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Tuesday, February 19, 2008

The Coming End of Expensive Energy

posted by on February 19 at 19:00 PM

Today, for the first time ever, oil ended the day above $100 a barrel.

It won’t last.

Why not? Ask Canada.


An even more impossibly nerdy version of this post is on my blog. Else please continue after the jump.

At about $30 a barrel, it becomes profitable to scoop up the tar sands of Alberta—4500 pounds of sand per barrel—heat it up to separate out the tar from the sand and then chemically crack the tar into something resembling crude oil. Needless to say, all of this comes at a hideous environmental cost. Thanks to all of the energy intensive processing before the sands become oil-like, about fifteen to forty percent more carbon is ultimately released per barrel of oil equivalent—all of the reduced carbon emissions from increasing CAFE standards? Instantly canceled out in Canadian rockies—plus vast pools of toxic water, destruction of the boreal forest and the unearthing of heavy metals. Production is expected to expand for the next twenty-to-thirty years, helping fill the gap between global energy consumption and traditional crude production.

What about biofuels? Aren’t we already subsidizing plants? Isn’t that the more environmental way to go? Nope, not when you consider these alternatives with a proper life cycle analysis--considering the impact not just of running the plant, but building and decommissioning it as well. In fact, the only current technologies better than fossil fuels? Wind and geothermal. Solar might get close to the total environmental impact of fossil fuel at a large scale of manufacturing.

Profitable at today’s energy prices? Coal liquifaction. Coal liquifaction doubles the carbon impact per barrel compared to the already hefty impact of crude oil.

The longer a barrel of oil stays around or above $100 a barrel, the more likely these “unconventional hydrocarbon” technologies will be unleashed, with the predicable environmental devastation. Why hasn’t it happened yet? The amount of oil shale and coal available for conversion is so vast—an order of magnitude larger than crude oil reserves, far larger than the oil sands—that everyone assumes once these plants get built, energy prices will collapse below profitability. The reserves of energy are too big, the potential bonanza too great, for an unregulated market to maintain profitability. As we sit on this saddle point, the large coal companies are begging for regulation—busy demanding a price floor before they proceed.

In comes our opportunity. The United States contains an overwhelming amount of the global coal and oil shale reserves—making us the most hydrocarbon endowed country on the planet. The coal industry wants a price floor? Give them a carbon tax and strict regulations to where, how many and what kinds of liquifaction plants can be built. Demand that all plants implement carbon sequestration. Use the huge sums of money generated by the tax to fund basic scientific research into genuine alternatives to fossil fuels. A cleverly crafted policy now—and the window is so vanishingly small for this to happen—could bring us a rare win: New technologies to finally get us beyond fossil fuels, reduced energy prices, less money sent to despotic regimes worldwide and an eventual real positive environmental impact.

If we continue on the hands-off style, continue to ignore that hydrocarbons will remain the dominant form of energy for at least a few more decades, the profit motive will become overwhelming. The plants will be built, but without a carbon tax, without the carbon sequestration, without the regulations that would make the impact at least less than the worst case scenario. Cheaper energy is inevitable. How much it costs us isn’t.

RSS icon Comments


Thanks for this post. I hear the toxic ponds up there in northern Alberta are the size of some states, and the refining process makes Canada possibly the world's worst CO2 offender. Most "alternative energy" ideas turn out to be cons. But you can get "biodiesel" at Safeway now!

Posted by Fnarf | February 19, 2008 7:14 PM

AWESOME article as per your usual Jonathan.

Thanks for the research.

Hopefully we do act to create an effective policy. I would love to see OPEC become a meaningless entity. THAT would bring many US citizens immense satisfaction.

Posted by Reality Check | February 19, 2008 7:28 PM

Sadly, as long as the oil companies continue to have the ability to make obscene profits through their rapacious tactics, silly little things like the environment or common sense won't stand in their way for long.

