Grandfather Economic Energy Report

Grandfather Economic Energy Report
- main report pg. 3
- Energy trends: consumption, production, imports, reserves -

by Michael Hodges (USA) and Jean Laherrère (France)
energy.htm
updated April 2001

- a chapter of the Grandfather Economic Reports -

Quick Links -
This is Page 3 of the Energy Report Home Page > > Statements by others - - Concluding Comments & Actions - - Authors - credits - - and several articles: California's 30 year Opposition to Energy - - Alaska Oil vs. the Caribou - - Other articles

Other pages> : USA section - - World section.- - Table of Contents, incl. link list - -Home Page of the Energy Report

OTHER STATEMENTS

"Reverberations in US fuel markets underline the dangers of price shocks and supply interruptions associated with this country's rising dependence on imported oil. In 1985, less than 30 percent of US oil was imported; today the figure is around 55 percent. Half of these imports currently come from the Organization of Oil Exporting Countries (OPEC); half of that -a quarter of the total-comes from the politically volatile Persian Gulf. 'How to Reduce Oil-Import Dependence', July 2000, by John Holdren, Harvard University (link #8)
"The fundamental driver of the 20^th Century's economic prosperity has been an abundant supply of cheap oil.... Middle East share ... is now about 30%. Unlike in the 1970s, this time it is set to continue to rise.... Share will likely reach 35% by 2002 and 50% by 2009. By then, the Middle East too will be close to its depletion midpoint, and unable to sustain production much longer irrespective of investment or desire." 'The Myth of Spare Capacity' by Dr. Colin Campbell, from the Oil and Gas Journal, March 20, 2000 (link #9).
(Colin Campbell has reviewed this Energy Report you are reading)
The distribution of oil in the United States shows a pattern where large fields that account for less than one percent of all fields contain more than 40 percent of all the oil (Nehring,1981). The pattern of utilization of this oil illustrates the connections among resource quality and opportunity costs. The average field discovered around the turn of the century contained 20 to 40 million barrels of oil, and the largest contained several billion barrels. But as the use of oil increased, the big, high quality deposits of oil were discovered and depleted. Today, the average field discovered contains less than 1 million barrels. The decline in quality of oil resources greatly increased the work required to find and extract oil. (Cleveland,1991). Dr. Cutler Cleveland (see link #12 'Net Energy')

- - and, one from the 'Real World' - 'a Generation Y' reader of other chapters in the Grandfather Economic Report series writes from Minnesota about this new Energy Report chapter:
"Michael - Well done again. I am seeing the political rhetoric stepping up in Washington with regards to in-country exploration vs. environmental concerns. Even in our Minnesota, we have Minneapolis elected Congressmen wanting to eliminate drilling on Lake Superior, whereas the elected Congressmen in that particular region (Iron Range) want the drilling to commence. My instincts tell me the environmentalists live in the city instead of in the country. I think the average person could give a damn about the level of Carbon Dioxide and the risk of horizontal drilling on the Great Lakes. Yet that's what we see in our newspaper every day. It appears as though our newspapers, known to consume millions of forest acres per year to produce their product, are feeling guilty and carrying the water for the environmentalists. They don't want new production capacity added. They don't want nuclear plants opened. They don't want pollution standards relaxed, even temporarily. They don't want domestic exploration of oil. 'Not in their backyards.' They think if they ride their bicycles, recycle their soda bottles and build solar panels on their garages that everything will be fine. Kind of like the old hippie adage "make peace, not war." And of course, it's all my fault because I drive an SUV." regards, eric raymond - egraymond@att.net - 3/19/01.USA

East Coast Import Dependency Near 100%

America's East Coast imports over half of all the products that come to the United States, because it is the largest consuming area in the United States but, for historical reasons, it has only enough capacity to meet around 1/3 of those needs from its own refining. It fills the product gap with supplies from other parts of the United States, particularly the Gulf Coast, and with imports. Its limited volume of refining capacity also keeps it a distant third as a crude importer. However, because its local production is so insignificant, its crude import dependency is the highest of all, at almost 100 percent. (DOE - Link #16)

CONCLUDING COMMENTS
Let's not follow 'ostrich policy' - - let's have a REAL policy of independence, for a change.

