December 2007
Americans are increasingly concerned about the availability and affordability of energy. How will we generate energy in the coming decades--and what will it cost? Will we continue to rely upon politically unstable and sometimes hostile nations to provide critical energy supplies? So-called "peak oil" advocates argue that petroleum production will decline sharply in the near future; others believe that energy supplies will remain relatively abundant. Hard Truths: Facing the Hard Truths about Energy, a recent report by the National Petroleum Council (NPC), a federal advisory group, explores political, economic, environmental, and technological constraints on the ways we generate and consume energy in America.
At an event held at AEI on December 10, 2007, Lee Raymond, chairman of the NPC, discussed Hard Truths. James K. Glassman, senior fellow at AEI and editor-in-chief of The American magazine served as discussant, and AEI's Kenneth P. Green moderated.
Lee Raymond
National Petroleum Council
Hard Truths was written for the Department of Energy to discuss the outlook for energy in the United States in the next twenty-five years. There are two overarching perspectives that this study offers. First, very few people understand the magnitude of the energy industry. The United States consumes 150 billion gallons of gasoline per year. Therefore, to significantly change the composition of the energy supply, the amount of energy produced from different sources must be huge. Second, because of its size and capital intensiveness, there are no quick changes in the energy industry.
The surprising finding in this study was the massive amount of infrastructure that will have to be built in the coming years. For instance, cellulosic ethanol would require a significant movement of solid materials, and no one has thought about how the infrastructure to do this will be financed and built. The world is not short on resources; the difficult part is collecting and developing resources and working with governments--and doing all of this in a timely fashion. Also, the reserve base of oil is still significant. Oil resources that were impossible to reach fifty years ago are now simple to reach, and this trend will continue as technology develops.
Economic growth drives the energy industry. This report assumes continuing economic growth and a corresponding increase in energy demand. However, we should become more efficient in how we use energy and other resources so that we can grow and progress.
Oil prices have risen in the last few years, and it is difficult to argue from the data that demand for energy responds significantly to price.
Having some types of government standards regarding energy efficiency, particularly for buildings, is less about command-and-control regulations and more about sound practices. CAFE standards for vehicles, however, are probably not the best tools to increase efficiency. We have the technology to make vehicles more energy efficient, and talking about getting this into the marketplace is not advocating command-and-control.
Energy independence and security are totally different concepts. Nearly all of the developed countries are energy dependent. The United States imports various raw commodities, although Americans may not be aware of it. Americans find the concept of energy independence attractive, though, and this relates to the much broader issue of globalization: Americans are uneasy with how we relate to the global economy.
Most people in this country have no idea where energy comes from or how much comes from coal. Carbon sequestration technology exists, buts it has never been tested at scale. A one-gigawatt coal plant would have to inject 150,000 barrels of supercritical CO2 a day into the ground to be carbon neutral. Injecting all of the CO2 from all of the coal plants would require moving more liquids than the oil and gas industry moves today, just to store the CO2. It is a huge undertaking, and people do not understand that.
To produce a substantial amount of energy from wind, we would need to cover an entire large state with windmills. And the fact that wind and solar are unreliable sources changes the math in terms of managing peak loads. Producers would need to add additional sources of power, which would increase the price. This report is in favor of nuclear power but skeptical of whether politics will allow its expansion.
In the next ten years, much of the skilled workforce in the oil and gas industry is going to retire, and there are not enough graduating students with degrees in mechanical and chemical engineering to work in the industry. It will take time for the profit potential of working in the energy industry to attract people.
AEI research assistant Abigail Haddad prepared this summary.