Posted by Fifty-Two-Eighty | February 19, 2008 7:30 PM

100.00 a barrel is based on the theory of 'peak oil' and the practice of artificial scarcity.

Big oil has deliberate agendas to create artificial scarcity by gouging prices, limiting capacities, and the deliberate closing of refineries.

Scientific research going back over a hundred years suggest that oil is actually "abiotic", like coal and natural gas it replenishes from sources within the mantle of the earth.


Posted by Bald Face Lie | February 19, 2008 7:35 PM

so where are BHO and HRC on this stuff?

are they even close to the kind of regulation you are talking about?

worth a para, or two, mebbe.

Posted by unPC | February 19, 2008 7:44 PM

Despite the continuing rise in oil prices, oil companies have seen no drop in profits. One solution: blow the motherfuckers up.

Posted by johnnie | February 19, 2008 7:47 PM

So, Johnnie, you're surprised that when the price of a thing skyrockets, the profits of the companies that sell that thing skyrocket too? Not an econ major, I take it?

The oil companies are raking it in now, but in the long run they're dead ducks, and they know it. Most of the new activity in the oil and gas sector is national, not corporate. The oil companies are gradually being reduced to service companies, drilling under contract to Russia, China, Iran, Venezuela, etc.

Posted by Fnarf | February 19, 2008 7:54 PM

Johnnie, far from a drop in profits - they are now actually making RECORD profits. But alas, blowing them up won't solve anything. Electing politicians who aren't beholden to the oil companies might . . . oh, wait a minute - there's no such thing.

Posted by Fifty-Two-Eighty | February 19, 2008 7:58 PM

No, Fnarf, I have an BA in English and an MS in Ed. However, supply and demand don't surprise me nonetheless. Conclusion remains the same however. The profit motive is what drove us to ecological collapse and it will not be supplanted within that same system. So earth first!.

Posted by johnnie | February 19, 2008 8:02 PM

Where is the data that says coal liquifiction is profitable at $40 a barrel? Everything I've read has said $120.

Wouldn't it already be going on if it were profitable at that price?

Posted by Andrew | February 19, 2008 8:04 PM

gee, it would be awfully sad to be a "dead duck" pulling down a hundred billion in profit per year, if only for just a few years.

but bring on the envirnomental devastation. we're fucked anyway, and half of the u.s. & utah think the end is nigh anyway. crackheads.

Posted by holz | February 19, 2008 8:06 PM

Andrew: You know, I looked over that source again and I'm not thrilled with it. Most agree, however, that coal liquefaction is profitable at around $90 to $100 a barrel (including the New Yorker article to which I linked.) I've adjusted the post to reflect this. Thanks for the pick-up.

But for completeness:

In contrast, a similar project in the U.S. -- if ever attempted strictly on commercial terms --
would require long-term world crude prices to hover around $33 to $35/barrel, HTI's Lee explains. Such levels haven't been sustained for any lengthy period in world history.

And why haven't the plants been built? Because building the plants would collapse oil prices below the profitability threshold. Hence, for once, the energy companies NEED regulation, whether a price floor or limits on the rate of production

Posted by Jonathan Golob | February 19, 2008 8:23 PM

Terrific post, Jonathan. The closer you look at the environmental impacts of the easy oil alternatives like tar-sands oil, biofuels, and the hideous coal liquefaction, the more you realize they're even worse.

Oil is a precious, finite resource that we're on pace to exhaust in a few centuries, if that. Global warming is the result not of our burning fossil fuels per se, but of our burning fossil fuels at an unsustainable rate.

For more info on a carbon tax, check the Carbon Tax Center.

Posted by cressona | February 19, 2008 8:50 PM

what about nuclear? i hear its safer nowadays
and i find the mini reactors that toshiba produces pretty intresting for small isolated communities

Posted by linus | February 19, 2008 9:37 PM

Well, we're human. We're doing to crude what we did to the whales, to most of the boreal forests of North America (and northeast Asia). Like the Egyptians and Chinese, we've dammed all our rivers in such a way that practically nothing is natural anymore. We keep erasing our own history.