Expert readers are invited to revise or add by email.

Summary - - energy supply will potentially more negatively impact living standards and national security of our younger generations, more than any preceding. Following are comments:

Consumption - - rising much faster than production for both oil and natural gas.
Consumption must be reduced, which only can occur by the only mechanism known to endure - - by free market consumer-user prices reflecting ALL costs as they occur, which must not be manipulated by government agencies; nor should those agencies distort by adding non-related taxes.
Production - - is declining for oil and flat for gas..
And - from a long-term strategic standpoint it's doubtful much relief can be expected from Alaska or off-shore.
Reserves - - U.S. and world-wide are declining. A clear call for a mechanism of carrying higher private U.S. inventories.
Imports are rising - - for oil and natural gas - - making the U.S. more and more vulnerable to supply restrictions decided by others.
And - - Canada and Mexico appear to be supplying most of our rising imports - - but their own reserves are falling. It all comes down to the Middle East vs. consumption reduction at home.
Inventories - - at record lows and trending down (chart link #26), and last winter the federal government dipped into its own miniscule strategic inventories to help supply consumer heating oil which was a potentially dangerous action.
In addition to assuring adequate forces to counter major national security threats, the strength of the U.S. dollar to purchase energy from abroad is paramount, relative to all other major currencies. This depends on the exchange rate of the dollar, which has had a poor long-term history, and on trade and current account balances that are at least balanced instead of reaching the largest negative lows in the nation's history. Additionally, major threats looking-forward to domestic inflation are apparent, further impacting loss of purchasing power as graphically illustrated in the Inflation Report.

Indicated Actions - -

Deregulate all consumer prices of all energy types : no U.S. government agency, federal or state or local, should manipulate consumer prices such as by edict to hold them down for any reason, for any consumer group - - since much conservation is needed - - which can only occur via the consumer-user price mechanism. (I am not here suggesting government action should not be encouraged against illegal U.S.-controlled monopolies). The free market must price available supply, without hindrance. If increased military spending is required to support energy supply, then said costs should be fully reflected in consumer prices - - the user must pay in full to maximize conservation, as only REAL prices (which reflect ALL costs) can significantly impact both conservation and alternative methods.
U.S. oil firms should carry higher oil inventories in the U.S. to help mitigate overseas actions by reducing their short-term impact, and price accordingly at consumer levels for all users. Government should not be involved in any taxation/funding to support inventories.
Increase production of oil and natural gas by opening public lands in Alaska and the lower 48 states, employing technical data (not political data) to minimize environmental impact.
And - - maintain positive but firm foreign relations with major international suppliers.
And - - increased use of domestic-produced coal should be explored for winter heating to reduce demand for oil and gas.
And - - state governments must encourage their own policies, including energy supply and local refining capacity by the private sector. Privatize state & local utility agencies aimed to more to guaranteeing energy supply than to regulations and bureaucracy.
And - - the U.S. Strategic Petroleum Reserve (SPR) must be increased, not diminished unless the U.S. is in a state of Congressional-declared war. National security must be the No. 1 objective. Therefore, just as aircraft and missiles are controlled by the Dept. of Defense, perhaps so should the SPR.
And - - private firms should consider their energy supply sources as less guaranteed in the future than thought in the past, and act accordingly.
And - - Use of alternative energy should be encouraged, but no one should expect those existing today to sufficiently meet any significant share of future national consumption demands. Congressional subsidies if any to alternative energy development should be reflected in consumer costs instead of by indirect taxation.

