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The world is on the verge of an energy break point, says Tertzakian

Peter Tertzakian says the world is on the verge of an energy "break point" that will change the way we live and work. He talks to Derek Brower

"ENERGY-consuming devices, such as air conditioners, light bulbs and the car, serve us like slaves and make kings of us all. But what do we do now that our energy appetite has grown so large that it threatens our energy supply, environment and political stability?"

The question comes from Peter Tertzakian's recent book, The End of Energy Obesity: Breaking Today's Energy Addiction for a Prosperous and Secure Tomorrow*, and it should trouble everyone, especially the energy industry. "We're blindly focused on searching for answers within our old paradigm of energy and it's a vision that really needs to shift."

With its view over Calgary's downtown core, Tertzakian's office in Arc Financial, an investment firm where he is chief economist, is a good vantage point for someone whose books on the world's energy problem have taken on a prophetic resonance. But if his vision of the future comes true, it's a landscape that is on the cusp of rapid and fundamental change. Forget your assumptions about ever-rising energy demand or relentless growth in fossil-fuel consumption. A revolution is under way; it will transform how everyone uses energy and may even take us beyond the petroleum age.

Tertzakian says the world has reached an "energy break point", a term he coined in his earlier book A Thousand Barrels a Second: The Coming Oil Break Point and the Challenges Facing an Energy Dependent World**. One form of energy – oil – has reached its historical apex and displacement by other forms of energy, a process already under way, will accelerate, he says.

That book was written on the eve of the great bull-run in crude markets, which took oil prices to almost $150 a barrel in 2008. Prices crashed, but Tertzakian's thesis looks just as compelling now. It's not a peak-oil thing. There is plenty of the stuff still in the ground. But the price spike of 2008 has speeded up the transition away from oil that, in the rich world, at least, began in 2004, before the global recession wiped out 2m barrels a day (b/d) of oil demand.

 Peter Tertzakian
Now, says Tertzakian, "moderation" of oil consumption will occur "in the second half of the decade". The End of Energy Obesity tells readers how and why it will happen. The book is a tour de force of forensic economic analysis, historical observation and anecdotal evidence, drawing on thinkers and innovators as diverse as the Germany philosopher Martin Heidegger to Henry Ford, from the automatic candle-snuffer to the iPhone.

Many of the world's energy problems come from within the energy sector itself, says Tertzakian, where old assumptions about an unquenchable thirst for oil continue to dominate strategic thinking. "If you're taking decisions based on assumptions that have been around for 10-20 years you're in trouble," he says. Expecting the oil price to continue rising in the years and decades ahead is one example. "It's easier for people to deny that there is a threat." Yet in Tertzakian's view the outlook for oil is bleak. Newer, better, more efficient technologies will increasingly threaten its domination of our lives, he argues.

And there is plenty of scope for efficiency now. The industry forgets, he says, that about 10% of global electricity supply comes from oil – an easy target for competing forms of generation. More fundamental threats stem from other sources: electrification of cars, biofuels, natural-gas vehicles, mass transit, "virtualisation" and other innovations. None of these is sufficient to damage oil's market share on its own. But, in tandem, they will deliver "death by 10 cuts", says Tertzakian.

The oil price is giving these changes momentum. The last thing the industry should want is $100/b oil, he says. But even at $60-80/b substitution is a logical step. And as for $85/b, a price within spitting distance of the market now, "that's a real break-point".

The world isn't there yet. Tertzakian dissects the kind of "energy obesity" that has become so perilous to Western civilisation – and to which many in the developing world aspire – including the TV-sedated lifestyle of the inefficient suburbs. Whatever comes next, he cautions, must appeal to the desires for affluence and comfort.

Petroleum has provided that in spades, which is why its grip on the world remains strong. Efficiencies that allow us to do more with our energy inputs are one part of the solution. But, points out Tertzakian, the "rebound effect", by which conservation ends up spurring more consumption, says it can't be the only answer. And whatever the rich world doesn't consume will just free up more energy for the developing world.

The promise of technology

More promise lies in technology. Tertzakian's faith in such progress is profound. "I believe that new generations of Fords, Edisons, and Oratas will save the day," he writes. Smart meters, smart traffic, Web 2.0, internet-responsive household appliances, fourth- and fifth-generation biofuels (requiring little land use), leg-powered battery chargers: Tertzakian finds signs of the energy revolution in the whole gamut of new devices and techniques to use energy differently. The technological future is "a brand-new reality that we will embrace because the new lifestyles, comforts and entertainments, as well as more efficient and productive ways of working, will improve our lives", he writes.

It will take a while. For now, Tertzakian argues, the problem with new energy technologies on the market is that they are only "slightly better than what's already there". They need to follow the example of new smart phones: devices that almost overnight replaced inferior, older-generation technology. The most startling innovation described by Tertzakian is "virtualisation", communication by screens and other devices that could make many trips – especially business ones – redundant. Skype and other internet-based technologies already do some of this. But the future, says Tertzakian, will involve wall-sized flat screens in the home, holograms of the kind deployed on stage by Cisco, a technology firm, and widespread deployment of virtual meetings rooms.

All of this has consequences for the oil and gas industry. "Distance-dissolving technologies" will cut demand for oil and jet fuel. By reducing marginal land and air commuting by 20%, says Tertzakian, the US could cut its fuel use by 1m b/d. Oil companies should beware these threats. Yet no other industry, he says, spends so little time thinking about what its consumers want, or how their behaviour is changing.

And nor can oil producers rely forever on the rapidly growing Chinese economy and its need for greater and greater energy imports. Tertzakian says China, where he's a frequent visitor and speaker on energy matters, has developed policies that will soon start to show results. "They're very focused on solutions. They know they have an energy problem. They're working on it." When China decides what to do, the changes will come "very fast".

Such speed is already evident. Despite leading the world in total greenhouse-gas emissions, China is now its most attractive destination for renewable-energy investment, say analysts, and has added so much wind power capacity that, in places, the grid is struggling to cope (see p23). There are still ways that the West could help, says Tertzakian. Although "we don't have the moral authority" to tell China what to consume, "we can help them avoid our mistakes."

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