Peak Natural Gas - Will we go cold?

Natural Gas - Fuel to Transition to Renewable Energy?
Natural gas is a vital source of fuel primarily used for electricity generation and heating in homes. It is also used as a feedstock for many organic compounds used in industry such as methanol and hydrogen. For peak oil optimists, natural gas is described as a possible fuel to help us "transition" from petroleum energy to various forms of renewable energy such as solar, wind, and hydro.

Natural Gas Background
Natural gas is an extremely clean fuel when combusted/burned and has the lowest amount of carbon emissions for any fossil fuel. Despite these advantages, there are many problems that natural gas must overcome. The first is that it is a gas and will only become a liquid at 77K (approximately -320F if we assume it is primarily methane) under atmospheric pressure. This leads to a problem that natural gas has an extremely low volumetric energy density which means that it is difficult to store and ship. We have only been able to transport natural gas because we have built an expensive natural gas pipeline network.

Natural Gas Production Decline
Jon Friese from The Oil Drum recently posted an article titled North American Natural Gas Production and EROI Decline. I could not possibly do the article just by trying to regurgitate the information, especially because the graphs are so vital for understanding the situation we are in. Please see The Oil Drum's article to see the details in depth.

I will state though, that the future of natural gas in the United States and Canada does not look very promising. Based on an extrapolation of the EROI trend line for Canada, it appears that natural gas may not be technically feasible to extract after 2014! This is significantly sooner than the government agencies have predicted based on their reported reserves.

I am always wary of extrapolations. However, I find that the analysis is sound and also looks at historical data to compare trends. It is not exact, but the analysis and extrapolation will give us a good idea where natural gas production is heading. To quote the conclusion of the article:

"The natural gas industry has clearly been mounting a heroic effort to keep natural gas production on plateau in North America. This effort has raised costs dramatically. The EROI of Canadian production shows a rapid decline. Drilling statistics suggest a similar EROI decline is happening in the US. The falling EROI makes it impossible for natural gas production to maintain both low costs and current levels of production. It is clear that most of the reserves in the official forecast will never be developed. Jean Laherrere’s predictions are more likely to be correct. And if EROI continues to fall at the current rapid rate, he will be remembered as an optimist."

EROI - The forgotten statistic
What is EROI? It is an acronym for "Energy Return on Investment". Simply put, it is the amount of energy that a resource has once it is extracted, divided by the amount of energy used to extract it or Available Energy/Input Energy. According to the article, some natural gas fields peak at an EROI of 40:1 but then decline rapidly. See the article's graph for the trend of EROI.

This is particularly worrisome because it shows that the "Break Even" point according to the extrapolation of the trend line is 2014. After this point, it will take more energy input than energy available from the natural gas extracted. This means that it is no longer worth it to extract the natural gas because we spend more energy than we can recovery.

But I thought that the "Market" would solve our problems
Economists from the Chicago Economics school of thought, strongly believe in free market forces. The people believe that peak oil will be a non-issue because alternative forms of energy will become "available" as the price of oil and natural gas increase. This analysis has also been used to argue that we will "never run out of oil" because there will always be oil in the ground. The recoverable reserves are defined as the resources that we can economically extract and the recoverable reserves can increase when prices rise. That is, as prices go up, oil that was previously not economical to recover, will become affordable. Or so the theory goes.

The free market economists fail to recognize the physical and thermodynamic LAWS that NO market can solve. As the price of energy increase, we will afford to dig down further, pump oil further to a certain extent. But there is a limit to the amount of oil we can physically extract. As we dig deeper we expend more energy per unit of energy recovered. Once we approach the "break even" point, it will no longer be rational to extract the oil, no matter what the price is.

It doesn't matter if oil is $1 per barrel, or $1 million per barrel. If we need to use more than one barrel of oil to extract one barrel of oil, it won't happen.

My Thoughts
Just like with petroleum reserves, it appears that government agencies have once again overestimated the true recoverable reserves. They still believe that the "market" will ultimately balance the cost and therefore demand of oil/natural gas (or whatever natural resource is estimated).

However, for as stated above, cost will not be the only factor that will determine the amount of fuel we will be able to be able to extract. The Energy Return on Investment (EROI) will determine the physical limitations to extracting any resource and will ultimately determine the amount that we will be able to recover.

It will be interesting to see whether or not Jon Friese's analysis is correct and that the EROI is indeed in a sharp decline and if we will reach the "break even" point by 2014. If it is indeed correct, we have many problems ahead of us and will not be able to count on natural gas to transition us to renewable energy. Let's hope for the best but prepare for the worst.

Related Blogs:

• The Party's Over - Richard Heinberg: Book Review
• Fuel of War: Article Review
• Shell CEO Virtually Admits to Peak Oil
• Energyville Part I: How Will you Power it?
• Energyville Part II: The Discussion
  

Related Links:

• The Oil Drum
  

Recommended Books:

• The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
• Resource Wars - Michael Klare
  
• The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
  Review
• PowerDown - Richard Heinberg
  

Recommended Movies:

• The End of Suburbia
• The Power of Community: How Cuba Survived Peak Oil
• A Crude Awakening - The Oil Crash

Peak Oil and Investing: Part II - Liquid Assets

In my previous blog, "Peak Oil and Investing - Part I - Retirement Funds" I discussed the pros and cons of retirement funds as they relate to peak oil. All of the analysis is made under the assumption that peak oil will affect us in the immediate future and that we will need access to as many funds as possible to adapt and survive in a world of peak oil. If you don't believe that this is the case, then it is probably best to continue investing in your retirement account as everyone else recommends.

The quick summary is that it is always worth it to contribute to a 401(k) when your employer matches your contribution. The benefits of contributing to a Roth IRA are not as clear and the level of contribution in this account should be determined on how big of an impact you believe peak oil will be.

Because I believe that peak oil will make significant changes and I want to be best prepared, I want to keep the majority of my assets liquid and accessible at any time.

