Management: How Do We Get There From Here? Global Energy Transitions Planning

Abstract

How shall we craft an energy future less dependent on petroleum? And what role will oil and gas play in that scenario? In spite of an impressive 150-year track record of increasing hydrocarbon production to meet growth in demand, constraints are emerging. There will be a pinch in production rates relative to growing demand, necessitating the development and deployment of alternative energy technologies from more sustainable resources. As of yet there is no consensus on how to transition to alternative fuels despite a great deal of talk about doing so. Predictions of oil's demise have plagued the petroleum industry since its birth. Repeatedly, doomsayers have suggested that the world had no more than 20 or 30 years of oil left. The repeated failure of these dire predictions have led some to dismiss the finitude of petroleum resources completely—even claim that the world can never run out of oil. These optimists are as correct in an absolute sense as they are ridiculously wrong in a practical sense. No matter how high the price of petroleum becomes no technology will ever extract every drop from the proven, producing reserves, let alone find every small reservoir that exists. The decline of petroleum is neither total nor sudden. But in a practical sense, a crisis will come when production can no longer keep pace with demand growth. At that time, we will be producing more oil than ever before! Petroleum production will reach a peak and ultimately decline. That peak will occur when surplus production capacity has diminished to zero and demand continues to grow (unless some alternative source succeeds in carving out a major market share very soon). In his book The Long Emergency, James Howard Kunstler speaks of "delusional thinking" in regard to pinning hopes on emerging alternative energy technologies. But while the issue is muddied by ignorant, alarmist, and simplistic declarations of the end of petroleum, it is just as badly muddied by denial. Julian Simon, in his popular, highly misleading text The Ultimate Resource II, has a chapter titled "When Will We Run Out Of Oil? Never!" It is true that petroleum has been increasing in the marketplace. Demand has been growing steadily for more than 130 years, and thus far, the industry has kept pace. However, it is utter, antiscientific fallacy to draw any conclusions about the physical limits of the petroleum resource from economic data. The decline will come.