Economic Times, Crude Oil, and Climate Change

We live in strange times.  As I casually follow the latest economic news I cannot help but think about the 1970s.  When OAPEC imposed the Arab oil embargo upon the United States and Western Europe to punish us for helping Israel during the 1973 Yom Kippur War a series of near-catastrophic economic events ensued.  The US economy was weakened by the incredible rise in the price of oil, which shocked the economy into a period of high inflation and recession.  It took 7-9 years for the US economy to shake off that economic assault.  We have never experienced anything like it since then.

But we are now in the midst of a new economic attack from Saudi Arabia.  Ironically it was Saudi Arabia’s willingness to punish the US that led to the global rise in oil prices.   As a result of that rise in oil American production was increased.  US oil production struggles to maintain a stable level, though, because we have to drill into more difficult territory than the Saudis do.  Their oil is located under their vast deserts.  Our oil is largely stored under the sea floor or in ancient shale rock formations.

Just when you thought the price of oil could not go any higher Saudi Arabia decided it was time to pull the rug out from under the US oil production industry.  They began cranking up production to flood the market with surplus oil.  With so much oil floating around on tanker ships at sea the speculators who normally keep prices high could not dump their contracts.  The price of oil came tumbling down.  And as oil prices came down the profits of fringe American oil exploration companies crashed.

It is Saudi Arabia’s intention to cripple our self-sufficiency in energy today just as it was their intention to cripple our economy 40 years ago.  But though Saudi Arabia can maintain its current production for about another 70 years I don’t think their gamble is going to pay off as well for them this time around.  Although the US began playing with alternative energy sources in the 1970s we did not have the technology then to wean ourselves off our addiction to petroleum.  The only viable alternatives were coal and natural gas, and those industries benefited mightily from the Arab oil embargo but they had to face a growing volume of scientific reports showing that they were slowly poisoning the environment.

Crude Oil Prices

Natural gas is “clean” energy, except that burning natural gas still contributes to global warming.  We ran from one ecological problem straight into another.  We have now produced or released so much carbon into the atmosphere thanks to deforestation, burning fossil fuels, and breeding a lot of cattle for meat and dairy products that we have effectively delayed the next glacial period by as much as 50,000 years.

I’m going to be honest with you: I don’t want to find myself hunting mastodons at the foot of new-grown glaciers, so my heart is not breaking for an unprecedented 50,000 year delay in new glaciation.  But neither do I want my family’s land in Florida to become the next glass bottom boat navigational channel.  I was kind of hoping we could keep things more-or-less as they were (climactically) about 20-30 years ago.  But that was just a fanciful dream.

Scientists are on the verge of formally declaring the Anthropocene Age.  The final formal confirmation is still a few years away so you don’t have to replace your classic geology books and tables just yet, but the science has shown that global warming is real.  I still know a few people who will kind of close their eyes, wave their hands, and say in their best Republican/Libertarian voices, “I can’t HEAR YOU!” Whatever.  It’s crazy weather we’re having now, right?

And that brings me back to the economics of the times.  Our economic times are “interesting” if you gauge things by the old Chinese curse (“may you live in interesting times”).  We just came out of the Great Recession, we’re still fighting two wars in Afghanistan and Iraq, and a whole lot of people are wondering if the End Times are not upon us.  I don’t know about the End Times but I’m enjoying the low gas prices.

Just a few years ago I was living in California and paying almost $5 a gallon in some places.  Fortunately at the time I lived about a quarter mile from my office and I was walking to work, walking home for lunch, etc.  We saved a lot of gas in those days because my “commute” was an idyllic stroll.  I only improved on that work situation by working from home.  Every time a recruiter reaches out to me I struggle to say I am interested in working in another corporate office.  They have yet to get serious enough with me to draw me back into that lifestyle.

And I am not digressing.  Our economy is changing in large part because oil prices did become so high historically.  When it costs $25-50 a week to drive to and from work people look for ways to save on gas.   And one thing a lot of us did over the past ten years was start working from home.  The Internet made that possible and the Great Recession made it necessary.  But now Saudi Arabia wants to shake things up again, only it struck too late.  That is because our alternate energy technologies are starting to pay off.

