Strategy Crucial to the Future of Energy

Strategy Crucial to the Future of Energy

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Anyone who hasn’t been living in cave in the last two months knows of the civil and political unrest in Ukraine.  Russia has recently upped the ante by manipulating Ukraine’s weak economy and dependency on natural gas.  In Brazil, over reliance on hydroelectric power in the midst of a multi-year drought is generating concerns about capacity, particularly in light of hosting the upcoming World Cup.  The moral of the story: poor planning in energy can have life-threatening economic consequences.

Fact is, the energy sector does not change overnight.  It is a slow, grueling, and expensive process to build new plants and update old ones.  Innovation is slow and production is complex, never mind complicating political aspects.

In theory we should be able to predict what will happen in 10 or even 20 years in the energy field because, in many cases, that’s how long it takes to see these plans come to fruition.  For example, the Obama Administration is rather transparently striving to push us out of coal and petroleum and into natural gas and renewables.  When taking into account that a majority of old coal plants will be offline by 2036 without major renovations, Americans can expect to see a drastic shift in fuel source percentages that follows the administration’s goal.

Alone, that may not sound so terrible. Innovation happens all the time, and if you can please everyone by “going green”, then why not?  The answer here is two-fold:

1)      Global energy demand is expected to increase about 35% over the next 25 years.[i]  Picture it this way: in 2010, China surpassed the US as the largest global consumer of energy.[ii]  While some of the expected increase in consumption will be accredited to the US, we are incredibly efficient by comparison to others in the way that we use our energy.  The same cannot be said of rapidly developing nations: Brazil, India, Japan, etc.  The effect will essentially be the addition of three more US-sized consumers in the world market by 2040—ones who don’t care about clean energy.  The scale of this demand surge will certainly require maximum Btu’s from each and every energy source.  As freshmen economics taught us, an increase in demand without a corresponding increase in supply results in higher prices.

2)      Energy density mostly explains the differences in cost and scalability between coal/petroleum and renewables.  Current innovation and technology simply does not equate the two.  There is simply much more energy packed into a volume measure of coal, oil or natural gas and especially nuclear than into the same measure of sunshine.  By discriminating against the two primary sources of energy, not only do you have the problem of reducing diversity, but you also effectively reduce the total amount of energy supply available to consumers at a time when demand is at an all-time high and climbing.  Simple supply-and-demand economics states that prices for all forms of energy will sky-rocket, slowing innovation and straining the economies of developed nations heavily relying on energy to function on a daily basis.

The point is this: planning is crucial, and with global energy demand rising evermore, scalability of energy sources is central to energy planning.  We simply cannot neglect primary forms of energy (oil, natural gas, coal, nuclear, hydro) and innovation that allows for even greater energy density and scalability when we are certain that consumption isn’t slowing but growing.  A push to be better stewards of our resources is a noble and necessary cause but, if lacking strategy and realism, counterproductive when we all end up reading this on paper because you can no longer afford to power your laptop.

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[i] http://www.eia.gov/forecasts/ieo/world.cfm

[ii] http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=44&pid=44&aid=2&cid=CH,US,&syid=2011&eyid=2012&unit=QBTU

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