Liquid Assets
The alternative to retirement accounts is to keep your assets liquid in cash, stocks, CD's (Certificate of Deposit), and savings, checking, and high yield money market accounts. With the exception of CD's and bonds, you can have these assets converted into cash and in your hands in less than a week. Even CD's and bonds can be sold, but because the prices can fluctuate, it is possible to lose money on the investment.

Taxes
All earnings made in the investment vehicles outlined below (with the exception of muni bonds) are subject to federal, state and local income tax. Any income earned from these sources will be taxed at your marginal tax rate.

Muni bonds are "triple tax free" because it is exempt from federal, state, and local income tax. Stocks or funds that are held for less than one year are taxed at your marginal tax rate, but for funds held over a year, the rate is only 15% for federal tax brackets 25% and higher.

Taxes are only paid when your stocks are sold. However, if you own a fund or a stock pays dividends, it is possible that you will have to pay taxes even if you did not sell a fund or stock in that year.

Stocks
With stocks it is possible to invest in many different companies and sectors of the economy. I will not go into specifics in this blog about where an investor should put his/her money. That topic will be addressed in my next blog. However, I will mention again, as I wrote in Adding Values to Your Investment: FTSE 4Good Index and Socially Responsible Invseting: Can it Beat a Traditional Mutual Fund, that a sound investing strategy is to buy index funds which cover a broad segment of the market.

It may be possible to make money fast with the next "killer stock". But as shown in The Bogleheads' Guide to Investing by Taylor Larimore and A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition by Burton Malkiel have shown, index funds will almost always beat actively managed funds. Most stocks can be sold and then

CD's
A CD (Certificate of Deposit) can be purchased at virtually any lending institution. The way it works is that you pay a bank to buy a CD with a fixed interest rate. The interest rates will depend on the length of the CD and the lending institution. The CD's will pay the fixed amount of interest at a specified time interval and at the end of maturity the bank pays back the lender the original purchase price of the CD.

Currently the market is not terribly great for CD's. The Federal Reserve interest rate cuts have decreased the interest rate on CD's and it is often better to put your money into a High Yield Money Market Account. See Bankaholic's CD Rates.

Bonds
There are a variety of bonds out there, but I will focus on a specific subset of bonds, the municipal bond. Bonds are essentially an I.O.U. to the company or municipality you are buying it from which allows them to raise capital for projects. They will then pay you a rate as stated on the bond (typically twice or 12 times a year). When the bond matures (ages usually range from 1-30 years) you then are paid back the value of the bond.

Bonds are good ways to guarantee a stable income over a period of time. However, traditionally, stocks have beaten bonds in the long run. There have been periods in history (such as the 1980's) where high interest rates caused bonds to beat out the stock market.

Municipal bonds are important because they are "triple tax free". This means they are exempt from federal, state, and local income tax. For people in higher tax brackets (25%+) and/or people who live in states with income taxes, municipal bonds can be a great way to have tax free earnings. Typically the interest rate on munis are lower, but if your income tax rate is high, it is often beneficial to invest in munis.

Money Market Accounts
Although the Federal Reserve interest rate cuts have drastically lowered the interest rate in money market accounts, this is still a great place to put funds you need within a week. If you open an account with Washington Mutual, Ing Direct, or ETrade, you can get interest rates in the 3-4% rate, which can be better than many CD's.

One risk with money market accounts is that the bank can at anytime and without notice, change your rate of interest. My rates at Capital One went from 5.00% to 3.25% within a period of 3 months because of the rate cutes. It looks though, that the rates will still stay above 3% and this is a good place to park your money if you think you'll need access to it in the near future. If the rates continue to decline, it would be wise to look towards CD's as a more stable source of income. See Bankaholic's Money Market Rates

Checking/Savings
These accounts typically have low (if any) interest rates for the deposits. Usually the rate is well under 1.0%. Thus, these should only be used to access cash through an ATM or to pay for purchases. Money should be transfered from money market accounts on an as-needed basis to cover the appropriate expenses.

My Thoughts
I have discussed the major retirement accounts and liquid assets and I hope that you have a better understand of how each type of investment vehicle works. I have decided to invest primarily in the Vanguard California Long Term Tax Exempt Bond Fund and the Vanguard Target Retirement 2040 Fund (See Adding Values to Your Investment: FTSE 4Good Index for more information). I also have a 6 month emergency fund set aside in case a major emergency occurred. This money is currently in a Washington Mutual Online Savings account that yields 4.0% APY.

In my next article I will discuss the types of stocks and commodities that you should consider. Oil or solar ? Wheat or corn? Financial or technology? Dollar or Euro? I will look at not only how peak oil will affect the market, but how fractional reserve and the unstable lending practices of the past 7 years affect investment decisions.

Related Blogs:

• Peak Oil and Investing - Part I - Retirement Accounts
  
• The Party's Over - Richard Heinberg: Book Review
• Peak Oil: Are we on our way down?
  
• Shell CEO Virtually Admits to Peak Oil
• Energyville Part I: How Will you Power it?
• Energyville Part II: The Discussion
  

Related Links:

• The Oil Drum
  

Recommended Books:

• The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
• The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
  Review
• PowerDown - Richard Heinberg
  

Recommended Movies:

• The End of Suburbia
• The Power of Community: How Cuba Survived Peak Oil
• A Crude Awakening - The Oil Crash

Peak Oil and Investing - Part I - Retirement Accounts

Retirement Accounts
Retirement accounts are a great way to save for the future. The benefits are numerous. Some include tax-free earnings for Roth IRA's and pre-tax money going into a 401(k) account with the taxes on earnings deferred until the money is withdrawn from your account. But these benefits apply only when you are willing to follow the rules and not pull out your money early. If you do and do not meet special conditions, you are penalized for your early withdrawal.

There are two investment vehicles that are seen as great tax shelters, the Roth IRA and the 401(k). Typically the advice that most investors will give is that you should max out your employer 401(k) contribution, max out your Roth IRA contribution, and then invest the rest of your retirement money into a 401(k). However, this advice only applies under the assumption that there is no radical change in the economy and that you will not need this money in the next 20-40 years.

