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When I walked into the faculty of economics at the University of Uppsala one day in October, 1973, I knew immediately that something was drastically wrong. I didn't know whether the King had abdicated, the Third World War had started, or the national curling team had lost a crucial match, but without talking to anyone, I was sure that somehow, somewhere a calamity had taken place. I had previously experienced a similar feeling at the University of Stockholm on the day when President Kennedy was assassinated.
The bad vibes in l973 were derived from what some people called “the Arab oil boycott”. First and foremost the United States and Holland were to be taught a lesson, but other countries that in word or deed supported Israel in the latest Middle East war were also informed – directly or indirectly – that their oil supplies were in jeopardy. The exact details of the ensuing oil controversy are no longer in my memory, but one thing I remember perfectly: this is a map in a U.S. congressional document showing landing zones for marines and paratroopers in the Gulf. Professor Douglas Reynolds of the University of Alaska once informed me that a military commitment by the U.S. was alluded to by Henry Kissinger in one of the American news magazines, which was confirmed by Dr Mamdouh G. Salameh, who added that Dr Kissinger used the expression “strangulation” when referring to the boycott. In addition he told a number of persons that this ‘discomfort’ could not be tolerated by a “great power”. However when I mentioned this contingency to a so-called oil expert in Rome a few years ago, she looked at me as if I had taken leave of my senses.
Thus far this year I have had cause to consider that boycott on two occasions. The first was in my course on oil and gas economics at the Asian Institute of Technology (AIT), where I took great pains to clarify that oil economics is often taught in a sub-optimal manner, since many teachers ignore the macroeconomic and geopolitical consequences of an interruption in the flow of what is justly called the most important commodity in the world. That importance is largely reflected in the costly adjustments often associated with finding and introducing substitutes for oil, particularly in the short or medium run. Moreover, the discomforts that could eventually result from higher oil prices cannot be fully ameliorated by e.g. tinkering with demand reduction, since crude oil has a significance in the modern economy far above that suggested by a comparison of the relatively unexceptional monetary value of oil production and/or imports to the Gross Domestic Product (GDP) of a typical oil importing country. For instance, the multi-trillion dollar economy of the U.S. rests on a slender energy foundation. As Hillard Huntington (2007) notes, increased oil prices have a negative effect on (GDP) that can bring about critical losses in purchasing power.
The other time had to do with the showing in Sweden of the French drama-documentary La Fin de Petrole (= The End of Oil). According to that production, the bad news arrived in (or shortly after) 2013, at which time the oil price ostensibly touched $150/b, and the results were massive social and economic dislocation. This does not seem entirely fictitious, because in l973 in the wake of the first oil price shock, gasoline prices in the U.S. rose 40 percent, and according to Curtis Rist (1999), the ensuing panic included bad language, threats, fights and occasional shootings at gas stations. Here I can mention that 2013 was mentioned as the year for the global oil peak in an official or quasi-official French report that I have heard of but still have not seen, although I did see an article by Patrick Artus – a well-known French academic turned finance professional – in which he claimed that we are steadily moving toward an oil price of more than $385/b.
Before continuing, let me say that an oil price at or near $385/b is completely beyond my comprehension in theory or fact, although according to Joseph Fasciani (jefasciani@highspeed plus.com) he has seen arguments by important researchers which claim that when environmental and military ‘externalities’ are taken into consideration, an (‘adjusted’) oil price in the vicinity of $385/b is not outlandish. As for $150/b, that is unfortunately imaginable, though not in 2013, because if it did appear on or around that year, then the map that I saw in 1973 or l974 would probably reappear on a number of desks and computers in the Pentagon and similar facilities.
In a number of articles and comments that have been published in EnergyPulse (www.energypulse.net), some very smart people have questioned the economics of relying on biofuels (and hydrogen) as a replacement for conventional motor-fuels. A similar position was recently taken in a long presentation in Le Monde Diplomatique (2007), but even so I believe that a resort to less efficient motor fuels than those derived from crude oil are preferable to war. The key observation here is that although it may be uneconomical just yet to attempt to replace a large fraction of conventional oil with e.g. a synthetic product, the possession by oil intensive countries of enough capacity to produce a few million (oil equivalent) barrels per day of e.g. biofuels in the near future, and slowly increasing this amount over time, might make all the economic and political sense in the world. The economic logic here is that often – though perhaps not always – it is less costly to build ahead than having to carry out a vital activity in a short period of time! The European Union (EU) wants biofuels to provide 10% of EU vehicle fuel in 2020, but it is arguably better to be absolutely certain of at least 5% by e.g. 2012, even if for one reason or another the original goal is judged undesirable. (The same reasoning applies to the U.S., where Congress has announced a goal of displacing 15% of projected annual gasoline use with alternative fuels by 2017.)
NEGATIVE AND POSITIVE ROLE MODELS
On March 4, 1974, a highly conspicuous Nobel Laureate, Professor Milton Friedman, was able to provide the readers of Newsweek with the joyful tidings that “… the world oil crisis is now past its peak. The initial quadrupling of the price of crude oil after the Arabs cut output was a temporary response that has been working its own cure.” Furthermore, he chose to inform his audience that “…even if they [OPEC] cut their output to zero, they could not for long keep the world price of crude at ten dollars a barrel (= $10/b). Well before that point the cartel would collapse.” And, presumably, the price of oil would come tumbling down. (Crude oil is conventional oil that flows directly, and usually without processing, from the ground. Unconventional oil includes shale oil, oil from tar sands, (extra) heavy oil, such as the kind found in large quantities in Venezuela, and also synthetic oil, which e.g. might be manufactured from coal. The oil from tar sands has also occasionally been labelled a synthetic oil.)
A week or so ago the market price of oil was quoted at more than $99/b, which means that it had increased by 73% from the $61/b registered at the beginning of 2007, and Friedman’s assurances notwithstanding, no intelligent person believes that the Organization of Petroleum Exporting Countries (i.e. OPEC) will be unable to continue riding the crest. Furthermore, as I have pointed out in many papers and lectures, and especially in my new energy economics textbook (2007), these countries have finally become proficient in playing the oil market game, which means that they are no longer concerned with the consequences of hypothetical ‘cures’: they have discovered a new strength in the light of the unique and immutable value of oil to the large importers of that commodity, and in addition the present and future value of domestically produced oil as an input in their own consumer and industrial activities – for example petrochemicals. (Note the expression “market price”. There is a difference between this price and the real price, where the latter is the market price adjusted to account for things like inflation and exchange rates. Actually, this difference is less significant than commonly believed.) The Russians are also becoming experts in using their leverage.
Before continuing, I can confess that three decades ago I predicted that the present oil price situation could not be avoided, and I was not alone in my pessimism. Professor Edward W. Erickson (1985) stated that “Over the longer term, however moderate demand growth may be, it will confront an inexorable decline in the production capacity of currently proved reserves, combined with reserve additions that will on average be less than production. This is ultimately the receipt for a tightened market.” The expression “on average” was unnecessary, because in l980-81 global discoveries were already less than global production for the first time since the opening of the modern ‘oil age’, and the “moderate demand growth” he alluded to is now being dramatically boosted by the energy needs of China and India. Slightly earlier, Harry Saunders told readers of his paper (1984) that “the return of higher oil prices is inevitable”, and so I think that these anticipations call for citing one of my favourite quotation, which originated with Benjamin Franklin about the year 1800: “Experience is an expensive school, but the only one in which fools can learn.”
Having mentioned petrochemicals, I would like to take this opportunity to inform interested persons what I believed (and still believe) will be the future of that industry, where refined products manufactured from oil and gas are the main inputs. (And where, according to GOOGLE, these chemicals have “had a dramatic input on our food, clothes, shelter and leisure” – which sounds right, since there are over 4000 products classified as petrochemicals.)
In my oil book (1980), I made the following unpopular statement about the petrochemical intentions of Saudi Arabia. “These are ambitious targets, and it will be interesting to see if they are realized, or even partially realized. Because if they are, it signifies an important breakthrough on the development front: the ability of a less developed country (albeit a rich LDC) to mobilize in less than a decade, the capital and skill necessary to challenge some of the industrial giants of Europe on their own turf.” Another disturbing observation I offered was that as petrochemical and non-oil revenues in the Middle East increase, revenues from the sale of crude oil lose some of their significance. But even so, a high price of oil means that countries like Saudi Arabia will not only find it possible to enjoy high export incomes, but at the same time conserve larger amounts of their irreplaceable oil resources. In case readers require an example, Gapper (2007) cites oil rich Dubai, which has diversified to a point where only five percent of that country’s gross domestic product comes directly from oil.
In my course on oil and gas economics at the Asian Institute of Technology, I insisted that everything worth knowing about the past and future of the world oil economy can be ascertained from a careful study of the supply of and demand for conventional and unconventional oil in the United States. That country is still the leading consumer of oil, while at one time it was also the leading producer, which meant that oil naturally became an indispensable component in the building and configuration of the U.S. economy. Oil may be more important today than ever, however the output of that commodity in the ‘Lower 48’ peaked at the end of l970, and even though the giant Prudhoe field (in Alaska) came on stream a few years later, the resulting upturn in total production could not be sustained: the l970 peak was never exceeded, and the U.S. now imports almost 11 mb/d of its total consumption of 21 mb/d! (It should also be noted that the discovery of oil in the U.S. peaked about 1930!)
In other words, despite the fact that only a small fraction of the area of the United States provided millions of barrels a day, intense exploration was unable to locate appreciable new quantities of conventional crude oil in the ‘lower 48’ or Alaska. That observation also applies to nearby Canada and Mexico. Moreover, it is generally – but tacitly – recognized in the executive suites of the major oil firms that this situation would not be materially altered if environmental restrictions were abolished, and with state-of-the-art extraction technology it became possible to lift oil from every onshore or offshore region over which the United States exercises authority, or for that matter far offshore regions for which property rights have not or cannot be established, and the extraction of resources functions on a first-come first-serve basis.
The inhabitants of executive suites in the oil industry are in possession of other ‘secrets’ that they prefer not to circulate, one of which is that the forecasts of the International Energy Agency (IEA), and United States Department of Energy (USDOE) are completely without any scientific foundation. Only a director of the French major ‘Total’ has deigned to broadcast this unfortunate state of affairs. According to Dr Nick Butler, director of the Cambridge Centre for Energy Studies, “most oil executives believe that conventional oil supplies will find it hard to reach 100mb/d”. This is not something that we should be overjoyed to hear, because with the present demand for (conventional + unconventional) oil at approximately 85 mb/d, we could encounter a peaking of conventional oil between 2015 and 2020, or even as early as the 2013 date that certain sources close to the French government apparently have predicted.
There has also been a failure in the U.S. to increase the average recovery rate – or the ratio of extractable oil to oil in place. When I published my oil book this was about 30 percent, which meant that of every 100 barrels of oil positively identified, on average only 30 barrels could be extracted. The global value of this quotient was about 0.32 (although this varied greatly between regions), and by the turn of the century was not much more than 0.35. But even so, at the Rome meeting of the International Association for Energy Economists (IAEE) in 2000, several so-called oil experts expressed the bizarre opinion that at any moment there would be a dramatic increase in this fraction, and as a result a healthy downward pressure would be placed on the price of oil. Thirty years ago it was estimated that the worldwide recovery ratio would eventually average 40%, however what was missed both then and now is that this bounty is unlikely to take place in the major consuming countries.
On the basis of my previous experiences, I feel certain that at forthcoming meetings of the IAEE , those same experts will be effusive in their description of the shale oil industry in the United States, now that that industry seems to be edging into the limelight again. According to Jon Birger (2007), there is three times as much oil in the shale of Colorado and Utah as there is in Saudi Arabia, and so from the point of view of reserves this observation suggests that the U.S. enjoys the same energy status as the entire Gulf region. He envisions shale as not only an energy reserve of enormous future value, but in addition one that can reduce the “risk premium” built into U.S. oil imports because “energy traders could rest easy knowing that the flow of oil from Colorado or Utah won’t be cut off by Venezuelan dictators, Nigerian gunmen, or strife in the Middle East.”
I certainly hope that governments disregard Mr Birger’s wisdom, because this is the kind of drivel associated with the sub-prime mortgage fiasco that led his employers at Fortune to ask what some of the “best minds on Wall Street” were smoking. Any “trader” who is inclined to rest easy and accept that kind of infantile bunkum could find himself or herself prematurely resting easy in their ski lodge in Aspen (Colorado) or Åre in northern Sweden. The risk-premium in this context is a concept that applies to the short run – e.g. the short run pricing of oil in auction type markets such as NYMEX, where the main issue is not the next few years but the next few minutes. When traders sell because a major oil exporter promises to increase production in the near future, it is not because they believe that this will happen, but because they think that other traders will sell. I can also note that Birger mentions a USDOE report which predicts an output of shale oil in 2020 of 2 mb/d. This may sound nice to some, however even if realized it is inadequate. That much ‘extra’ oil is needed immediately – i.e. before an ‘anomalous’ event somewhere sends the oil price into orbit.
Finally, the refining sector should not be neglected, because the absence of capacity in that sector has often been blamed for what has been called the high price of motor fuel in the United States. Apparently, it has been about thirty years since a new refinery has been built in that country.
From the point of view of academic economics, this absence of investment makes a certain amount of sense. Refining is one of the riskiest of all industrial activities, and with the exception of the brilliantly managed (or lucky) Valero Refining in the U.S., the most consistent winners in this line of work tend to be the large integrated oil companies whose production of crude enable them to support refining losses. Moreover, in the same vein as noted with petrochemicals, the center of gravity of refining might also belong in the Middle East. Personally, I find it hard to believe that it makes more economic sense to export oil from the Middle East to places like India, where it is refined and then re-exported. The same applies to major refining hubs like Singapore, Rotterdam and South Korea.
Refineries produce oil products with various characteristics from their main ‘feedstock’, which is crude oil. In a typical ‘cut’ or ‘fraction’ we find kerosene and fuel oil, gasoline and diesel, lubricating oils, light and medium products such as naptha which are inputs for the petrochemical industry, and at the heavy end asphalt. Where the quality of feedstocks are concerned, ‘light’ crude is best, but as bad luck would have it, crudes are tending to become heavier. There is also a distinction between low sulphur oil, which is called sweet crude, and high sulphur oil, which is called sour crude. Refiners can vary the product ‘cut’ by using different feedstocks, and to a certain extent by altering the temperature and pressure in the ‘distillation column’, which is probably the nucleus of a refinery, but in accordance with the laws of mainstream economics, extensive alterations require expensive investments.
