Increased Oil Production Won’t Solve the Energy Crisis


Many of the problems we confront today come from 100 years of fixed capital investment in getting our fuel mostly from one source: petroleum. Where we live and work and how we get between the two places is all based on internal combustion engines burning petrol refined from crude oil.

Yet there are many other uses for oil-plastics for example. If we try to solve the energy problem with increased oil production, we’ll just buy ourselves some more time. But eventually, demand will exceed supply, or prices will rise so high that an economy based on cheap energy will perish from the earth.

There is no single easy alternative to getting fuel from crude oil. We reckon the world needs to spread its bets in a portfolio of energy experiments that not only produce fuel from different sources, but also take advantage of an entirely different energy architecture.

By that we mean a system which produces energy that’s different from the centralised generation and distribution model we use know. For example, if you’re going to run cars on electricity, there are many ways of generating electricity at the household level and not relying on more coal-fired plants. Or maybe you don’t have a system that uses cars. Maybe people live closer to work and drive less.

We won’t go into the gory details. Suffice it to say that sussing out the world’s next energy architecture-and the technologies and companies that will make it work-is what we do more or less full time at the Australian Small Cap Investigator. We think trillions of dollars in new capital investment will be thrown at the energy problem. Much of it won’t produce any new energy, or any returns for investors. But some of it will.

And don’t forget, all hydrocarbons are a form of stored solar power, or solar income as the saying goes. Oil and coal are decayed plant life. Plants get their energy from the sun. The sun shines down on us (or somewhere) all the time. The great energy challenge is to increase our ability to turn sunlight into energy without having to wait millions of years for plant life to turn into black goo.

The efforts to turn Canada’s tar sands and Colorado’s oil shale into energy are really just efforts to speed up what would happen naturally over time. But we don’t have time. So we throw excess energy at the problem, trying to cook shale in situ or use huge quantities of natural gas to increase oil production via the tar sands. We don’t have much excess energy, either.

Both processes use tremendous amounts of energy for a small net energy yield (energy returned on energy invested, or EROEI). Yet free solar income rains down on the planet each day. The sun is eight minute energy! We simply don’t have an industrial system built to run off the modest amounts of energy we can convert from sunlight. We need a new system or a way to convert a higher percentage of sunlight into usable energy.

It’s not the sort of thing you design on your kitchen table. It’s the sort of thing that evolves out of necessity and experimentation. Its evolution obeys the same basic laws that govern the evolution of species…variation, mutation, adaptation. Australia has a wide variety of clever and well managed companies working on different aspects of the problem.

But in the big picture, we think human beings are pretty good at adapting when they have to. The alternative is non-survival, which also goes by the name of death. True, civilisations seem to through a life cycle of their own. And perhaps this oil-based one is past its prime. People are quarrelsome and stupid. We may not adapt our way out of this problem before it overwhelms us. But it would be unnatural not to try.

Dan Denning
The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.


  1. I thought we already have a “portfolio” of sources from which to derive energy for productive usage – crude oil, LPG, Natural Gas, Coal etc. There’s also plenty of research going on to (1) reduce emissions and (2) increase efficiency. The problem is scale – any means developed thus far to enhance efficacy is fraught with economic dubiety, cost delinquency and a host of physical impracticalities which nullify feasible implementation. Misconceived biofuels, which reduce the food component of agricultural output, and the ponderous speculation about finding a subterranean domicile for CO2 deposits are exemplary of the fantasies which hang on a precarious thread of faith.

    Economic reality is dictated by margins, ie. the bottom line, which determines what thrives and what starves. Innovation occurs because the deemed return makes it the best alternative from within a portfolio of investment opportunities; any incidental benefits for society at large is inadvertent by-product. Capitalism killed off the electric car because it’s introduction threatened to cannibalize existing markets and make the holistic scenario a less profitable commercial reality. The existing system is set up to strangle competition; why else would you need government intervention to mitigate monopolization? Redefining the architecture of energy derivation will take enormous investments in capital infrastructure from a consensual international community. Has anyone recently checked the progress of Doha, NAFTA and the Kyoto Protocol?

    Speaking of biting off more than one can chew, incumbent corporationns with serious vested interests in the current system of energy provision will most certainly lobby hard and fast against any development which erodes their economic prospects. If sustainability had been profitable, it would certainly have taken roots by now. Instead it has been given the perfunctory and systematic lip-service under the guise of corporate social responsibility. The case may be different 150-200 years from now when the depletion of fossil fuel reserves no longer offer the viability of economies of scale. There’s still plenty of resources unde the current setup to last several lifetimes. The captains of industry won’t be undermining their own food bowl by flirting with ideas which could plunge their wealth of assets into disarray.

    You don’t get rich by making things free – especially energy.