The conventional wisdom in virtually every investing and money advice is that you should put your money into these retirement accounts. Under most circumstances, I would agree and would put my money into the accounts. However, peak oil changes everything and clouds the future.

If you believe that peak oil will have a significant impact on everyday life and that it will require funds to overcome, you should think twice about starting (or continuing) investing into your retirement funds. In the remainder of the blog I will discuss the availability of tapping those retirement funds in case of the "Long Emergency" and what readers should consider doing in light of peak oil.

Peak Oil: The X Factor
My knowledge of peak oil makes me extremely wary of putting my money into any investment vehicle that cannot be withdrawn (without penalties) until I turn 59 1/2. For me, that would be 35 years in the future and I personally believe that I will be able to use my money much better if I kept liquid assets. Peak oil will have a tremendous impact on the economy and way of life.

In a world of declining oil supplies and increasing demand, keeping your assets liquid will be vital to adapting to the new economy that emerges. It would be a terrible waste to have all of your hard earned money trapped in a retirement account that you cannot access without heavy penalties, even though you desperately need the money because of peak oil.

I do not necessarily share the same alarmist views like James Howard Kunstler (author of The Long Emergency), but do believe that there will be significant changes. Willingness to adapt, and for better or worse, money, will be the key factors that will determine the quality of life after peak oil. Thus, it is important to ensure that you have access to as much of your money as possible.

Roth IRA
Roth IRA's in 2008 have a $5000 annual contribution limit with post-tax dollars. The reason why the Roth IRA is a great investment vehicle is that all of the earnings and contributions can be withdrawn (under the proper rules) tax free. This is the reason why most people choose to max out their Roth IRA accounts if possible.

Contributions made to the Roth IRA can be withdrawn at ANY TIME penalty free. The only penalties will be assessed is if earnings are withdrawn. If the earnings are withdrawn before 59 1/2 and not within the hardship withdrawal rules, then they will be subject to a 10% penalty and will be treated as taxable income. This will hurt those who are in high federal income tax brackets and investors in states with state income taxes.

Roth IRA Example: Tom invests $5000 for two years for a total of $10,000 in his Roth IRA account. At a later date, the value of his Roth IRA account is $20,000. Let's say that Tom wants to close the account and withdraw the entire balance. Because the $10,000 is a contribution that has already been taxed, he gets all of that money tax free.

However, the $10,000 in earnings is subject to the 10% penalty ($1000) and any Federal or State Income taxes. Let's assume he pays no state income tax and his marginal federal income tax rate is 25%. That means that he will have to pay $2500 of taxes in addition to the $1000 penalty, resulting in a net of $6500 from the $10,000 earned.

Because the contributions can be withdrawn at any time penalty free, the only disadvantages to investing in the Roth IRA the penalty on the earnings and the earnings being treated as taxable income if it is not a qualified withdrawal. However, the penalty is a non-trivial amount and if you are not looking to invest in a Roth IRA

401(k)
Although there is the Roth 401(k) option also available, I am going to focus on the 401(k) because most people choose this option in combination with a Roth IRA. This is to diversify your investments and hedge against changes in tax policy. The Roth IRA offers investments that are post-tax dollars, whereas the 401(k) account allows you to use pre-tax dollars. The only difference between the Roth 401(k) and 401(k) is that the Roth 401(k) is funded with post tax money.

The 401(k) is funded with pre-tax money and will be taxed upon withdrawal. The maximum contribution for 2008 is $15,500 unless you qualify for "catch up" payments. Most investors recommend contributing to a 401(k) because the investment starts with a higher principal because it is pre-tax, the earnings can compound tax-free until withdrawal, and the tax bracket at retirement will be lower than when the 401(k) money was contributed. The 401(k) has the same penalty 10% penalty as the Roth IRA and anything withdrawn from a 401(k) will always be considered taxable income.

The main benefit with a 401(k) is that many, if not most employers offer some sort of match. For some it is 33%, 50% or even 100% of the employee contribution up to a certain percentage. Although an early withdrawal will incur a 10% penalty (income taxes must be paid on 401(k) whether it is withdrawn early or in a qualified distribution), it is still wise to invest in order to get your employer 401(k) contribution

401(k) Match Example:Sally contributes $5,000 to her 401(k) and her employer has a 100% match. Let's say that she is fully vested in the employer match and thus she has $10,000 in her 401(k) account.

If Sally decides to take out the money from her 401(k) and does have a qualified distribution (see above), then she will have to pay a 10% penalty on top of income tax. Let's assume that she is in the 25% tax bracket and pays no state income tax. Her penalty will be $1000 and the taxes will be $2500, which leaves her with $6500.

If Sally would have taken her $5000 and put it into a non-401(k) fund, she would have only had $3750 after taxes, which is a little over half of what she would have made with an employer 401(k) match after penalties and taxes.

My Thoughts
What do I plan to do? I have thought long and hard about this topic because it could end up being a matter of survival.

Currently I am not contributing to my 401(k) stock plan because I don't get a company match. However, starting in January next year, I will get a 50% match on up to 6% of my income. I will contribute to my 401(k) fund to get my full company match because it would be foolish to give up free money from your employer. Simply put, contribute to get your company match, because you will still make more money even after the penalties.

I am still undecided if I want to contribute to my Roth IRA. I still have until April 15th to contribute $4000 to my 2007 account. "Conventional" wisdom says that you should max out your Roth IRA because it will provide you with the most income when you retire due to the tax free earnings. I agree completely with this statement under "conventional" circumstances. But unfortunately peak oil is far from conventional and will affect us more than most expect. All is not lost if you invest in a Roth IRA and take an early withdrawal, because you can get back your contributions tax free and earnings after penalties and taxes.

Is it better to just take it and invest in a mutual fund or is the Roth IRA and early withdrawal the best method? Unfortunately there is no clear answer for this because it depends on a variety of circumstances. Any earnings from a long term investment (over one year) is currently taxed at 15% for tax brackets 25% and higher.