Many of these investments were made before high oil prices put an end to high profits for independent refiners. In the U.S. it has become more difficult to pass on high input prices to buyers of oil products, and especially motor fuel. Thus the so-called ‘crack spread’ – which is the difference between the price of a barrel of crude and a barrel of refined products – is being reduced once more. In later sections of this paper readers get an elementary look at futures and options, and a more advanced analysis might suggest how a sophisticated use of derivatives (e.g. futures and options) can alleviate some of the pain associated with declining crack spreads. I am very positive about the use of derivatives (except in the case of electric derivatives), but I have seen no evidence that they have provided the refining sector with more than a modicum of protection.
MORE OIL REALITIES AND SUSPICIONS
A forecast for 2006 once published by Deutsche Bank (DB), suggested a slowly declining price for oil. DB (and most other) forecasts then tended to settle in the $50-$60/b range, which was reputedly described at an OPEC ministerial meeting as “beautiful”, because at the end of the 20th century oil was selling for much less than $20/b, and in OPEC gatherings the talk was about trying to boost that price into the $22-28/b range, and to keep it there. Beautiful or not, the price has now spiked to as high as $99/b, with the result that some of the richest cities and perhaps regions in the world are to be found in the Middle East. A few of us forecast the possibility of the present price several years ago, with the Texas fund manager Mr T. Boone Pickens setting the date of its arrival as the end of 2007, and while I unfortunately have no access to his ruminations about 2008, the prestigious investment bank Goldman Sachs has apparently changed their tune about high oil prices can go. I am not in the ‘prediction business’ at this moment, but everything considered, these prices are above what I regard as the danger level, and so I take every opportunity to suggest that increased attention should be paid to when the global oil production might peak, since an unanticipated peaking of global oil production with the prevailing oil price in the vicinity of $90/b might be the nudge required to bring about a world recession, or worse. There is a very wide spectrum of opinion on this matter, and estimates range from those of the Association for the Study of Peak Oil (ASPO), who see the peak coming in the fairly near future – perhaps less than a decade – to the prestigious energy consultancy CERA (Cambridge Energy Research Associates), who reject the idea of a distinct peak, but instead prefer to think in terms of an undulating plateau.
Behind the eccentric concept of an undulating plateau is apparently a ‘model’ of some sort, and perhaps one that is described to CERA’s faithful clients and admirers as statistical or econometric. I make a point of never constructing, meticulously viewing, dreaming about or for that matter tolerating from my students any verbal contemplation whatsoever about econometric models of the energy markets unless I have no choice, but even so I occasionally think in terms of assembling in one form or another a formal theoretical model whose centrepiece would be a differential or difference equation that was capable of exhibiting an undulating plateau.
I have refrained from this project because, as a hard-core teacher of mathematical economics, I consider it pretentious or absurd or both. The thing to emphasize here is that while this pseudo-scientific approach might seem impressive if tendered by a sympathetic lecturer in a seminar room or at a conference, it is unfortunately too abstract for real people (like myself) in the real world. The thing to keep in mind when dealing with this issue is that less is a great deal more, and so during my recent course I focused on two simple two simple relationships, whose logic can be easily explained without symbols.
The first is inter-temporal profit maximization by oil producing firms – i.e. maximizing the present (or discounted) value of expected future profits. A crucial thing here is understanding that we have a constraint in this exercise that is not present with other kinds of firms, by which I mean that a barrel of oil removed from a deposit today is a barrel that cannot be extracted in the future. In order to liven up this discussion I also occasionally have a few things to say about the location of new deposits, and the availability of technology for further exploiting old deposits. This kind of technology – such as state-of-the-art horizontal drilling – is frequently shown in advertisements in the daily and weekly press, and to a certain extent is overrated.
After clarifying these matters, I attempt to explain why – until recently – the market has systematically underestimated future demand and overestimated future supply, which is a phenomenon that is usually ignored. I also try to make it clear that the information content of oil prices has a tendency to be deceptive because important persons on the supply side of this market are often inclined to depart from the truth when discussing the availability of reserves and production capabilities. In game theory this is called information manipulation, and it is effective because oil firms are large enough to think and act strategically.
State companies or their interest organizations – e.g. OPEC – might also circulate information of dubious quality, but in theory their intention is to go beyond profits and set as the ultimate goal the development of their societies. Consider, for example, the situation in Saudi Arabia just prior to the nationalization of oil. The oil majors operating in that country were (conceivably) thinking in terms of a conventional inter-temporal profit maximization exercise of the type alluded to above. These firms came to the conclusion that production should be raised to 20mb/d, at which level a plateau would be maintained for as long as justified by the available reserves and technology, and of course price. Your teacher in Energy Economics 101 almost certainly told you of the importance of the interest rate in the decision making process, but unfortunately he or she was totally wrong. The key item is deposit pressure and its significance for the cost of extraction. As pointed out in my new textbook, it might also be useful to be aware of something called the ‘natural decline rate’, which involves the ‘deterioration’ of a deposit due to previous production.
A great deal changed when these deposits were nationalized. Among other things the government of Saudi Arabia made it quite clear that for the achievement of their social and economic goals, a new model had to be formulated – one which led to the conclusion that a production of 20mb/d was inappropriate. This should be taken notice of because, as far as I can tell, both the International Energy Agency (IEA) and the US Department of Energy (USDOE) have failed to get this message: they give the impression of believing that Saudi Arabia will eventually raise their production to something close to 20 mb/d, because the predictions offered by the IEA and USDOE for global oil output in 2030 cannot possibly be realized unless Saudi Arabia manages to achieve an output that is close to this amount .
As far as I can tell, Saudi Arabia has little or no intention of raising their sustainable output to more than 10mb/d in the near future. The reason is that instead of maximizing profits, the government of that country intends to maximize a nebulous ‘something’ that might be called welfare. Unlike textbook enterprises, the Saudi government would not (in theory) weigh profits from producing oil against the gain from e.g. purchasing bonds or factories in other countries, because they also have to consider things like employment and the availability of various goods and services for future generations in their own country. As early as the l970s – if not sooner – the Saudi government unambiguously indicated that concepts of this nature were foremost in their thinking. Other governments in the Gulf region have recently been even more articulate on this matter.
It might be appropriate to mention that recently I was given an unsolicited, hair-brained lecture by a gentleman at one of the elite universities in the United States, in which he informed me that Saudi Arabia has four new deposits almost ready for exploitation. In case you have heard this elsewhere, let me assure you that this is a loony myth that was probably extracted from his favourite humour magazine. What might happen is that Saudi Arabia has or will have a surge capacity of 12 mb/d that can be resorted to very rapidly in an emergency, and it is not impossible that sustainable output might reach 12mb/d, but more should not be expected – even if it appears some sweet day. The point here is not what will happen, but what is likely to happen.
Today it is not easy to find concerned persons who are prepared to deny that the global oil picture has changed considerably over the past few years, although a few sceptics very definitely exist. Some of these sceptics are fanatics, while others are charlatans, but many are simply protecting their incomes. Where this latter group is concerned, it seems to be the case that many oil company executives have a tendency to change their estimate of the future availability of oil after retiring. For instance, Ronald Oxborgh – the British lord and former CEO of Shell UK – said that oil prices could reach $150/b in order to close the gap between demand and supply that he believes is approaching.
In my recent work I have attempted to explain that regardless of when the global output oil and gas production actually peaks, it will be best for all concerned if our political masters thought in terms of the near as compared to the distant future, because if it should arrive unexpectedly, it could lead to a very ugly economic and political scene. Moreover, I am convinced that they are thinking in these terms, but prefer to give another impression because they do not want to jolt the peace of mind of their constituents. That being the case, every effort should be made to clarify for the television audience that peaking is not an abstract issue, but one that virtually everyone should attempt to comprehend in broad outline, and should keep in mind before ordering their next SUV or private jet.
FINAL OBSERVATIONS AND CONCLUSIONS
At the present time I attempt to believe that just about everyone understands the worsening prospects for the global oil economy. I assume that since the price of oil was recently less than a dollar from the $100/b mark, the more vulgar forms of optimism cannot persist. As pointed out by Hoogeveen (2006), the world consumed the equivalent of 8.5 mb/d more energy in 2004 than the previous year, and if this was some sort of record, it was definitely exceeded the following year. In the 2004 figure China accounted for 40% of this energy growth, which for them included 900,000 b/d of oil, almost all of which was imported.
Amazingly enough, there are still highly intelligent and well-educated persons, with a passable background in energy matters, who are unable to deal with the new oil realities. One of these harbingers of good news made herself known to me about a year ago, and at almost the same time the official Swedish Energy Agency released its long awaited report on the world oil situation.
Where the young lady is concerned, seismic technology is a “guess and a gamble”. This serio-comic evaluation was almost certainly provoked by the failure of seismic and other technology to register more successes. Furthermore, I was brusquely informed that when drilling, it is possible to miss a mega-size oil field by a matter of “feet”. With all due respect, I interpret this kind of hokum as benighted contempt for mainstream science and technology.
The same person insisted that the attempt to assess oil reserves should be characterized as “guesswork” – which to a minor extent it may be, and so the things written about peak oil is a bit like the usual nonsense about climate change: “it is written by people who know nothing about it”.
The elite of oil geologists and petroleum engineers now seem to accept the peak oil thesis, which is probably one of the reasons why the executives of the major oil companies have stopped pretending that an output peak will never be experienced. Apparently the high-and-mighty are now ready to accept that since we have had peaks in huge land areas like North America and the former Soviet Union, there is a distinct possibility that we will confront a global peak some sad day. Similarly, a very large majority of acknowledged climatologists attach a high probability to global warming that has its basis in human behaviour. I have argued at great length that since addressing anthropogenic global warming (AGW) entails – among other things – restructuring our present energy technology, it may not make any difference in the long run whether AGW is the real deal or a chimera or a scam unless you live in the wrong place.
Both the young lady mentioned above and the Swedish Energy Agency have great faith in the tar sand reserves of Northern Canada. I don’t have any faith in them at all where significantly changing the international oil picture is concerned, at least in the next decade, and the actions of the Swedish Energy Agency bring to my mind an expression of George Orwell: “A system of indoor welfare”. In their work on energy materials that misguided organization fits perfectly the description that John Kenneth Galbraith once gave forecasters in the financial markets: they forecast because they are asked to carry out this function, and not because they know how. Tar sands and heavy oil can dramatically increase nominal reserves, but together with shale this is a distraction that the movers and shakers in the energy intensive countries have fortunately decided to discount. Unless I am mistaken, much of the ostensible acceptance of these unconventional resources by energy companies is a ploy designed to raise share prices.
Going from minor to major, the International Energy Agency (IEA) has contended that OPEC will be able to supply 57 mb/d of the 121 mb/d of oil that they claim will be required in 2030. In my textbook I calculated the required OPEC output to be 60 mb/d if the fantasies of the IEA are to become reality, but regardless of assumptions and mathematical sleight-of-hand, neither 57 mb/d or 60 mb/d or anything in that neighbourhood has the slightest possibility of being realized, particularly since Saudi Arabia has never expressed a desire to sweeten the dreams of IEA forecasters. As long ago as l973, or perhaps even earlier, the government of Saudi Arabia made it clear that their present and future population took precedent over the motorists of the oil importing world, and put into context this meant that their production was unlikely to exceed 12 mb/d under any circumstances.
According to Dr Fredrik Robelius of Uppsala University, 20 years ago 15 oil fields had the capacity to produce more than one million barrels of oil a day, while today there are only 4 fields: Ghawar in Saudi Arabia, Kirkuk in Iraq, Greater Burgan in Kuwait, and Cantarell in Mexico. Cantarell is the most recent among these to be brought into operation, but even so its output began to fall two years ago. Burgan has also peaked, and at best the output from Ghawar is probably on a plateau. This is the kind of information that all students of the oil market should keep in mind, because as noted by Chris Skrebowski, editor of the Petroleum Review, there are so many lies in circulation about oil that it is almost impossible to carry out a credible analysis.
Skrebowski has also pointed out that “the time lag between discovery and first oil production for a major project is currently averaging over 6 years. A few large projects are taking as little as 4 years, but many others are taking up to 10 years. This means that there is now little or no chance of significantly altering the production outlook for 2010, while even that for 2012 is already largely determined.”
In the light of these grim tidings, we have the right to ask why Dr Michael Lynch has come to the conclusion that the present high oil price can not only be overcome, but might reach the 20s in 2008. Moreover, in a curious flight of fancy, Lynch has noted that the price of oil is not rising but declining if expressed in grams of gold, which while true is an observation that is completely without any scientific relevance to anyone except possibly Steve Forbes – owner and publisher of the outstanding business publication Forbes – who has also repeatedly informed his readers that oil is greatly overvalued, and whose fondness for gold has led him to suggest the reinvention of the international monetary system so as to make gold the “reserve of last resort”. When I hear this sort of thing, I think of one of Mr Forbes’ favourite aphorisms: “With all thy getting get understanding”. This is something that he should try to get it before oil becomes so scarce that he has to hitch his limo to a team of horses or mules.
There are many facets to this topic, which explains the philosophy of the research firm Geopolitics Central (www.geopoliticscentral.com), which takes steps to examine all sides of energy issues. Before completing this presentation, I want to suggest why the large oil price rises of the last few years have not resulted in severe macroeconomic damage in some oil importing countries. To begin, the dollar has fallen in value, which has kept oil price increases from realizing their full force except in the U.S. However a large part of the oil price upsurge impacts transportation, and in the U.S. taxes on gasoline are relatively very low. This means that American motorists still avoid the levels of annoyance that have been imposed on e.g. Scandinavians by oil price rises.
Perhaps more important for many countries is immigration. To use an expression coined by Karl Marx, in some countries immigration has led to the mobilization of a reserve army of the unemployed (and to a certain extent employed) with enhanced work incentives, which means a higher aggregate productivity. Anyone who has lived in Australia should be able to accept that explanation. Of course, there is a social and political cost associated with this arrangement, however this rather sensitive topic cannot be discussed here.
