Among the most ironclad, stone-cold, lead-pipe-lock bets of history is that aggregate primary energy consumption is a curve that goes up and to the right. Longtime readers will be familiar with the physical foundations for why this is so : The human endeavor is a constant, unrelenting struggle against the forces of entropy ; one must harness primary energy to temporarily prevail in that struggle ; one’s standard of living is thus measured by how much primary energy is on offer for the task ; and all humans everywhere want a higher standard of living.
Wars, famines, political crises, and pandemics come and go. Degrowth nutters and carbon-counters ebb and flow in their political influence. Social shaming to make do with less—an impulse that invariably emanates from do-gooders already flush with abundance—occasionally bends localized policy for short periods of time. And yet, all small wiggles down in aggregate energy consumption rapidly mean regress.
Despite such sound theoretical substance and a mountain of confirmatory empirical evidence, legions of otherwise lucid energy-market participants serially bet against this trend. Shale gas in Appalachia will never be economic. Global crude-oil production has peaked (again). Natural gas liquids don’t count. The price on the screen is wrong. Have you seen the decline rates in the Haynesville ? It’s cold in the Arctic. There’s corruption in Mexico. Justin Trudeau was once a thing. The easy stuff has already been lifted. Russia can’t keep oil flowing without Western help. China’s shale resources are prohibitively uneconomic. Cushing’s tanks are bottoming out.
Good-natured fun-poking aside, energy pessimism is a useful signal in one important regard : One can predict, with uncanny accuracy, that whatever the attention of the we-are-about-to-run-out crowd is focused on will be the genesis of an imminent innovation breakthrough.
Consider the all-important Permian Basin, simultaneously responsible for a huge slice of global crude oil production growth over the past decade and subject to endless claims that production must soon peak and then fall precipitously. The latest ghost going bump in the night is the burgeoning problem of produced water. For the uninitiated, there are roughly 3 to 4 barrels of highly contaminated and hypersaline water brought to the surface for every barrel of crude lifted across the Permian. With crude production approaching an incredible 7 million barrels per day (bpd), what to do with the undesired gusher of hydration has many concerned that growth there is finally on the cusp of drowning.
Naturally, we hold a different view. The very scale of the problem is the accelerant for finding workable solutions, and strong signs indicate that scientists and entrepreneurs will soon crack it. When they invariably do, robust riches will certainly accrue.