So far, we've stopped just shy of the precipice, sensing the cliff we were about to plunge over. Obviously, that's happening again as we begin to tie economic and political instability to rapacious demands for crude or crude equivalent. We're waking up to our impact on the planet and our impact on ourselves. Have a little hope. So far, we've reasonably survived as an evolved life form on Earth. We haven't had our turn with the meteorite/comet yet, however. We have survived pestilence and disease, though. Although that's not true for all civilizations, just for humans at large.

Oh, and we're supremely practiced and capable of killing vast numbers of our own kind in a very short timeframe. That's evolution!

Posted by chas Redmond | February 19, 2008 9:58 PM

Wouldn't this post be more aptly titled "the coming end of the increase in price of energy" ?

given the cost per barrel for these alternate petro sources to be viable?

or is the suggestion that OPEC will drop the cost of oil back down before these alternatives can get off the ground?

Posted by Doink | February 19, 2008 11:05 PM

Yeah, pretty much. I wish I could move to space.

Posted by lauren | February 19, 2008 11:10 PM

Man, this is one of the strangest things I have read in slog in a long time. I've enjoyed Golab's articles, but this one really misses the boat. Coal liquifation is going to colapse the price of oil??? This is sort of like saying opening a dairy farm is going going to colapse the price of milk. You are vastly underestimating the size of the world market. And the price of oil is set on the world market. It would take years to even get enough plants built to match Canada's tar sands production, and as big as it is it isn't big enough to change the world spot price that much. We may or may not use liquification, but if you think it is a solution to our energy problems anytime soon you are living in a dreamworld.

Posted by jizzmo | February 19, 2008 11:29 PM

johnnie obviously isnt profiting like i am on record oil profits. own some stock. be like soros. use your gains to fund lefties. thats why soros is the fucking man in my book; he tries to change the system by playing in the system.

regardless, golob raises some good points about the environmental aspects of the situation.

Posted by Bellevue Ave | February 19, 2008 11:53 PM


If you want the low-down on energy issues, hop over to The Oil Drum and read for a few weeks. They have numerous in depth articles on oil in particular, and energy in general, including nuclear, tar sands, solar, biofuels, geothermal.

The biggest problem with expanding production in the tar sands is heat, or lack thereof. Currently natural gas is used to create steam to melt and wash the tarry oil from the sand. Canada's natural gas supplies are limited and cannot support the volumes to make the tarsands a replacement for any of the giant oilfields in the world, something that is necessary for driving the price of oil back down to $30/bbl. Nuclear is a possibility, but the expense and complexity, not to mention the general public mood, makes that a very unlikely thing in the next 10 years.

Toe-Heel Air Injection shows promise in that it greatly lessens the heat and water requirements, but is still in the thousand barrel per day demonstration range, and is not going to be a serious production technique anytime within the next three years.

You mention coal as well, but to extract coal in the quantities necessary to give coal-to-liquids a significant impact on crude oil prices, you'd drive the price of coal to a net-energy comparable level. Like oil, we've mined most of the easy coal, and what's left is lower-grade, more dispersed, and more expensive to extract.

Unfortunately there are no easy answers to our energy problems. Very likely we'll all learn to make do with less. Expensive energy is here to stay, and in a couple years, $100/bbl oil will seem insanely cheap.

Posted by Pat | February 20, 2008 12:05 AM

There's an old joke in the oil patch: "Oil shale is the energy source of the future. And it always will be."

Posted by Pat | February 20, 2008 12:08 AM

Peak oil assumes we won't switch to cheaper forms of energy.

Like wind power.

Like (in much of the world) solar power.

Like geothermal and hydro and tidal power.

Energy is energy.

A plug-in hybrid can run on electricity from any of these and get 60 to 100 mpg doing so.