  2. Very good questions Dan.

    From my reading of the internet the past 10 years on this issue, there are answers – but time is short to do the big shift.

    “Who Killed The Electric Car?” is a doco that shows vested interests and inertia in the public and political imagination are our biggest threats.

    The Australian CSIRO solar research dept has said since the mid 1990s that Australia could power its grid with 50km x 50km of solar-thermal power stations in the desert. The latest technology seems to have reduced the area needed to 30km x 30km even with increased national electricity needs over that time. The CSIRO says such a system would take 15 years to build and be cheaper than coal power plants before then.

    Once up and running the maintenance cost is mainly in feather dusters if it doesn’t rain enough. No mining, transporting raw materials etc etc to worry about.

    As detailed on the ABC Radio National “Rear Vision” program – the Howard govt. closed down this nation’s main solar R&D centre as one of its first acts of office and credible evidence was presented suggesting the hand of Big Coal. Sounds like conspiracy – but big money at stake so presumably so, though rationalisations to appease consciences probably were also at play.

    Solar Thermal power can power the world with current technology. Heat storage and Chemical storage – eg fractionating Ammonia into Hydrogen and Nitrogen and recombining to make Ammonia – means turbines get driven overnight and through a cloudy day or even three. Spreading the STP or CSP (Concentrating Solar Power) stations around – like near Katherine, Mt Isa, Dubbo, Mildura, Pt Augusta, Kalgoorlie etc means the national grid is well served and it is unlikely to be cloudy everywhere for days on end.

    Direct Current undersea cables can theoretically export electricity to nearby nations.

    CSP stations could fill the Gobi desert, arid areas of India, Pakistan, southern Russia, central Asia, the middle East, North Africa, Spain (where big ones are being built), Greece, southern Italy, the Kalahari, Peruvian desert, Mexico, south western USA (where big CSP stations are providing a lot of local power already), Texas etc.

    Photovoltaics add back up to day time peak energy needs.

    Wind and Tidal/Wave can add to especially to regions at high latitudes.

    As for transport – electrification and lots of light rail.

    Electric car technology is as old as Henry Ford and the model-T. Current battery technology and capacitors to multiply battery efficiency and time length means sports cars like the Tesla and SUVs like the 150mpg intercity driving or zero petrol/gas ever for inner city commuting AFSTrinity Xtreme Hybrid SUV are purchasable right now.

    Hydrogen fuel cells are on the horizon and would work in well with solar-electric power to fractionate and store the hydrogen.

    So all is soluble – if we use some imagination and take on some panic that the fossil fuel age is coming to an end.

    Tar Sands and Shale OIl have to be boiled to make crude oil equivalent – where’s the energy for doing that? From burning lovely natural gas. If we try to solve the oil crisis that way we will burn up a century’s supply of NG in just a couple of decades. Using NG like that is what Matt Simmons (oil exploration magnate) calls “turning gold into lead”.

    Other solutions may be oil from algae – see Sapphire Energy – the risk here (though just what crossed my mind and may be nothing to worry about) is if GM algae that spews out crude oil ever got into the environment and married other algae – would oil slicks destroy the planet’s water supply and manifest in our garden beds?

    Biofuels from agricultural land cause Peak Food in no time flat – and are thus no option in an ethical or for a politically stable world.

    But if we wait for Fusion we may have no cheap enough energy left to build the reactors.

    And if we wait to long to build the solar-electric global energy system we also may not have enough fossil fuel energy at any usable price to do that either.

    The transition needs to begin yesterday. is a good site, but not the only one, for info re all the above

    July 3, 2008
  3. sorry should’ve mentioned geothermal as another backup to a solar world.

    Thorium at least is cleaner than Uranium nuclear power.

    Some estimates (? accuracy) are that if the world did truly try and run on Uranium based Nuclear power – there’d be Peak Uranium within a decade. But others may know better on that. Still obvious downside risks of the stuff as Iran showing at present.

    July 3, 2008
  4. Hello
    So what came first greed or power, power greed?

    I know man, man if e stat ion

    For each of us, the universe is different. A homeless man may view the universe as unfair, hard and tough. A rich man may view the universe as a lovely place full of luxury and pleasure. Both of them are viewing the same universe, it is just different because of their perceptions of it and their life experiences.

    This is a fundamental key to understanding, to know that how you perceive the universe is how it is to you. If you feel it is full of fear and hatred, then it will be. If you think it is full of love and happiness, it is.

    We are all obsessive compulsive

    Nothing we can do or say will change anything
    Can you change anything yes some thing, ever thing and nothing


    rick ps i like this site

  5. ..running the future on cloned muscle tissue sounds unethical…however , scientists might clone the hind quarters of the tauranosaurus rex and fit them to bicycle-like devices to which an electrical generator might be attached…sort of a “living fossil fuel” and if they break down…they’re edible too….


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