We have economically viable electric cars and we can recharge their longer-lasting batteries from a power grid that is drawing more energy from wind, solar, and hydroelectric power today than ever before.   Building dams is a limited option but now we have serious scientific and engineering proposals on the table for harnessing the energy contained in ocean waves.  By transferring just a fraction of that kinetic energy to the land we can drive a lot of power to a lot of machines that don’t yet exist.

Alternate energy sources may not be ready to replace oil-based energy sources but we’re in a better position to do without Saudi Arabia’s crude oil than we were 40 years ago.  And at the time we were fighting only one major war in Southeast Asia.

Hydrogen fuel cells are already creeping into the automobile marketplace even though Elon Musk keeps trashing the efficiency of converting hydrogen to electricity (versus the efficiency of converting coal and natural gas to electricity).  But all of those objections are about to be swept away.  Newly published research promises to reduce the cost of catalytic materials from $1500 per (platinum) gram to about 37 cents per (molybdenum disulfide) gram.  Better yet, the “molly” is pretty efficient at converting hydrogen to electricity.  This should make it cheap as dirt (which is basically what molybdenum disulfide is).

And Sandia National Laboratories has engineered a system to help bring hydrogen refueling stations online in a week instead of over three months.  Poor Saudi Arabia has to dig its oil out of the desert, ship it across the ocean to a refinery, where it is distilled into many different chemicals, and finally shipped to gas stations where you and I pay good money for the gas, if the pumps are in service.

It’s no wonder that oil prices keep tumbling.  Saudi Arabia is trying to flood a shrinking market.  Maybe 70 years is too short a time frame for their oil reserves.  Maybe the Saudis will still have oil well into the 22nd century.  That would be a great thing for all of us, especially if we’re still using other petroleum products besides gasoline by then.  And we do make plastic from petroleum.  Of course, we may soon be able to harvest plastic from the oceans (as we clean up the trash that is floating around the seas).

Meanwhile, we work-at-home types are wondering what comes next.  Google and other companies are betting that virtual reality will become an economic reality soon.  Now here is the thing with virtual reality systems: they suck in their current designs.  But suppose you could install a small virtual platform in your home and use that to construct an office, a gym, or several other useful locations?  Wouldn’t that change life for all of us?

With a human-sized VR room you could go to the store and shop for groceries without leaving home.  Just pick stuff off the shelf and put it in your shopping cart and then pay with your electronic account and the grocer will ship your food to you.  Home delivered groceries are already available in many cities.  That industry may grow as grocers and retailers become more adept at designing consumer-friendly online retail systems.

Your VR room will serve as your game room, office, gymnasium, grocery store, home goods store, library, cinema, and many more things.  We’ll still need other rooms in our homes for sleeping, cooking, dining, bathing, etc.  And these rooms don’t have to be Star Trek-style holodecks.  We just need to have enough sensors to map our personal movements, sort of like Microsoft’s Kinect system does now.  Hopefully the VR goggles will become less goofy looking and more comfortable.

We might even be able to integrate human VR workers with semi-robotic factories to perform complex tasks that cannot yet be programmed into the machines.  Remote-controlled drone factories and workshops are on the way because industrialists want to remove human workers from the most dangerous jobs anyway.

Imagine Saudi Arabia selling oil in a world filled with hydrogen/electric vehicles and home-based labor forces.  Where will the demand for oil be then?  Maybe if we can turn this daydream into reality in the next 20 years we’ll be able to reduce the global carbon footprint after all.

And, frankly, I think we can take carbon out of the atmosphere.  We should be planting whole forests of trees in the deserts across the globe.  We have the ability to desalinate water in myriad ways, even to dig huge canals to funnel water into the deserts where it can evaporate and power local rain storms.  That should help.  We just have to believe in our technologies enough to want to do these things.  And we also need to figure out how to create wealth (jobs and corporate profits) from reversing global warming.  We proved that warming up the planet was not too great a task for us.  Maybe we can cool it down and keep temperatures steady for the next 2-3 million years.

That just might give us time to get off this planet and out into the universe.  Assuming the End Times don’t happen before then.