October 27, 2011

A Rejoinder: Unconventional Fossil Fuels Are Not a Panacea for Geopolitical and Energy Challenges

There was a large spread in The New York Times yesterday on the coming age of unconventional
oil and natural gas – that is, oil and natural gas from deepwater reserves, oil
sands, shale rock formations and the Arctic. The article is worth reading at
length to understand how technology is changing the landscape of available
energy resources and what it could mean for heavy energy consuming states,
especially in the near term.

United States may now have the means to reduce its half century of dependence
on the Middle East. China and India may have the means to fuel the development
of their growing middle classes. Japan and much of Europe may have the chance
to reduce dependence on nuclear power
,” The
New York Times
reported. “And,
at least theoretically, poor African countries might be able to lift themselves
out of poverty.

There are important caveats to the above claims, of course.
First, one must remember that relieving U.S. dependence on Middle East oil is
in large part symbolic more than anything else. Oil is part of a global market
where prices are set, and disruptions to the global oil market will affect the
price of oil for everyone, everywhere, including oil produced from reserves in
North America. Thus, price volatility will continue to be a concern as long as
we are largely dependent on fossil fuels. And while The New York Times reports
that “new
fuels should moderate future price increases
,” one must remember several
trends too, including that as the global economy recovers and industrial
production rebounds in developed and developing states, consumption will
quickly increase and prices could also rise sharply if demand outpaces
production. Finally, one must remember that continuing to develop fossil fuel
resources will, as The New York Times
cautions, “probably [make] solutions to climate
change, and the development of renewable energy, even more difficult
.” These
are important externalities to keep in mind.

While I tend to disagree that we should be placing our bets
on unconventional fossil fuels as opposed to making smart investments in
renewable and greener energy technologies like algae-based biofuel that would
help diversify our energy portfolio, many do think that unconventional
hydrocarbons will satisfy global energy demand for decades to come. “The
fossil fuel age will be extended for decades
,” Ivan Sandrea, president of
the Energy Intelligence Group told The
New York Times
. “Unconventional
oil and gas are at the beginning of a technological cycle that can last 60
years. They are really in their infancy

Emerging technologies will make unconventional fossil fuels
easier and more economically viable to produce; yet these technologies are not
the panacea we need to reduce tensions associated with the global dependence on
fossil fuels. As I wrote yesterday, China’s
interests and assertiveness in the South China Sea is in part a result of an
energy strategy that views fossil fuels as the most dominant source of energy
to feed the Chinese economy
. It is the outsized dependence on fossil fuels
globally that will continue to shape geopolitical relations when it comes to
energy. Indeed, The New York Times reported

While more energy sources could be
a stabilizing factor, competition over the new fields could produce tensions.
Already, in the South China Sea, China has warned India’s state oil company not
to drill in waters it claims. Turkey recently warned Cyprus against drilling
for natural gas without reaching an agreement with Turkish Cypriots over
royalties. The
political twists and turns are bound to be many

Technology will play an important role in the future of
energy, that much is clear. Yet again I would argue that the dominant focus
should not be on technology that makes unconventional fossil fuels easier to
extract. It is technology that makes algae-based and other alternative liquid
fuels commercially available that I predict will be the real game changer for
the global energy market and have the knock-on effects that we are looking for.

Oil and other fossil fuels are sure to be a part of the U.S.
energy portfolio in the future, and part of the global energy picture. After
all, it’s diversification and not reliance on one source of energy that should
be the goal of states everywhere, including any U.S. energy security strategy.
But biofuels and other technologies could offset our reliance on conventional
and unconventional fossil fuels if the investments in and demand for them continue to grow. That’s
the technology we should be focused on if we want real change in the energy
market that will undergird a stronger economy and more stable geopolitical