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Over the past decade, world oil prices have advanced from approximately $25 per barrel to more than $100 per barrel. Had the price of oil merely kept pace with inflation, the $25 barrel in 2000 would have been worth just over $30 in 2010. Thus, there was a fundamental shift in the oil markets.
By 2005, the idea that the price increase was being caused by oil depletion – commonly referred to as “peak oil” – was receiving widespread attention. While some dismissed the idea of peak oil, instead offering up speculation, OPEC, growth in developing countries, or other geopolitical factors as the primary factors behind the advance in prices – oil production remained flat despite record high oil prices.
Historically, spiking oil prices have contributed to recessions. While the recession that began in 2008 is largely attributed to the collapse of the housing bubble, consumers were also struggling with record energy prices. In the past, high energy prices have brought on economic slowdowns, which then reduce demand for oil as industrial demand declines and fewer people are driving to work.
Ultimately, the combination of lower demand and increasing oil supplies has caused oil prices to decline, which then spurs economic activity and allows the economy to recover. But this time, in the midst of a sluggish economy, oil prices have maintained strength. As with previous recessions, oil demand has fallen in the U.S. Over the past five years, oil demand has declined by 1.5 million barrels per day in the U.S. But globally, demand in developing countries has grown (up 2.2 million barrels per day in China and India alone in the past five years), yet supply has not kept pace.
The inability of the global oil industry to ramp up production in the face of $100 oil is a signal that the days of excess oil production capacity may be at an end. Historically new production has been brought online at a rate faster than existing fields have been depleted, resulting in 150 years of growing oil capacity. In fact, even though U.S. oil production peaked in 1970 and began to decline, the economy was able to continue to expand because global oil supplies continued to grow.
But the days of expanding global oil supplies are coming to an end, and that has serious implications for the world as a whole. Countries that are highly dependent upon oil are the most susceptible to economic catastrophe as they grapple with high oil prices.
Within the U.S., no state is more dependent upon oil for their energy needs than Hawaii. Hawaii depends on oil for around 90 percent of its energy needs – a far greater percentage than any other state. It is divided roughly equally among ground transportation, jet fuel, and electricity generation. Advanced biofuels are being contemplated to replace some of the oil used for electricity. However, there are many ways to produce electricity, but few scalable substitutes for jet fuel. To the extent that we can produce biofuels sustainably, they should be allocated to jet fuel or ground transportation, not electricity.
We should work toward geothermal to provide the 80 percent of electricity referred to as “base power”. This is the day and night power that is stable and predictable and prevents your lights from flickering. The other 20 percent referred to as “intermittent power” can be provided by wind and solar. And, certainly we need to maintain our research into all the possibilities and constantly reach for resilience. Iceland, utilizing geothermal and hydropower to produce low cost electricity, has made itself energy and food secure. And, geothermal is used in many other parts of the world. It is low cost, proven technology, and emits no CO2. Today in Hawaii geothermal-produced electricity costs half of what electricity produced from oil at $100 per barrel costs. Oil prices are likely to keep rising over the long term, while geothermal prices will be much more stable. It is estimated that the Big Island will be over the “hot spot” for 500,000 to one million years.
Because of our heavy dependence on oil, it has been said that Hawaii is the canary in the coal mine for the rest of the U.S. But in warning others of impending danger, the canary dies. We do not want to serve as a warning to others; we want Hawaii to be the beacon for the world to see how we have achieved a better future.
As we displace oil with geothermal electricity, our stable electricity price will make us more competitive with the rest of the world. Two thirds of our economy is based on consumer spending. Low cost electricity gives consumers more discretionary income. This will benefit those who are struggling financially, it will benefit small businesses, and it will give our kids a reason to stay at home. We should strive for a triple bottom line solution to our energy problem. We need to benefit the community, the environment, as well as the investment. This approach will help us maintain and perpetuate our Aloha way of life.
About the authors:
Richard Ha owns Hamakua Springs Country Farms, a 600-acre, fee-simple, diversified Big Island farm. He is also chairman of the board of Ku‘oko‘a, which aims to purchase Hawai‘i’s public utility and convert it to geothermal energy. He posts frequently about farming, self-sufficiency in terms of renewable energy, the Islands’ food security and more on his blog.
Robert Rapier‘s career has been devoted to energy issues. (See his resume for specifics). He has worked on cellulosic ethanol, butanol production, oil refining, natural gas production, and gas-to-liquids (GTL). He grew up in Oklahoma, and received his Master’s in Chemical Engineering from Texas A&M University.
He is presently the Chief Technology Officer for Merica International, a renewable energy company (more details on that can be found at this interview with earth2tech). The company is involved in a wide variety of projects, with a core focus on the localized use of biomass to energy for the benefit of local populations.
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