Why We Hate the Oil Companies
Straight Talk from an Energy Insider
By John Hofmeister
Palgrave Macmillan Copyright © 2010 John Hofmeister
All rights reserved.
THE FUTURE IS MORE, NOT LESS
A postindustrial information-based economy demands more energy, not less. Surprised?
On a mild January day in 2007, I sat across the breakfast table from several senior Microsoft executives at a Seattle hotel not far from their headquarters in Redmond, Washington. "Our business plans say we need to build at least six new information centers across the Northwest to support our Internet and other growth plans," they told me. "We need new electricity equivalent to the output of a 350-megawatt power plant to support them. But we don't know where we're going to get that much new electricity in Washington or Oregon. Hydropower has peaked, there's not enough natural gas, coal-burning plants cannot be built here for now, wind is too erratic, and no nuclear plants are on the horizon in the time frame of our business growth. Do you have any suggestions about where electricity is going to come from in the future?"
They were hoping that, as an energy executive, I could give them some new ideas and long-range thinking. But, in fact, they had given me a new perspective on the scope of our energy challenge. They explained that information centers are intensely electrified operations, requiring power not just for racks and racks of computers and switches but also for heating, cooling, and dehumidifying to create the proper environment for the sensitive electronics. Looking at the existing power infrastructure in the region, it was clear they would come up short.
The huge worry on the table that morning was whether, to meet near-term growth, Microsoft would have to go offshore with its information centers to take advantage of greater energy growth outside the United States. The executives were aware that competitors were doing it, but they hoped they would not have to. What was clear to me after this meeting was this: in the digital age, we are more power-hungry than ever. Our economic growth depends more than ever on electrons.
* * *
The landscape across America looks different from what it was when my career began in the early 1970s: there are fewer forests of belching smokestacks, sending up the exhaust from the energy consumed by massive steel and textile mills, foundries, and consumer goods manufacturing plants. What is left of the smokestack operations of our industrial economy are now far more likely to be on the other side of the globe, in India and China and other low-wage countries.
Instead of these energy-devouring smokestack behemoths, we have millions and millions of electronic devices in electricity-intensive, mountain range–like structures of shining clean office buildings, in home offices, on kitchen counters, mounted on our dashboards, carried in our pockets, and clipped to our ears. Rather than a few giant industrial lions consuming our energy, it is being eaten away by millions of tiny digital gnats. Our human capital is purposefully engaged more with intellectual manipulation of information than with brawn or manual dexterity. The future of economic growth via our applied human intelligence is a future of unlimited potential—provided we have the electrons to make it possible.
Total energy use in the United States has tripled in the last six decades. When you look at how that energy is being used, the shift is clear. In 1949, industrial manufacturing consumed nearly half of the energy used in this country. In 2007, industrial manufacturing accounted for less than a third of the total energy used. While the percentage of energy that went toward transportation rose slightly, the biggest increases were in residential and commercial use. Commercial use has quintupled since 1949, and much of that growth can be traced directly to the increased use of computers and all of the associated servers, printers, modems, routers, and other data devices that devour electrons, often on a 24/7 basis.
Our lives are increasingly electronic in every imaginable way. From the microwaves that heat our Lean Cuisine dinners to the cell phones that keep us connected with voice and text; from the home computers and high-definition televisions and game systems that populate our homes to the massive digital networks without which corporations and government would come to a crashing halt; from the movies showing in the megaplexes to the brightly illuminated live sports events broadcast via satellite around the globe; from magnetic resonance imaging technology to digital thermometers; from home security alarms to national security technology; from the global positioning systems in our cars to the iPods in our pockets—we have it all because electrons make it possible.
Hurricane Ike, in September 2008, brought this point home vividly to Houston, America's fourth largest city. The energy capital of the world was virtually powerless in the aftermath of the storm. More than 90 percent of the city lost power. Business came to a standstill. The mayor imposed a curfew to keep cars off the streets at night because there were few working streetlights or traffic signals. There were lines for emergency ice and water supplies, but there were also lines at the few locations with power where electronics-starved residents could plug in their laptops and charge their depleted cell phones. It took two weeks for power to be restored to 75 percent of the city, and during that period many Houstonians lived in a world with no air conditioning, no TV, no lights, no refrigerators, no movies, no Internet, scarce gasoline, water interruptions, and sporadic phone communication. Millions of people did without all that, just because the electrons went missing.
