The Era of Xtreme Energy: Life After the Age of Oil

The debate rages over whether we have already reached the point of peak
world oil output or will not do so until at least the next decade.
There can, however, be little doubt of one thing: we are moving from an
era in which oil was the world's principal energy source to one in
which petroleum alternatives -- especially renewable supplies derived
from the sun, wind, and waves -- will provide an ever larger share of
our total supply. But buckle your seatbelts, it's going to be a bumpy
ride under Xtreme conditions.

It would, of course, be ideal if the shift from dwindling oil to its
climate-friendly successors were to happen smoothly via a mammoth,
well-coordinated, interlaced system of wind, solar, tidal, geothermal,
and other renewable energy installations. Unfortunately, this is
unlikely to occur. Instead, we will surely first pass through an era
characterized by excessive reliance on oil's final, least attractive
reserves along with coal, heavily polluting "unconventional"
hydrocarbons like Canadian oil sands, and other unappealing fuel
choices.

There can be no question that Barack Obama and many members of
Congress would like to accelerate a shift from oil dependency to
non-polluting alternatives. As the president said in January, "We will
commit ourselves to steady, focused, pragmatic pursuit of an America
that is free from our [oil] dependence and empowered by a new energy
economy that puts millions of our citizens to work." Indeed, the $787
billion economic stimulus package he signed in February provided $11
billion to modernize the nation's electrical grid, $14 billion in tax
incentives to businesses to invest in renewable energy, $6 billion to
states for energy efficiency initiatives, and billions more directed to
research on renewable sources of energy. More of the same can be
expected if a sweeping climate bill is passed by Congress. The version
of the bill recently passed by the House of Representatives, for
example, mandates that 20% of U.S. electrical production be supplied by
renewable energy by 2020.

But here's the bad news: even if all these initiatives were to pass,
and more like them many times over, it would still take decades for
this country to substantially reduce its dependence on oil and other
non-renewable, polluting fuels. So great is our demand for energy, and
so well-entrenched the existing systems for delivering the fuels we
consume, that (barring a staggering surprise) we will remain for years
to come in a no-man's-land between the Petroleum Age and an age that
will see the great flowering of renewable energy. Think of this interim
period as -- to give it a label -- the Era of Xtreme Energy, and in
just about every sense imaginable from pricing to climate change, it is
bound to be an ugly time.

An Oil Field as Deep as Mt. Everest Is High

Don't be fooled by the fact that this grim new era will surely witness
the arrival of many more wind turbines, solar arrays, and hybrid
vehicles. Most new buildings will perhaps come equipped with solar
panels, and more light-rail systems will be built. Despite all this,
however, our civilization is likely to remain remarkably dependent on
oil-fueled cars, trucks, ships, and planes for most transportation
purposes, as well as on coal for electricity generation. Much of the
existing infrastructure for producing and distributing our energy
supply will also remain intact, even as many existing sources of oil,
coal, and natural gas become exhausted, forcing us to rely on
previously untouched, far more undesirable (and often far less
accessible) sources of these fuels.

Some indication of the likely fuel mix in this new era can be seen
in the most recent projections of the Department of Energy (DoE) on
future U.S. energy consumption. According to the department's Annual Energy Outlook for 2009,
the United States will consume an estimated 114 quadrillion British
thermal units (BTUs) of energy in 2030, of which 37% will be supplied
by oil and other petroleum liquids, 23% by coal, 22% by natural gas, 8%
by nuclear power, 3% by hydropower, and only 7% by wind, solar,
biomass, and other renewable sources.

Clearly, this does not yet suggest a dramatic shift away from oil and
other fossil fuels. On the basis of current trends, the DoE also
predicts that even two decades from now, in 2030, oil, natural gas, and
coal will still make up 82% of America's primary energy supply, only
two percentage points less than in 2009. (It is of course conceivable
that a dramatic shift in national and international priorities will
lead to a greater increase in renewable energy in the next two decades,
but at this point that remains a dim hope rather than a sure thing.)

