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From Oil to Information

Karuna Raman is joint deputy director general of BSNL, a Government of India enterprise in telecommunications.

by Karuna Raman

Sheikh Yamani, Saudi Arabia’s former oil minister and a founding architect of OPEC, once said, "The stone age came to an end not for a lack of stones, and the oil age will end, but not for a lack of oil." Humans stopped using stone because bronze and iron were superior materials. But will we really stop using oil when other energy technologies similarly provide superior benefits?

The threat of depleting the world’s scarce energy resources has maintained a powerful hold on popular thinking ever since the oil shocks of the 1970’s. Nor is our fear limited to oil. For example, the classic 1972 bestseller Limits to Growth predicted that the world would run out of gold in 1981, silver and mercury in 1985, and zinc in 1990. We have the benefit of hindsight today, but even now most discussions of the issue are predicated on the logic of Limits to Growth.

Moreover, the issue is not merely that we have not run out of natural resources. The American economist Julian Simon allegedly issued a challenge in 1980 to a group of environmentalists, saying that if scarcity were to be measured in terms of higher prices, they should invest in stocks of any raw metal. The environmentalists put their money on chromium, copper, nickel, tin, and tungsten, and picked a time frame of 10 years. By September 1990, each of the metals had dropped in price: chromium by 5%, tin by a whopping 74%.

The doom-mongers lost. More importantly, they could not have won even if they had invested in petroleum, foodstuffs, sugar, coffee, cotton, wool, minerals, or phosphates: all of these commodities had become cheaper.

Today, oil is the most important and valuable internationally traded commodity, and its significance to our civilization is underscored by the recurrent worry that we are running out of it. However, statistical estimates of its depletion hide much more than they reveal. A typical oilfield yields only 20% of the reservoir, with close to 63% remaining buried in the earth even when the most advanced technologies are used.

Moreover, economists contend that energy consumption per capita is declining, owing to more efficient use. Fuel efficiencies in the automotive sector have increased by more than 60% in the past three decades, while overall wealth produced per unit of energy has doubled during the same period.

But, whereas metal prices have fallen, oil prices are reaching record highs. The reason is simple: metal usage has been substituted by many alternatives, but most still require petroleum products as inputs, and decades-long efforts to develop sufficient alternative energy sources have yielded little success.

So, if oil substitutes are not easily available, modern societies should focus on the sources of demand, most of which is attributable to the transport sector. Indeed, more than 80% of modern societies’ consumption of energy generated by oil, either in the form of electricity or fuel, is used to move commuters.

Is all of this oil consumption really necessary?

With the rising contribution of services to global GDP, now is the time to reassess the need for travel to work. Service-sector workers commute daily, only to be present in an environment that has no economic need for them, for they are facilitating information exchange far more than exchange of physical goods. Do we really need to bring together so many people for so little gain and at such a high cost?

The cost is not merely in terms of natural resources, which should be sustained and passed on to future generations, not exhausted by our own. The rise in the amount of time spent commuting is a drag on both national productivity and the quality of life in modern cities. A survey conducted in the Indian city of Mumbai revealed that railway commuters’ average daily journey was 22 kilometers, while rapid urbanization there and in much of the developing world is only likely to increase the length of commutes.

Likewise, passenger air transport is dominated by business travel. But, given the high-speed data transmission capacities of current telecommunications and information technology, it is now possible to reduce business travel significantly. Whereas the outsourcing phenomenon is attenuating the need for labor migration, domestic migration can be limited further by the use of home offices, which can eventually reduce stress on real estate, public transport networks, roads, and airports. Indeed, human travel in general should become increasingly limited to tourism and pleasure trips.

We now have the technological infrastructure to bring most job-related information to workers while allowing them to collaborate closely. This requires a lifestyle change – one that governments should begin encouraging employers and workers to embrace.

If they do, the age of oil will not end. But the age of worrying about it just might.

Copyright: Project Syndicate, 2006.


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The oil age

Hi Karuna,

Even the most optimistic oil production forecasters predict a world oil production peak around 2030-2035, followed by a plateau in production and an irreversible decline until the end of the century. As production declines, the oil price and production expenses can be expected to rise until the point where it costs more to extract the oil (in energy or cost) than is obtained from the extraction. This is called EROEI (energy returned on energy invested) and is an important factor in the energy markets.

These optimistic forecasters (CERA, Exxon and others) generally calculate these "late peak" scenarios by bundling in a number of unconventional oil sources (such as tar sands and oil shale) along with oil that is "yet to be discovered". Compared to some of the "early peak" forecasters, they can disagree on the amount of recoverable oil equivalent in the earth's crust by up to 2 trillion barrels.

Whilst it is true that personal transport consumes an immoral amount of oil, the transport industry is comprised of much more than your standard "selfish" motorist. We have become addicted to a road freight distribution system that cannot be currently "swapped over" to rail and an air freight transport system that has no current technological alternative to the use of avgas.

Additionally, unconventional sources of oil, such as the tar sands of Alberta, produce many time the CO2 emissions than do their conventional counterparts and consume large amounts of natural gas and water. Coal liquefaction, which is yet again another major emitter of CO2 (and another unconventional form of oil production), is probably as "dirty" as it gets.

Whilst I admire your essay, I think it is fairly naive in the manner that it deals with the entrenched interests that stand between a "scaling back" of the car-based system of personal transportation – a development I would agree is worthy – and any viable alternative. If you imagine that Big Car and Big Oil and going to just roll over and "get efficient" (or even "get clean") without mandates, I think that is daydreaming.

I think that worrying about "the end of the age of oil" is certainly still worth the effort, as little else is going to motivate anyone to otherwise do anything about it. "Business as usual" has an inertia that is patently evident in not only Australia's transport and city planning sectors, but in energy production and the demise of rail and coastal barge transport.

I think the thoughts of two Caltech Professors, who agree on the gravity of the oil debate but disagree on the interpretation, sum up the overarching issues well.

Dr David Goodstein believes that due to population pressures and exponential growth, we will run out of all fossil fuels by the end of this century. His colleague, Dr Nathan Lewis, believes that we can muddle on somewhat longer. But Nathan stresses the dangers of fossil fuel emissions to the climate's stability. His favourite quote is: "How lucky do we feel?"

By the way, neither debate whether the oil age (or indeed the age of fossil fuels) will come to an end. It must and it will – it's only a matter of time. Conservation is only part of the problem, and it is resisted fiercely by both the powers that be and the vested interests that lobby our lawmakers constantly.

Claiming that conservation and technology will end our fears over the depletion of a finite resource is a little fanciful, and without a world-wide agreement and effort, patently impossible. Ultimately, effective solutions to oil depletion and climate change suffer from the same indignity. Everyone wants to initiate them, except us...

Ian McPherson

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