Ironically, the power plants were functioning at that time; it was the distribution system that went down, primarily due to tree damage to power lines. Less than 1 percent of power line poles were impacted, yet most of the city's residents were without power. The response to this outage is a plan for the future that will result in even more need for electrons. Houston is creating a smart grid that utilizes additional electrons to flip switches and self-heal huge swaths of the electricity network around the downed lines, as well as more distributed generation in neighborhoods. The goal: fewer people will lose power and recovery will be swifter for those who do.
* * *
For Microsoft on that January morning, a shortage of electrons was limiting its ability to grow. The company's information-age model was predicated on an ever-increasing supply of electrons at a scale that would support robust growth. Washington State's regional energy resources—or rather the anticipated lack of future electricity resources—created a business constraint. We talked about the potential growth of wind and solar power that morning, but these technologies were not—and are not—up to the scale of the task Microsoft was outlining. In consequence, despite its preference to expand domestically, the company was forced to look around the globe to see where the electricity infrastructure would support its needs.
Unfortunately, too many companies are facing the same challenge, due not only to availability of electrons but also to the volatility of other energy prices, such as oil products and natural gas. Since 2005, more than 50 percent of U.S. fertilizer manufacturing has moved offshore to find cheaper sources of natural gas, which is used to produce ammonia, a primary ingredient in fertilizer. While chemical plant construction is booming in China, India, and the Middle East, the United States is rapidly losing much of its chemical manufacturing base because of cost increases for feedstock, primarily oil and natural gas. Many people believe that we are losing our manufacturing jobs because of high wages. In the larger picture, costs and availability of energy are factors as well.
Just as we are realizing the increased need for new affordable energy, we are also putting political constraints on our ability to produce it on the scale required. It is very difficult to obtain permits for new coal-fired power plants, nuclear plants, liquefied natural gas regasification plants, offshore drilling, new transmission lines, pipelines, switching stations, refineries, gas plants— you name it. Even wind farms are hard to site, especially when they might affect the view of "important" people who live part time on Nantucket and other scenic locales.
NIMBYism (not-in-my-backyard efforts to stop infrastructure from being built), often fomented by plaintiff law firms looking for business, seriously threatens the availability of new energy to support a growing economy. Litigants are looking out for their individual interests at the expense of the wider community's interests. How, in the twenty-first century, can we persist in denying ourselves the energy that we need to sustain our economic growth and quality of life?
Opposition comes in many forms, not just lawsuits from NIMBYists. Anti-coal, anti-nuclear, and anti–liquefied natural gas interests try to stop mega-projects, and even smaller infrastructure investments, for different reasons. They often cite fear-invoking claims of security issues, terrorist threats, or threats to clean air and water. Meanwhile, failure to expand our electricity supply drives prices up, putting fixed- and low-income people at ever higher risk of being unable to afford electricity and businesses, small and large, at risk of shrinking, moving, or closing. Who is really being helped by this determination to stop new infrastructure?
* * *
Energy fuels not just our electronics but also our lifestyle. Our personal pride and joy often sits in our driveways. A first car is a rite of passage; future cars are a necessity; and it is an emotional wrench when we take away a senior citizen's car keys for his or her own safety. Personal mobility is as much a way of life in America as personal electronics. We can't do without either. While the percentage of energy that has gone toward transportation has remained somewhat stable over the last six decades, in raw numbers U.S. gasoline consumption has nearly quadrupled while the population has slightly more than doubled. That means we are using nearly 75 percent more gasoline per person—per man, woman, and child—now than we were in 1949. (This upward trend has been fairly consistent over the last 60 years, with the most significant drop in the late 1970s, when higher oil prices and U.S. automaker quality issues combined to pave the way for an influx of smaller cars from Japan.)
Driving is part of our national character, from the days of the advertising slogan "See the U.S.A. in your Chevrolet" to today's drive-through culture for everything from bank transactions to lattes. The only decline in energy consumption in recent memory came at the expense of economic growth and was due to the severe global recession that started during 2008 and extended through most of 2009. Resuming economic growth in this country, and globally, will return us to the same underlying problems of scarcity and higher costs for energy supplies. Keep a neck brace close by—whiplash from fast-rising prices can hurt.