Other actions - -

The U.S. could improve its current over-consumption domestically AND impact non-U.S. energy demand by taking effective acts to eliminate its distorting huge trade and current account negative balances - -
AND to restructure its domestic economy to rely less on accelerating internal debt of all sectors to leverage consumption, including household, business and financial sectors - - AND by eliminating most of the increased share of the economy now controlled by federal, state and local government compared to 4 decades ago, which not only would thereby reduce inefficient energy consumption but reduce the rate of growth of substantial regulatory compliance costs in the nation impacting energy supply.
Additionally, the U.S. needs to eliminate its poor education quality situation and assure it truly leads the world in test scores instead of scoring at the bottom. Basically, the U.S. needs to become a more free-market economy than it is, one that is more free of debt at all levels, a smaller government sector, and with a higher quality educated workforce, - - a nation more self-sufficient and fully paid for by its own production.
One thing is for sure, the continuing long-term decline of domestic purchasing power can be worsened by energy alone.

PRIORITY

America badly needs a realistic national energy policy, based on carefully compiled provable technical (non-political) data.

Key components should include -
- - all costs are promptly passed directly to consumer-user prices via the free market in each locale - - not by any national edict of 'one size fits all,' or by subsidizing one segment of society differently than another which will cause disproportionate consumption. (there are welfare programs for those in dire need).
- - a stable U.S. dollar be maintained to better facilitate forward planning by those contemplating energy research and infrastructure investments domestically, and those nations supplying our import needs from their own declining reserves.
- - while environmental lobby groups must be recognized and respected for their input, their agendas and political lobby power must not be allowed to over-ride our nation's economic and national security priorities.
- - and said consumer prices should support the industry carrying higher domestic inventories to reduce short-term supply shocks from abroad.
- - while DOE can assist, state governors should assure their state develops its own independent energy policy to minimize policy and data manipulations. - - each state's policy should assure a long-term balance in local energy consumption vs. supply relying on free-market principles - - without expecting the Federal Government or other states to cover for them. In any case, the Department of Energy's way of doing business needs to be reexamined and targeted ONLY toward secure, long-term supply with coordination with the Dept. of Defense, and to illegal monopolies and developing real world policies and hard technical (non-political) data at national and at state levels - - that guarantee the security of our economy and nation.

READER INPUTS

1. CALIFORNIA - 30 years of Opposition to Energy

Before you read the subject email from a California reader of our energy web page, here's some basic data on California's electricity problem ,as compared to nation-wide data in the main report.

CALIFORNIAL ELECTRICITY VS. NATION-WIDE -
California's percent each type fuel used to generate electricity, pointing to a core problem for the future:

1. 79% of electricity Nation-wide is generated from coal and nuclear, each with rising domestic production and no imports needed, compared to 33% for California these more secure fuels.

2. Nation-wide electricity generated by natural gas is 10%, but California depends on this for 35% of its electric generation - - yet U.S. natural gas production has flattened out as reserve fall and imports climb. (greatly increased prices may faster drive domestic reserves down and imports up nation-wide caused partly by California).

3. Hydro-power for California is 19%, vs 8% nation-wide and declining in share - - a source obviously in limited supply that also depends on weather conditions (droughts).

4. Petroleum is of but minor contribution to national and California electricity generation. California's electric problem looking forward, beside its reluctance to free market energy prices for all consumers and its non-deregulation action, may be greatly influenced by its reluctance to rely more on domestic produced coal and nuclear, while relying too much on natural gas for which more and more imports are required. Putting too many 'eggs in the energy basket' relying on huge hunks of limited hydro power also may not be cool looking forward.

It appears that all utilities need to set priorities to rely less on fuels that depend on foreign supply for electric. As to transportation and plastics there is no replacement for oil - - now a 60% gap between production and consumption, with soaring imports.
- by Grandfather Economic Energy Report author, M.W. Hodges - 19 May 2001.

Next - following is the article from a reader called, 'California's Opposition to Energy:

----- Original Message -----
From: "Jim Lorenz"
To: "Channing Smith" Cc: "Michael Hodges"
Sent: April 16, 2001
Subject: Re: California's 30 years of Opposition to Energy
Dear Channing
M.W. Hodges is Grandpa of the Grandfather Economic Report. I copy him because he has a superb layout on the energy situation. His Energy Report chapter is at https://grandfather-economic-report.com/energy.htm . Jim.
----- Original Message -----
From: Channing Smith - John Henry
April 08, 2001
Subject: California's 30 years of Opposition to Energy
"Thirty years of environmentalism had progressively crippled California's power supply system," says Jack Wakeland, the author of "California's Green Brownout," an article in the March issue of The Intellectual Activist. That's it in a proverbial nutshell. Back in the 1970's, along with the rest of the nation, California put on its green-colored glasses and pretended you don't have to build the plants necessary to generate electricity or the transmission lines to get it to people's homes and places of business.

