Overcoming the Oil Curse

The oil curse I’ve described in my previous essay is man-made. We are simply reluctant to kick the oil habit even though we already have the new technologies to do so. This reluctance varies between countries, depending on how big and powerful is the established oil industry. Nevertheless, the realities of over-dependence on oil will force us to act whether we like it or not. The following are the trends we cannot avoid or reverse: First, The oil curse is only a generational phenomenon. Second, technological advance will make alternative energy far superior. Third, nature is forcing us to change sooner or later.

For many decades, the older generation has been accustomed to oil, especially in America. Most of them find it hard to accept that their era of cheap oil has passed and the age of limited resources has arrived. On the other hand, the younger generation, without the spoil of cheap oil and plentiful resources, are setting out to establish themselves in society. They must think about the future where new opportunities await, rather than dwelling on the past. The resistance to their pursuits will gradually disappear as the older generation fades away with time. We should not be surprised that old habits and traditions die hard. Only a few centuries ago, those who spoke the truth about evolution, the non-flat earth, and the sun-centered planet system all got labeled as heretics. Some even got executed. Nowadays, the worst they can do is to say that you are crazy for speaking the truth.

For alternative energy to be adopted, nothing is more important than the pocketbook. That means the price will determine the final outcome and how fast it will arrive. Comparing the price trends of fossil fuels with those of solar and wind, we see that they run in opposite directions, the former up and the latter down. They are in the process of crossing each other. This means solar and wind is achieving cost parity with fossil fuels, if not already then soon. When this situation arrives, the simple economics of comparative advantage and substitution will take over and work through the entire system.

The omnipotence of price is already showing before our eyes. Although Texas and Iowa are not especially friendly to alternative energy, they have become the two largest producers of wind power in the United States (see my previous essay “Wind Power Comes of Age”). Surprisingly, the oil kingdom of Saudi Arabia is also investing heavily in solar energy, amounting to $100 billion. Oil companies are buying solar firms such as Total S.A. of France acquiring 60% of SunPower in US. Ask the businessman why he invests in clean energy. He will tell you it’s the price and profit. Whether he likes oil does not enter into the equation.

What about future price trends? I think future price trends will be even more pronounced than now. Let’s first look at fossil fuels. We don’t have to waste time debating how big world reserves are. The simple fact is, it will cost more to drill and extract because the digging has to be deeper, wider and riskier, not to mention the costs of refining, delivery, and environmental damage. Even if the miracles of lower cost and greater supply happen, OPEC will play its hand by fixing the world price higher to extract more money. Being accomplices, the oil companies also want higher prices to keep the profits flowing.

At the same time, the technologies of solar and wind are advancing rapidly. They belong to the future – electronics for solar panels, new chemical reactions for batteries, and composite materials for wind turbine blades. The power of these technologies reside in their ability to lower cost and raise efficiency. Furthermore, we don’t have to worry about the future supplies of sunlight and wind for no countries can monopolize them.

The world is steadily moving to a future fueled by electricity, which is generated by various means except mining from underground. The electricity is consumed in the process rather than being burned to release greenhouse and toxic gases. The power of electricity is delivered by the electric motor, whose versatility has greatly increased to an amazingly sophisticated level. The electric motor can work inside the human body as an implant; power all kinds of appliances; and propel the bullet train at dazzling speeds. The electric motor is destined to replace the internal-combustion engine, the same way as the latter has replaced the steam engine.

The internal-combustion engine is not clean and efficient but we got stuck with it for a long time. Its continued usage hinges on the convenience factor, which is the portability of oil for transport vehicles. That is why it will take time for autos to go electric. This is where battery technology comes in to provide greater range, shorter recharge time, less weight, and lower cost. Based on the pace at which battery technology is advancing, the electric motor will take over the automobile sector in the near future. When that happens, oil consumption will drastically decline because the autos account for the biggest portion of oil consumption nowadays.

Being a top oil consumer and producer, will the United States be leading the future to alternative energy? I think it’s unlikely due to the lack of national will. Why? America is still addicted to oil. A by-product of the oil curse is the eclipse of the once-powerful US auto industry for failing to produce fuel-efficient cars. As a result, we see the rise of Toyota, Honda and other Japanese companies which together have succeeded in capturing 54% of the US auto market (as compared with near 0% in 1970). Although this is a big lesson, America has failed to learn it by failing to take up the challenge to produce oil-efficient cars. Now, once again, it has ceded leadership in the new opportunities of solar and wind to China and Germany.

In America, the power of the fossil fuel industries are too strong. They have succeeded in retarding investments flowing into alternative energy by corrupting legislators to act in favor of oil. Furthermore, the recent use of “fracking” in oil and gas extraction has created an air of optimism about oil independence. Fracking increases the amounts of oil and gas extracted by digging and blasting horizontally, but it risks polluting the water table underground. It does not mean that the country suddenly has more oil deposits than before. The proven global oil reserve is inevitably on the decline after so many years of extraction. Therefore, the US is distracted by a sudden oil boom recently. It is also obstructed by a powerful fossil fuel industry. The result is that it is lagging behind in alternative energy of the future.

Regardless what we want to do, nature has its own way of forcing us to kick the oil habit. As the level of carbon dioxide rises to an ominous threshold that changes the climate dramatically, severe floods and droughts will occur, leading to shortages of food and fresh water, and the inundation of coastal cities. Then we will be forced to respond with emergency measures, rather than starting to invest in alternative energy now.

In conclusion, the oil curse is on the way out albeit too slowly. Fossil fuels are gradually being replaced by electricity generated by various means instead of digging. The electric motor is replacing the internal-combustion engine, with the exception of the very powerful jet or rocket engines that must burn oil. The chief reason is economics as determined by the irreversible price trends. The price is in turn determined by technological advance. The time taken to phase out oil depends mainly on the portability factor, which in turn depends on the advance of battery technology for electricity storage in transport vehicles. If somehow wireless recharging works commercially in the future, the portability problem will be entirely solved.

The lack of will is the main cause that retards the growth of alternative energy. It is unfortunate that the lack of will is most entrenched in the United States, which has the greatest potential for helping to break the oil spell. Nevertheless, the world has seen bright spots in many places, especially China, Germany, Japan, Brazil, and surprisingly, the oil kingdom of Saudi Arabia and the emirate of Dubai. In these countries, the government plays a leading role by creating a business environment favoring change, and directing investments to alternative energy and non-oil industries. So you see, things are happening without the US being an active partner. The growth of alternative energy globally has been accelerating in recent years even during a deep recession. The biggest question remains: Is the pace fast enough to reverse a global environmental crisis that is worsening every day?

May 2013

This entry was posted in 21st Century, Economics/Politics, Environment, Game Changer, Inspiration. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s