We are in a precarious balance today. Just as Hurricane Ike knocked out power to Houston, it also disrupted fuel supplies. Gulf Coast petroleum refineries that supply the southeastern to Middle Atlantic states, from Texas to Maryland, were shut down twice in quick succession for Hurricanes Gustav and Ike, whose one-two punch was eerily similar to the Katrina/Rita combination in 2005. Oil product and gasoline production feeding into the Plantation and Colonial pipelines that transport fuel to this region was interrupted for weeks. Having experienced Katrina and Rita as president of Shell Oil Company, I could see what was coming next. The Monday following Ike's landfall, I was in a meeting with the Washington Times editorial board. I pointed out that in order to maintain a calm and orderly market in nearly a quarter of the country, now was the time for governors in those states to impose an odd-even rationing system based on license plate numbers for gasoline and other fuels. Without this step, I predicted, there would be long gas station lines and frustrated citizens. The problem would be temporary, and by anticipating it and acting quickly, it would be possible to get through it with minimal discomfort: deferring purchases by just one day.
The next day, the Washington Times front-page headline read, "Former Oil Exec: Gas Rationing Needed." The response was immediate and negative—the White House and the American Petroleum Institute, an industry trade association, both denied any problem existed. Virtually no one supported the rationing concept. Within two weeks, national media were reporting gas lines and outages. As drivers waited in long lines to top off their fuel tanks, a local Atlanta petroleum company owner went so far as to recommend that the governor of Georgia cancel the weekend's Georgia-Alabama football game to conserve fuel. Radio talk-show hosts were deluged with callers who reported station outages, phoned in updates on tank truck deliveries, and told individual horror stories about waking up at 2:00 a.m. to buy gas when there would be no lines, only to discover lines wherever they went. The anger and frustration led many people to blame Big Oil—the major oil brands—for both shortages and higher prices. The shortage was temporary, and the media coverage was even more abbreviated, especially on a national scale, as the crash of the financial markets pushed stories of post-Ike issues of the Gulf Coast to the back pages. But the people who feared for their ability to get to work or school were reminded of the vulnerability of both supply and affordability.
Every outage reminds us how critical fuel is to the way we live.
* * *
The comparatively low cost and plentiful supply of energy throughout the 1990s and the first years of the twenty-first century helped drive a low unemployment rate and a lifestyle of larger cars, commuting to larger houses, located farther from downtown employment centers or industrial areas. These suburban McMansions not only require heating and cooling of more cubic feet but also become the repository for more electron-fed devices, from countless light bulbs to brighten the high-ceilinged spaces to multiple flat-screen televisions, sound systems, and computer systems, to heated swimming pools with automatic filtration systems and three-car garages with automatic door openers (and, of course, three cars inside). Cheap energy built America, and it was cheap because it was plentiful.
This boom of prosperity meant that, until recently, we were spending more money to live better than ever before—which translated to consuming more total energy than ever before, both gasoline and electric power. To many, the spiral—available energy, to lifestyle improvements, to more energy demand—felt like an upward path, until we began to push against the constraints of energy supply and recognize that our fossil-fueled lives were threatening our environment and thus our long-term quality of life. Sustainability may be an overused term, but it is very apt: how do we sustain our forward progress without compromising the ability of future generations to enjoy the same quality of life?
There are about 250 million cars and trucks on the road in the United States. More than 99 percent run on liquid fuel powering an internal combustion or diesel engine. Today's fleet will most likely continue in use for much of the next 20 years—the life span of current vehicles.
When we are not driving, we are flying, more often and farther afield. Despite a 60 percent decrease in fuel use per passenger in the last 35 years, U.S. airlines consumed 81 percent more fuel in 2008 than in 1977, and the percentage of that total attributed to international travel increased 50 percent. Growth in aviation fuel use has slowed since 2000 in developed countries, but most of the decline is due to flatter growth in passengers and passenger miles; fuel efficiency improvements have stalled at 1 percent per year. Developing countries are seeing increased fuel growth.
When we are not flying, we are cruising. In 2008 more than 10.2 million people in America took a cruise trip. However, cruise ships accounted for only a small percentage of the tens of billions of gallons of fuel used in the maritime sector. Where did most of it go? To marine shipping: 2.3 billion metric tons of cargo, including a 13 percent increase in petroleum imports over the past five years. In other words, we are spending fuel to obtain fuel.
* * *
In Europe, the same digital-driven electricity demand is evident as, since 1990, electricity consumption has increased at nearly triple the rate of overall energy consumption. The European Union is ahead of the United States in responding to the environmental consequences of this increased demand: new taxes on gasoline, natural gas, and electricity; an emphasis on nuclear energy (Europe now produces more than 40 percent of the world's nuclear power); emissions-reduction regulations; and funding of expanded research on low-carbon fuels have all been put in place with a goal of increasing energy security and reducing emissions. (Continues...)
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