While fossil fuels will remain dominant in 2030, the nature of these
fuels, and the ways in which we acquire them, will undergo profound
change. Today, most of our oil and natural gas come from "conventional"
sources of supply: large underground reservoirs found mainly in
relatively accessible sites on land or in shallow coastal areas. These
are the reserves that can be easily exploited using familiar
technology, most notably modern versions of the towering oil rigs made
famous most recently in the 2007 film There Will Be Blood.

Ever
more of these fields will, however, be depleted as global consumption
soars, forcing the energy industry to increasingly rely on deep
offshore oil and gas, Canadian oil sands, oil and gas from a
climate-altered but still hard to reach and exploit Arctic, and gas
extracted from shale rock using costly, environmentally threatening
techniques. In 2030, says the DoE,
such unconventional liquids will provide 13% of world oil supply (up
from a mere 4% in 2007). A similar pattern holds for natural gas,
especially in the United States where the share of energy supplied by
unconventional but nonrenewable sources is expected to rise from 47% to
56% in the same two decades.

Just how important these supplies have become is evident to anyone
who follows the oil industry's trade journals or simply regularly
checks out the business pages of the Wall Street Journal.
Absent from them have been announcements of major discoveries of giant
new oil and gas reserves in any parts of the world accessible to
familiar drilling techniques and connected to key markets by existing
pipelines or trade routes (or located outside active war zones such as
Iraq and the Niger Delta region of Nigeria). The announcements are
there, but virtually all of them have been of reserves in the Arctic,
Siberia, or the very deep waters of the Atlantic and the Gulf of
Mexico.

Recently the press has been abuzz with major discoveries in the Gulf
of Mexico and far off Brazil's coast that might give the impression of
adding time to the Age of Petroleum. On September 2nd, for example, BP (formerly British Petroleum) announced that it had found a giant oil field
in the Gulf of Mexico about 250 miles southeast of Houston. Dubbed
Tiber, it is expected to produce hundreds of thousands of barrels per
day when production begins some years from now, giving a boost to BP's
status as a major offshore producer. "This is big," commented Chris
Ruppel, a senior energy analyst at Execution LLC, a London investment
bank. "It says we're seeing that improved technology is unlocking
resources that were before either undiscovered or too costly to exploit
because of economics."

As it happens, though, anyone who jumped to the conclusion that this
field could quickly or easily add to the nation's oil supply would be
woefully mistaken. As a start, it's located at a depth of 35,000 feet
-- greater than the height of Mount Everest, as a reporter from the New York Times
noted -- and well below the Gulf's floor. To get to the oil, BP's
engineers will have to drill through miles of rock, salt, and
compressed sand using costly and sophisticated equipment. To make
matters worse, Tiber is located smack in the middle of the area in the
Gulf regularly hit by massive storms in hurricane season, so any drills
operating there must be designed to withstand hurricane-strength waves
and winds, as well as sit idle for weeks at a time when operating
personnel are forced to evacuate.

A similar picture prevails in the case of Brazil's Tupi field,
the other giant discovery of recent years. Located about 200 miles east
of Rio de Janeiro in the deep waters of the Atlantic Ocean, Tupi has
regularly been described as the biggest field to be found in 40 years.
Thought to contain some five to eight billion barrels of recoverable
oil, it will surely push Brazil into the front ranks of major oil
producers once the Brazilians have overcome
their own series of staggering hurdles: the Tupi field is located below
one-and-a-half miles of ocean water and another two-and-a-half miles of
rock, sand, and salt and so accessible only to cutting edge,
super-sophisticated drilling technologies. It will cost an estimated
$70-$120 billion to develop the field and require many years of
dedicated effort.