Finally, while I can remember a ten year stretch in which almost everything I said about oil prices was out of line with reality, I felt and still feel that in terms of mainstream economics and finance, I was strictly in the groove. However, even if I am mistaken in my present evaluation of the oil market, which is not impossible, I feel that I am heading in the right direction. In fact if John von Neumann were here now, and he remembered what he wrote in his work on game theory, I feel sure he would agree that the primary issue is not what the oil price will be, but what it could be, and since we neither have nor can obtain a guarantee that this price will not be very bad news for very many of us, our actions should be determined by a policy of safety first.
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"Experience is an expensive school, but the only one in which fools can learn" -- wonderful phrase, excellent article. I wold just like to have the temerity to suggest one or two additional points.
a) It seems to me that the exercise of predicting future prices of dwindling commodities such as crude oil is largely a matter of identifying its competitive substitutes and projecting the future prices of those. Logically then the high value of crude is currently based in its value as an energy source in mobile transport, so its upper limit price is set by the cost of profitably supplying equivalent energy from other sources: nuclear, coal, solar thermal and a small measure of bio-fuels. In the long term probably nuclear and coal set the standard, and on a per-unit-available-energy-as-electricity basis with current technology, those can likely be set at US$0.10 / kwhr. Given a bbl oil contains potential 1,700 kwhr energy and applying a 50% conversion effic. to oil and a 100% to electricity, make that 850 kwh . At $0.10 / kwh, make a bbl of oil refined and delivered worth about $85. Of course for transportation applications one must also consider the cost of the storage medium per unit energy over time, say $5,000 for 20 kwh batteries cycled ideally 4000 times = 5000/(20 x 4000) = $0.25 / kwh meaning taht at those price estimates oil could go to ($0.10 + $0.25) x 850 = $297.50 / bbl before battery-electric can compete with it economically. So, either a breakthrough in battery technology / cost or oil goes to $300 / bbl. As can be seen, the electricity generation itself is a minor issue in the equasion. We might as well make that the best we can regardless of cost.
b) The above calculation illustrates the high value of locally produced bio-fuels versus electric-power as a substitute, being able to bypass the battery costs.
c) At $300 / bbl oil as the alternative, perhaps compressed or cryogenic hydrogen as a substitute deserves a second look?
Seasons grettings Professor Banks, and all.
Len Gould 12.19.07
Seasons greetings Professor Banks, and all.
Len Gould 12.19.07
revise: "say $5,000 for 20 kwh batteries cycled ideally 4000 times = 5000/(20 x 4000) = $0.0625 / kwh meaning that at those price estimates oil could go to ($0.10 + $0.0625) x 850 = $138.00 / bbl before battery-electric can compete with it economically. So, either a breakthrough in battery technology / cost or oil goes to $140 / bbl. As can be seen, the electricity generation cost itself is a fairly minor issue in the equasion. We might as well make that the best we can regardless of cost. " -- Sorry
Ferdinand E. Banks 12.20.07
This business of predicting the oil price is quite interesting for me, ex-post. I wrote an oil book in l980, following which I made it my business to predict the oil price every time I got the opportunity. I got the opportunity very often, and as bad luck had it, I was almost always wrong.
I don't have to worry about that any longer however. The Chinese - and perhaps also the Indians - will make my future predictions correct. The major cities in China sparkle and shine, but there are still hundreds of millions of people in that country living decades behind the avant garde. The Chinese government has the intention, the money and the technical and managerial skill to bring them up to speed, and in doing so they will need every drop of oil that they can get. At the same time it's clear - to me at least - that neither Saudi Arabia or Russia intends to continue selling this invaluable commodity at bargain basement prices. Put these two FACTS together and those crazy articles in e.g. Fortune about cheap oil are not just crazy but starkers.
Fortunately, I think that our political masters are getting the message. Or is that another bad prediction?
And season's greetings everyone.
Jim Beyer 12.20.07
When I think about us hitting the oil peak, I think about that theoretical question, What happens when an irresistable force meets an immovable object? In this case, the irresistable force is our demand for oil. The immovable object is the peak production.
So far, oil has should very little elasticity of demand; people simply pay more money for it. In reality, I am sure there is some, but if it takes a hard production limit to force demand destruction, there looks to be quite a bidding war for the oil that is available. This is all a fancy way of saying the the price of oil is going to go up.
Fortunately, since so much oil is currently used in personal transportation (10s of percent) then some reworking of that technology may forestall a true crisis for another generation or so. But this will require something fairly innovative, like cost-effective PHEVs or something. Hard but doable. If this can be accomplished, and a major problem averted, hopefully our political masters will get this message. But like Fred, perhaps that's another bad prediction as well.
Jim Beyer 12.20.07
Interesting calculations. A few comments. I'm not sure one can expect 50% efficiency from IC engines anytime soon. 35% would be generous. Your numbers on batteries are a little optimistic, in my opinion, but perhaps reachable soon.
Also, an interesting phenomena has been occurring with respect to biofuels. Way back when, people would say "ethanol will be cost competitive with oil when it reaches $90 per barrel" (or whatever price they might say.) But lo and behold, as the price of oil rises, so do the costs associated with producing the biofuel, so now they say oil has to reach $130 per barrel or whatever. Not a happy situation. Will high oil prices also raise the price of batteries?
Ferdinand E. Banks 12.21.07
What about expanding on this (competitive) price of biofuels for us. Is it really true that to produce a few million more (reasonably priced) barrels of biofuels per year, a (conventional) oil price of $130/b is going to be required? If the price of oil hits $100/b next year, which certainly could happen, and that price appears sustainable, then ethanol is going to look very attractive. Oil at $100/b is the kind of psychological boundary that upsets a lot of important people.
Jim Beyer 12.21.07
First off, I'm not expert on this, but no, I don't think $130/b is required. That might not even be enough! The problem is this:
Someone analyzes the cost of making a gallon of biofuel. Say it costs $3.00. So then they say, "Hmm, well to compete with gasoline, a barrel of oil will have to cost $90". So they think that when oil hits $90 per barrel, then they are in business.
But look at what happens when oil does reach $90 per barrel. Many things are a little more expensive; fertilizer, fuel for the tractors, fuel for distillation, etc. All of that impacts on the price of the biofuel. Also, since the biofuel is now (more) attractive financially, the cost of the grain is bid up a bit more as well, because of the higher perceived value. So they need to recalculate again, and find that NOW they need $130/b to be competitive. (This is without subsidies. With subsidies, anything can be competitive. It just won't be real.)
I'm not saying the ethanol won't ever reach parity with oil, regardless of price, but the point is that the target price might move a bit in trying to reach it.
Hope this helps.
Ferdinand E. Banks 12.21.07
An interesting question now is the competitiveness of the ethanol that is already been produced. I wonder if it is not very competititve, although admittedly subsidies - if they exist - might have something to do with it. What I am trying to say here is that the US might be able to raise its output of ethanol by X % without having to think about oil at $130/b.
Jim Beyer 12.21.07
The latest Energy Bill passed in the U.S. mandates 36 billion gallons of ethanol per year by 2020. Sounds like a lot, but that's still less than 20% of U.S. gasoline use at today's levels.
Ethanol production even at present levels is already impacting on food prices. Presumably this might change if they get cellulosic ethanol working, but this hasn't occurred yet.
Of course, if they just made biogas (methane) out of waste streams and some cellulose (like switchgrass) then they'd have an economically viable fuel that could be directly fed into the NG infrastructure. And twice the energy content for the biomass consumed. But that would be far too rational a strategy to employ.
Ferdinand E. Banks 12.22.07
20% may not be a lot, but it's a good start if - like me and probably you - the way to deal with both this energy and warming thing is with a portfolio of solutions. It would probably be nice though if they could move the date up. Of course, if ethanol production is already impacting on food prices, then we have a problem.
You say that producing methane from waste streams is too rational a strategy to consider. I know that rationality is often in short supply among the decision makers and voters, but I need some explanation here.
Jim Beyer 12.22.07
Well, admittedly, to paraphrase Lloyd Bentzen, methane is no gasoline. It's not liquid at STP (standard temperature and pressure) so it's much harder to deal with as a transportation fuel. That being said, hydrogen has been worked with diligently for use as an auto fuel, and it is more than 3X bulkier than methane. So, I'm not sure what gives here.
The process for creating methane from biomass, anaerobic digestion, is fairly mature. I won't say there aren't some hitches with it, but it's much further along than cellulosic ethanol. For a given quantity of biomass, you can get about 2x the fuel output energetically with methane compared with ethanol. There's lots of reasons for this. The microbes for making methane (methanogens) are more primitive than the yeasts used for ethanol. So energetically they leave 'more on the table' in their waste streams. There is also no distillation step needed with methane production. You just needed to separate it from CO2 in the waste stream. This isn't hard to do on any large scale system; gravity separation can even be used.
Anaerobic digestion is less mature with hard cellulose (like wood chips) because of the poor surface area, but it is more successful with softer cellulose like switchgrass or cornstalks. Cow flop works great, and the process at least partially remediates the waste stream. They really should be doing more of this.
So, putting all the cards on the table, the advantage of methane from biomass is lower cost; the process is less expensive and the yield is higher. Depending on the cost of the feedstock, biomethane is probably competitive TODAY on the market, without subsidies. The infrastructure to distribute it is already in place.
The big problem is the tank storage needed for vehicles. These tanks cost $1000 or more, compared with a $10 plastic gas tank. But since they use fuel which is probably less than 50% of the cost compared with ethanol, one can see how this still might be a prudent investment over any kind of time frame.
Finally, biomethane is the one synthetic fuel that is dense enough (if liquified) to be used in jet aircraft. Kind of a wacky notion (jets don't use that much fuel compared to passenger automobiles) but another point in its favor.
The irrationality as I see it is how automakers are looking to either ethanol (expensive but convenient), hydrogen (expensive and inconvenient) but completely ignore methane (not so expensive, not so convenient) which, on balance, is not a bad choice. Certainly worthy of a closer look. Automakers, as I read them, have no understanding of fuel production, so they make choices that push high costs outside of their black box of understanding, which results in a highly problematic overall system. Hydrogen, and to a lesser extent ethanol, are both examples of this sort of thinking.
Joseph Somsel 12.26.07
As to a substitute for petroleum for transport, I would hold out coal-to-liquid (CTL) but with the extra energy coming from nuclear. Today, transport fuels are fluid hydrocarbons. Rather than pursuing direct use of hydrogen, why not "bind" it with carbon from coal to make fuels compatible with current transport infrastructure and inventory?
I did a back of the envelope calculation and estimate that a gallon of gasoline, diesel, or jet fuel requires 27 cents of coal and 6 cents of nuclear heat (at current cost of 50 cents per mmBTU in the reactor.) Clean water may be the most expensive input, other than capital and O&M costs. Actual efficiencies would be lower, of course, but the promise is there.
Conventional CTL requires that the excess energy required to make hydrocarbons from carbon and water comes from burning more coal - a lot more. Even setting aside GHG considerations, that excess heat would be more economical coming from uranium.
Ferdinand E. Banks 12.26.07
Joseph, "extra energy coming from nuclear". That makes all the sense in the world to me, and it has made sense for the last 10 or 15 years, but I can't remember convincing anyone anywhere that I knew what I was talking about. No, it's going to take oil at $100/b - at least - for the TV audience to wake up and see what kind of tiger we're riding.
Malcolm Rawlingson 12.26.07
Fascinating article Fred...I learned a great deal as always. Two items caught my eye.
Firstly your point concerning the coming to an end of the practice of oil producing nations sending their raw product to other countries for refining should raise the alarm bells for any sane individual....even politicians.
Why would any government sitting on large oil reserves and even larger amounts of oil generated cash be content to see most of the profits from their product generated in other nations. I am sure the midle eastern nations are much more interested in developing their own economies than that of Holland or elsewhere.
It is perfectly rational and sensible for those countries to invest their money into oil refining and petrochemical technology. In doing so not only do they exercise control over the raw product but also its derivatives. I can easily envisage the situation where the US imports all of its gasoline and plastics industry feedstocks.
On the second point - the tiger we are riding is a shortage of energy not necessarily a shortage of oil. The shortage of oil now or in future is just a sympton of a bigger problem. There is not sufficient energy - from all resources available - to meet the long term needs of 6 billion people and rising. Oil cannot meet it. Coal cannot meet it. Renewables cannot meet it. Either a large portion of those 6 billion go without or the west becomes ultra efficient in energy use. Neither of these scenarios is likely of course. China and India will see that the former scenario does not occur and tha latter scenario wil not yield sufficient energy to bridge the gap between the energy haves and the energy have nots.
As I have said many times here before and I will say it once again. There is no energy source available other than nuclear power that has anywhere near the capacity to meet this enormous energy demand in the foreseaable future. None.
I could be persuaded (perhaps) that large scale space based solar installations could meet the demand but since it has taken nearly 20 years to design and build a relatively small and basic space station I don't see that idea coming to fruition any time soon.
The sad part of it all is that while the world community frets about "global climate catastrophe" the real catastrophe - energy shortage - is happening before our eyes. The rapid and indescriminate consumption (for burning) of all the worlds fossil reserves built up over the millennia will deny us, our children and grandchildren of an important chemical resource that is irreplaceable. That is a terrible shame on our collective societies.
The reason I started my career in the nuclear industry was that it made perfect sense to me to be able to convert otherwise useless lumps of Uranium and Thorium rock into a clean, reliable and inexhaustible supply of electrical and thermal energy. My view has remained unchanged because those facts have remained unchanged.
For those sceptics out there who think otherwise please tell me where the energy to power the TV's for the TV audience is going to come from when all the worlds oil gas and coal are gone. I think all would agree that in less than 500 years from now and likely very much sooner - there will be none left. Windmills solar, geothermal, biofuels they are not even a drop in the bucket in comparison to the worlds current let alone future energy demand.
The choice is simple. Either western countries drastically curtail their energy intensive living standards (AND the rest of the world accepts that they will never ever get to western standards of living) or nuclear power is deployed on a scale 10 to 100 times more than at present.
The sooner that stark reality is faced the better.
Whether you agree or disagree with me I wish you and your families all the very best for 2008 and look forward to further lively and informative discussion.