Naturally, this is better than being taxed at the marginal tax bracket. However, in a non tax-advantaged account, taxes may have to be paid on dividends which will affect the investment compounding. Additionally, the earnings in the Roth IRA account will be penalized by an extra 10%.

What you choose to do related with your retirement accounts should be dependent on how significant you think that peak oil will affect our economy, our country, and our world. I tend to have a non-optimistic view of peak oil and think that we will face a serious crisis. It may not be catastrophe that Kunstler describes, but I believe that it will be significant enough seriously rethink contributing to retirement accounts.

In the end it is up to each person to decide how they should invest their money. If you believe that it is more serious, consider keeping more OUT of retirement accounts and as liquid as possible. This will help you have the flexibility to adapt to the new environment.

If you think that peak oil will be overcome by technology, innovation, and "the market", then it would be wise to keep as much money in the retirement accounts as possible, because they offer the best tax shelter for your money.

Either way, I hope that you are saving money in one form or another and continue to look out and plan for your financial future.

Related Blogs:

• The Party's Over - Richard Heinberg: Book Review
• Peak Oil: Are we on our way down?
  
• Shell CEO Virtually Admits to Peak Oil
• Energyville Part I: How Will you Power it?
• Energyville Part II: The Discussion
  

Related Links:

• The Oil Drum
  

Recommended Books:

• The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
• The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
  Review
• PowerDown - Richard Heinberg
  

Recommended Movies:

• The End of Suburbia
• The Power of Community: How Cuba Survived Peak Oil
• A Crude Awakening - The Oil Crash

Peak Oil: Are we on our way down?

The Oil Drum and Peak Oil
The Oil Drum has is a great resource for information related to peak oil and oil production in the world. They have a "Peak Oil" update and the last one was updated in December 2007. It looks at the Energy Information Administration data to plot actual observed production and compares that to the numerous models that have been proposed.

For the figures and data, see The Oil Drum: Peak Oil Update Decmeber 2007. Also, the Peak Oil Update is available in PDF format.

In short, it looks like we have reached the peak for Crude/Condensate (conventional oil), Natural Gas Liquids, and Total Liquids. Convention oil hit a peak in May 2005 and based on the production data from countries around the world, it looks like it will be the "real peak" and conventional oil will never be produced in the same quantities as before.

The peak that we have seen in the past 2-3 years isn't quite the "peak and sharp decline" that many people had predicted, but more of an extended plateau. Regardless of the shape, there is strong evidence which includes the production and price of oil, that we cannot produce any more oil.

Forecasts
What is most alarming, is how off the predictions that CERA (Cambridge Energy Research Associates) and IEA (International Energy Agency) are from the actual observed production. They have been proven to be wrong time and time again, yet the media readily uses them as "reliable" sources (See The Oil Drum's "Peak Oil, IHS Data and The Broken Clock" article for more information).

I think that every person needs to be extremely skeptical of forecasts and press releases by companies and the government on the issue of peak oil. It is one issue that they don't want to touch with a 10-foot pole and if they do they will an unrealistic optimistic view of it.

My Thoughts
The Oil Drum has the most thorough analysis of peak oil that I have found. The analysis and data strongly indicates that we have already passed peak oil and that we are "on the way down". It is disconcerting that the media has shown little if any coverage on the topic. However, whether or not the media likes it, peak oil will happen and it is up to the people to become aware of the situation and inform themselves.

What should we do to prepare ourselves for peak oil? I think that people in Western countries will have an extreme advantage over those in developing countries. We have so much more wealth and we will be able to buy ourselves (at least temporarily) out of the peak oil conditions. However, as crude production continues to decline, the price of goods and the luxuries that we previously have been able to afford will be beyond our means.

In my opinion, the best way to prepare for peak oil is to shift into a lower energy lifestyle. Doing this will let you save money and simultaneously reduce your dependency on oil related products. Because virtually every product in the world is in some way shape or form affected by oil, reducing our consumption will invariably lead to more protection against the looming oil crisis.

Those that will be affected most are those that will not, or cannot, adopt to the new environment of limited oil supplies. Consider reducing your consumption not only for a greener lifestyle, bigger savings, but self preservation. I wish it were not true, but many people will be driven to where they will have to struggle to survive. Preparing today for peak oil will put you in a much better position for when the effects of peak oil begin to hit you.

Related Blogs:

• The Party's Over - Richard Heinberg: Book Review
• Fuel of War: Article Review
• Shell CEO Virtually Admits to Peak Oil
• Energyville Part I: How Will you Power it?
• Energyville Part II: The Discussion
  

Related Links:

• The Oil Drum
  

Recommended Books:

• The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
• Resource Wars - Michael Klare
  
• The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
  Review
• PowerDown - Richard Heinberg
  

Recommended Movies:

• The End of Suburbia
• The Power of Community: How Cuba Survived Peak Oil
• A Crude Awakening - The Oil Crash

Biofuels: How "green" are these crops?

The International Herald Tribute has an article titled Studies conclude that biofuels are not so green. This study, along with many other recent criticisms have brought a strong attack against the claim that biofuels are cleaner and will be able to replace a substantial portion of the United States transportation energy needs.

Land-Use
The study by Princeton University includes a factor that is frequently ignored or assumed to be insignificant: land use. The study states:

The clearance of grassland releases 93 times the amount of greenhouse gas that would be saved by the fuel made annually on that land, said Joseph Fargione, the lead author of the other study and a scientist at the Nature Conservancy. "So for the next 93 years, you're making climate change worse, just at the time when we need to be bringing down carbon emissions."

According to this study, land use is an important factor. Once it is taken into account, it is apparent that at least from a greenhouse gas emission perspective biofuels are not better than conventional fuels, but in fact worse.

Life-Cycle Analysis
The problem with any environmental studies is that they have to make assumptions. This is necessary in sciences where it is simply not possible to measure everything. Most scientists or engineers have to make assumptions at some point but the validity of the assumption can often be questionable. Previous studies did not include land use into the study and apparently missed a large portion of the emissions.