Xtreme Acts of Energy Recovery

Given the potentially soaring costs involved in recovering these last tough-oil reserves, it's no wonder that Canadian oil sands,
also called tar sands, are the other big "play" in the oil business
these days. Not oil as conventionally understood, the oil sands are a
mixture of rock, sand, and bitumen (a very heavy, dense form of
petroleum) that must be extracted from the ground using mining, rather
than oil-drilling, techniques. They must also be extensively processed
before being converted into a usable liquid fuel. Only because the big
energy firms have themselves become convinced that we are running out
of conventional oil of an easily accessible sort have they been
tripping over each other in the race to buy up leases to mine bitumen
in the Athabasca region of northern Alberta.

The mining of oil sands and their conversion into useful liquids is a
costly and difficult process, and so the urge to do so tells us a great
deal about our particular state of energy dependency. Deposits near the
surface can be strip-mined, but those deeper underground can only be
exploited by pumping in steam to separate the bitumen from the sand and
then pumping the bitumen to the surface -- a process that consumes vast
amounts of water and energy in the form of natural gas (to heat that
water into steam). Much of the water used to produce steam is collected
at the site and used over again, but some is returned to the local
water supply in northern Alberta, causing environmentalists to worry about the risk of large-scale contamination.

The clearing of enormous tracts of virgin forest to allow strip-mining
and the consumption of valuable natural gas to extract the bitumen are
other sources of concern. Nevertheless, such is the need of our
civilization for petroleum products that Canadian oil sands are
expected to generate 4.2 million barrels of fuel per day in 2030 --
three times the amount being produced today -- even as they devastate
huge parts of Alberta, consume staggering amounts of natural gas, cause
potentially extensive pollution, and sabotage Canada's efforts to curb
its greenhouse-gas emissions.

North of Alberta lies another source of Xtreme energy: Arctic oil
and gas. Once largely neglected because of the difficulty of simply
surviving, no less producing energy, in the region, the Arctic is now
the site of a major "oil rush" as global warming makes it easier for energy firms to operate in northern latitudes. Norway's state-owned energy company, StatoilHydro,
is now running the world's first natural gas facility above the Arctic
Circle, and companies from around the world are making plans to develop
oil and gas fields in the Artic territories of Canada, Greenland
(administered by Denmark), Russia, and the United States, where
offshore drilling in northern Alaskan waters may soon be the order of
the day.

It will not, however, be easy to obtain oil and natural gas from the
Arctic. Even if global warming raises average temperatures and reduces
the extent of the polar ice cap, winter conditions will still make oil
production extremely difficult and hazardous. Fierce storms and
plunging temperatures will remain common, posing great risk to any
humans not hunkered down in secure facilities and making the transport
of energy a major undertaking.

Given fears of dwindling oil supplies, none of this has been enough to
deter energy-craving companies from plunging into the icy waters.
"Despite grueling conditions, interest in oil and gas reserves in the
far north is heating up," Brian Baskin reported in the Wall Street Journal. "Virtually every major producer is looking to the Arctic sea floor as the next -- some say last -- great resource play."

What is true of oil generally is also true of natural gas and coal:
most easy-to-reach conventional deposits are quickly being depleted.
What remains are largely the "unconventional" supplies.

U.S. producers of natural gas, for example, are reporting a significant
increase in domestic output, producing a dramatic reduction in prices.
According to the DoE, U.S. gas production is projected to increase from
about 20 trillion cubic feet in 2009 to 24 trillion in 2030, a real
boon for U.S. consumers, who rely to a significant degree on natural
gas for home heating and electricity generation. As noted
by the Energy Department however, "Unconventional natural gas is the
largest contributor to the growth in U.S. natural gas production, as
rising prices and improvements in drilling technology provide the
economic incentives necessary for exploitation of more costly
resources."

Most of the unconventional gas in the United States is currently
obtained from tight-sand formations (or sandstone), but a growing
percentage is acquired from shale rock
through a process known as hydraulic fracturing. In this method, water
is forced into the underground shale formations to crack the rock open
and release the gas. Huge amounts of water are employed in the process,
and environmentalists fear
that some of this water, laced with pollutants, will find its ways into
the nation's drinking supply. In many areas, moreover, water itself is
a scarce resource, and the diversion of crucial supplies to gas
extraction may diminish the amounts available for farming, habitat
preservation, and human consumption. Nonetheless, production of shale
gas is projected to jump from two trillion cubic feet per year in 2009 to four trillion in 2030.

