Sunday, April 17, 2011

Resource Realities

A couple of timely reminders on the realities of the natural resources challenges we face appeared recently in the Wall Street Journal.

On Friday, Daniel Weintrab reviewed The Big Thirst: The Secret Life and Turbulent Future of Water by Charles Fishman. In the review there was this nugget on water conservation:

"The water problems of Barcelona cannot be solved by conservation in New Orleans or Bangalore," Mr. Fishman writes. "Unlike your mortgage payments or your electricity use or your driving habits, how you shower or water your lawn has no impact on the water availability of people an ocean away, and may well not have any impact on people a single time zone away."

I've never understood how whether I flush my toilet too many times or have the hotel I'm staying at wash my towels every day (which is likely far more about cost savings for the hotel than any altruistic concerns for the environment) has any impact on the global water situation. There are a lot of factors that go into it of course, but the bottom line is that water availability is mostly a local matter. If you've got it, flush it. And if you don't, rather than relying on hectoring people into voluntary conversation, a much better approach would be to introduce pricing mechanisms which put a premium on extra usage and drive the type of behaviors that you're trying to guilt people into.

On Saturday, Kimberly Strassel interviewed Chevron CEO John Watson who isn't shy about pounding the energy lessons he thinks America needs to learn.

Starting with the argument—so popular among greens and Democrats—that we are running out of oil. "Peak oil"—the theory that global oil production will soon hit maximum levels and begin to decline—is a favorite among this crowd, and it is one basis for their call for more biofuels and solar power. Mr. Watson doesn't dismiss the idea but explains why it remains largely irrelevant.

In theory, he says, "we've been running out of oil and gas for a long time," yet technology creates new opportunities. Mr. Watson cites a Chevron field long in decline down the road in Bakersfield—to the point that for every 100 barrels of oil "in place," the company was extracting only 10 or 20. But thanks to a new technology called steam flooding, Chevron is now getting 70 to 80 barrels. "Price creates incentive, and energy will be developed if there's demand for it at the price you can develop it," Mr. Watson says. In that sense, "oil and gas are plentiful."

Don't believe it? Over the past 30 years, even as "peak oil" was a trendy theme, the world's proven reserves of oil and natural gas increased 130%, to 2.5 trillion barrels.


Mr. Watson has little time for the Beltway fiction that America will soon be able to do without, or nearly without, fossil fuels. Yes, "we need all forms of energy." But the world consumes 250 million barrels of energy equivalent today, only a "tiny fraction of which" is wind and solar—and even those "are not affordable at scale," he says.

As for biofuels, "we would need to consume land the size of states" to hit the country's current ethanol targets. Chevron is investigating biofuels, but Mr. Watson says the "economics aren't there" yet. Unlike many CEOs, Mr. Watson insists on products that can prosper without federal subsidies, which he believes are costly and lacking in transparency when "consumer pockets are tight, government pockets are tight."

Bottom line: "We're going to need oil and gas and coal for a long time if America wants to keep the lights on."


"Most of the well-developed world—Australia, Western Europe—they develop their resources base, they inventory it, they develop it, and they view it as a good source of jobs and revenue," he says. The U.S.? "We are a country" that for too long has taken "affordable energy for granted."


Mr. Watson says Americans can accomplish a great deal with "affordable conservation." And "a wealthy economy," he adds, "is better able to deal with the costs of greenhouse gas abatement than a poor economy." Since "large numbers" of countries are "unlikely to take aggressive action on greenhouse gas emissions," the "U.S. is going to have to decide, just as California is going to have to decide, if they want to go it alone. . . . Are they willing to place the burden on our economy and our consumers, at the expense of jobs?"

That pretty much sums up the broader choice America faces on energy policy. It can listen to the Washington siren song on alternative energy, pouring scarce dollars into green subsidies, driving up the cost of energy, and driving out U.S. manufacturing and jobs. Or it can embrace our own fossil fuel resources, which are cheap and plentiful.

"What I see are people who want affordable energy," says Mr. Watson. "They want strong environmental standards—they want a lot of things—but first and foremost they want affordable energy. And if you want affordable energy, you want oil, gas and coal."

That's about as simple and as succinct as you can put it. If America wants a future with affordable energy to sustain a strong economy, we're going to need oil, gas, and coil to continue to be the primary sources for that energy for a long time.