Jeff Presley 12.26.07
Fred, another excellent gold star quality article, in fact I believe this one is your best yet. Perhaps like fine wine you ARE improving with age? Sorry I've been truant here during the holidays so couldn't wish everyone a Merry Christmas, at least I can wish a Happy New Year?
Politically, the issue with ethanol is the US Senate. While there are lots of "flyover" states in this country that those on the left and right coasts comfortably ignore, the genius of the senate structure where states with minuscule populations each get the same number of representatives as a California has certainly tilted the balance of power towards those selfsame flyovers. It also so happens that those flyovers produce the vast majority of crops in this country, therefore we have these wonderful farm subsidy bills that perennially get passed and now the ethanol bills.
Unfortunately ethanol is so corrosive it won't pipeline well, so we have the added wonderment of seeing fuel hogging semis loaded up with a few thousand gallons of ethanol and burning hundreds of gallons of much higher BTU diesel to get it to markets thousands of miles away. But hey, ethanol is a better additive than MTBA was, at least according to those who devised a test that could find MTBA in any water, including bottled. Some might contend that test was flawed, but I digress...
As a happy Valero shareholder, I appreciate the efforts that go into refining. On the other hand, as Valero discovered, by tweaking their processes years ago to accept a heavier feedstock, their profits went up substantially. Remember, that $100 / bbl price refers to a specific crude, West Texas Intermediate, which comes out of the ground looking like honey. There is less and less WTI to be found, so its price will naturally go up. Should you try to sell that oil you struck in the backyard to Valero, Exxon or anyone else, they will assay it, and find it lacking, and you will make less or even much less than the Nymex price.
The idea of Saudi refining oil sounds great to me, and it serves the NIMBY's right in each of the respective countries that they now have to worry about oil AND gasoline and other refined products embargoes. The reason the US hasn't built a refinery in 30 years is because of the onerous EPA regulations on same. Something tells me the Saudis, Nigerians, Venezuelans et al won't be so picky. So not only will we import everything with perpetually declining dollars, francs, kroners etc., but we also get to EXPORT our pollution. How egalitarian of us.
Ethanol is indeed a good replacement for MTBE. Not sure it's economically viable as a fuel itself.
Jeff Presley 12.27.07
Jim, LOL< thanks, my silly spell checker in Firefox "fixed" it for me and I didn't notice. Your second statement is so spot on it bears repeating: Ethanol is indeed a good replacement for MTBE. Not sure it's economically viable as a fuel itself.
Of course we can all just wait around for the magic Genie battery being hyped on the blog pages of this site to solve our problems too...
Malcolm Rawlingson 12.27.07
Unfortunately the magic battery requires those magic electron critters...and right now most of those come from coal plants turbo-generators.
In-vehicle battery technology (if it ever works) just moves you from one energy source (oil) to another (electricity) for your transportation energy requirement.....so then we sit back and wait ......until all the coal in the US is used up and THAT needs to be imported too.
But vehicle batteries and nuclear are a hand in glove fit....using base load overnight to keep the plants on line at 100% full power while charging the battery in the vehicles for use during the day.
Problem is there are nowhere near enough nuclear plants to fill the gap and the ones still running are at or near the end of their design life. So better get building more nuclear.
Happy New Year to You All
Malcolm Rawlingson 12.27.07
Jeff...interested in why ethanol is corrosive and cannot be transported by pipeline.
I am not a pipeline guru but I am assuming that existing lines are carbon steel and the ethanol is corrosive to that. So we would need to build a new pipeline distribution system (of more resistant materials) to efficiently move ethanol around..am I on the right track - or in the weeds.
Not heard of that issue before..interesting .
Jeff Presley 12.27.07
Malcolm, I'm not a pipeline guru, nor do I play one one TV. I have a friend who used to be, but even he is out of the loop for the past 15 yrs. My guess on ethanol is its hygroscopic properties cause it to absorb any water it finds along the way, and concentrate it on the pipeline surface. A quick Google on the subject pointed me to lots of boring papers like this one that may or may not explain the causes, I couldn't stay awake long enough to be sure, although a search for hygroscopic didn't find any hits in the article... :)
Building a new pipeline system won't be cheap, it would cost about double what the last round of optical fiber installations cost in the late 90's, and that effort bankrupted multiple companies. Williams Co, did figure out a way to utilize their pipeline right of way to deploy fiber and made some bucks from it, but I'm not aware of the reverse ever happening.
Ethanol isn't so bad when it has been blended with gasoline, unfortunately the refiners aren't where the ethanol producers are and vice versa. Maybe MTBA - um Methyl tertiary Butyl Alkaloid would be the ticket... or not. :)
Jim Beyer 12.28.07
In-vehicle battery technology provides more benefits than just shifting your energy source from oil to electricity (coal).
First, coal-fired plants are more efficient than I.C. engines. So you get more out of the fuel that is used. Second, it reduces the number of exhaust pipes from thousands to one big one. This could help in the reduction of pollutants (but not CO2). Third, since cars can be plugged in up to 20 or more hours per day, this provides a power need with a great deal of temporal lattitude, which is just what is need to make intermittent sources (wind, solar) more viable, and can also play well with the excess demand we have at nighttime with our conventional power sources.
So, essentially, we can displace many millions of barrels of oil (per day) with little or no infrastructure changes at all. Worst case, some additional fuel (nuclear, coal) is burned at night on underutilized capacity.
Finally, since the batteries are the major cost on a plug-in hybrid vehicle, the average consumer could pay "green" power prices and still be way ahead on the margin with respect to gasoline. Even if the price of electricity doubles (10 cents to 20 cents per kW-hr) the cost of use for a PHEV only goes up about 10%.
david austin 12.28.07
Professor Banks - How dare you preach prudence! We must brand you as an alarmist who must be ignored lest we might be required to make expensive investments to ward off a frightening future. Surely the world economy can't immediately afford the cost of investing in world without oil. Better if we get along with the current system until 2020 when everything completely collapses - but at least we'll have 20% ethanol.
Sarcasm aside, this issue is about a billion times more urgent than global warming. Interestingly the oil reserves crisis is also at odds with the global warming issue as the most affordable portable-energy alternatives (coal, tar, etc) to conventional oil ultimately leaves larger carbon footprints than does pulling oil out of the Middle East, and do so in our own backyard. It would seem the most ardent global warming enthusiasts therefore would downplay this problem while trying to develop renewable clean alternatives so they become the replacement technology instead of shale / coal / tar based solutions.
Frankly I don't understand the largely unsubstantiated level of confidence in getting oil from coal or tar, regardless of how accurate the predictions might be. I can only assume that the concept is a panacea to soothe the mass hysteria that would result of the realities of our current situation was really understood. At a minimum I'd think that if the world leaders understood the realities at least they would be encouraging the development of coal and tar based oil refineries. Instead I see no such incentives whatsoever - which leads me to believe that perhaps Banks is right - the coal and tar to oil concept is a pipe dream and the powerful already know it.
Malcolm Rawlingson 12.28.07
Interesting arguments Jim. Not sure I agree with you that the effiiciency gains are that great or that we would not need electrical infrastructure improvements to accommodate the additional load.
The industry can hardly keep pace with existing demand (peaks and base load) let alone having large battery chargers adding axtra load to the system - even if it is expected that this will occur only overnight. But that said it is likely less of a change than fuel cells using hydrogen.
Most fossil fuelled plants are shutdown overnight or operated in spinning reserve beacuase they can be loaded very quickly. Nuclear plants are all operated at base load to take advantage of their low fuel costs and high reliability. Adding more base load at night from vehicle battery chargers will result in more frequent operation of the fossil fuelled component or move the industry to build more nuclear plants to cater for the larger base load - a very likely scenario given the age of many coal fired plants and the now urgent need to replace them.
By way of explanation....one of the limits to nuclear capacity is base load saturation because current generation nuclear plants are not easily cycled from low to high power operation. So once all the base load is accounted for fossil plants are required to meet the peaks which they do very well. Larger base load and lower peaks very much favours nuclear over all other forms. The flatter you can make the demand profile the easier it is to meet it with nuclear capacity.
Plug in vehicles will therefore lead to more impetus to build nuclear since they are more efficient and better utilised for baseload (cheaper too - much cheaper and an order of magnitude cheaper than solar). Not many folks that I know are eager to pay 40 cents a kWh...over 4c for nuclear...they want their power for as low a price as they can get it.
Not sure I entirely agree with the efficiency argument. Vehicles are not particularly efficient but neither is generating electricity. A large modern coal plant can achieve about 38% efficiency (That is electrical energy out divided by chemical energy in). But many of the old ones (still in use) are nowhere near that efficient....many in the low to mid 20% range. Also the line losses to get the power to the point of use is not insignificant - especially at lower local distribution voltages. So I'd estimate the overall process to make the power from coal and get it to the consumer is not much more that 20% for an old coal burner and maybe about 30-35% for a nuclear plant or new coal plant. So some gains for sure but not that great. Marginal at best.
The big gain as far as the US and Canada is concerned is no longer relying on oil based products for transport. But then again oil refining is a complex business and fuels oils are only one part of the extraction process.
Using zero gasoline does not mean using zero oil - a point that many commentators do not yet understand. All the other products that come from oil still need to be produced at the refinery....we may be in a situation where the gasoline becomes a waste product and must be flared off!!!
If we do not refine oil where do the feedstocks for the plastics industry, lubricants, diesel fuel for trucks etc come from. If one reduces consumption of just one product (gasoline) from a refinery by 50% my guess is that you must also reduce demand for the other products by a similar amount. It cannot be done in isolation because the single barrel of crude contains it all. The problem is we equate oil use to gasoline use and that is not a correct assumption and is an over simplification of a very complex industry.
By using plug in hybrids we could displace millions of barrels of GASOLINE per day. It is not true to say that we would also displace millions of barrels of CRUDE OIL a day....not unless consumption of every other crude oil based product is also reduced proportionally.
It seems straightforward on paper but I suspect the reality of wide scale use of plug in vehicles will be somewhat different to what you expect.
It might make wind power more viable but not solar. Since I have observed (frequently) that the Sun does not shine at night I must assume that PV cell output is also zero at night. So how exactly does that fit in with the overnight charging of batteries. The idea seems about 180 degrees out of phase with what you need to me. I suppose one could place solar panels on the cars so they can be charging during the day but not sure the surface area is sufficient to do much of anything.
Malcolm Rawlingson 12.28.07
Jeff, Thanks for looking up the ethanol issue. I think it underscores something that has been troubling me for a while. We live in a very complex industrial world and even small changes (like using ethanol instead of gasoline) are not that easy to accommodate without significant technical repercussions - the solutions to which are very costly and not easy to do.
Yet we repeatedly hear on this site and in the news media the "panacea solutions" or the latest technology that is going to save us all without any consideration of what actually will be required to be done to make them work.
Your thoughts on the comaprison of replacing wire telecomms cabling with fibre optic cable is a good one. Billions invested...many companies bankrupted in the process. That pales in comparison to the costs of some of the ideas put forth to solve the various energy problems that exist now and that are likely to get worse in the future.
I think part of it is that society (especially western democracies) have got so used to their comfortable lifestyles that are maintained by all this technology that they have become oblivious or just do not care how their lifestyle is created.
It is especially true with electricity. Producing it is a complicated process that no one cares about .... until it is not there when they need it .... then the phones start ringing off the hook. No one wants a power plant or power lines but everyone wants electricity. No one wants an oil refinery or to import oil but everyone wants gasoline so they can drive their cars.
So lets just produce billions of gallons of ethanol and not worry about how it gets from A (producer) to B (consumer). Let's tell the utility industry to build millions of windmills and not worry about the wrecked countryside and miles of new power lines required. I think everyone who wants wind power should be given planing permission to build a 200 foot tower in their back yard....perhaps the misplaced enthusiasm will wear off.
Jeff Presley 12.29.07
Malcolm, as usual your comments are spot on. It would be presumptuous of me to try and add anything to them. I do believe too many ivory tower folks believe that they can wave their magic wands and cause massive changes because they see it at some micro level and want to multiply it out to the vast level., but as our friend Edward teaches us, it is unwise to attempt vast scales things with half vast ideas.
Ultimately the NIMBY's have to acknowledge that they live in a fantasy world and unless and until they are willing to accept the FULL consequences of their actions (and inactions), they should not lever the kind of influence they do today. Clearly the democratic system is far from perfect and overloads the scale with rights geared for the so-called underprivileged class. The scale gets out of whack with minorities claiming rights they never earned by votes or otherwise, and holding the rest of society hostage to their whims. AGW is only the tip of this iceberg.
Just because engineers have managed against all odds to produce miracles in the past does not mean they can be relied on to do so in the future, and society as a whole neither appreciates nor acknowledges the role engineers have played in its status quo. Just look how few parents are pushing their children to engineering disciplines and how the US immigration system stigmatizes non resident engineers, and we can see the writing on this wall. A future of too many lawyers who couldn't' design their way out of a paper bag determining a future society that can never come into being - and wondering what went wrong when there is nobody left to sue when the power doesn't work, in fact when nothing works.
david austin 12.29.07
Check out Ausra's solar thermal technology. 24 hr/day power and rates that are competitive with coal. 92 x 92 miles square (a small section of one of our deserts that gets full sun all year long) is enough to supply the whole country.
Of course, sans Ausra's technology I'd agree with you regarding solar.
Len Gould 12.29.07
It is absolutely inevitable given the simple physics and economics involved, that it is you opponents of solar energy who will be considered the main problem when future generations look back at now as history.
david austin 12.29.07
I venture to guess history will be more likely to blame it on the $0.25/kWh cost. I also think history might blame idiots like Al Gore who works to divert most of the funding for renewables into futile and hopeless technologies.
If Ausra can deliver on their promises (24/7 grid power at coal power rates) you will see some radical changes in public sentiment toward solar - but it will be regarding solar thermal, not solar PV.
I'm still a huge proponent of PV for distributed energy where it's economical, but I find it amazing that there are those that think distributed energy will be viable for as many as 10% Americans, while most Americans are taking out second mortgages just to make payments on their first mortgage and pay off debts.
Len Gould 12.29.07
Did I say anything about PV? Thats still 20 yrs away, and is completely sensless to subsidize as long as we do not yet make maximum use of solar thermal. Of course it would be interesting to be an historian 50 yrs from now with full access to current politician's records...