Coal presents a somewhat similar picture. Although many
environmentalists object to the burning of coal because it releases far
more climate-altering greenhouse gases than other fossil fuels for each
BTU produced, the nation's electric-power industry continues to rely on
coal because it remains relatively cheap and plentiful. Yet many of the
country's most productive sources of anthracite and bituminous coal --
the types with the greatest energy potential -- have been depleted,
leaving (as with oil) less productive sources of these types, along
with large deposits of less desirable, more heavily polluting
sub-bituminous coal, much of it located in Wyoming.

To get at what remains of the more valuable bituminous coal in
Appalachia, mining companies increasingly rely on a technique known as
mountaintop removal, described by John M. Broder of the New York Times as "blasting off the tops of mountains and dumping the rubble into valleys and streams." Long opposed by
environmentalists and residents of rural Kentucky and West Virginia,
whose water supplies are endangered by the dumping of excess rock,
dirt, and a variety of contaminants, mountaintop removal received a
strong endorsement from the Bush administration, which in December 2008
approved
a regulation allowing for a vast expansion of the practice. President
Obama has vowed to reverse this regulation, but he favors the use of
"clean coal" as part of a transitional energy strategy. It remains to
be seen how far he will go in reining in the coal industry.

Xtreme Conflict

So let's be blunt: we are not (yet) entering the much-heralded Age
of Renewables. That bright day will undoubtedly arrive eventually, but
not until we have moved much closer to the middle of this century and
potentially staggering amounts of damage has been done to this planet
in a fevered search for older forms of energy.

In the meantime, the Era of Xtreme Energy will be characterized by an
ever deepening reliance on the least accessible, least desirable
sources of oil, coal, and natural gas. This period will surely involve
an intense struggle over the environmental consequences of reliance on
such unappealing sources of energy. In this way, Big Oil and Big Coal
-- the major energy firms -- may grow even larger, while the relatively
moderate fuel and energy prices of the present moment will be on the
rise, especially given the high cost of extracting oil, gas, and coal
from less accessible and more challenging locations.

One other thing is, unfortunately, guaranteed: the Era of Xtreme
Energy will also involve intense geopolitical struggle as major energy
consumers and producers like the United States, China, the European
Union, Russia, India, and Japan vie with one another for control of the
remaining supplies. Russia and Norway, for example, are already
sparring over their maritime boundary in the Barents Sea, a promising source of natural gas in the far north, while China and Japan have tussled over a similar boundary dispute in the East China Sea, the site of another large gas field. All of the Arctic nations
-- Canada, Denmark, Norway, Russia, and the United States -- have laid
claim to large, sometimes overlapping, slices of the Arctic Ocean,
generating fresh boundary disputes in these energy-rich areas.

None of these disputes has yet resulted in violent conflict, but
warships and planes have been deployed on some occasions and the
potential exists for future escalation as tensions rise and the
perceived value of these assets grows. And while we're at it, don't
forget today's energy hotspots like Nigeria, the Middle East, and the
Caspian Basin. In the Xtreme era to come, they are no less likely to
generate conflicts of every sort over the ever more precious supplies
of more easily accessible energy.

For most of us, life in the Era of Xtreme Energy will not be easy.
Energy prices will rise, environmental perils will multiply, ever more
carbon dioxide will pour into the atmosphere, and the risk of conflict
will grow. We possess just two options for shortening this difficult
era and mitigating its impact. They are both perfectly obvious --
which, unfortunately, makes them no easier to bring about: drastically
speed up the development of renewable sources of energy and greatly
reduce our reliance on fossil fuels by reorganizing our lives and our
civilization so that we might consume less of them in everything we do.

That may sound easy enough, but tell that to governments around the
world. Tell that to Big Energy. Hope for it, work for it, but in the
meantime, keep your seatbelts buckled. This roller-coaster ride is
about to begin.