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Market News

 August 27, 2007
Facing the Hard Truths about Energy

 The world is faced with a looming oil supply crunch that will require the United States to tap into all available energy sources and reduce its CO2 emissions, according to a draft report by the National Petroleum Council, an advisory body to the US government.

"Over the next 25 years, the United States and the world face hard truths about the global energy future," that will require "all economic, environmentally responsible energy sources to assure adequate, reliable supply." That was one of the main conclusions of the 422-page report delivered last month to US Secretary of Energy Samuel Bodman.

The draft report was prepared under the leadership of former ExxonMobil chief executive Lee R. Raymond. A final version is due for adoption in September.

The "Hard Truths" cited The United States and the world face about the global energy future over the next 25 years include:

  • Coal, oil, and natural gas will remain indispensable to meeting total projected energy demand growth.
  • The world is not running out of energy resources, but there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources relied upon historically. These risks create significant challenges to meeting projected energy demand.
  • To mitigate these risks, expansion of all economic energy sources will be required, including coal, nuclear, renewables, and unconventional oil and natural gas. Each of these sources faces significant challenges---including safety, environmental, political, or economic hurdles---and imposes infrastructure requirements for development and delivery.
  • "Energy Independence" should not be confused with strengthening energy security. The concept of energy independence is not realistic in the foreseeable future, whereas U.S. energy security can be enhanced by moderating demand, expanding and diversifying domestic energy supplies, and strengthening global energy trade and investment. There can be no U.S. energy security without global energy security.
  • A majority of the U.S. energy sector workforce, including skilled scientists and engineers, is eligible to retire within the next decade. The workforce must be replenished and trained.
  • Policies aimed at curbing CO2 emissions will alter the energy mix, increase energy-related costs, and require reductions in demand growth.

The report was considered "remarkable" because it broke from the widely-held view in the US that technological advances and new discoveries would make oil a reliable source of energy for the foreseeable future.

The US would have to moderate its growing demand for energy, diversify its energy sources and cut CO2 emissions if it is to meet the global energy challenge, according to the report.

"The world is not running out of energy resources", the report states, "But there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources relied upon historically. These risks create significant challenges to meeting projected energy demand."

To tackle these risks, the NPC recommends five "core strategies" to "assist markets in meeting the energy challenges to 2030 and beyond". These include:

  • Moderating demand growth by "increasing efficiency in transportation, residential, commercial and industrial uses";
  • Expand and diversify energy production by tapping into ''all available economic energy sources, including coal, nuclear, renewables, and unconventional oil and natural gas" such as extra-heavy oil and bitumen;
  • Integrating energy in all other related policy areas including trade, economic, environmental, security and foreign policy;
  • Boosting R&D efforts to create long-term opportunities;
  • Reducing emissions of global warming gases "including the establishment of a transparent, predictable, economy-wide cost for CO2" and a regulatory framework for carbon sequestration and storage.
  • "We understand full well, and your report reflects this, that oil and natural gas will retain their preeminent position in the hierarchy of U.S. energy supplies for some time to come said Energy Secretary Bodman in carefully prepared comments provided at the time of the release of the report. "But we must be mindful of both our environmental responsibilities and the needs of future generations; and so we must aggressively pursue new energy options and alternatives".

    While the report speaks about energy from a global perspective, its recommendations are clearly focused on US energy security needs and issues. It concludes no single, easy solution can solve the world's energy challenges. The world will need all the economic, environmentally responsible energy sources that can be found to support and sustain prosperity in the coming decades. To assure this, actions must be taken to achieve the five strategic goals noted above.

    With respect to strengthening global and U.S. energy security, besides expanding U.S. oil and natural gas production and developing additionaldomestic energy types at commercial scale, it will be necessary to enlarge and diversify oil and natural gas supplies from global markets, concludes the report. But given the long lead-times needed to build domestic energy alternatives at commercial scale will require the United States to remain engaged in international energy markets beyond the time frame considered in this study.

    Maintaining U.S. access to these sources will contribute to an affordable U.S. energy supply and promote U.S. competitiveness in the global marketplace, concludes the report and efforts to develop the international energy marketplace by expanding the energy dialogue with major consuming and producing nations, including China, India, Canada, Mexico, Russia, and Saudi Arabia are recommended.

    The report talks extensively about environmental concerns, but places them in varying degrees of relativity with other concerns such as economic well being, energy security, national security, and the war on terrorism.

    While the report is significant for dealing clearly with the issue of the end of cheap oil, it is a deeply biased analysis that in essence advocates the removal of policy and regulatory constraints that impede US access to available fossil fuel sources of supply. Perhaps this could be expected given the authorship by the National Petroleum Council. And while it represents a useful contribution to the debate, it is far from the complete story.

    The Executive Summary of the Report Facing the hard truths about energy is available here:

    Facing Hard Truths Executive Summary

    The full report is available here:

    Facing Hard Truths Executive Report



    Source: National Petroleum Council .