Finishing up last week's post on the disappearance of fungibility in energy markets, let's look at the other factors that are contributing to "fixedness" in our civilizational energy flows:
Sunk cost fixedenss: In the '90s and early part of this millenium, the United States invested in massive natural gas-driven electricity generation capacity. Now, with natural gas much more expensive, that sunk cost is forcing up the price of electricity. Likewise, while it is certainly possible to generate the power needed to get our cars and trucks from point A to B, we've invested in a hugely expensive fleet of liquid-fuel driven vehicles. There is a great deal of fixedness introduced by this sunk cost, and it is slowing the transition to both electric-powered vehicles, and to our transition away from single-commuter modes of transportation.
Project timeline fixedness: Additionally, the increased volatility in energy supplies is wreaking havoc with the long time-lines to plan, permit, and build our energy infrastructure. Not only does it take years to get a project off the ground, that project must operate for years to decades to be financially viable. Because we effectively lock in energy choices a decade or more in advance, the volatility of supply and demand for different types of energy, and the volatility for demand at different locations is causing serious problems. It has taken over a decade to get a liquid natural gas terminal operational in Baja California (to serve San Diego and Los Angeles), during which time the viability of LNG, the global demand, and the supply, have all dramatically shifted. It takes over a decade to bring a nuclear plant online in the US--how certain are we about our supply of uranium 10+ years from now, especially when China can (and is) bringing on new nuclear plants in two to three years, meaning the demand picture will shift significantly before our plant ever gets online. The credit crisis--both in terms of capital availability and the illiquidity of long-range derivatives to hedge energy supply isues--is only exacerbating this issue.
Geopolitical fixedness. If oil (or gas, or coal, or uranium, or rare earth metals used in photovoltaics, etc.) was equally available from anywhere, then geopolitics wouldn't enter into the discussion of supplies. But because resources are increasingly located in geopoliticaly challenging locales, the worlds of geopolitics and energy are increasingly interrelated. Europe is largely dependent on Russia and North Africa for its supply of natural gas, for example. Because of the massive investment necessary to bring trans-national pipelines to operation, long-term commitments to certain geopolitical alliances are required. Additionally, because these infrastructure assets represent fixed-targets, they incur very fixed vulnerabilities for consumers.
Now, it's important to point out that energy fungibility as it existed in the 20th Century was truly a historical anomaly. The utter dominance of the West over global trade routes and the temporary surplus of high energy-surplus, easily transported, and truly interchangeable crude oil created a "golden age" of energy fungibility. This didn't exist in the Middle Ages, in Rome, at the height of the Caliphate, or at any other time in our historical past. In fact, the level of free energy that we enjoyed during the 20th Century was a huge historical abberation. It funded the explosive growth in population and in the "middle class." It has come to an end. Oh, there will be plenty of energy around for quite some time to come, but phenomena such as decreasing fungibility of that energy will make our access to it--and our enjoyment of the benefits it provides--far more intermittent, far more regionally concentrated, and far less certain.