My Thoughts
My primary reason for studying Chemical Engineering was alternative and renewable energy such as hydrogen fuel cells and biofuels. However I quickly realized that these will not be able to replace conventional fuel.

When you look at the economics and the engineering behind it there are many reasons why alternative fuels will not be able to quickly (if ever) displace a significant portion of conventional fuels. The most important factor in determining whether or not a fuel is viable, or in the case of transportation critical, is it's energy density. Simply put, it is how much energy per unit mass or unit volume. See the Wikipedia article on Energy Density.

Conventional fuels such as coal or petroleum products have been used because they have a high energy density and can be transported efficiently. If fuel is grown, it is in extremely low density and must be changed into higher quality fuel. Some studies even show that ethanol is a net energy loser, meaning that it needs more energy to produce than energy in the end.

Growing crops for fuel has only been profitable because of the subsidies given to the corn industry and the subsidies for ethanol. Take those away and there is little economic viability. The government needs to stop given subsidies to fuel "sources" that are not viable and start focusing on conservation efforts and investing in infrastructure for lower energy intensity lifestyles.

There isn't one technology that is going to save us for the upcoming energy crisis and we should be skeptical of anyone promising us a miracle fuel. Let's focus on the principals of sustainability and consuming less to get us through peak oil.

Related Blogs:

• Energyville Part I: How will you Power it?
• Energyville Part II: The Discussion
  
• Shell CEO Virtually Admits to Peak Oil
  
• The Party's Over - Richard Heinberg: Book Review
• Fuel of War: Article Review

Recommended Books:

• The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
• Resource Wars - Michael Klare
  
• The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
  
• PowerDown - Richard Heinberg
  

Recommended Movies:

• The End of Suburbia
• The Power of Community: How Cuba Survived Peak Oil
• A Crude Awakening - The Oil Crash

Energyville Part II: The Discussion

Energyville Discussion
When I played the game on January 20th, there were 504 posts. Some of the posters were very knowledgeable and proposed certain solutions that will help with energy supply. For example one user talked about using waste heat for combined cycles and co-generation. Another talked about reducing the amount that we use instead of striving for eternal growth. In my opinion, this is what will happen, whether it is voluntarily or forced due to energy decreases resulting from peak oil. However, not all of the comments were intelligent and I would like to highlight a few.

Popular Science and God
The next quote is from one of the posts in the Will You Join Us Discussion Forum:

"There are so many innovative products cited in POPULAR SCIENCE every issue for the past two years...can't we tap into some of those now? It seems to me that God is providing many new resources to help us through such emergency times...they need to go into mass production while we are able to do so."

The first thing that concerns me is that he believes everything in Popular Science. My biggest problem with Popular Science is that they look at "emerging" technology that is often not commercially or even technically proven. It is definitely great material for a curious reader to think that these technologies are on the cusp of being realized, but in reality, most of these ideas are years down the road or won't ever be developed.

For example in this article, The Two Day Battery, from Popular Science, the author reports that scientists have discovered a way to make batteries last longer, going from 4 to 40 hours. Those who aren't skeptical probably think that it's just around the corner, but the author of the article makes the following concession his last sentence:

"Of course, this is still in the lab stage, and there are undoubtedly quite a few steps and hurdles between the campus and commercialization, but we're optimists."

I hate to be a Debbie Downer, but we do not have the time or the resources to be optimists. We can't hope for the next emerging technology to magically save us. We need to be REALISTS and understand the the current problems and the current (however incomplete they may be) solutions that exist and begin to implement them.

My second concern is relating to god. If we are relying on god to provide us with energy then I think we have a rocky road ahead. I think it is highly unrealistic to hope for divine intervention when the laws of thermodynamics and physics are at work.

What the !@#& are you thinking?
The user who commented above might have some issues with what the next person has to say about creating mechanical life to use it to provide energy. (Disclaimer:the quote below has NOT been modified in any manner from the original text)

"perhaps genetically modified biomechanical , half creature half mechanical,feeding it neutritous water could produce a sercetion to then power the mechanical part. Is this possible yet or do we not no about it yet?"

Spelling and grammar aside, there are significant problems with the ideas the person presents. Where would we get this "neutritous water"? Assuming there is an ample supply of "neutritious water", does the reader not understand that much of the caloric value of this water would be used in the biological process and less energy is available in the secretion than there was originally?

What I think, is that many people don't realize that energy just can't be extracted from anything. There are only certain sources of matter or energy in this world and universe that are useful and can be economically harnessed.

My Thoughts
I think that The Economist Group has focused on the wrong issue. They continue to work with the idea that we must continually provide more energy for mankind. However, thermodynamic laws and supply sets limits. I will admit that increased efficiencies and new technologies will provide some "free" energy that was previously not harvested due to inefficiencies.

But the overall picture is that we are already consuming more energy than is sustainable. As China and other developing countries continue to industrialize and copy the Western high-energy lifestyle, the pressure on energy supply and the environment will be even greater.

The reader who had a comment on Popular Science and God did have one nugget of wisdom: "...they need to go into mass production while we are able to do so." We must begin to acting today while we still have cheaper fossil fuels. Once peak oil hits, we will not have the extra energy to spend on infrastructure.

What Can You Do?
The Energyville game and discussion forums offer a great starting platform for learning more about energy. The game does a pretty good job of discussing the pros/cons of each energy and what technical or economical limitations may exist.

As always, education is the key. Educate yourself and your friends about the issues. We can't start making changes in this world until we know what needs to be changed.

