supply of
conventional oil. If alternate fuel sources are not
available, panic will set in and oil prices will rapidly
explode to $200 per barrel or higher with gas prices
exceeding $10 per gallon.
The resultant increase in manufacturing and
transportation costs will raise the price of everything
we buy – from food and clothing to electricity
– with prices perhaps doubling and tripling in short
order. If the government then imposes price controls, the
crisis will only worsen and fuel shortages will become a
daily fact of life.
Very little will stand between you (and your family) and
a rapid descent into poverty. If nothing intervenes,
businesses will close, unemployment will skyrocket and
economic collapse will be assured.
These will not just be tough times. You will be faced
with real deprivation – insufficient food, lack of
protection from the elements, disease, misery and
accelerated mortality. You and your family will either
die of some pedestrian disease, or of starvation, or you
may freeze to death. On further reflection, freezing is
faster than disease or starvation and it will probably
win. Unless, of course, it is summer, then I’ll bet
on heat prostration.
Now we have a really difficult decision to make. We have
two choices:
* We can turn to government to solve the problem (e.g.,
exotic fuels research, windfall profits taxes, new
environmental regulations, invade Venezuela), OR
* We can demand that the government do nothing.
The correct answer is “demand that the government do
nothing.”
Well, that is not quite correct. What we also need to do
is get the government out of the way of the only
productive sector of society … the private sector.
We need to:
* Eliminate government-imposed barriers to bringing new
energy sources to market, and
* Ensure that the government doesn’t interfere in
energy markets as prices respond to fluctuations in
supply and demand … regardless of the resulting
profits or losses.
Only then can the free market do everything possible to
insulate you and your family from the reductions in
supply of oil from traditional sources. Some people
– those who contribute to solving this problem and
saving our lives – will become rich. God bless them!
Even a cursory review of alternative energy sources makes
it abundantly clear that mankind has numerous
alternatives for future energy sufficiency.
Here is just one example: Oil sands.
Huge deposits of oil sands are available in the U. S.,
Asia, South America, and Canada. Both Canada and
Venezuela have reserves of oil sands that approximate the
total world reserves for conventional oil (between 1.5
and 2 trillion barrels). The Canadian reserves are
concentrated in Alberta in the Athabasca region near Ft.
McMurray. Venezuela’s oil sands are found primarily
in the Orinoco Oil Belt, but exploitation of this
resource is stymied by political instability and
government interference in the economy.
It is important to note that these reserves are already
known. They are not subject to the risks of discovery.
They are a sure thing. What is needed is massive capital
investment and capital is always available when profits
are possible and the associated risks are reasonable.
So, can oil be extracted from oil sands at a competitive
cost?
The answer is unequivocally yes. Several economical
extraction techniques for oil sands are currently proven
and several even more efficient techniques are under
development or being piloted.
In some situations, surface mining can produce synthetic
oil for as little as $15 to $20 per barrel, but most
deposits of oil sands require more expensive techniques
(e.g., Vapor Extraction Process, Steam-Assisted Gravity
Drainage, Cyclic Steam Stimulation, Toe to Heel Air
Injection, or some combination). Even these more
expensive extraction techniques can produce synthetic
crude oil at less than $50 per barrel – half the
current world oil price.
The oil is there and it can be extracted at a profit.
There are minimal risks … except government
intervention and interference.
Guy Caruso, Administrator of DOE’s Energy
Administration, has stated, “Oil production growth
rates of one to three percent per year will not soon be
constrained by the size of the technically recoverable
resource base, particularly when extra-heavy oil and
bitumen resources are included.”
In his report “When Will World Oil Production
Peak?” Caruso provides predictions for peak oil
production, including oil sands, extending to the end of
this century with peak production ranging from 2.4 to 4
times the current production.
So far, we have only considered the potential of oil
sands to replace traditional oil sources. Other energy
sources include nuclear, oil shale, coal, and
geo-thermal, not to mention solar-electric, wind, and
bio-energy.
Obviously, there are numerous alternatives for
entrepreneurs and capitalists to exploit (I love that
word!). So, what are we worried about? There is only one
thing that can place our future prosperity in jeopardy:
Government interference in the energy market.
Warning: The cost of any energy source can be amplified
and rendered uneconomical by the whim of short sighted
and self-serving politicians.
We have already witnessed the destruction –
hopefully not permanently – of the nuclear power
industry based on the rantings of a small group of
scientifically illiterate fear mongers. And this is true
despite the fact that nuclear power plants offer the most
economical and environmentally friendly energy source
capable of significantly reducing our use of fossil
fuels.
Thankfully, after being dormant for 30 years, the nuclear
industry is beginning to show some signs of life. Highly
skilled engineers are developing new, standardized
designs with incredible safety features and favorable
nuclear waste cycles. Unfortunately, the same uninformed,
anti-technology and anti-progress goons that stopped
nuclear energy developments in the 1970s and 1980s will
certainly arise to engage gullible citizens and
legislators again.
News flash: Electric power does not just magically appear
at the wall plugs in our living rooms. When traditional
oil supplies start to diminish, there better be several
replacement energy sources ready to come on line. If not,
the horrors of economic collapse, as previously
described, will emerge.
The technologies for such sources and the capital
investments needed to exploit them take decades to
develop. Investors will not make these needed investments
if their returns are subject to the arbitrary whims of
lawyer-legislators held hostage by political extremists.
If we listen to those who cannot and who will not invest
in providing solutions – those who advise us to have
government solve the problem – few if any of us will
survive the economic collapse.
But Adam Smith’s invisible hands powered by the
remarkable engine of capitalism – the greed of
others harnessed to serve your needs – will save us
all, if we will just let them.
Dr. Ormsby is a member of the North Andover
School Committee. He is a graduate of Cornell and has a
doctorate from MIT. You can contact Dr. Ormsby via email:
ccormsby@comcast.net
*Send your questions comments to ValleyPatriot@aol.com The December 2007
Edition of the Valley Patriot The Valley Patriot is a Monthly
Publication.
All Contents (C) 2007, Valley Patriot, Inc.
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