Posted by Will in Seattle | February 20, 2008 12:26 AM

While maybe bush thinks that high oil prices are a good idea, virtually no other industry agrees. Food, Plastics, durables, automobiles, no one wants expensive energy.

My question is if liquefied coal, which is supposedly competive in the $30~40 range, why wouldn't we be doing it today? The oil companies can't be that powerful, especially against companies like GE who have been touting liquified coal for a generation now.

Our world is doomed when oil gets past the price of liquified coal, because alternatives have never come close to oil and no nation as ever choosen to become poorer to save the environment.
(I've argued this point before

We've got centuries of current energy consumption left in coal reserves and anyone hopeful of preventing goal warming fall-out can only pray that we have not yet hit the coal-is-as-cheap-as-oil point.

Posted by Andrew | February 20, 2008 2:10 AM

Crap I wish I could fix the link in that post it's this:

Posted by Andrew | February 20, 2008 2:12 AM


The Peak Oil perspective posits we won't be switching to those power sources as they are not a viable, cost-effective solution. In comparison to oil, the net energy and cost expenditures associated with those energy sources fall far short of that supplied by continued oil use. All that without even referencing the physical limitations in scaling those power sources to an output level on par with the worlds current energy consumption levels.

And Bald-Face-Lie, your referenced abiotic oil theory has been pretty thoroughly debunked...unless maybe abiotic oil doesn't apply in the continental US, where oil supplies peaked in the early 70's and have not rebounded?

Posted by derek | February 20, 2008 8:35 AM

Not if it was mentioned above, but by 2010 the project is estimated to be the second largest contributor to global warming in the world.

Also, isn't the $ sign below a typo? In the New Yorker?

"Thanks to what’s happening in the tar sands—output now tops $1 million barrels a day—Canada has become America’s No. 1 source of imported oil."

Posted by left coast | February 20, 2008 8:57 AM

The Globe and Mail recently did a special report on the oil sands. It's an environmental catastrophe in a whole lot of ways, but especially in how much water is used and how much energy required to extract the oil.

Posted by Gabriel | February 20, 2008 9:44 AM

Jonathan, glad to see you tackling this topic, but you've got some bad assumptions in there. Look up the Energy Watch Group report on coal--we have nowhere near "centuries" of coal left!

And take a look at my analysis in this article from last year on the tar sands:
Tar Sands: The Oil Junkie's Last Fix

Posted by Chris Nelder | February 20, 2008 10:00 AM

@25 - but they are cost-competitive.


Look, here in the Pacific Northwest, the cold harsh cruel economic reality is that wind energy is CHEAPER than oil. And competitive with natural gas.

Get rid of the oil and gas subsidies and it cleans their clock.

Same with hydro.

Oil is no more essential to us than coal was to Britain.

We must change - or become doomed like other single-fuel empires.

Posted by Will in Seattle | February 20, 2008 10:04 AM

Oops, my Globe and Mail oil sands link didn't work before.

Posted by Gabriel | February 20, 2008 10:37 AM

@4 The abiotic theory doesn't have a whole lot of evidence behind it. And even if it did, the amount produced is substantially less then what we are taking out. If it was anywhere close to that the world would have nothing on it but oil.

However the basic idea of the theory, that chemical and microbiological process can produce hydrocarbons is pretty sound and if done right can help use produce fuels.

Posted by Giffy | February 20, 2008 11:23 AM

my brain is full.

Posted by infrequent | February 20, 2008 1:39 PM

16 made a good point: If nontraditional petroleum will only be viable so long as oil remains very expensive, how can this represent "the coming end of expensive energy"?

Posted by erika | February 20, 2008 3:08 PM


Yes, in the PNW alternative energy sources are viable as born out in how our power is generated....but a world-wide case this does not make.

I'm not saying we shouldn't use those/these resources for generating power, every bit counts, but we should use them with a full consideration of how realistic they are on the larger scale.

Posted by derek | February 20, 2008 6:18 PM

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