The Money Architects

Climate change and reliance on oil to power the world certainly generate a lot of news. Many people think the future is in renewable energy resources.

But the reality is that oil will be the dominant resource for energy production for a long time to come.

An article by Robert Bryce of Future Tense and Slate.com provides some interesting detail about oil’s role in the global economy and the prospect for change. He makes some fascinating points about the scale of oil’s use and the history of change in energy production.

Noteworthy excerpts:

The global energy sector is by far the world’s biggest industry, with more than $5 trillion per year spent finding, refining, and delivering energy of various forms to consumers. Renewable sources like wind and solar have their virtues, but they cannot compare with hydrocarbons when it comes to economics.

For 109 years after the signing of the Declaration of Independence, wood was the dominant source of energy in America. It wasn’t until 1885 that coal finally surpassed wood as the largest source of energy in the United States. Coal remained king until 1950, when it was deposed by oil. “And the greater the scale of prevailing uses and conversions, the longer the substitutions will take.”

According to the Energy Information Association (EIA), in 1949, oil provided 37 percent of America’s total energy needs. In 2009, oil’s share of U.S. primary energy stood at … 37 percent. Over the past six decades, uncounted billions of dollars have been spent on efforts to reduce our need for oil, yet petroleum has been remarkably persistent.

Believe it or not, in 2009, renewable energy sources had a smaller share of U.S. primary energy than they did back in 1949. Sure, wind and solar have grown dramatically in recent years, but in 1949, renewables—almost all of it hydropower—provided 9.3 percent of the country’s energy needs. In 2009, renewables—again, much of it supplied by hydropower—provided 8.2 percent of U.S. energy.

We need a simpler measure for global energy use, which now totals about 241 million barrels of oil equivalent per day. That sum is almost impossible to comprehend, but try thinking of it this way: It’s approximately equal to the total daily oil output of 29 Saudi Arabias. (Since 1970, Saudi Arabia’s oil production has averaged 8.2 million barrels per day.) And of those 29 Saudi Arabias, 25—about 210 million barrels of oil equivalent—come from hydrocarbons.

Over the past decade alone, global energy consumption has increased by about 27 percent, or six Saudi Arabias. Nearly all of that new energy came from hydrocarbons.

We can talk about wind, solar, geothermal, hydrogen, and lots of other forms of energy production. But the question that too few people are willing to ask is this one: Where, how, will we find the energy equivalent of 25 Saudi Arabias and have it all be carbon-free? The hard reality is that we won’t.

Here’s the bottom line: Renewables will remain niche players in the global energy mix for decades to come. The past—and the foreseeable future—still belong to hydrocarbons. And we can expect natural gas, the cleanest of the hydrocarbons, to garner a bigger share of the global energy pie in the near term and in the long term.

The full article is available here.

Investing in renewable resources is something many people prefer to support but the reality is that you may need an awfully long time horizon before these investments overtake oil.

~ Brooks, Hughes & Jones, Partners in Wealth Management, Tacoma, WA