Tuesday, July 24, 2007

The Big Picture

Last week the National Petroleum Council released its much-anticipated report on the future of energy. I missed the opportunity to highlight the presentation and webcast press conference on the report on Wednesday, because I was on a consulting engagement. Nor was I comfortable commenting on articles that appeared before the report was officially released, since I was a member and co-author on one the of the sub-teams of the study's Supply task group, dealing with renewable power. Now that it's out, there's enough material in the report to occupy all of my postings for weeks. Instead, I'll make some general observations now, and then periodically examine key subject areas in more depth. In the meantime, I encourage my readers to peruse as much of the study as their other priorities permit. You might also wish to check out the podcast or transcript of the API's blogger teleconference on the NPC Study.

Let's start with the title, "Facing Hard Truths About Energy." Although it's accurate enough, I wonder about the wisdom of bracing the audience that way. So what are these "hard truths"? Well, one of them is that for the next couple of decades, most of our energy will continue to come from oil, gas and coal, while unconventional hydrocarbons and alternative energy ramp up. Another hard truth is that the energy situation in which the US now finds itself is at least partly self-imposed, as the cumulative result of policies that have constrained domestic energy production without constraining the growth of energy demand. The study's recommendations about adjusting such policies might seem self-serving, coming from the industry that stands to profit from expanded access to domestic oil and gas reserves, but we should consider who stands to gain more: the companies that will make a margin producing and selling these volumes, or the economy that will benefit from their value-added, tax revenues and export displacement?

For that matter, it's worth pointing out that, although this study was conducted under the aegis of an oil & gas advisory body chartered by the Secretary of Energy, it was created with input from a pretty wide range of other sectors and groups, including Congressional staffs, executive branch departments, environmental and other NGOs, non-energy companies, and universities. This is a global and national view from those who do energy for a living, but they didn't just talk amongst themselves. That doesn't mean that all the non-industry folks will agree with every word of the report, but it was interesting to hear one of the executives at the press conference reflect on how views were exchanged and consensus created, altering some pre-existing perspectives along the way.

The report has been criticized for reflecting too much of the conventional wisdom of the oil and gas industry on subjects such as Peak Oil. And anyone expecting a clarion call for a crash program on renewable energy is bound to be disappointed. (The study's treatment of renewables is a topic for another day.) But having spent my entire working life in and around this industry, I can assure you that this is a far cry from its business-as-usual view. When the folks who make billions in profits producing the energy we use tell us that it's time for us to become much more efficient, we should pay close attention, especially when they go on to say, "The world is not running out of energy resources, but there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources relied upon historically. These risks create significant challenges to meeting projected total energy demand." Translation: banking on the return of cheap energy is a bad bet.

Finally, don't underestimate the significance of the way the study addresses climate change. Whatever the personal views of some of the NPC's members, this is a picture of an industry that fully expects to have to treat emissions reduction and carbon sequestration as essential parts of the larger energy portfolio, from here on out. For many of the companies involved in the study, that idea would have been unimaginable only a few years ago. The key measure of success for the study will be in how it informs the debate around energy and environment in the Congress and the Administration. For that, it comes a bit late but not, let us hope, too late, as the House takes up the issue in the weeks ahead.

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