To begin this difficult post, I start with a physics professor’s testimony May 3, 2001 to the Subcommittee on Energy of the Science Committee of the U.S. House of Representatives.

The professor was Albert. A Bartlett, Professor Emeritus at the University of Colorado.  His point that I want to use was quite straightforward:  We can choose an energy path that relies first on the assumption that we will be able somehow to produce more energy in sufficient quantities for future generations;  Or we can choose an energy path that relies first on conservation of energy and doesn’t assume that we can continually increase energy levels for future generations.

Here’s Bartlett’s precisely accurate assessment.  “There is a rational way to choose.  If the path we choose turns out to be the correct path, then there’s no problem.  The problems arise in case the path we choose turns out to be the wrong path.  It follows then that we must choose the path that leaves us in the less precarious position in case the path we choose turns out to be the wrong one.

So there are two possible wrong choices that we must compare.  If we choose the Conservative Path that assumes finite resources, and our children later find out that resources are really infinite, then no great long-term harm has been done.  If we choose the Liberal Path that assumes infinite resources, and our children later find that resources are really finite, then we will have left our descendents in deep trouble.”

Now fast forward to today.  Suddenly we’ve discovered that we’re short energy.  And it is a situation that is not likely to diminish going forward.  What do we do?

According to Bartlett, the wise choice is to make the hard initial decision that first we use less energy (Negawatts).   Concurrently, we do what’s also obvious: We initiate a full court press to diversify our energy sources in an effort to meet the long term need to have sustainable, reasonable amounts of energy.

But first and foremost we conserve.  That means we loose a lot of the mobility we’re accustomed to, even if curtailing this mobility comes via FDR-like war fiat.  In World War II you couldn’t even buy a new car.  They weren’t being built because America needed manufacturing for the war, not personal transportation.

Goodbye hot tubs.  Hello short showers. Goodbye nice warm rooms.  Hello sweaters.  Goodbye trucks.  Hello composite material vans.  Goodbye 200 mile car trips.  Hello buses and trains. You get the idea.

The truth is that conservation of energy is the quickest way to reduce our dependence on foreign energy sources.  While we scramble like mad to diversify and improve our domestic energy production for the longer term, in the short term we can have a surprisingly dramatic improvement simply by taking a hard-nosed approach to conservation.  Emphasis: hard-nosed.

In future posts Beezernotes will go into some detail about where and how we can begin, almost immediately, to be more efficient and reduce our energy use.

This is the over-arching problem facing our world today:  Energy.  Its debate the next couple months will determine who is the next President.  Whomever we choose will have to make some very unpopular decisions at the federal level which will directly impact our daily lives.

If you want to read Prof. Bartlett’s beautifully brief testimony, you can at http://jclahr.com/bartlett/testimony.html

email at wp@beezernotes.com

Why did John McCain select Sarah Palin, the first female Governor of Alaska, to be his Vice Presidential running mate?  Because she is an energy expert, and energy will be the number one issue in this Presidential election.

Alaska is a state that supplies the majority of America’s domestic oil.  It is a state that has trillions of cubic feet of gas just offshore in addition to billions of barrels of oil.  And while Congress dithers on vacation Alaska is already building a gas pipeline to pump this clean energy to the rest of the country once we come to our senses and allow it to be tapped. 

She has been chief executive officer of a state for 21 months, which is exactly 21 months more than any of the other candidates running.  She also was elected, in no small part, pledging to clean up dirty politics in Alaska related to its oil and gas industry.  In other words, she’s faced “Big Oil” directly and came out on top.

In an interview with CNBC’s Maria Bartiromo, it quickly becomes clear what Palin’s real strengths are to this ticket.  She points out Joe Biden voted against the pipeline that supplies most our domestic oil today.  She points out that environmental images against Anwar don’t look anything like Anwar at all, and in fact, are grossly misleading.  All the negative predictions about the environment and its animals, she points out, have proven to be totally false.

She says Obama and Biden are naive when it comes to our energy future and says if America follows their lead in energy it will be “In a world of hurt.”

And who, of all elected Americans, has the pre-eminant authority to make these kind of observations?  The Governor of Alaska.  And that’s Sarah Palin.

Sure she’s a female.  And she’s a hunter and NRA member.  Her husband is a union member and works in the energy industry, just like about 80% of Alaskans.  But those are not the reasons why McCain chose her as his running mate.

It’s all about our energy future.  When the northern half of the United States starts filling its tanks with heating oil that’s 3x what they paid two years ago, and paying just as much for natural gas, Sarah Palin will be the only elected official on either ballot with the authority to speak on energy.  It is the issue that will decide who becomes President.

In America’s minds, about voting time when the cold winds blow, the importance of energy policy will make Osama Bin Laden and his troupe of murderous bigots look like school children who just need a time out.

Palin observes the hypocrisy in our current policy as we send our President to Saudia Arabia, tin cup in hand, looking for more oil production when we won’t even drill our own.