Related Blogs:

• Energyville Part I: How will you Power it?
• Shell CEO Virtually Admits to Peak Oil
  
• The Party's Over - Richard Heinberg: Book Review
• Fuel of War: Article Review

Related Links:

• Life After The Crash
• The Rainwater Prophecy
• Energy Intelligence Blog
  
• Peak Oil Blog

Recommended Books:

• The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
• Resource Wars - Michael Klare
  
• The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
  
• PowerDown - Richard Heinberg
  

Recommended Movies:

• The End of Suburbia
• The Power of Community: How Cuba Survived Peak Oil
• A Crude Awakening - The Oil Crash

Shell Energy CEO Virtually Admits to Peak Oil

Two Paths: Which will we choose?
Shell CEO Jeroen van der Veer released an article which outlines the future of energy. He proposes that there are two paths that we can take. He titles one "Scramble" which is similar to how nations react to resource scarcity as described by Resource Wars by Michael Klare. This is the scenario in which nations will go to war over the resources remaining in the world. (See how the video game "Fuel of War" depicts the "Scramble" scenario in this blog).

The second path he calls "Blueprints" which is similar to Richard Heinberg's scenario "Powerdown: The path of self-limitation, cooperation, and sharing" as described in his book PowerDown. This scenario is one in which the nations will have to cooperate and set policies to use the resources to the benefit of the most people and avoid resource wars.

van Der Veer states the following opinion on which path that Shell, America, and the world should take:

"Shell traditionally uses its scenarios to prepare for the future without expressing a preference for one over another. But, faced with the need to manage climate risk for our investors and our descendants, we believe the Blueprints outcomes provide the best balance between economy, energy, and environment."

I believe that pretty much everyone would agree that going to war over resources is not a path that we should embark (or continue) on, and that we should look towards a future filled with cooperation and sustainability.

Peak Oil
The most powerful part of van der Veer's article was the following paragraph which is practically an admission to the existence and tremendous importance of peak oil.

"Regardless of which route we choose, the world’s current predicament limits our room to maneuver. We are experiencing a step-change in the growth rate of energy demand due to rising population and economic development. After 2015, easily accessible supplies of oil and gas probably will no longer keep up with demand." (Emphasis added)

These are extremely strong words for a CEO of a company that depends on selling these "easily accessible supplies of oil and gas". It would be similar to Starbucks saying "After 2015, cheap supplies of coffee probably will no longer keep up with demand". Simply stated, this is something that would not be said unless the company was truly concerned about the issue.

This marks the first time that anyone from a major energy company has openly admitted that peak oil will happen before 2020. Although there has been a strong, yet mostly underground movement for peak oil, the energy industry has been reluctant to admit that peak oil would even be a problem... until now.

My Thoughts
I am truly amazed that someone has finally stepped up to the plate and recognized the need for a drastic change. Jeroen van der Veer admits to "peak oil" without explicitly saying those words and recognizes the need for drastic change to ensure that we do not go down the path of Scramble, plunging ourselves into a never-ending resource war until there is only the "Last Man is Standing".

I must congratulate him for making such a bold statement to the public in light of what shareholders may think. However, as he stated, climate risk must be managed by balancing economy, energy, and environment. It is in the shareholder's and our descendant's best interest that we look at energy and greenhouse gas emissions and work to find a sustainable solution.

I can only hope that politicians and other leaders of corporations will follow Jeroen van der Veer's footsteps and confront reality. We cannot address the problem if we are not aware of . Once we have admitted that we have a problem, we can begin to work on fixing it.

Related Blogs:

• The Party's Over - Richard Heinberg: Book Review
• Fuel of War: Article Review

Related Links:

• Life After The Crash
• The Rainwater Prophecy
• Energy Intelligence Blog
  
• Peak Oil Blog

Recommended Books:

• The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
• Resource Wars - Michael Klare
  
• The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
  Review
• PowerDown - Richard Heinberg
  

Recommended Movies:

• The End of Suburbia
• The Power of Community: How Cuba Survived Peak Oil
• A Crude Awakening - The Oil Crash

Energyville: Part I - How will you power it?

Energyville Overview
Energyville is a game developed by The Economist Group for Chevron to look at providing energy to a city using various resources. A game that is based on something as intricate as the world energy supply will no doubt have some major assumptions. I've quoted parts of the disclaimer for the game below.

... Assumptions for the game, both present and future, are based on The Economist Intelligence Unit’s assessment of global facts and trends obtained from numerous credible sources... The game has limitations and many elements have been simplified to facilitate game play... Additionally, although you are able to determine how to power your city, the game does not take into account the time and investment needed to replace exiting energy infrastructure with your choices.

Even the best modelers in the world still have difficulties forecasting because there are so many different factors that will affect a global market. However, for the purpose of the game, these have been simplified and many assumptions have been made to make the game work.

This is your city. How will you power it?
The game lasts two rounds with the years between 2007-2015 and 2015-2030. Your city has various energy needs and you must supply enough energy using different sources. Each energy source has been evaluated on three impacts: economic, environment, and security. Simply put, the lower your impact of your city, the higher your score.

The economic and environment impacts are a given because they are typically discussed in the media. "How much will it cost compared to conventional fuel/energy" and "How much CO2 does it emit compared to conventional fuel/energy" are the typical questions that need to be addressed.

Also, I understand the importance of security related to being able to protect the infrastructure and having a reliable source. This is extremely important for the United States because much of our energy (oil/petroleum in particular) is imported and there is a risk associated with not being able to supply your own energy.

However there is one factor which is often forgotten, the "social" impact. At the Earth Summit in Rio De Janeiro in 1992, leaders from around the world discuss sustainable development and determined that there were three factors that must be taken into account: economic, environment, and social. A diagram of how these three factors interact can be seen in the figure below.

Source: http://www.eoearth.org/image/Sustainable_development_triangle.gif

Unfortunately corporations are forced by their charter to focus on the economic. The only way that a corporation can focus on the others, is if they will make an impact on the bottom line. (See The Corporation for more information about what corporations are and how they work). Recently more attention has been focused on the environmental aspect and corporations are changing their practices to include some environmental impacts (again, only to increase the branding of their company and to improve their economic sustainability).

It is unfortunate that the social aspect has been left out, but nonetheless I have compiled all of the impact values for the game in the table below.