Jeff Presley 12.30.07
Len, you give politicians far more credit than they deserve. David talked about a 92x92 (8464) square mile area feeding the US it's power needs. Of course in reality, where the rest of us have to live, that could NEVER happen, and it has less to do with the machinations of politicians than every Tom, Dick and Harry out there wanting to put their two cents in. Even if it is wasted desert, there will be Tom screaming about the freckled centipede going extinct, and Dick will complain about the view being destroyed and Harry won't play along unless his palms get greased by SOMEONE and the politicians just play (pander) along for the ride, making an extra million or so for every year they're in office, so naturally they like to stay in office a LONG time.
As Malcolm said, the great unwashed haven't a clue how those electricity thingies get to their TV's, and even if their collective IQ is 10, their vote cancels out Malcolm's and mine times 10,000. Dumb people vastly outnumber smart people, which as Hamilton immediately recognized is the fundamental flaw of the democratic process. BTW, the US has systematically removed every check and balance Hamilton put into the system so now we do indeed get the dumbed down version of leadership we justly deserve.
There is no great conspiracy, nothing that intelligent. This is just the natural progression of consistently stupid leadership with NO PLAN whatsoever. Evolutionists should be thrilled.
Brian Kelly 12.30.07
My first post here, so please excuse me if I miss any etiquette rules.
Fred, Thanks for the article. Love your writing style.
On the topic of corn based ethanol in the US, it seems like most analysts have settled on an Energy Return on Investment (EROI) of around 1.3+/-. Not good.
Len, Nice calcs on energy use arbitrage. Seems like a useful exercise to set some type of price targets, although I would think it possible for prices to exceed this floor during infrastructure transition periods.
Not my area of expertise, but my understanding is that ICE rarely exceeds mechanical efficiencies of 20%. Also, potential additional benefits from PHEV vehicles can be attributed to weight reduction in engine & drive train.
David, For viability of coal to oil see German experience in WWII and S. African experience during Apartheid.
Malcolm, You can sign me up for that tower & turbine in the back yard.
Joe, Followed you here from TOD. This place is great, thanks!
Ferdinand E. Banks 12.31.07
Hi Brian, welcome to our humble forum.
Anyway, I'm not especially enthusiastic about EROI, although I'm not prepared to bad-mouth it. I think that if the calculation is made in dollars instead of energy units that there is room for some corn-based ethanol in the scheme of things. The question is how much!
As for coal to oil in Germany and South Africa, that seems to me like a last rather than a first resort. Unless I'm mistaken, a lot of oil was smuggled into South Africa during the boycott, and if coal to oil had been so great, the South Africans wouldn't have bothered. But as with ethanol, some of it is justified, because the bottom line is going to be a basket of energy sources - perhaps with nuclear tying the whole thing together.
Jim Beyer 12.31.07
To be fair, the main benefit of PHEVs is displacing oil with something else, such as coal or nuclear. I am not sure how much this would really impact the existing infrastructure, especially if they are charged overnight, but I will admit not being well-read on this area. Obviously, no changes are needed until a substantial number of PHEVs are in the field.
I think PHEVs as a load obligation dovetail well with renewables that suffer from intermittency problems. A load obligation that has a 10 to 20 hour window to be serviced provides quite a bit of flexibility to the electricity provider. The added costs of green energy are still low compared with the costs of the gasoline it displaces, so the consumer is still ahead.
There's a strange brew of PHEVs, renewable energy, and smart metering that oddly can all play together fairly well, but if implemented separately, are much more problematic.
Don't get me wrong, I'm all for more nuclear power, but renewable sources actually could be useful for charging PHEVs as well.
Malcolm Rawlingson 12.31.07
Thanks all for your informative comments.
PHEV's in any shape or form (battery, hydrogen fuel cell or whatever actually works) are essentially energy storage devices paid for by the automobile consumer. Instead of buying and ICE you buy an electron storage box with an electric motor. Not a bad idea in theory.
To some extent I agree with notion of a fit with intermittent sources of supply and I have said a few times that the biggest (but not the only) problem for them is storage of the electrons they produce. If the public can be persuaded to make such an investment then grid systems will have tens of millions of free electron storage boxes to use. That is a good thing...and very good for nuclear power.
Should a design of PHEV be mass produced that can utilise base load electricity for charging overnight then the very best energy fit is with nuclear - not wind or solar. That is the perfect dovetail.
At well over 90% capacity factors and very low fuel costs nuclear and PHEV's make a perfect combination that could not only displace the use of gasoline (I am careful not to say displace oil which is not the same thing) but also displace coal fired generation that is used for most supply over base load. In other words we build nuclear capacity over and above base load so that it is available duting the day to meet loads above base. Overnight or during off peak times the extra capacity is not de-loaded but used to charge PHEV's. PHEV's essentially flatten out the load profile for the utility....that has to be a good thing - especially when the utility is not footing the bill. It is also going to be resistive load so that is good for power factor control.
Overall I like it. Of course every gas filling station in the country will go broke as will the governments who tax the stuff so mightily. There will be no fuel tankers on our roads (not so good for tanker drivers) and no gasoline pipelines to worry about. Not sure what the oil refineries will do with all the gasoline which will now be a waste product since no-one will need it. All the current investment in ethanol will be wasted too as there will be no need for it either. So as with all things - lots of downside too.
Welcome to the forum Brian...good to have another view of life in the energy business. Hope your neighbours don't mind the 200 foot tower in the back yard - mine complained about a flagpole a tenth the height and the flag didn't make any noise (well it flapped a bit). Of course as part of the deal I would have to disconnenct you from the grid so that when the wind wasn't blowing you would need another source of electricity. Can't have your cake and eat it too.
Thanks Jeff for your insightful comments. Our level of education on technical issues is so abysmal that politicians and media alike can tell the public any garbage they want and it will be believed. Like there is enough solar energy in our desert to power the whole country. There is enough water in Lake Michigan to supply the whole country too....so how come many parts of the US are in dire shortage of the stuff. Methinks the problem is getting it to the right place....via those nasty power lines that no one apparently likes (can't think why not...but Brian won't mind a tower in his yard - just gotta convinve the neighbours it's a good idea.).
Of course powering Alaska and Hawaii might pose a small technical problem - but hey nothing that a few hundred billion more on the US debt pile won't fix. Any way most of the power lines from the desert to Alaska would be on Canadian soil - I am sure the residents of Alberta and BC won't mind that - they are just champing at the bit waiting to build more sections of 500kV line over the pristine Rocky Mountains and Northern Forests.
Might be a small problem with line losses. Over such long distances I suspect there would not be a whole lot of desert electricity left at the end.
Seriously any changes in our complex infrastructure need to be well thought out and the repecussions fully understood before we start spending billiions on one hair brained scheme after another.
Happy New Year All. Still making lots of electrons at our plant here - and it is not sunny or windy today.
Malcolm Rawlingson 12.31.07
Jim...I just read your piece on Methane in automobiles. Good stuff.
Such vehicles (using methane) are quite common. Enbridge Gas in Canada runs its fleet of vehicles on it and so do a few other corporations. It is available from many has stations here and has been for 10 years or more. No major chages to the engine required. Gas tank is heavier of course being high pressure cylinders. So the question is why use ethanol and not methane. It's simple no subsidies or Government hand outs for using methane - none that I am aware of any way - lots of them for ethanol. Nothing to do with the technology. Most houses have a methane gas supply so you can fill up at your home....no need for gas stations in the number we have now.
Also I am sure the oil cartels can accommodate a bit of ethanol (they do now) but a switch to methane puts most of their profitable operations out of business. They would not know what to do with all the gasoline which is a by product of refining. The gasoline becomes a waste stream.
That is why no methane cars.Since the methane distribution network is already in place and there are numerous ways to make it (apart from getting the stuff from the middle east and elsewhere in ginourmous tankers) you would think that option would make alot more sense than ethanol......you make it out of waste not foodcrops. Much more sensible.
But if PHEV's work there will be no need of either methane or gasoline or ethanol. Just nuclear plants.
Gotta love that.
Malcolm Rawlingson 12.31.07
Fred - a thought to ponder.
I am a self confessed dunce when it comes to the oil refining process but I would like your thoughts on what would likey happen to oil consumption if the demand for the gasoline part of the refinery output declines to zero.
Can a refinery be reconfigured to NOT produce gasoline. We have talked much on this site as though oil and gasoline are the same thing but I don't think they are in reality.
One learned friend of mine said to me that if the refineries could not sell the gasoline into the market place they would have to flare it off like they used to do for methane.
I don't think gasoline and oil can be considered the same thing but I would appreciate your wise Proffessorial thinking on it.
Jim Beyer 12.31.07
I think I can answer the refinery question partially. The short answer is no, they wouldn't flare off the gasoline. A similar problem occurs whenever the mix of diesel vs. gasoline changes. With some tweaks the refining process can alter the ratio of gasoline or diesel produced.
Gasoline are the shorter chained molecules (7-10 carbons), diesel and heavier fuel oils are longer chained. You want them all to be C-C bonds, or alkanes, so methane is often used to hydrogenate double- and triple-bonded carbons.
I THINK the trick with unwanted gasoline would be to tie them together into bigger chains. I think this can be done, with some effort. Oil companies are far too smart to just throw that stuff away.
BTW, methane can also be produced synthetically, via electrolysis (4H2O -> 4H2 + 2O2) and the Sabatier reaction (4H2 + CO2 -> CH4 + 2H2O). A bit more expensive than from biomass, but from easier-to-find materials. Just add (a lot of) energy!
The latest U.S. energy bill does recognize biogas as a renewable energy and able to receive subsidies, etc. So I dunno why people aren't pouncing on it more. it's not even due to lack of subsidies. Just disinterest of some kind. Very odd.....
I think an optimal vehicle would be a PHEV with a largish methane tank, and an IC engine optimized to use methane. Also, give it a tiny (2-5 gallon) liquid fuel tank, just in case one is in a bit of a bind with respect to fuel sources.
Bob Amorosi 12.31.07
Marvellous article on oil's economics and politics, and all the reader comments following are very enlightening too, especially to those like myself who are little educated (to various degrees) about the oil industry and the electrical energy generation industry.
As an electronics design engineer I have a much different perspective on these matters. I am for the most part just an average Joe consumer who sees the threats to our lifestyle of escalating oil prices and unstable supplies, of global warming, of an ageing electricity generation and grid system read less reliable and more expensive, and of the never ending growth in all types of energy consumption that is accelerating because of countries like China and India.
A common old saying is to never place all your eggs in one basket - and unfortunately a lot of the world's eggs are in the oil basket. I agree with Fred, Len, and others who are predicting that we should and probably will see a greater mixture of energy sources in our future because we will have no choice but to diversify.
Curtailing growth in world energy consumption would help ease the looming crisis in oil, or at the very least buy us time to transfer our eggs into a variety of other baskets. But not enough attention is given to this subject, since it is taken for granted that energy consumption growth is a foregone conclusion that we can do little about, and is in fact a necessity to sustain growing populations and growing economies.
Malcom, I agree nuclear is very likely the least painful way of sustaining massive growth in electrical energy consumption on a huge scale. While I believe in adopting a mix of all the other generating sources, nuclear will have a major role in providing most of the baseload. Indeed in places like Ontario Canada our provincial government is undertaking massive steps to set the stage for much more nuclear - by forcing smart electricity meters on every local utility company, and soon Time-Of-Use billing rates on all 5 million homeowners and industrial consumers. The TOU billing rates will be designed to level demand curves by encouraging load shifting to off-peak hours. Complementing this is massive government spending on promoting a culture of energy conservation through rebates to consumers who purchase compact fluorescent lights, appliance timers, and new more energy efficient home appliances. These measures alone however will not save us from the massive expense we face to replace our ageing generators and electricity grid.
We in the electronics industry are partially to blame for the world's growing demand in electrical energy consumption, and petrochemical plastics consumption. Consider the vast number of electronic consumer goods today sucking power from the grid as compared with only a few decades ago. It's common to have a home filled with multiple TVs, entertainment systems, electronically controlled major appliances... all often consuming phantom loads even when they are not being used. It is precisely the lifestyle these things help to provide us in the developed world that the emerging economies of China and India are rapidly trying to aspire to.
To its credit the electronics industry is changing, quite rapidly in its traditional character, by focusing much more now on lower power consumption designs in consumer products to achieve greater energy efficiency, and in portable products to achieve longer battery life operation. You cannot design any new consumer product today without considering the most power efficient technologies, as well as in automotive electrical and electronic system designs. It is largely the adoption of electronically controlled engines that has enabled the large gains in engine fuel efficiencies over the last twenty years.
The electronics industry is also capable of enabling much greater energy conservation with consumers that could help curtail energy consumption growth. Things like in-home automation that could function as demand response systems for utility companies, and real-time in-home energy monitoring that would help to educate consumers about what the effects are on energy demand, and on their pocket books, every time they reach for electrical switches in their homes. These concepts have been studied by many in the utility industry, and in governments, but are not implemented on a very wide scale yet often because of conflicts over who should pay for it.
Bob Amorosi, Resident of Ontario Canada
Ferdinand E. Banks 1.1.08
Jim Beyer has answered Malcolm's question, which is a good thing because I am not sure that I could. I have always been interested in studying the cost associated with obtaining more gasoline, given the increasing 'heaviness' of feedstocks (i.e. oil). The very idea of flaring gasoline sounds to me like something I might read on the op-ed page of a Swedish newspaper.
Glad you like my paper Bob. Yes, thanks to the Chinese and the Indians, people have stopped telling me to shut up and find something else to talk about.
I find your remarks interesting also. Something that I have never worked with is this business of restraining consumption, or changing lifestyles. One constantly hears more and more about this however, which I think is good in the light of where global population is going, but frankly I don't have the guts to offer my two cents. What I could do however is to study the details and results of a comprehensive introduction of smart meters. What I am afraid of here though is having my theories about the craziness of electric deregulation questioned.
Peter Boisen 1.1.08
Fred is, of course, right about oil. The price will grow, very rapidly, since supply does no meet demand. Jim is right about the options. If we ignore electric power and PHEV's the most promising choice is methane (at least until we reach a point where H2/FC vehicles can be marketed at a cost which makes sense). The obvious reason why oil companies do not wish to discuss methane is that this option would force them to invest in an option that would endanger the profitability of the liquid fuels now supplied. The admixture of bioethanol or biodiesel into gasoline or diesel means more of the same - still the same vehicles.
