Editor’s note: In 1976, Alfred E. Guntermann, PE, presented a paper titled “The Mystery of Future Energy Prices,” which one industry executive described as “nothing less than monumental.” Thirty years later, in the September 2006 HPAC Engineering article “The State of Energy: Then, Now, and in the Future,” Guntermann examined progress that had been made and work that lied ahead. “Much has happened since 2006,” he recently said, “reflected by large energy-price swings, which have caused an enormous amount of consumer interest—even anger—and resulted in vast media coverage. While there is agreement on some issues, there is confusion on a lot of others.” In an effort to clear up some of that confusion, Guntermann offers the following, a condensed version of an article available at http://hpac.com/fastrack/Energy-feature-final.pdf:

In 2008, the International Energy Agency (IEA) analyzed 800 of the world’s oil fields—accounting for two-thirds of the world’s supply—finding that the 16 largest fields have peaked, and some are far below their peak output.1 Output is declining at a 6.7-percent rate, which is expected to increase to 8.6 percent by 2030. While the IEA projects world demand to increase by 1.3 percent per year, even if it were to remain flat, 45 million barrels per day of gross capacity would need to be built by 2030 to offset the effect of oil-field decline. With world oil production at 85,802,000 barrels per day in 2007, new fields must be found to replace 52 percent of current production just to maintain current levels of consumption. Future oil fields, including those off shore, are smaller, will not last as long, and will be more expensive to tap. And if the world’s energy supply has peaked, as many believe, the projected 1.3-percent annual increase in world demand for developing countries cannot be met without reduced U.S. demand. According to the IEA, the recent economic downturn is reducing capital spending on new energy projects. Further, the IEA says, “When demand starts to pick up, say, in 2010, ... we may see a supply crunch that is much stronger than what we saw last year and prices that are much higher.”

Energy is reaching a crisis point on five fronts: (1) the U.S. trade deficit, (2) world supplies, (3) global warming, (4) stagflation, or simultaneous inflation and recession, and (5) world peace and security. Government action is required, but what action?

The Obama administration has proposed a national energy policy with a number of good ideas, but also some major problems. The first problem is the U.S. trade deficit is a disaster in the making and requires short-term solutions. Nothing in the energy policy solves that. The second problem is the new economic-stimulus bill mandates that 10 percent of the country’s electricity come from renewable sources by 2012 and that 25 percent of it come from them by 2025. The energy policy is based on technology that costs a lot for little benefit, is likely to fail, and will lead to higher energy costs and possible energy shortages.

We cannot afford a trial-and-error approach because the consequences of wasted time are too great. Despite three energy crises since 1973, higher energy costs, and several calls for project independence, we are no closer to meeting the world’s massive energy requirements than we were 35 years ago.

This article discusses the U.S. trade deficit and how a massive energy-conservation program could help reduce it. Then, it discusses problems with proposed energy solutions, such as solar, wind, nuclear, conventional and unconventional oil, conventional and unconventional natural gas, biofuels, and hydrogen.

U.S. TRADE DEFICIT
In 2006, oil imports accounted for $252 billion of the United States’ $800 billion trade deficit. According to a recent Congressional Research Service report, at a cost of $140 a barrel and import quantities at 2007 levels, the oil-trade deficit would increase to $613 billion.

The federal trade deficit is the most pressing issue facing the United States. If oil imports continue to increase in quantity and cost per barrel, the transfer of U.S. wealth to oil-producing countries over the next 10 years could be $10 trillion, nearly 25 percent of total U.S. wealth. As oil tycoon T. Boone Pickens said, this would be “the greatest transfer of wealth in the history of mankind.”2

Continued large U.S. deficits will necessitate the sale of enormous quantities of U.S. treasuries to foreign countries. Failure to sell debt can lead to a downgrading of national credit ratings, resulting in higher treasury and related interest rates. Some South American countries have gone through this; it led to hyperinflation, followed by a painful recession. Continued large U.S. deficits also can cause steep declines in the U.S. dollar, which can cause high U.S. oil prices, as international oil is priced in U.S. dollars, and allow foreign countries to buy American companies and property cheaply.

The oil-trade deficit and cost of oil imports takes all mid- and long-term energy solutions off of the table. The United States needs solutions that will reduce energy-import quantities and energy costs now.

ENERGY CONSERVATION
Conservation is the only energy solution that can reduce the U.S. trade deficit in the short term. Meanwhile, it can buy time for the research and development of optimal mid- and long-term energy solutions, reduce the size and capital costs of mid- and long-term energy solutions once they are implemented, and reduce carbon-dioxide (CO2) emissions and global warming.