Michigan Tech Magazine Spring 2009

BTU U

by Dennis Walikainen '92, '09

Wayne Pennington asks his students a tough question every year.

"What would it take to make the price of oil collapse?"

With some prodding, they come up with three answers: peace in the Middle East, respect for law and order in Russia and Venezuela, and a worldwide recession.

"Well, they got the last one right-on this time," says the chair of the geological and mining engineering and sciences department.

It's been a generation since energy markets saw anything close to the turbulence of the last year, and Michigan Tech students are signing up in record numbers to better understand the brave new world they'll be entering upon graduation. Across campus, enrollment has doubled in Mark Roberts's energy economics class, where he explains how a herd mentality has jostled with old-fashioned rules of supply and demand to wreak havoc in oil markets.

For years, economists panned the notion that oil supplies might not be able to keep up with global demand, says Roberts, a professor of mineral economics in the School of Business and Economics. But red flags went up in 2007, as the economies of China and India surged toward the energy-gobbling Western model.

As in the housing market, high oil prices begat higher prices, with speculators driving up the cost of a barrel today on the assumption that they could sell it at a profit tomorrow.

Last summer's spike was part of "froth," so experts claimed: leftover exuberance. Then, the realities of the unraveling global economy began to hit home, and prices tanked.

"World demand has actually dropped by as much as two million barrels a day," Roberts says. "That's 2 to 3 percent of world demand, and oil markets are very sensitive to that."

He also believes that the seemingly boundless price of gas, which peaked at over $4 a gallon in 2008, may have shaped the consumer's psyche. "The high price of gas last year finally shocked people into cutting back on use, and demand hasn't recovered, even though prices have now fallen because of the recession," Roberts says.

Monumental challenges

The current preoccupation with energy prices masks a looming threat—chronic energy shortages in the face of rising demand.

"Humankind's greatest challenge will be to provide the average global citizen enough energy to live a life similar to what we in the US are experiencing right now," Joe Dancy '76 says. 

Dancy, manager of the Texas-based LSGI Technology Venture Fund LP, also fears that the supply of oil soon won't keep up with demand from China and India.

"Everyone wants to drive a car, have a house with indoor plumbing and electricity, and even have the Western diet, which takes lots of fossil fuel to produce," he says.

At the same time, a supply crunch could be around the corner, Dancy says. The yield from oil fields tends to decline over the years. And, with the price of a barrel of oil dropping from $147 to around $30 (it's about $55 at this writing), there's not much incentive to invest in new production.

"We used 86 million barrels of crude oil per day last year, so every year, due to natural field declines, we lose 4–6 million barrels per day," he says. "We need to spend billions to maintain that flow, and with the credit crunch, it is not being spent."

Power play: beyond oil

Dancy says natural gas could provide one answer to dwindling oil supplies.

"The new shale wells [located in Texas, Louisiana, and Pennsylvania in the US] have great initial production rates, but decline on average 50 percent the first year," he says. "But we have to keep drilling for natural gas; environmentally it is a great fuel. We can even run cars on natural gas.

"In addition, economic pressures will force the US to turn toward nuclear energy, said Michigan Tech geophysicist Roger Turpening.

"Nuclear power will be phased in as oil declines," Turpening predicts. "Globally, nuclear energy is finding favor." Sweden is moving forward with plans for new plants, and nuclear plants are prevalent in France, Japan, Great Britain, and elsewhere.

While disposing of spent fuel remains a thorny problem, nuclear energy offers a huge advantage over traditional energy sources, Turpening adds: no greenhouse gas emissions, period.

Barry Solomon is not so sure about a nuclear solution.

"I'm skeptical," says the professor of geography and environmental policy. "We've tried nuclear in 

the past. It's very expensive, and the waste is still a problem." 

Solomon is optimistic about alternative energy sources, though they feed but a fraction of the world's energy appetite. 

"Wind is the most rapidly growing energy source in the US, if not the world," Solomon says, "and it's cost effective in most locations. In fact, the US has passed Germany to become number one again in wind power capacity and generation."

Over the long term, Solomon says, the public may park their internal-combustion vehicles in favor of electric cars.

Nine Energy Sources: Pros and Cons

Information provided by Mark Roberts

Reinventing the automobile

"The automobile is being reinvented to be driven with electric motors, powered with electricity stored in advanced batteries, and controlled with highly integrated and electronically controlled systems," says Terry Woychowski '78.

He should know.

Woychowski is General Motors' executive director of North American vehicle chief engineers, and he says by 2020 there could be as many as 1.1 billion automobiles in the "global auto park." Placed end to end, they would form a line that circles the earth 125 times. That future calls for technologies that meet consumer demand while sustaining the planet.

A partnership between GM, the Engineering Society of Detroit, and Michigan Tech to retrain automotive engineers in advanced propulsion technologies could be part of that effort.

"Much work needs to be done," Woychowski says. "But products like the Chevy Volt will be the beginning of the reinvention of the automobile."