The American car industry has a huge overcapacity problem. CEO's will not be applauded if going for invvestments into vehicles able to run on methane. A safer strategy wiould be to talk about future H2/FC vehicles, or PHEV's as a longer term solution, and bioethanol and biodisel as the short term remedy. Unfortunately bioethanol and biodiesel are not very good alternatives.. The prices for feedstock unfortunately are growing (www.public-ledger.com)
2006 2007 Wheat 350 880 cents per 60 lb bushel Maize 220 390 cents per 56 lb bushel Soya 360 800 Euro per tonne Palm oil 400 920 Euro per tonne Sugar 340 280 $ per rtonne Rape 230 480 $ per tonne
The truth obviously is that conventional bioethanol and biodiesel are becoming extremely expensive. .
In Europe the legislators have recognized the need to support the use of different waste fractions as a means to to boost the supply of biofuels, and, for this reason, suggested that fuels derived from waste should be considered as offering twice the normal GHG benefit.
Regarding PHEV's it is not a foregone conclusion that these vehicles will provide energy and CO2 savings, One would have to prove that the energy consumed is less thän the energy otherwise spent to propell the vehicles. Very likely this will no be the case.
Jim Beyer 1.2.08
PHEVs may not save energy. But they may be useful in that they can make use of a different kind of energy, namely electricity. Their main value is in using less fuel, which is a very dear resource.
Here's an example. If a PHEV is charged with 10 kW-hr, and can use most of it, that's about $2 worth of electricity, even if obtained from green sources like wind or solar. We are ignoring the cost of the batteries, which is substantial, but the fuel cost itself is very low.
If, instead, we chose to synthesize the fuel from electricity, the cost would be higher. Working backwards, 10-kw-hr of usable energy from a fuel burned at 30% efficiency, means about 35 kw-hr of fuel is needed. That's roughly 1 kg of H2 or 2 kg of CH4, or a gallon-equivalent of gasoline. At 70% efficiency of electrolysis, that's about 50 kw-hr of electricity needed or about $10 at 20 cents per kw-hr. Quite a bit. And this does not take into account the cost of the electrolyzer. With respect to synthesizing fuel, you get losses coming (synthesizing) and going (using the fuel). Fossil fuels don't have the loss from synthesis, but they have the even more pressing problem of eventual depletion.
It should be apparent that if we wish to minimally disrupt our current energy systems, the best way to do this would be to make use of short-term storage technology to displace expensive fuel used for short term needs. Since most vehicle trips ARE short duration, this is a really good fit, at least in theory. Fuel is best valued when it stores energy for a long period of time, or when a large concentration of energy is needed for a task, such as a long trip. A vehicle idling, or even travelling at load speeds in stop-and-go city traffic is not a good use of gasoline, and is better displaced with gasoline.
The lack of push for methane vehicles is odd. To be fair, they don't seem to be well-received by the public. Their inner space is limited by the tankage, their range is a bit low, their cost is a bit higher, and fueling stations are limited. Further, NG prices tend to rise along with gasoline, though I think they are still lower.
But consumer disinterest aside, its far easier for an automaker to pawn off an E-85 vehicle on the public than a methane vehicle? Why? Because it costs less. The typical consumer would not appreciate the sticker shock of a methane vehicle, which is already perhaps problematic to fuel. It is no matter that an E-85 vehicle does basically NOTHING to address our usage of oil, but that appears to be beside the point at this time. If the government was serious about addressing our oil use, perhaps they could issue tax credits for methane vehicles, instead of subsidizing ethanol. Until something like that happens, renewable methane will continue to be the red-headed stepchild of alternate fuels.
Paul Stevens 1.2.08
David Re: AUSRA
Thermal energy "...24 hr/day power and rates that are competitive with coal..." reminds me of nuclears original claim of being "too cheap to meter."
If the calculations and belief in the technology were anything more than speculative, I would expect billions of dollars to be flowing into this today. Solar Thermal electrical generation has been around in prototype form for over a decade at least. I'm not saying it isn't a solution, but I am wondering why, if it has even a 50% chance of coming through, why Westinghouse, G.E., Microsoft, GM, or any other deep pocket corporate concerns aren't massivley funding it. They must see something that holds them back.
Paul Stevens 1.2.08
I see they claim "...directly competitive with new gas-fired generation facilities and much cheaper than coal-fired plants with sequestration."
That's a slightly different story than I originally took from your comment.
Good luck to them. My original question still stands. If the technology is as far advanced as they seem to claim, I wonder why they haven't been scooped up by Exelon or Areva or somebody else.
Bruce Rising 1.2.08
A comment earlier that battery technology in vehicles "could help in the reduction of pollutants (but not CO2)". I believe several studies suggest that (with coal as the feedstock), at current efficiencies there is a net reduction of CO2 (when comparing emissions from the tail pipe to total power plant emissions). Improving electrical energy storage and conversion in the transport sector could yield even greater reduction in total CO2 emissions. Another complex example of how a simple strategy (improving efficiency) is such a strong player in both the energy and environmental strategies.
Kenneth Kok 1.2.08
Jim, I have a question concerning PHEVs. The concept seems to include both an electric and a fossil motor/engine in the drive train. Would it be practical to include a small diesel or ICE that would run a generator and only use the electric motor for motive power? To me the PHEV that could go 80 miles on that over night charge would take care of 80 - 90 percent of the vehicle use but for long distance driving, something that would let me keep the battery chaged on the fly would be most useful. What do you think?
Jim Beyer 1.2.08
I think you are talking about a serial vs. a parallel hybrid PHEV. The Toyota Prius and the Ford Escape are both parallel hybrids. Under certain circumstances of high power needs, both the ICE and the battery pack can apply power for acceleration. (This is done with a nifty planetary gear arrangement, but I digress). A serial hybrid is more along the lines you propose, This is also exactly what GM is doing for the Chevy Volt. In fact, they don't even call it a PHEV, but instead call it an extended range electric vehicle.
I'm not sure exactly what the "right" strategy is, but I personally lean toward the parallel configuration. That's just my present bias. That could change over time.
One issue with the serial strategy is the limited power. You are limited to what the battery pack can source at any time. That's an issue that will either drive up costs or result in less than desirable performance. The planetary gear allows you to access both power sources, but adds complexity. But perhaps not that much. Automakers know how to make gears. Vehicle power is another one of those odd things that is important to the consumer, but only used for a few seconds at a time.
Critics of parallel hybrids (and PHEVs in general) point to the high weight and complexity of a full-sized engine. I don't know how valid this is. Tesla Motors advocates insist that one is better off with an all-electric strategy, as you don't need the weight of the engine. I am concerned with battery cost. It seems to me that for short trips, one must either haul around several hundred pounds of unneeded engine, or several hundred pounds of unneeded batteries. Given the choice, I prefer the former, because it is less expensive.
I guess a good compromise would be a small engine with a parallel configuration. (There's no reason this couldn't also charge the battery too.) To some extent, this is done with the Prius and Ford Escape, at they both use Atkinson cycle IC engines, which have better efficiency at the expense of low-end torque (which the batteries can do well).
Finally, there is sort of an issue with using gasoline to recharge your batteries, especially if you do it a lot. You might have some net efficiency gains, but overall it might not displace much gasoline, which is the major point of this whole exercise.
James Hopf 1.2.08
Jim B (concerning methane-powered cars):
You've basically said (I think) that methane would be easier to make from biomass feedstocks than ethanol, but it is more expensive and inconvenient to use it in a car due to the gaseous state. I had been hearing about gas-to-liquid (GTL) plants that can convert methane into clean liquid (diesel?) fuel, w/o that much of an economic or energy cost/loss. If so, shouldn't we just make methane out of the various bio-sources, then convert it into liquid fuel using the GTL process? This could be used in an ordinary car, or better yet, a PHEV, using our existing liquid fuel (and electricity) distribution infrastructure. No compression tanks required.
All the above said, however, given the dire situation for natural gas, with North American gas going into decline right now, and ~80% of world reserves being in Russia and the Middle East, transport may not be the best, most important use of such bio-derived methane. It may be that all of the output from such bio-methane plants would be better directed to applications that now rely on natural gas (for which there are no practical substitutes). It may even be that using oil in cars is preferable to using methane, as the methane is saved for other uses. Of course, PHEVs (or pure eletrics) would greatly reduce the need to this bio-methane in the transport sector, allowing much more of it to be used to relieve the natural gas supply crunch that will be affecting other applications.
If GTL doesn't cost much (money or energy) there will be an overall market (level of demand) for methane and/or liquid fuels, at some overall equilibrium price. The question then simply becomes how much of this fuel (i.e., methane) can be provided by these bio-sources.
Brian Kelly 1.2.08
Absent increasing efficiency isn't energy consumption growth a necessity to sustain growing populations and growing economies? I'm thinking here of the work done by folks like R. Ayres to explain the Solow residual via addition of energy & energy use efficiency to the old pillars of labor & capital.
With a population density of about 50/SM I don't have too many neighbors to convince :). Some of the larger scale wind developments in the area do meet with some resistance, but they are being built. My endorsement is driven by reported EROIs of 20-40 and tradeoff comparison with the alternatives. Hmmm, if you're going to pull the plug on my grid participation can I add a small pumped storage facility to my tower?
Ferdinand E. Banks 1.3.08
A few general remarks might be useful here, since the oil price has apparently touched $100/b, and only yesterday I was looking at an article in Forbes with the title 'Really really cheap oil'.
Apparently the price of oil only increased by 59% during 2007, and not the 73% mentioned in this article. Sorry about that, but upward movements of that amount say something about talking about the real versus the money price of oil. If, for instance, you were a refiner buying oil, I doubt whether it would bring much joy into your life if you heard that the real price of oil is actually lower than it was 25 or 30 years ago. The same is true for a SUV owner - or perhaps I should say some SUV owners.
That observation is valid for the macroeconomy in general. Certainly a slight correction in the oil price is possible, or perhaps even likely, but oil at or near $100/b could mean some very undesirable changes in the scheme of things regardless of what the real price was at any time in the past. Matthew Simmons was interviewed on CNN this morning, and he implied that if there was any optimism left in the ranks of the movers-and-shakers on the buy side of the market, it would be best for all of us if they stopped daydreaming.
This might be a good time to talk about my new energy economics textbook, but anyone who wants to find out about what is going to happen in the future in the great world of oil and desires some reading matter should obtain and read a good elementary book on game theory - if there is such a thing. By anyone I don't mean the people in this forum, because for the most part they know the bottom line in this oil market thing as well as I do, and in some cases even better, but those ladies and gentlemen like Meester Quest on CNN who recently pronounced nuclear energy ineffective. (He needs to be introduced to the former Swedish prime minister, who pronounced it "obsolete".) Unless I am mistaken, nuclear based power in going to be essential in this business of substituting out of oil, as implied in many papers and comments in this forum. It will have to supply the "extra energy" that Joseph Somsel referred to above.
"Substituting out of oil" - what does that mean? It simply means that the future availability of oil is not going to be what we want it to be, and if we want our Volvos to continue taking the high road up to the skiing and partying in the north of Sweden, some means has got to be found to take the pressure off the oil market.
Bob Amorosi 1.3.08
Your mention of subverting PCTs with bootleg replacements or even Faraday shielding built around them to block their radio control signals explains much more than you can imagine.
Firstly, it points out the simple fact that most consumers will be abhorrent and refuse to have someone outside their home monitor or control their home's environment, since it smells of privacy invasion.
Secondly, this is PRECISELY the reason why this kind of technology has never been embraced and developed by meter manufacturers and utility companies before.
Utility meters, whether they are the old electromechanical or new smart meters, are industrial products with high reliability, warranties, and field support. Most importantly they are sold to a utility company and under their exclusive control. But it is quite another matter to make equipment for inside the home that intimately operates with a consumer's home appliances. There are huge issues with monitoring (for load shedding verification), warranty repairs, consumer complaints, etc. that the meter manufacturers and utility companies historically want no part of, since ultimately this technology would be in the hands of consumers and out of their control.
What Len talks about would be ideal - if consumers could purchase in-home technology that they themselves can set up and control, and program as they see fit to respond or not respond to energy pricing or financial incentives from their utility company. This concept however requires utility companies and in-home technology manufacturers to work together to develop and commercialize it. This however is foreign to the utility industry, since our utility companies are generally not interested in becoming heavily involved in new technology development and then retailing it to consumers.
Bob Amorosi 1.3.08
My last posting above was intended for the other current Energy Pulse article on Statewide Demand Response Network Update from California.
Bob Amorosi 1.3.08
Many articles here focus on the technology advantages and disadvantages of alternate fuel vehicles. What is not mentioned is the role consumers can potentially play with their purchasing power to influence the direction of new vehicle technology development and commercialization.
Replacing your vehicle with a new one is not something we do every year, and choosing what to buy when we do is rife with complex social issues. Fuel economy is one of them, and heir are many economists that suggest consumers would look for alternative fuel vehicles if there is significant economic benefit to buying them.
If gasoline prices reach the stratosphere because of the looming crisis in oil, most consumers will look for alternatives, but they generally cannot respond as quickly as the oil price markets can and do lately. The gasoline price threshold that triggers significant change in consumer driving behaviors and in consumer purchasing behaviors of new vehicles is a variable many economists find difficult to predict and is a subject of much debate. Some say it will take at least around three times the present price of gasoline to foster significant change, others say less.
One thing is certain; a crisis in oil will cause an economic crisis with consumers and the economy unless, among other things, alternative fuel vehicles are commercialized competitively with existing gasoline vehicles. This is where governments have a role to play - by providing financial incentives to consumers and vehicle manufacturers for the alternatives long before the crisis materializes. The federal government of Canada is taking some steps to do this now by taxing the purchase of gas guzzlers like SUVs.
Jim Beyer 1.3.08
You make good points which I might not be able to address completely or coherently in a single short note.
