Dear Shale Protestor,

Our world runs on hydrocarbons.  Even 40-years after the painful Arab oil embargoes in the 1970s, the world is hugely dependent on hydrocarbons.  According to the IEA, 90% of the world’s fuel comes from coal, oil, natural gas, wood, waste and various biofuels.  All of them are hydrocarbons.  How did this happen?

Some people think that alternatives have been under researched and underfunded which explains why the world is still stuck on hydrocarbons.  Hmmmm.  If alternatives really have that much potential wouldn’t you think that they would be farther along by now?  Afterall, the first solar cell was developed by 1902.  The first wind mill dates to before recorded history.

Let's face it. We have yet to overcome stumbling blocks that prevent widespread adoption of these technologies.  Most people don’t live where the sun always shines (the desert) or where the wind always blows (high plains).  Electricity is prohibitively expensive when it must be transported and stored to be consumed where people actually live.  The other big bugaboo, which isn’t talked about much, is the massive footprint of these technologies.  Acres upon acres of solar and wind farms are more disruptive to the environment than a handful of directionally drilled natural gas wells.  In Germany, they stopped subsidizing solar farms on agricultural land.  America will figure this out, too.

Some people think that the ability to externalize pollution costs (i.e., not pay for them) keeps people burning hydrocarbons without thinking about the dangers of global warming.  I’m not so sure I buy this either.  I don’t pretend to be a climate scientist, but I do remember the Time Magazine I saw when I was a kid.  It warned of the approaching Ice Age (“Another Ice Age?” June 24, 1974). Presumably scientists have learned a lot since then, but it used to be that they were more concerned about global cooling than global warming.  Some still are. The current period of warming, even if it is being caused by too many people burning hydrocarbons, could well be the harbinger of another period of cooling.

Conspiracy theorists think that the sheer size of most hydrocarbon extraction enterprises make them suspect.  Deep pocketed industry greases politicians and regulators with money in an effort to co-opt them.  Well, maybe.  I find the conspiracy theory a little like the theory about banks.  Big banks are bad banks because they are big banks.  It ignores the benefits from economies of scale, employment and tax revenue.  Being cynical about the ability of democratically elected government to determine the public good is seen as sophistication in some circles, but it also insults the intelligence of the voter. 

The fact is hydrocarbons have dominated the world's energy supply since the cave man discovered fire. 

Why?  

They are a vastly superior fuel.  Just like sunshine and wind, they occur nearly everywhere. The world is not running out of them. It is only running out of the most obvious places to harvest. Infinitely flexible, natural gas, in particular, is LESS polluting, requires LESS water and land, and creates FEWER waste products than solar and wind.

In some ways, it’s quite simple. Drill a well and Mother Earth pushes hydrocarbon into it. The trick is estimating whether there be enough naturally occuring hydrocarbon to repay the cost of the well and return a profit.  Increasingly the answer is yes.

Till next time,

Energy Mom
New York City

Dear Shale Protestor,

Next week I will appear on a panel sponsored by the Cornell Institute for Public Affairs to discuss practical ways of moving forward with hydraulic fracturing.  I am the investor voice on the panel.

So what am I going to say?

I will say that politicians and celebrities are way ahead of themselves in enthusiasm for energy that does not come from burning hydrocarbons.  

Starting in the 1970s, during the painful inflation caused by the Arab oil embargoes, the world and its best scientists began trying to find substitutes for hydrocarbons.  Yet, so far, the only substitute with the ability to scale across geographies and demand patterns is nuclear power.  If you don’t believe me, look at the IEA’s chart of the World Total Primary Energy Supply.

Smart, technologically advanced countries, like France, Germany, the United States and Japan, built large fleets of nuclear power plants to diversify away from hydrocarbons.  Yet, after the Fukushima Daiichi disaster, people in Japan and Germany insisted that the government shut down most of the plants.

Germany is also installing large scale solar and wind farms, but a political backlash is brewing around them, too.  According to a recent article in ReCharge: The Global Source for Renewable Energy News, the renewable surcharge will spike nearly 50% next year. The average German consumer could see their power bill rise by as much as 11%.  A renewable surcharge of the German magnitude here in the United States would essentially double most consumers’ electricity bills.

If nuclear is too controversial, and wind and solar are too expensive, what is left?

Investors, like me, are putting their money on hydrocarbons.

http://www.cipa.cornell.edu/news/index.cfm?news_id=265