Petroleum is by far the worst (I wonder how much input Chevron had into this game) at a total of 22% and hydro power is better than all of the rest at 8% (if we can assume that all impacts can be weighted equally). I believe that most of the numbers are relatively accurate of the impact with the exception of the economic impact of nuclear. It is rated as the second cheapest option (tied with coal).

Although I don't have access to the data that they use to calculate the impacts, I assuming that the data is only looking at the operational costs of nuclear power and doesn't take into account the huge subsidies that the government has to provide to dispose the radioactive waste. If the true cost of nuclear power was known, I don't think it would rate as well as coal in terms of economic impact.

Powering Your City
In both rounds the user has to power up their city by selecting a portfolio of energy sources. To mix things up, two random events occur between each of the game rounds which will affect your city based on what energy sources you have chosen. For example, international conflicts will cause the economic and security impacts of petroleum/oil plants to increase, thus decreasing your score.

There are limitations to your energy sources and you cannot just build unlimited hydro plants. Also, one point that I thought the game represented very well was the types of energy that were needed. For most of the city, electricity is generated centrally and sent through the grid. However, there are sectors such as transportation that are reliant on petroleum/oil. If you build only energy sources that can only be used for stationary electricity generation you will get the following message:

Warning! Hungville requires petroleum. Though alternative fuels can reduce the need for petroleum, airplanes and significant portions of ground vehicles will continue to rely on petroleum for fuel.

I am glad that they did not gloss over this fact because oil accounts for approximately 96% of the energy needed for transportation with biofuels and natural gas providing most of the remaining 4% with approximately 2% each (Data from the Department of Energy: Annual Energy Review 2006).

How Did I Do?
Playing it 5-6 times I got consistently in the top 5-15% scores. Best score was 688,061,046 which was in the top 3.5%. It is merely about making the least amount of impact and you can do this by looking at the numbers that are given. I think a lot of the players didn't look at the impact of each energy source (about 6% of the energy chosen was hydrogen and oil shales, which based on the data the game gave you, is a terrible choice).

I suspect that the top scores are from people who heavily favor the technologies that present the lowest % gain, and they play it enough such that their technologies aren't affected negatively in the random events.

Rating the game
Overall the game play is pretty bland. All you need to do is pick hydro, wind, and some petroleum in the first round. The second round you pick some more wind/hydro/solar because it has become more efficient. Rinse and repeat and you'll be in the top 10% of the scores out there.

That said, the game offers a wealth of information about each of the different energy sources. Even if the information may be incomplete or is biased towards particular energy sources, the game at least brings the awareness of energy issues and serves as a starting platform for people to learn more.

However, it's not all just fun and games and at the end of the game it is possible for the player to then click on a link to go to the discussion forum. In my second blog about Energyville, I address some of the discussion which is occurring in the forum and offer some of my own thoughts and opinions about energy.

Related Blogs:

• Energyville Part I: How will you Power it?
• Shell CEO Virtually Admits to Peak Oil
  
• The Party's Over - Richard Heinberg: Book Review
• Fuel of War: Article Review

Related Links:

• Life After The Crash
• The Rainwater Prophecy
• Energy Intelligence Blog
  
• Peak Oil Blog

Recommended Books:

• The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
• Resource Wars - Michael Klare
  
• The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
  
• PowerDown - Richard Heinberg
  

Recommended Movies:

• The End of Suburbia
• The Power of Community: How Cuba Survived Peak Oil
• A Crude Awakening - The Oil Crash

Fuel of War: Game or Virtual Reality?

Fuel of War: Overview
Money on CNN recently posted a new article about Frontlines: Fuel of War, a video game by Kaos Studios. The premise of the game is described by Steve Hargreaves in the quote below:

"Over the last two decades prior to 2030 oil production has peaked and is declining rapidly, renewables never panned out, plagues hit, and starvation ensued."

Hargreaves practically dismisses the issue of peak oil and doesn't get into any of the arguments at all. All he writes is the following:

"Most oil industry analysts say peak oil production is many decades, if not hundreds of years away, and a transition to other sources will likely be more orderly than the scenario depicted in Frontline.

But a small and growing number of experts -- some well-respected -- say peak oil production is close or has happened and the transition will be much more painful than mainstream analysts predict."

It's unfortunate that he doesn't explain or give evidence for either side. But in the end, it appears that this game is getting media coverage and if people buy this game they might get interested in the topic and have an awareness to the issue. Craig Anderson, a profession of psychology was concerned for the players and stated the following:

"It may well change attitudes towards the use of these tactics as a political tool," he said. Players may think "of course we have to use military tactics to go take oil"

It seems that he is unaware about many of the current conflicts in the world centered around resources including, but not limited to, minerals, timber, water, and perhaps most importantly oil (Read Resource Wars by Michael Klare for more information on resource wars or see and excerpt of his book)

Fortunately, the game's general manager is more open to the idea that resource wars are already occurring:

DeLise dismisses such concerns, saying nations go to war all the time over resources, and that the game is merely a reflection of reality.

"When it comes down to it, it's about what countries will do to survive,' he said. 'That's not going to change.'"

My Thoughts

Resource Wars
Resource wars are a reality and are occurring throughout the world today. Many times, resource wars are masked as "religious" because those are for some reason deemed as inevitable and it is acceptable to have wars over religion because they have "always happened".

However, if the wars were truly labeled for what they were, most people probably wouldn't tolerate the wars. For example, most people are unaware of the significance of the Golan Heights and West Bank in terms of water resources. During the Six-Day War, Israel seized both of these territories.

What is their significance you may ask? The West Bank contains many valuable aquifers and the Golan Heights is where the Baniyas River is located. The Baniyas is the direct tributary to Lake Tiberias which later flows into the Jordan River and is a source of water for Israel. Jordan had planned to diver water from the Baniya river, and thus, by seizing the Golan Heights, Israel secured its water supply from Jordan.

If you're interested more on this topic, I would highly recommend reading Resource Wars by Michael Klare. He focuses primarily on resource wars related to water and oil, but has one chapter dedicated to timber and minerals. Also, Water Wars by Vandana Shiva offers more specific information about resource wars over water.