I am cursed with an utterly pragmatic view of life. I have virtually no place in my thinking for the kind of notions that drive environmentalists to do everything in their power to deny the obvious. Unlike environmentalists who are convinced that the world is coming to an end, I think any planet that has been around for over five billion years probably will be around for another five billion or more.

It is finally obvious to Californians" -- and hopefully to the rest of America -- "that a modern, technologically advanced nation must simply have power. It must have it all the time. Pay no attention whatever to the notion of "sustainable development." It is intended to make you think we're running out of coal. There's enough coal, just in the US, to fuel all our electric needs for centuries! The same is pretty much the case for other energy fuels.

Thanks to Mr. Wakeland's article, here's a brief look at what Californians did to insure they would one day be reading by candlelight. It goes back to the 1970 (& 1990) Clean Air Act that blamed coal burning utilities for "acid rain." After the Act passed, power plants around the nation were required to retrofit with flue gas desulfurization. The air got "cleaner", but the retrofitting blocked 10% to 20% of a plant's output of energy. Your energy bill went up.

Californians took up the clean air banner to insure that coal, the primary source of power for 57% of the nation, was reduced to barely 19% of the state's generating capacity.

How about an energy-producer that has zero emissions? Nuclear energy is the cleanest form of energy generation, but Californians didn't want it either. What California's Greens didn't want was any horrid plant built in their state. It took 17 years of hearings, design modifications, and endless protests to build the Diablo Canyon plant and the bill came to $6 billion dollars. It originally was expected to cost about $500 million.

Having made it impossible to build new nuclear plants, in 1989 California Greens targeted existing plants. What a great triumph it was when they got the Sacramento Municipal Utility District to shut down their 900 megawatt (MW) Rancho Seco nuclear plant. In 1990, Southern California Edison asked the California Public Utilities Commission for permission to extend the life of the San Onofre Unit 1. The PUC refused. They ordered it to be immediately shut down.

Greens went after hydroelectric dams as well. These plants produce 22% of the electricity used in California, about a third of which is imported from the Northwest from producers like Canada's British Columbia Hydro and the US government's Bonneville Power Authority.

The Northwest Power Act, passed in 1980, required reservoir levels be maintained to supply optimum springtime flows for salmon spawning. This limit wiped out more than 1,000 megawatts of BPA's capacity. The Greens then used the Endangered Species Act to idle even more hydroelectric capacity, eliminating another 400 MW of BPA generating capacity.

Greens nationwide also attacked the transmission and distribution of electricity. Claiming PCBs, used to cool transformers, were a danger. In 1977 the Environmental Protection Agency banned its production. Utilities switched to mineral oil, a substance that had been used at the turn of the century.

When utilities tried to build transmission lines, California Greens fought every effort. One route through Pleasanton, was rejected even though Pacific Gas & Electric (PG&E) intended to bury the lines. The new lines would provide a link into the Tri-Valley area, already at its limits and in need of more energy.

In California, it takes an average 16 months to respond to environmental permit applications before a new generator can be built. In other states, it takes about ten months. Typically, planners figure it will take three years between beginning a new project and final permitting. In San Francisco, it took ten years to get permits approved for a 240 MW gas-fired plant in Crockett, a few miles northeast of the city on the Bay.

Across the Bay, PG&E wanted to build an addition at Hunters Point. They submitted 20,000 pages of documentation to the city council. Two years later, in 1998, the city moved to shut down Hunters Point, a plant that had been providing electricity for 69 years. In 1999, a similar request for an addition to the Potrero Hill plant in San Francisco was proposed to take up the slack due to the loss of Hunters Point. Residents opposed it. (Right now, the building of new power plants in New York City is being opposed by environmentalists.) When two independent power producers proposed five temporary plants for the Bay area, the State Utility Reform Network, a coalition of anti-energy groups, threatened legal action to stall the plants. The plans were cancelled.