A few things:
There is a cost to everything, including GTL. I don't know what it is, but as a wild guess, I would say at least 20%, plus the cost of the refining equipment. That makes the liquid fuel cost higher. There's no free lunch, especially with liquid fuels. GTL makes sense in a world of ridiculously cheap NG, which is not the case in North America right now. Most GTL makes methanol, which is not the most wonderful liquid fuel anyway. Perhaps you are referring to a different strategy.
Yes, there are other things that use a lot of energy (esp. NG) so and additional demand seems odd. Perhaps it is. Truth be told, if PHEVs can be got to work well, you can basically run them with anything, including gasoline. If a PHEV uses 80% less gasoline than a typical car, then higher prices for liquid fuel shouldn't bother the consumer as much.
Living in a cold state (especially right now!) I use more BTUs for heat than I do for gasoline. So higher NG prices affect me directly. But nationwide, home heating is a much smaller draw than transportation and even smaller than vehicle transportation.
Other processes, such as chemical plants (ammonia) can move off-shore near cheaper sources of NG. This has already happened in many cases. Like oil-fired electrical generation, NG-fired power plants are also on the decline. The demand that always seems to tolerate high fuel prices is transportation.
If we could get off of oil (via PHEVs) then much NG used for refining of oil would be freed up. The NG market seems to have a lot of booms and busts, due to demand destruction when costs get high. Hopefully something like that will happen if we get PHEVs working.
(Note the great amount of NG used to pull oil out of the tar sands in Canada. Probably not the best use of this scarce material. They probably should built a nuclear power plant in that area to provide the heat sources needed, but the last time I looked, I'm not a member of any Canadian energy council....)
We pay much more per BTU for vehicle fuels than we pay for NG, even now. If the two markets were to directly compete, vehicles would 'win' because of the inelastic demand.
It's possible that methane does not make sense as a vehicle fuel. I don't think that's the case, but it's possible. I'm 100% convinced that ethanol does not make sense in any form, other than as an additive to replace MTBE. One thing I've noticed about energy issues is that when you tease apart an issue further, it unfolds in a different way, and you have to start all over. When it comes to energy plans, always use a pencil.
Joseph Somsel 1.3.08
My understanding is that GTL (gas-to-oil) makes high grade, low suflur diesel fuel that fetches a premium in the market. You could even run diesels in California on it!
Jim Beyer 1.3.08
Yes, I checked and GTL can be used to make diesel, methanol, ethylene, and some other compounds, including waxes and heavy oils. But not gasoline. At least as far as I can tell.
It's unclear how practical GTL is if the NG feedstock is high-priced. Most GTL plants seem to be set up in places where the gas is considered 'stranded' due to lack of pipelines, etc.
Joseph Somsel 1.3.08
Agreed - any decision on GTL would be site-specific and would compete with LNG, ethylene, carbon black, and other processes and markets.
James Hopf 1.3.08
The link below states that you lose ~1/3 the energy content converting the methane into liquid diesel fuel.
Energy losses shipping gaseous methane to the point of use would reduce the difference a bit. Thus, it does seem that the convenience and cost savings associated with using a liquid fuel (vs. using pressurized methane directly in the car) comes at some cost in efficiency.
To me, all this strengthens the argument that any bio-derived methane should probably used in natural gas applications (peaking power, space heat, chemical feedstock, etc..) as opposed to transport, at least at first. Once again, I think PHEVs will win the day on the transport front.
Jeff Presley 1.3.08
Jim, James et al,
Interesting thing about methane is that we USED to consume it, but the "natural gas" laws essentially OUTLAWED it. What happened is "natural gas" had to have a certain number of BTU's per cubic foot. The conversions are a bit dicey, but essentially a therm is a cubic foot of natural gas, and it is about 1000 BTU's. I'm doing this off the top of my head, so any intrepid souls who wish to disagree are welcome to Google the exact numbers and correct me to the nth decimal place.
However, the main point is that methane is 'only' about 900 BTU's per cubic foot, so naturally it doesn't qualify as a "natural gas". Also town-gas, which was cheap and easy to make likewise doesn't qualify so literally can't be sold in the United States. Make something illegal, and if it doesn't alter your mind, it is difficult to sell here. Not sure about Canada, but would bet a large sum they have precisely the same regulations.
Now our politicians making these laws have clearly been altering their minds for decades, but apparently they aren't subject to the same rules and regulations as the rest of us. :)
Jim Beyer 1.4.08
Methane has about 1000 BTU's per cubic foot (1015), so I'm trying to figure out what was outlawed. You might be referring to biogas, which has both methane and CO2 in it, so it has a BTU value of 600-800 per cubic foot, or thereabouts. I know that natural gas has to contain no more than 5% CO2 by law, so perhaps that's what you are referring to. It's not that hard, even at a small plant to separate CO2 from CH4. The CO2 is almost 3 times denser so it can be settled out via gravity or filtered out.
Town gas had CO in it, so perhaps that affected legality as well.
I guess I could agree that perhaps biomethane SHOULD be used for non-transportation applications, but we are already paying dearly for gasoline. Even at retail prices $20 per 1000 cu feet (1 MMBTU) translates into about 8.3 gallons of gasoline equivalent, or $2.40 per gallon equivalent.
Jim Beyer 1.4.08
Some more numbers:
You can get about 86 gallons of methanol from a ton of dry biomass. This is equal to about 43 gallons of gasoline equivalent from an energy standpoint. This is from pyrolysis, so the plant cost is small.
You can get about 100 gallons of ethanol from a ton of dry biomass, theoretically. This is equal to about 70 gallons of gasoline, but it does not include the added energy input needed.
You can get about 12-14 MMBTU of methane per ton of dry biomass. This is equal to about 100-120 gallons of gasoline equivalent.
I completely agree that liquid fuels are tremendously convenient, but unfortunately they come at a price. No free lunch.
Also of interest: Here's the abstract from this month's cover story in Scientific American.
"A Solar Grand Plan; January 2008; Scientific American Magazine; by Ken Zweibel, James Mason and Vasilis Fthenakis; 10 Page(s)
High prices for gasoline and home heating oil are here to stay. The U.S. is at war in the Middle East at least in part to protect its foreign oil interests. And as China, India and other nations rapidly increase their demand for fossil fuels, future fighting over energy looms large. In the meantime, power plants that burn coal, oil and natural gas, as well as vehicles everywhere, continue to pour millions of tons of pollutants and greenhouse gases into the atmosphere annually, threatening the planet.
Well-meaning scientists, engineers, economists and politicians have proposed various steps that could slightly reduce fossil-fuel use and emissions. These steps are not enough. The U.S. needs a bold plan to free itself from fossil fuels. Our analysis convinces us that a massive switch to solar power is the logical answer."
Jeff Presley 1.4.08
Thanks I was indeed referring to biogas, which happens to be largely methane, not "natural gas" which also happens to be largely methane. Thinking methane got me typing methane...
Here's are two articles from UnionGas in Canada. One talks about LNG vehicles and the other talks about Uniongas leaving the business: LNG faqs Union Gas leaving
Jeff Presley 1.4.08
whoops, the formatting got funny there, there are indeed two links above, but it is all underlined looking like only one. Click on the LNG faqs and you'll get the FAQ and the right side links to the announcement of Union Gas giving up on the business because the Canadian government didn't encourage it enough with incentives. Oh, and they are calling them NGV for natural gas vehicles and I was saying LNG for liquid natural gas...
I'm REALLY going to have to stop celebrating the new year before I kill off ALL my brain cells. :)
James Hopf 1.4.08
Assuming that GTL is 66% efficient (per my link), then the 100-120 gasoline-equivalent gallons of methane from a ton of biomass would yield GTL diesel fuel that is the equivalent of ~66-80 gallons of gasoline. Thus, the GTL route seems to be about the same as the ethanol route, although I don’t know what the equipment (plant) cost comparison is, or the magnitude of the ethanol energy inputs (which are already covered by the 66% factor for the GTL case). If the liquid fuel approaches for biomass are similar (ethanol vs. GTL), the question then becomes whether the ~1/3 loss in energy yield for liquid fuel is worth it. This comes down to cost and perhaps convenience. One must also factor in energy losses from gaseous methane compression and distribution, etc..
In terms of the second question, i.e., whether a new biomass energy source should be used for transportation or for some other (gas) application, your observation that we are paying more per BTU for transport for anything else seems true on the surface. I’m not sure what price the cost of gasoline (before profit) coming out of the refinery is, but even at $1.80, it translates into an equivalent of $15/MMBTU. Gas is not that high, yet. (Given the extra costs of dealing with gaseous fuel, however, the price of methane may have to be significantly lower than gasoline to compete with it.)
Another effect that has to be considered, however, is the effect that using gas for transportation will have on other, necessary gas applications. Given that we are paying more per BTU in the transport sector than in the gas sectors, using gas for transport will increase the price of gas to match the transport per-BTU cost, thus raising costs for space heating, peaking power, chemical feedstocks, etc.. What’s cheapest in one sector may not result in minimum cost overall (in the overall economy). This argument may also apply for oil. It doesn’t really apply, however, for electricity/batteries, as those sources are “abundant”. Thus, the PHEV approach may be cheaper, relative to gasoline and/or various synthetic fuels, than the straight economics suggests. The effect of suppression of the gas and/or oil price for other sectors (that would result from the reduction in demand for gas/oil as a result of PHEVs) has to be considered. I talk more about this minimum cost concept in the next post.
James Hopf 1.4.08
Market purists believe that the market will “perfectly” allocate resources and minimize overall cost (across the economy). I’ve come to doubt this, for the following reasons (and would be interested in being told where I’m wrong).
Say, for the sake of argument, that natural gas is the cheapest form of baseload power generation for at $6/MBTU or less. Above this price, other sources like coal, nuclear, or renewables, which have no uses in other sectors and/or are infinitely abundant, become cheapest. Also assume that gas currently costs $3/MBTU and is currently being used in all sorts of other sectors (space heat, chemical feedstocks, etc..). Under a “pure” free market, we will build gas baseload power plants until the price increases to $6/MBTU. Thus, the power sector (the sector that is willing to pay the most) sets the market price. The net result is a doubling in gas price for all the other gas-using sectors. Oh well….
According to the pure free market, if gas costs $5.9/MBTU, it “makes economic sense”, and “minimizes costs” to build a gas plant as opposed to the alternatives. Needless to say, this is clearly not the case as far as the overall economy is concerned. The real, incremental cost of the gas power plant option is the cost of the power plant and gas fuel, plus the total cost to all other gas-using sectors that results from gas price increase that results from the increase in demand from the power plant. Accounting for this would change the picture significantly, but market purists seem to insist that, no, the free market will automatically minimize costs, and that building the gas plant is “clearly” the lowest cost choice. The above arguments apply no matter what the source of gas and or oil is (i.e., from fossil sources or synthetic/biomass sources). The bottom line is that there is a single, fungible market for gas and/or oil, and any gas/oil produced from biomass is simply “thrown onto the pile”.
Somehow we need to account for these effects and indirect costs, and fold them into our energy policies. May I suggest a fuel use act (banning gas/oil from baseload power)?! As I point out in the last post, these considerations also apply for the transport sector. The real cost comparison between PHEVs and their non-electric alternatives (whether fueled by synthetic/biomass fuels or fossil gas/oil) is not what is suggested by the “pure free market”. Subsidies are in order; even permanent ones.
Once again, I am not an economics scholar. Where am I wrong on this?
Bob Amorosi 1.4.08
James: I think you are dead right.
The problem with "the market will perfectly allocate resources and minimize overall cost across the economy" theory is that it assumes, if I understand it correctly, that resources can and will be allocated AS NEEDED. When it comes to natural fuel resources from the earth like gas, oil, or coal, supply cannot always be throttled up beyond production capacity quickly if demand steadily increases. Just witness what is happening today with peak oil production capacity vs. demand growth, and the the price per barrel now passing $100.
Ferdinand E. Banks 1.5.08
I can just see myself now standing in front of the blackboard in the economics building at Uppsala University, explaining to those wonderful students why this or that should happen, thinking all the tiime about another invitation to one of their marvelous parties - thoughts which allowed me to keep my authoritarian tendencies at least partially under control .
What would get in the way of an 'optimal' explanation however is something mentioned en-passant by Mr Nietzche, which is "that the future is as important for the present as the past", For instance, somewhere in one of my early books I noted that gas had indeed been banned/discouraged as a base-load input, and in looking at the so-called merit-order, that struck me as making a lot of sense. But then combined cycle equipment came along, and it made no sense at all. But it might make sense again because the difference between the BTU price of oil and gas has moved in such a way that gas is probably under-priced.
Might...probably... It's things associated with these terms that keep the market from perfectly allocating resources. The operative word is uncertainty. And it's here that we have our problem, because to this humble teacher of economics and finance, the way to hedge this uncertainty in the context of the discussion immediately above is with nuclear - WITH NUCLEAR WE KNOW WHAT WE ARE GETTING! Unfortunately, everyone doesn't agree with this conclusion. Somebody above wants solar, while Mr Quest on CNN flashed his perfect (front) teeth during a recent debate and said that nuclear is ineffective. But that somebody is 'probably' wrong, while if I were to encounter Mr Quest in a seminar here in Uppsala I would be tempted to tell him that where this subject is concerned, clown time is over.
Let me add two more things to this incomplete explanation: on the average the market does pretty good, although I can think of some terrific blunders. And in your favorite economics book, 'change' takes place practically instantaneously, as illustrated by the movement of this or that curve.Unfortunately it doesn't work that way in the real world.
Len Gould 1.5.08
James: I think your general direction on free markets may be wrong. It seems apparent to me that free and transparent (and subsidy-free) markets are still the best method we've found yet to allocate scarce resources, except when they're not (eg. when not all costs are included in the sell price, particularly coal-generated electricity). I also will advocate subsidies for initial development of new technologies IF they will benefit society overall AND they have good near-term prospects of being marketable competitively without subsidy, eg. solar thermal. The specific market failing you're pointing out is simply a result of a slow adjustment time factor in the price of N Gas catching up with oil. It seems obvious to me that on the whole, those two should sell for approx. the same price per btu delivered, less a penalty on N Gas for the cost of using it as transport fuel. So if oil stays in the $100+ range for any significant time period, we should be able to anticipate $20 Nat Gas as soon as transport can make any significant conversion. Attempting to control N Gas usage by fiat in order to manage that relationship looks to me like a very slippery slope.