Beezernotes has written in previous posts that the energy issue will swamp every other issue on the political agenda and that the Democrats “no drill” posture is likely to be fatal unless corrected.  McCain selected Palin because she’s the perfect individual to drive that nail into the Democrat coffin.

Obama gets it.  He may lack some experience, but he has no shortage of intelligence.  He has a well thought out energy policy, but it has a huge hole that the rapid runup in oil prices has exposed: You can’t get there from here without additional domestic fossil fuel exploration and supply.  As Beezernotes has pointed out, Obama needs Congressional Democrats to come back in and make the compromises necessary to get the “drill now” anchor off his neck.

If they do, and the Republicans get stupid and don’t make some compromises of their own, then it could be the Republicans getting drilled come November, not the Democrats.

Any way you dice it, the authority on this issue now rests with the McCain/Palin ticket.  And it has zip to do with Palin being female.

Check out Bartiromo’s interview with Palin.

http://www.cnbc.com/id/15840232?video=836304396

Legendary investor Jim Rogers weighs in against Politicians and Bureaucrats, including Presidential candidates John McCain and Barak Obama, in this engaging 15 minute interview on CNBC.  The interviewers pushed back against Rogers’ conservative viewpoints–so this wasn’t a one sided discussion.

Check the interview out at http://www.cnbc.com/id/15840232?video=835801384

Rogers simply says most governments are in too much debt, and that the overspending will prolong the current global recession.  He says the US is in for a “lost decade” similar to the one experienced by Japan during the 1990s.

Rogers always throws in some spice.  “Let them turn in their Maseratis” he says of 29 year old investment bankers who should not have been bailed out by the government.  Later, Rogers says he hopes farmers will be the ones driving Maseratis instead of bankers.

This is classic Rogers.  He is short the dollar, long commodities, long China and Taiwan and very short indeed, Politicians and Bureaucrats, calling them a “bunch of incompetents and crooks.”

As for the Presidential contenders, McCain and Obama, Rogers lumps them both together as being ignorant of economics and currencies, and both will add to America’s $5 trillion debt. 

(It is, after all, election time so the “don’t tax me, don’t tax thee, tax the man behind the tree,” promise is front and center in both campaigns.  McCain says he won’t raise taxes, and Obama says he’ll tax the rich guys and reduce taxes for the worker and small business.  In previous posts, Beezer has said higher taxes will be necessary to help fund America’s energy transition–rich guy, poor guy, middle class guy–you’re all going to get whacked.)

Rogers says inflation created by high debt, government and private, will bedevil economic recovery.   The mounting debt, he asserts, is so high already it will prolong the recession for years and will hurt economies worldwide.  Governments should let businesses fail and should cut taxes, says Rogers. 

Even Rogers’ favorite economy, China, will feel the heat. “If you’re selling to Wal Mart–you know there’s a recession.”

But some segments, such as power generation, agriculture and water treatment will prosper even in the upcoming tough times,  Rogers says. 

Anyway, have a nice, three day Holiday.  Then back to work.  No rest for the debt-ridden weary.

Legendary oil man T. Boone Pickens is building the world’s largest windfarm in the Texas panhandle near the town of Pampa.  When a successful oil man starts putting assets into windpower, and combines that with a national ad campaign urging America to do everything it can to stop buying foreign petroleum energy, something has changed dramatically on the American landscape.

Pickens believes in Peak Oil, that the world’s production of petroleum peaked in 2005 and will continue to decline going forward.

He points out that out of the 85 million barrels of oil produced daily worldwide, the USA uses 21 million, of which it imports 70% at an annual cost of roughly $700 billion.

As we now all are starting to suspect, that’s a formula for economic disaster.  Pickens wants a crash program to install wind energy, which he says can supply 20% of all power in the US within 10 years.  The cost, he says, will be about $1.3 trillion over ten years.   A “bargain” he says compared to our current annual wealth transfer of $700 billion because we import so much foreign  oil.

He also wants the country to switch a lot of its natural gas use (all of which comes from North American now) from power plant fuel to transportation fuel–as windpower ramps up its electric power muscle.

Pickens is having a major political impact with his advertising.  It may be because he’s straightforward and easy to understand.  And he is right.  That helps.

Check out his plan.  Pickens Plan.

While there is a fundamental supply/demand global imbalance between fossil fuels and the demand for fossil fuels, meeting that challenge will be made even harder because there is another supply/demand imbalance that’s equally important.

In brief, there’s too many dollars sloshing around the world.  You may have noticed that your dollar purchasing power has not kept up with prices the past several years.  An independent research organization, Shadow Government Statistics, calculates US prices have been increasing anywhere from 8% to 11% annually since 1996.  Contrast that with the Bureau of Labor Statistics’ core CPI which has risen between 1.5% to 4.% annually.  

For a variety of reasons the Federal Reserve Bank has been providing more and more dollars to more and more places worldwide.  And in many of those places–such as at Wall Street–those dollars have been leveraged to the maximum as investors continuously chase returns they hope will be higher than real inflation rates. 