Of the fifty states, California ranks dead last in the per capita provision of electrical energy. Today, California's power stations have a total capacity of 52,144 megawatts. That's fully 2% less than the peak demand. Lacking the desire to build the plants necessary to meet their needs, California has purchased nearly 20% of its electricity from out of state suppliers for the past decade.

Under deregulation, California's Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) were forced to sell their generating capacity. This occurred just when the state's defense industries were coming out of a recession and the digital boom fueling new jobs was growing so fast it needed more energy to keep pace.

Having masterminded this calamity, it need be said that millions of Californians are utterly dependent on dams in British Columbia and giant coal burning plants in Nevada, and a nuclear reactor in Arizona for their ice cubes, air conditioning, CD players and EVERYTHING ELSE THAT REQUIRES ELECTRICITY.

And this fate awaits the rest of the nation if it continues to yield to the insanity of environmentalism. People have got to understand electricity is not delivered by magic. It has to be fueled by coal, natural gas, hydroelectric power, or nuclear power. It requires mining. It requires drilling. It requires large dams and reservoirs. It requires fision But mostly it requires common sense.

It will be decades before Californians can dig themselves out of the deep, dark pit they have dug for themselves. James Flanigan, a senior economics editor for the Los Angeles Times, has noted that "The bonded indebtedness of the state will grow by at least 80% to deal with a problem that did not exist even a year ago and would not exist now, were it not for the early political decision against rate increases, energy experts and economists says."

So, now California has both an energy and a financial crisis. No one can even begin to calculate how many businesses and individuals will make the decision to simply leave the state to avoid these increased costs. Environmentalism's impact on California will prove very costly. This is a lesson that should not be lost on the rest of America.

2. ALASKA - drilling vs. caribou

Hi Michael,

You will find some diverse opinions on whether or not we should do Oil and Gas exploration in Artic National Wildlife Refuge (ANWR). To the State of Alaska it is a large natural resource that over 60% of the residents would like to see developed. It would not be a tremendous boost to the Alaskan Economy compared to bringing on the Prudhoe Oil field, but it would provided some boost to the States economy and would provide revenues to the State Treasury to continue to support education and public services.

I suspect, that with out the additional revenue from ANWR, you will see the Alaska State economy stagnate or start to decline in 7 to 10 years. The impact to the ANWR is very very minimal in amount of land impact on wildlife. The caribou are not affected by the current pipelines. It has not changed there habitat and the development of ANWR would have little or no affect overall affect on the caribou herds.

The amount of land that would developed in ANWR is probably less than 1% of the total land that is in that ANWR area.

They show all these caribou on TV, but all the caribou cover probably lees than 2% of the area and they are only there during the summer. It is too cold in the winter, the caribou move 200 miles or more to the South of the oil fields. There are no trees there, only a few small bushes and willows. I think it is kind of ugly personally and virtually no one is going to go there to see the caribou: It is too expensive compared to other parts of Alaska and there are no accommodations to stay up there. A few people go up in that area to see Polar bears from time to time.

In terms of total energy for the U.S. it may provide 2% to 5% for 15 to 20 years. But it will could provide provided 80% to 90% if the energy needs of Alaskans in addition to supplying energy to the Lower 48 States.

I believe that at some point, development of ANWR will be critical to the Alaskan economy. Unless, we go to nuclear energy.

To me however, I find Oil Reserves more valuable for the products we make from Oil and Gas and personally would like to see us save the Oil and gas for production of industrial and consumer products and use nuclear energy for electrical power.

Before, I move to Alaska I lived in Idaho near the Nuclear Energy research facilities and reactors and never experienced any adverse affects from nuclear reactors. People think that a melt down of nuclear reactor is going to explode like a bomb, but it will not. It is highly improbable that a U.S. nuclear reactor would explode like the one in Russia. Dayne Clark - ifdlc@uaa.alaska.edu - April 12, 2001