131 = The number of years to replace oil

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This post is a guest contribution by Dian Chu, market analyst, trader and author of the Economic Forecasts and Opinions blog.

It seems the panic time for both green enthusiasts and peak oil pundits has arrived.

According to a new paper by two researchers at the University of California, it would take 131 years for gasoline and diesel to be replaced given the current pace of research and development; however, the world’s oil could run dry almost a century before that.

The research was published on Nov. 8 at Environmental Science & Technology, and is based on the theory that market expectations are good predictors reflected in prices of publicly traded securities.

By incorporating market expectations into the model, the authors, Nataliya Malyshkina and Deb Niemeier, indicated that based on their calculation, the peak of oil production could occur between 2010 and 2030, before renewable replacement technologies become viable at around 2140.

The estimates not only delayed the alternative energy timeline, but also pushed up the peak oil deadline. The researchers suggest some previous estimates that pegged the year 2040 as the time frame when alternatives would start to replace oil, could be “overly optimistic”.

As I pointed out before, despite the excitement and hype about a future of clean energy, most of the current technology simply does not make economic sense for regular consumers and lacks the infrastructure for mass deployment … even with government subsidies, tax breaks, and outright mandates.

In addition, the supply chain of renewable technologies is not as green as people might think. Most alternative technologies rely on rare earths for efficiency. However, the radioactive waste produced by the rare earths mining process makes oil sands look like a green energy. This overlooked (or ignored) fact has now received some attention due to the sudden shortage caused by China’s embargo and export quotas on rare earths.

Another case in point: In China, the city of Jiuquan in Gansu province needs to build 9.2 gigawatts of new coal-fired generating capacity as backup power for the 12.7 gigawatts wind turbines due to be installed by 2015.  More wind farms would need more coal-fired power plants, with little or possibly no carbon reduction.

Capitalism means investment naturally flows to the more profitable proposition … and vice versa. With more data and information becoming available, not much could go unnoticed by the markets, particularly in a relatively new sector such as renewable energy. And this harsh reality is clearly reflected in this new study.

Now, in its latest long-term outlook, the International Energy Agency (IEA) predicts that oil demand, prices and dependence on OPEC are all set to continue rising through 2035, and that global oil supplies would be near their peak in 2035 as China, India and other emerging economies keep on trucking.

So the world needs to come to a common understanding that:

  1. the alternative energy is not mature enough to completely replace fossil sources any time soon;
  2. energy security means a diversified and balanced portfolio inclusive of every bit of resource, fossil as well as renewables, just to meet the projected demand, and
  3. real “green” energy is easier said than done.

Furthermore, the increased rare earths dependency, and the latest food vs. fuel debate when the food industry instituted a lawsuit against the EPA over E15 ethanol, underline some of the unintended (we hope), yet nasty consequences that often come with ill-informed and poorly-planned policies. (In the case of E15, the EPA is an easy mark considering one in eight Americans is on food stamps.)

All this requires a balanced and unbiased government policy to guide exploration and development of technologies to unlock the new fossil fuel reserves, expanding the R&Ds of emerging technologies, while effectively practicing and promoting energy efficiency and conservation.

Otherwise, we may literally witness $300 a barrel of oil before the electric vehicle could even achieve one percent market penetration. Unfortunately, there’s no easy fix, and the clock is ticking.

Related Reading: The Alternative Fuel Vehicle and $300 Oil

Source: Dian Chu, Economic Forecasts and Opinions, Nov. 13, 2010

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1 comment to 131 = The number of years to replace oil

  • Frank W

    The truth is that no one has a clue when oil will run out. One speculative estimate after another gets issued from one month to the next. No one agrees on anything. The only thing that appears to be clear is that if every American bought an electric car and plugged it in EVERY NIGHT to a home socket, the current grid could handle the demand.

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