At some point this massive leverage creates an “investment bubble,” which cannot be sustained.  The most recent bubble has been real estate where dollars were provided to consumers for homebuying at unrealisticly low rates, many of them tied to future higher rates via Adjustable Rate Mortgages.

The bubble has burst, as we all know.  Television talking heads call the problem a “credit crunch” but the underlying problem is too many dollars chasing too few real assets.  Those assets were inflated, and now they are deflating.

This ocean of dollars also helped push up the dollar value of fossil fuels and other commodities.  Not surprisingly, companies in the energy and materials sectors of the economy have a small, or even negative, relationship to a declining dollar.  The dollar goes down they hold up well or even go up, according to QB Partners.     All those investment dollars chasing assets helped push up commodity prices dramatically and quickly.  And when the dollar started to go up versus other currencies, the commodity prices retreated to what many believe are more fundamentally sound levels (for the moment.)

Another consequence of this dollar inflation that many have noticed but may not have realized was caused by printing too many dollars, has been the continual movement offshore of high paying, manufacturing jobs.

Not only were the surplus dollars used to fund the offshore manufacturing in emerging economies, they were used to provide credit to US consumers so they could buy the products.  How else do you explain an economy which depends 75% on personal consumption? 

Transitioning to an economy fueled primarily by non-fossil energy will cost lots of money, and the inevitable financial deleveraging we will be undergoing at the same time for the next few years will make funding our transition more difficult.

A silver lining in all this is that the upcoming energy transition will provide several antidotes to our inflationary past.  The transition will create millions of high paying, manufacturing type of jobs.  Idled auto manufacturing plants can be re-started to build equipment for wind, solar and other renewable industries.  Oil and gas exploration and extraction equipment, turbines, manufacturing machines, transformers, electric trains, new railroad equipment and lines and new types of automobile and truck engines–on and on and on.  Real jobs making real equipment will be the order of the day during the transition.

Using leverage to make this kind of stuff makes sense.  Real stuff made with real jobs has pricing power and can provide protection against inflation.  Not a bad result in combination with our freedom from foreign energy.

http://www.cnbc.com/id/15840232?video=833505564

email wp@beezernotes.com

People need some way to compare different energy sources and energy return on investment (EROI) is one popular (although controversial and complicated in estimating) method.

EROI is commonly written as numbers comparing energy input to output.  For example, the numbers 1:1 would mean it took just as many energy inputs to get the identical output–for no net gain.

Here are some sample numbers for various energy sources:

• Oil: anywhere from 10-15:1
• Wind 19:1
• Coal 10:1
• Ethanol 1:1.2
• Hydro 11:1 or greater, sometimes much greater.
• Passive solar, from 5:1 to 10:1

EROI is a very, very rough tool to use, but so far no-one seems to have come up with anything better.  Part of the problem is assessing the negative impacts of any particular energy source.

Hydro can generate huge EROI’s but dams create large reservoirs of still water that have major negative impacts on the environment.  Nuclear EROIs are good, but their negatives are well understood, and quite frankly, more than a little scary.  McCain has called for a nuclear expansion program as part of his energy package and he cites the reliability and cleanliness of nuclear energy.  It is guaranteed that position will run into stiff opposition in Congress.  Nevertheless France, for example, gets something like 80% if its electricity from nukes.  Seven dollar gas might tilt that argument somewhat in McCain’s favor.

Passive solar is pretty good although its main benefit is not electricity production, but reduction in electricity use as residential, industrial and commercial buildings reduce their electric demands for heating, and lighting (negawatts).  Its impact would be huge, however, if a large number of buildings were to be retrofitted and all new construction included  passive solar systems.

Ethanol has lousy EROI, at 1:1.2  And such a low EROI certainly doesn’t justify the impact Ethanol production has had on food prices worldwide.  Research into breaking down cellulose in non-crop plants like switchgrass, instead of using corn or sugar cane, have not met with much success at improving that 1:1.2 number.  This is probably why neither McCain nor Obama have been positive about ethanol.  McCain has said he would eliminate all ethanol subsidies.

Other types of biomass fuels for transportation energy, such as for diesel, have better EROI’s of 3 or 4:1, so they could become part of the transition to all electric transportation.

One thing appears clear:  Renewables are definitely in the game at current oil prices.  As the fundamental supply/demand imbalances with fossil fuels continues and, as a result, prices for those fuels goes up the comparison with renewables will be even more favorable.

What if a barrel of oil contues to drop in price?  Kuwait has pegged their current national budget on oil prices in the mid-$80s, while Russia is expecting slightly more at $90.  Prices have ranged well above $100 recently and don’t show much sign of going below that figure.

If they do go below, however, it presents a conundrum for politicians here in the US and elsewhere because it could take the “gas” out of transitioning away from fossil fuel dependence.  It will take a very brave President, and Congress (brave Congress is an oxymoron, I believe) to impose a tax on fossil fuels in order to keep the transition from slowing.

In the end the diminishing availability, and increasing price, of fossil fuel energy will have its way.  We’ll either be off the stuff, or we will pay a very heavy price indeed.