Peak Oil
Peak Oil will soon become a reality for the world (whether it has occurred already or not). Peak Oil has already occurred within many countries around the world in the United States. The only reason why the United States was able to recover from this crisis was because the world oil market had not yet peaked.

But the imminent question is what will happen when oil peaks globally? Many scientists and authors believe that it will be catastrophic and result in wars and violence as described in Fuel of War. Considering that resource wars are already occurring, it is not a far fetched idea that this could happen.

Either way, peak oil will affect every person on this planet. We will not be able to maintain the high energy lifestyle that we currently take for granted. Let's hope for humanity that the world will be able to manage the decrease in oil supply and manage the available resources without having to result to wars.

Recommended Websites:

• Life After The Crash
• The Rainwater Prophecy
• Energy Intelligence Blog
  
• Peak Oil Blog
  

Recommended Books:

• Resource Wars: The New Landscape of Global Conflict - Michael Klare
• The Oil Factor: Protect Yourself and Profit from the Coming Energy Crisis - Stephen Leeb
• Water Wars: Privatization, Pollution, and Profit - Vandana Shiva

Recommended Movies:

• The End of Suburbia
• The Power of Community: How Cuba Survived the Peak Crisis
• A Crude Awakening

Am I ready for Peak Oil?... Absolutely not

Today just after I had just finished grocery shopping, the power went out completely in the parking lot and the surrounding area. My roommate and I drove past our apartment complex and no lights were on except the emergency stairwell lights.

We wanted a warm meal so we decided to drive a few miles to get some food at a restaurant. After waiting about an hour, we drove back and found that the power was still out. We had some perishable foods, so we decided to go into the apartment and store those away.

There were a few emergency lights for the building and luckily one of the elevators was functioning (I live on the 11^th story of my building). I met a woman in the elevator who told us that we also didn’t have any water.

This really surprised me, because when the power went out when I lived with my parents, we would always have heat with the gas furnace and running water. I thought to myself and wondered why we didn’t have running water because a power outage shouldn’t really affect the water pipes. But then I realized that because our building was so tall, it probably needs pumps powered with electricity to get the water pressurized enough to flow to the higher floors.

I thought that the water supply would be independent of oil/energy but I was proven wrong. Even people who live in houses who don’t need a pump to pressurize the water are reliant on water utilities to create enough pressure to deliver it to their houses.

What have I learned from all of this? I am not in any way prepared for peak oil. I’m not even prepared for a mild disaster with a 3 days supply of food/water. I don’t have any backup batteries and only had a flashlight because my dad left it here when he helped me moved down. I don't have any source of heat without electricity or any emergency

So what are my next steps?

• Get a small supply of non-perishable food and a few large jugs of water.
• Get spare batteries and flashlights
• Get a solar/hand-powered radio
  

You would think that volunteering for the American Red Cross for over 4 years would be enough time to actually get a disaster kit, but apparently not!

Although these won’t prepare me for the “Long Emergency”, at least they will be small steps in the right direction.

Related Links:

• The Party's Over - Richard Heinberg: Book Review
  
• American Red Cross Store
  

Recommended Books:

• The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
• The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
  Review
  

Recommended Movies:

• The End of Suburbia

Recommended Movies

Below are the recommended movies for each major category. I have personally seen every one and whole-heartedly recommend them. The list is sorted in order of importance (in my opinion).

Some of the more popular movies have become mainstream and can be found at Blockbuster or Netflix. Unfortunately, most of these movies don't have major labels and you might need to buy it from the producers directly. I've linked the movies to Amazon (if available) or to the producer's website.

If possible, hold screenings of the movies for your friends (Please check with the producer to see if this is allowed/legal). I personally think that movies are a great way to introduce friends into the topic because it only requires a 1-2 hour investment.

Corporation

• The Corporation
• Enron: The Smartest Guys in the Room
• Walmart - The High Cost of Low Price

Credit/Debt

• Maxed Out
• America: Freedom to Fascism
  

Environmentalism

• An Inconvenient Truth
  
• The Future of Food
• Who Killed the Electric Car?

Media

• Independent Intervention
• Outfoxed - Rupert Murdoch's War on Journalism
• WMD: Weapons of Mass Deception

Peak Oil

• The End of Suburbia
• The Power of Community: How Cuba Survived Peak Oil
• A Crude Awakening - The Oil Crash

Recommended Books

Below are the recommended books for each major category. I have personally read every one and whole-heartedly recommend them. The list is sorted in order of importance (in my opinion).

Lastly, to decrease the environmental impact and to save money, please try to find "alternative" methods to get your resources. Check the book out from your local library if possible. If you have to buy it, try getting it from a local used book store. If you do end up purchasing a book, be a resource to your friends and lend it to them to spread the awareness.

Corporation

• No Logo: No Space, No Choice, No Jobs - Naomi Klein
  

Credit/Debt

• Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence - Joe Dominguez, Vicki Robbins
• Affluenza: The All-Consuming Epidemic (Bk Currents) - John de Graff
  
• The Bogleheads' Guide to Investing Taylor Larimore
• A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition - Burton Malkiel
  

Environmentalism

• Collapse: How Societies Choose to Fail or Succeed - Jared Diamond
  
• Cradle to Cradle: Remaking the Way We Make Things - William McDonough
• The Ethics of What We Eat: Why Our Food Choices Matter - Peter Singer
  
• Entropy: A New World View - Jeremy Rifkin
  
• The Ecology of Commerce - Paul Hawken
  
• Ishmael: An Adventure of the Mind and Spirit - Daniel Quinn
  

Media

• STATIC: GOVERNMENT LIARS, MEDIA CHEERLEADERS, AND THE PEOPLE WHO FIGHT BACK - Amy Goodman

Peak Oil

• The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
  Review
• The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
• Resource Wars: The New Landscape of Global Conflict With a New Introduction by the Author - Michael Klare
  
• Energy at the Crossroads: Global Perspectives and Uncertainties - Vaclav Smil