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A solution for Fairbanks heat and power sources

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The United Arab Emirates (UAE) declared that they have ample capacity to produce more oil and as such, the UAE is threatening to raise output. Iran and others may soon be able to raise their oil output, creating an oil price war among OPEC members, and some non-members (OPEC+) including Russia. This would raise world oil production and reduce oil prices, helping Fairbanksans afford their fuel oil for a while.

Nevertheless, competing forces are at play. For example, right now U.S. oil production is running about 2 million barrels per day, roughly 15% lower than it was in late 2019 just before the Coronavirus hit. That may not be strange, given the recessionary effects of a pandemic, but even during the oil price crash of 2015, U.S. oil production only ever went down by 1 million barrels per day, or roughly 10%, before it vigorously started increasing again within a year. Part of the problem is that most U.S. oil production right now is fast-draining, shale oil production, not slow-draining, conventional oil production. While shale oil is relatively easy to find, it is also relatively quick to drain and so requires multiple new discoveries every time a single well gets low, and new discovery rates are in decline.

In addition, Saudi Arabia recently cut its oil production by roughly 1 million barrels per day. Indeed, its reasonably clear that Saudi Arabia has drained a lot of its great Ghwar oil field such that Ghwar production may be well in decline. If Russia were to cut its output and the U.S. production were to continue to go down, while at the same time our battered Covid economy heats up, we could see an oil price shock like the 1970s or early 2000s. Given that Fairbanks depends heavily on fuel oil for heat, we could be facing quite a cost crisis locally. What should you do to prepare? I have a suggestion.

Given today’s current low interest rates, take out a loan or use your surplus Covid cash to hook up to natural gas or to the coal heating district. Now some may be concerned that coal causes global warming, but hooking up to the coal heating district means that each carbon atom in the coal-heating district provides two services: heat and power. Plus, our coal-heating district is very clean burning as far as particulates and other pollutants are concerned. As far as global warming is concerned, some global warming may be exacerbating floods, fires and storms, but that has to be weighed against the cold, dark and windless winters here that can put Fairbanks into its own type of emergency. This is when renewables simply do not work and they have no seasonal storability the way coal and natural gas do. Then, if fuel oil prices go up a lot, Fairbanks will have its own financial crisis to deal with.

Humans have dealt with ice ages, meteor hits and volcanoes for thousands of years and will undoubtedly deal with more in the future and therefore society would normally just have to adapt to these realities. But given the harsh reality of high oil prices, the need to adapt to using less oil is the more urgent consideration right now. If you have a choice between the coal district and natural gas, I would choose coal because it is better placed to withstand an onslaught of inflationary forces. But if only natural gas is available then hook up if you can.

Another concern is your car. Don’t get an all-electric vehicle and get yourself stuck in Paxson on your way to dip netting your 50 salmon in Chitina. Better to buy a hybrid car that has a long travel range and cost effectiveness when gasoline prices go up. There is a lot of good to be had from the push to reduce the use of fossil fuels, such as the innovations surrounding hybrid electric cars. But the future is bound to include a mishmash of fossil fuels, renewables and nuclear power that will carry us on to a stable economy. Flexibility will be the key.

The bottom line is, as long as coal and natural gas heat and power systems are available, Fairbanks families will always have places to go to get warmed up, even if an emergency happens to one or the other system. And certainly, wood stoves, coal boilers and potential nuclear systems remain an option. But having both natural gas and coal is good for Fairbanks.

Doug Reynolds, Ph.D., an economist, has lived and worked in Fairbanks, Alaska, and has studied Alaska’s and the world’s oil and gas industry for over 25 years. He can be contacted at ffdbr@yahoo.com.

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