Energy Is The Life Blood of Economic Development And We Risk Slowly Bleeding To Death

The spike in energy prices catalyzed the financial crisis and it will happen again if we are not careful. Here’s why.

   As industrial and political leaders squabble over the solution to a multitude of crises, it appears that many have lost focus on the macro-economic picture. Energy is the lifeblood of all economic development and when global demand exceeded supply, it created double-digit inflation, soaring commodity prices, stagnated growth and put the average American household over the cash flow tipping point. In so doing, soaring energy prices catalyzed the financial crisis and the beast is not gone, it has merely gone deep below the surface. The focus on stimulating economic development, repairing balance sheets and mortgages does nothing to address the fundamental root cause - negative cash flow of the average American family who bought what they could not afford. Not only does it do nothing to reduce the cost of living, if it is successful in generating economic development, energy prices will again soar and economic development will again be stagnated.

    A global energy crisis is still a very real threat notwithstanding street prices taking a nosedive. The systemic problems that created the high prices remain, population growth and the emergence of Asian consumers. According to the World Bank, over the next 15 years the world population will grow from seven to eight billion barring a cataclysmic event. Despite the fact that we are in a global recession, and even assuming it will last for years, there are still significant problems in the energy industry that remain unresolved that will surface by 2016 - 2018. There is still no solution to how the world can replace 100 to 125 million barrels a day (MB/D) in lost crude production, let alone find another 25 MB/D in new production. This equates to at least 100 new large discoveries that any honest expert will say are non-existent. This issue is sometimes lost on those that focus on reserves, but we must not confuse production with reserves. Although the world does have plenty of crude and gas reserves, this in no way guarantees we have plenty of energy. We can bring the issue closer to home by considering reserves as apple trees and refined products as apples. We may have plenty of trees in this world--but we are not beavers and we cannot eat trees. We eat apples. And the world is again going to run short on apples because we not only do not have the capability of creating sufficient new energy fast enough, but our response to the financial crisis is to stop the new construction and retrench the very people we need to rebuild our future.

     The universal laws of evolution are immutable. These natural evolutionary, industrial and social laws pay no heed to shareholder returns, political parties or geographic boundaries established by men. In order to envision the futuristic mindset that mother Necessity has thrust upon us, we must change our traditional western mindset that focuses on short-term term profits, polls or policies without regard to long-term systemic implications and evolutionary cycles. In plain speak - governments, political parties, industrial powers, and the people - must find a middle road between short-term profits, polls or bonuses and long term survival.

    It is helpful to call upon the wisdom of the late Albert Einstein, who once said, “We cannot solve problems using the same kind of thinking that created them.” This brings us to the problem statement:

“How can we possibly afford to rebuild a $50 trillion dollar energy infrastructure, in the worst economic period in 100 years, when the average age of the skilled workforce is close to 55 years old, when a credit crisis is bankrupting the capital and operational supply chains, national and state budgets are in turmoil, an estimated 35 to 45 million Americans will be under or unemployed, and damn few seem to understand the global threat or have ever pondered if sufficient steel or cement even exists?”

Perhaps it is clearer, but the answer to this long-winded question is a resounding, “We cannot.” As with all complex problem statements, ironically the solution to the question resides in the manner in which the question itself is formed. If we apply Socratic logic and restate the problem as an opportunity, the solution becomes clearer. The essence of reframing the question is to take the problem and turn it upside down and create the positive futuristic vision that moves humans from a state of fear and denial to one of hope and inspiration.

“How can we use trillions of dollars to recreate an ailing and outdated energy infrastructure with the newest and latest technologies, and in the process employ millions of unemployed people, train a new work force with 21st century skills, and in so doing, generate new economic wealth at a time when it is most needed, that balances the systemic and interconnected nature of industries, nations and the environment, so that the nation and world will rally behind our leadership and technical capabilities?”