Jeff Presley 1.5.08
I too think your argument is substantially correct, but unfortunately, when we are talking about utilities in the US, we are talking about a HIGHLY regulated industry, so free market dynamics never get a real chance to gain traction. Given the non-dynamic pricing structure, the majority of purchase agreements (for natural gas) are based on long term contracts, which may or may not have much relationship to the spot prices generally quoted in the news. Of course when the utilities miscalculate, and are forced to go to the spot market, all kinds of calamities ensue as we've seen.
My previous link showed the natural gas conversion cost (net of subsidies) as being $2000, which somewhat surprises me because it really isn't that big of a deal as far as the engine is concerned. I don't have any experience with auto engines, but have had plenty with standby generators that are often configured for both diesel and natural gas. The cost differential there is pretty negligible given that the plumbing is easier without having to deal with a pressurized tank.
Ferdinand E. Banks 1.6.08
Jeff, you will have to explain to dumb me just what you are trying to say in the first paragraph of the post just above. Electric deregulation is a curse just about everywhere, and if - in Europe - natural gas deregulation goes ahead as the ignoramuses have planned, it will be even worse. Selling gas on long term contracts, while occasionally going into the spot market, makes all the sense in the world to me; and knowing what I think that I know about the future gas price, buyers of gas should make every effort to lengthen their contracts.
Dan Grogan 1.6.08
to all of you... thanks... I am a hungry consumer of every bit of energy information that I can get - from the web and from industry production mags. I am a member of a peak oil group that discusses these issues monthly. And yet I've been able to read more solid info from your postings then I've seen almost anywhere else. A very bright group of thinkers and writers. Now for my two cents worth - while the issue of finding alternative means of producing energy has been well considered ... what has not been discussed is the viablity of MASSIVE reductions in energy consumption. This is not an Al Gore plea for everyone to switch to better light bulbs. I'm talking about social structure change. An end to building housing suburbs that force people to burn a gallon of gas to go fetch a gallon of milk. Producing energy at the site of consumption via any of the alternative methods (wind, solor, biogas, biomass) works only if we find a way to really reduce the amount of energy we waste seeking a lifestyle that is the envy of the world. Sadly that world (China, India and all points inbetween) will not be heaven on earth they dream of... too many people and too few barrels of oil.
Jeff Presley 1.6.08
I think what I was talking about was the lack of fundamental market dynamics where utilities are concerned. I wasn't talking about deregulation per se, but now that you bring it up, the sad fact is the butchers (er I mean politicians) are simply UNABLE to keep their big fat thumbs off the scales, so even when we have the chimera of deregulation, the utilities are unable to rationally set prices, and of course there is no true competition either, so that other element of the free market is likewise sadly absent.
If in some alternate reality, Mr. Tesla was able to finish his experiments and accomplish wireless power delivery, there we might have a functioning competitive energy market, with no entrenched monopoly utilities and regulators playing at economics. This reality on the other hand has all that, and a market that lurches along with so many thumbs on the scale it is amazing that anything can be weighed (to carry the metaphor to its breaking point).
Bob Amorosi 1.6.08
There are some places like Ontario Canada that are actively seeking ways to reduce energy consumption growth rate, and diversify sources of power generation. The Ontariio provincial government is spending massively to promote consumer energy conservation (yes by using better light bulbs and trading old appliances in for more efficient ones, among other things), and by subsidizing alternative distributed generation like solar, wind, etc. But even these measures are not probably not enough to achieve the massive cuts you are suggesting.
The general thinking by our provincial and our federal governments is that it would be too disruptive to the economy to force draconian changes on industry and the private sector. Interestingly enough however climate change and preserving the environment have recently become the leading issues in the Canadian public, and they generally feel our governments are not doing enough yet to address it. And note the public looks to their governments to do it for them because they feel private industry will always place profits before the public good, and so leaving things up to the private sector is generally hopeless.
As you might also note reading some of the comments on this website there are those who feel very strongly that in a capitalistic society like America, government has no place or right to interfere in a free market economy. I wonder how these same folks will feel about it someday if the looming crisis in oil, and the crisis in our environment, and ultimately the economy comes true.
I myself tend to side with one of the other writers here Len Gould - if government intervention for new technologies in the energy sector benefits the public good, then I would be supportive of it, but ultimately free markets for energy should be allowed wherever possible.
Bob Amorosi, Resident of Ontario Canada
Ferdinand E. Banks 1.7.08
Jeff, I know that your heart is in the right place, but this business of Econ 101 competition (or "fundamental market dynamics" ) does not work with kind of increasing returns to scale that exists in the utilities industry: increasing returns to scale in both generation and transmission.
Dan, you say that you get more valuable information from this forum than from ALMOST anywhere else. What does almost mean here? I'm curious, because I told the readers of my new textbook that they can't afford to miss the articles and especially the comments in EnergyPulse.
Jim Beyer 1.7.08
If 66% efficiency is reasonable for GTL, then adding in the plant cost, if might go to 50%. So if liquid fuel is twice the cost of methane, then using gaseous fuel makes sense if you drive enough.
Assuming 15,000 miles/year and 30 miles/gallon, that's 500 gallons of gasoline per year. If you could half the cost of that, at $3 per gallon, then you'd save $1500/year. So payback would be around 2 years or so.
If you have a PHEV, then you might only use 100 gallons of gasoline per year (rest electricity). That drives the payback out to 5+ years. Maybe not worthwhile.
I think there's a lot of tuning to be done here. A PHEV with a small pressure tank and a small gas tank might be the best of all worlds.
Note that liquid methane probably makes sense for jets compared with GTL fuel because they fly so much (tank cost quickly amortized), they could deal with complexity of liquid methane (it's pretty cold at 30,000 feet anyway) and overall, fuel with would lighter than JP-8 per BTU.
Most ready way to reduce energy use would be to get PHEVs working. Not easy to do, but a big payoff. A car today goes about 30 miles on a gallon of gasoline. Since a gallon of gas is 35 kW-hr, that's a little over 1 kw-hr per mile. An electric drive in a PHEV needs only about 10 kW-hr of electricity to go the same distance (perhaps even less when accounting for the regenerative breaking). This is about a 70% savings in energy for one of our most energy intensive resources. The electricity needed to drive the cars can come from intermittent sources like wind and solar, which are hard pressed to service the 24/7 grid. Even at elevated "green" prices, the consumer spends much less on electricity than they would on gasoline. (There is no free lunch however. The initial cost of the batteries is high, but lifetime costs of PHEVs are still favorable, especially with battery chemistries shown to be long-lasting.)
In addition to PHEVs, everyone should insulate their homes well.
CHP, if made viable, could produce net efficiencies of 80-90% or more, though not everyone needs electricity AND heat at the same time....
Dan Grogan 1.7.08
Bob... I agree with your final thoughts on Governmental projects to solve social, economic or energy issues... if it works great... once in a while even a pig looks cute. The big problem with every governmental program I'm reading about these days is that they want to pretend they are magic - in your neck of the woods, citizens promote conservation while the gov is pushing oil sand projects in Alberta and oil exploration in the newly claimed melting territories of the Artic Circle. Fred... ' almost ' was a compliment... hey... every once in a while a guy can come across a little tid bit of knowledge and / or reason on other sites or in the obscure published works of thinkers who are not yet employed by the status quo. Hats off to you and the others on this site - you are talking about the issues and the specifics of what it takes to find solutions to looming oil and natural gas shortages.
Jim... what makes this site really good is guys like you who can do the math that allows us to compare apples to apples. So much of main stream media likes to throw out a few numbers and make it seem that the energy cruch can be solved by turning corn into fuel. Electric transportation would be great - and a good way to use on-site generation... and even low tech lead acid batteries would be better than what we've got now.
And Yet the Market Place isn't working to make big changes ... and why should it. While we all (come on.. even you Canadians) have been raised to think that capitalism always wins (ask those Chinese and Russians) I think we have all failed to notice how increasingly short term business leaders are thinking and acting. Most of the CEO need only a year or two on the job to walk away with 200 million in stock and cash - why would any of these guys think ahead to what the company should be doing in 20 years. Open Question To All on this Blog: I would like to know in detail what each of you see the world being like in 20 years. That time frame was picked because it is long enough to be beyond all peak oil forcasts. Swing away bloggers.
Joseph Somsel 1.7.08
Of course, here in California, the state will just play bartender and cut the customers off when we think they've had too much:
Specifically, the state is seeking to impose a requirement that all home and business thermostats be fitted with radio recievers allowing the state to control the interior temperature.
Jeff Presley 1.7.08
Fred, Agreed, if the truth be known, true competition only exists in Econ 101 textbooks, the real world always manages to screw it up somehow. I think Never Never Land might have economic competition, but only when Peter Pan gets out his magic fairy dust. Because the competitive landscape for utilities is even more fundamentally flawed than other markets, reading too much into pricing schemes where utilities are involved is equally flawed. That said, converting everything to BTU's and hence to KW's is a meaningful means to arrive at otherwise difficult apples to oranges comparisons.
Here's an interesting rebuttal to the usual suspects argument in a Utah paper concerning unconventional fuels, something more akin to the topic you started here.
Len Gould 1.8.08
Dan: Hi. I like your challenge idea, though it's not likely this article will remain easily accessible much longer, more's the pity. Given all the blank space to the left of this page, it's too bad we can't vote some articles into a required reading category which stays current with the 20 best articles based on voting. Oh well.
In 20 years? I predict energy wars over oil and gas resources. Your comment on the short-sightedness of CEO's also applies to politicians, so they don't act, simply react. By the time it becomes politically profitable to react to problems in the transport energy sector, it will be too late for significant development of alternatives and too politically risky to not fight over remaining suplies.
Jim Beyer 1.8.08
In 20 years, I think market forces will react.
Oil will be sky high, so cars will be alternatively fueled, if at all possible. They will probably be smaller. More effort will be put into saving energy in heating homes. Most petrochemical plants will be moved offshore to lower cost NG sources.
If alternative fuels are expensive, then world economic growth will be stalled. (That may the the key spur needed to get this technology working....) Smart metering and conservation will provide some improvements, perhaps staving off some plant constructions. Nuclear power will revive. Coal will probably still be very popular, despite concerns about global warming.
Overall, probably nothing too much is changed, other than our choices will appear a bit starker by then. If high oil prices stall the global economy, this could result in population stabilization sooner rather than later. High NG prices could raise the price of ammonia (fertilizer) and thus raise food prices to levels unacceptable by many. Humanity will either handle these challenges reasonably or not.
Ferdinand E. Banks 1.8.08
That's an ugly prospect you give us, Len, but I mostly agree with you. So much so that I'm going to return immediately to the paper that I'm working on now, and put your last paragraph (edited somewhat and with you name attached - if it's OK) at the beginning of the conclusion that I haven't written. What I don't believe however is that CEOs are as short sighted as politicians, and this particularly applies to Sweden. They are selling out this country for plane tickets to Brussels.
And that expression "energy wars" needs to be put into circulation, even if these wars don't take place.
Bob Amorosi 1.8.08
I think politicians must help to foster the alternative fuel technology developments and their commercialization. This applies to both alternate fuels for transport and the energy generation industry, and applies to the power grid and in smart metering and conservation initiatives.
If governments do very little or nothing, or simply react too late as they typically do when crisis develops, then these changes will probably still eventually happen by free market forces. But when the free markets ultimately force the changes, they will happen with much more pain to the environment, disruption of economies, and probably not be handled very well read potentially create wars. (Gosh I wonder if the Iraq war is an example of this).
Jim Beyer 1.8.08
At the risk of sounding like an apologist for the Bush administration. I don't think the Iraq war was a conventional energy war, though oil was obviously a factor.
Early in 2001, Cheney met with energy people behind closed doors to concoct an an energy plan. It's unclear exactly what was discussed, but it probably dealt with the impending production peak that could be seen coming in the next 5-10 years. Iraq was noted as a place of proven resources that was pumping far under capacity. It was the best place to get more production growth from. The fact that no one liked Saddam Hussein didn't hurt either.
Then 9/11 happens. It's used as an opportunity to get access to this Iraq oil production capacity and bring it on line. This has ended up being a bit harder than anticipated.
I guess I'm a bit more optimistic about our politicians. If oil prices STAY high, then alternatives will continue to be supported. The alternative fuel programs by Ford and Carter only died when the price of oil collapsed. OPEC would like nothing better than to collapse the price of oil at an appropriate time to kill off the alternative fuels programs. However, I think they have lost the ability to control it at this time, and (hopefully) many more people see the writing on the wall with respect to eventual oil depletion.
Ferdinand E. Banks 1.9.08
I also don't believe that the Iraq war is an energy war - conventional or otherwise; but Alan Greenspan has some of the biggest ears on the US east coast, and he says that it was about oil. So...speaking for myself, I think that I've got to look at this matter a little more closely.
FRIOUA Fares 1.9.08
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Jeff Presley 1.9.08
I've been thinking about Dan's post but don't know if this is the best forum for it. It would make a nice article here or might be more interesting at blog length assuming it doesn't turn into another EWPC flame war... ;)
Anyone want to hire Frioua as an architect? Anyone like him spamming the forum? Didn't think so.
Dan Grogan 1.10.08
thanks for the responses to my 20 year question - and while some had a undertone of despair, I'm surprised that most of you were very matter of fact - the world out of oil, economies stagnant and coal is being used to make up the difference. I've seen reports that oil to gasoline production is being promoted by politicians from coal producing states. So ... if nuclear and coal become our big energy saviors when we run low on oil - what happens to the Global Warming issue... Will the world be flooded... Florida lost to the gaters... New York City a waterpark??? so then - what will be the reality of Global Warming in 20 years??? Dan
Jeff Presley 1.10.08
To tell the story right, would require prognostications on the political front, technology front and nature front. These little edit boxes and whatever the word limit to these posts just wouldn't let us do it justice. It IS a very interesting question however.
Brian Kelly 1.11.08
For a look at some aspects of what the world may be like in 2030 you might try "The Age of Consequences: The Foreign Policy and National Security Implications of Global Climate Change" (see link below). According to this document, the authors "...consisted of nationally recognized leaders in the fields of climate science, foreign policy, political science, oceanography, history, and national security." Although I suspect they be missing some of the energy 'big picture', their mix of expertise provides some insights that ring true.