What will happen when there is less oil? U.S. oil demand will fall, whether anybody likes it or not.

The oil will simply not be available in the volumes that the government, industry and people in general have come to expect. So the phenomenon of declining oil use will not be voluntary, graceful or cheap.

In fact, the decline in U.S. oil consumption will be quite painful for pretty much every American. Prices for fuel will rise, and you will wish that was the only problem. Spot shortages will turn into large scale “dry outs.”

You should anticipate that every level of government will do things to discourage using liquid fuel, from charging user fees and “congestion pricing” to higher taxes. Heck, the government might even appeal to your patriotism to drive less. And don’t be surprised to see rationing in one form or another, even with expensive fuel and costly fees and taxes.

But this is not a book review of James Howard Kunstler’s 2005 volume The Long Emergency, or his recently released (and exceedingly well-written) World Made by Hand. The point is that oil use will fall in the years to come, because world oil output is falling. You cannot use what is not there in the first place.

Setting the Stage for CTL

So this sets the stage to explain why Coal to Liquid (CTL) is about to simply take off in the U.S. The U.S. will adopt CTL, because it has to do so. There are few other large-scale industrial alternatives. Windmills, biofuels, conservation and every other energy-saving and energy-extending idea will help. But the world we live in is built to run on oil, and nothing else will cut it for some things when it comes to running a fast-transforming economy. So stand by for CTL.

According to a 2006 estimate by the National Coal Council, a robust CTL industry could produce about 2.6 million barrels per day of oil-equivalent fuel by 2025. This is about 12.5% of current U.S. daily demand. But it is tricky to draw comparisons over time frames of nearly 20 years. Certainly, a lot of things will change between now and 2025 in the realms of both demand and supply.

And a large-scale CTL program will dramatically increase the demand for coal. Can U.S. mines deliver? There are issues here, to be sure. The U.S. is supposed to have that mythical “250 years of coal reserves, at present rates of consumption.” But that estimate is 35 years old. And much U.S. coal is buried deep, in thin seams, and thus hard to mine. Plus, some 40% of U.S. coal resources are in Alaska — much of it north of the Arctic Circle. So even with coal, the U.S. needs to be wary of believing its own press releases.

Still, CTL can serve as a liquid fuel supplement for at least several decades. And CTL technology is pretty well developed, based on many decades of operational success by Sasol in South Africa. The Air Force believes that the CTL plants of the future can even be relatively “green,” based on evolving technology for removing pollutants from the coal and sequestering carbon dioxide. It will also be possible to reduce the volumes of coal in the blend by adding some types of plant-derived materials.

Thus, it is not a question of if the U.S. will adopt CTL. It is a question of when. And looking ahead, every month is precious. As I said above, we are running out of time. So it will matter greatly how much will we as a nation fool around with our national obsession of navel-gazing over ancillary issues before we get around to making a decision to bend steel.

One way or another, CTL is coming. And one way or another, we at Outstanding Investments are going to find a way to invest in the companies that will build it out.

Until we meet again…

Byron W. King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Source: The Coal to Liquid Debate Part II