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Some years ago I wrote a paper called ‘A ‘New’ World Oil Market’ (2004), which I presented at a conference somewhere, and then published. The point of that paper was that the world oil market was in the process of a rapid transition, and the combination of resource scarcity and accelerating demand (relative to supply) would cause a fundamental shift in the market. I said in that paper essentially what I am going to say here, only at that time I couldn’t prove a few of the things that needed proving. All that has changed: it changed when the price of oil reached $100/b and continued to rise, because with that price and the present movements of global oil supply and demand, proofs are no longer necessary. In the American Navy there was once a saying that ‘On every ship there is someone who doesn’t get the message’, however on this ship everyone has finally gotten the message, where everyone includes a former head of the Petroleum Industry Research Foundation in New York, who once claimed that OPEC is “on its way into a stagnant volume environment at best”. This misleading statement can be translated as ‘OPEC’s oil is increasingly unimportant’.
For me OPEC is – and has always been – the oil producing countries of the Middle East. I’ve never concerned myself with the others because, as Matt Damon said in the film Syriana: “It” – meaning oil – “is running out, and most of what is left is in the Middle East”. As I note later, some people find this difficult to accept, however some people specialize in being wrong. The Cambridge Energy Research Associates (CERA) once said that OPEC’s fate was not in its own hands, although the truth is that it has always been in its own hands, with the difference being that now that organization is fully aware of this very dramatic fact.
Unfortunately, or fortunately as the case may be, dealing with Middle Eastern energy resources also involves issues far outside that part of the world, because it happens to be true that it is no longer advisable to discuss Middle Eastern prospects without considering the actions and/or goals of other energy producers, and vice versa. Here we have a perfect example of what in game theory is called ‘strategic interaction’.
Hopefully this will become at least partially clear in the sequel, but to begin I want to emphasize that as a teacher of economics and finance, I have been fully occupied with trying to convince students that I have something useful to say about what has and is taking place on the global energy front. Note what I said: has and is taking place on the energy front, because many observers, students, experts and decision-makers are in total or partial denial about crucial developments in recent energy history.
I also believe that I can offer a valuable insight into one phenomenon that will characterize the future oil market, which I will provide now, because it should be confronted and thought about as soon as possible. Regardless of what you have heard or will hear, read or will read, thought or will think and regardless of the assurances that the oil and gas exporters in the Middle East give or will give, it is doubtful whether those exporters are able or for that matter willing to provide the energy resources that their customers desire or will come to desire, at prices resembling those of the recent past.
And here I ask my favourite question: would you supply these resources if you were in their place?
Some years ago in Rome, at a meeting of the International Association for Energy Economics (IAEE), I was attending a lecture given by a young lady who enjoys a certain status in the energy economics world. After her talk there was an exchange of comments, during which – out of a clear blue Roman sky – she informed her audience that Professor Banks was totally and completely mistaken about the oil market in general, and prospects for oil producers of the Middle East in particular.
Naturally, when I received this negative evaluation of my research abilities I protested mildly, and later approached her for the purpose of making her acquainted with two long articles that were related to her talk and research, both of which were United States (U.S.) government publications, both of which are relevant to this presentation, and both of which are almost completely unknown to the great world of academic energy economics. In one of these there was a map showing possible landing zones for marines and paratroopers in the Gulf in case exports of oil fell to a level that governments of the oil importing countries felt were intolerable. I didn’t have that article with me at the time, however it didn’t make any difference, because after describing its contents, I saw from the look on her face that she considered me a tiresome know-nothing, and somehow unbalanced for bothering her with my reference to some boring document, assuming that it actually existed.
The second article (1979), which – for obvious reasons – I chose not to mention, began with a long passage on the intended production program of the foreign companies that managed oil facilities in Saudi Arabia (and elsewhere in the Middle East), before the governments in that region decided that despite rumours that had been spread far and wide by Big Oil and others, they were just as qualified to manage the resources located within the borders of their countries as the ‘Seven Sisters’, as ‘Big Oil’ was known at the time.
This climactic transfer of ownership took place shortly after the October War in the Middle East, in l973, and I have discussed that event at great length in my work, to include my new energy economics textbook (2007), but unfortunately insufficient attention has been paid to my humble efforts. To my way of thinking, had the decision makers in the oil importing countries been more alert, then it is possible that the price of oil would not be at its present level – which happens to be a level that, if sustained and eventually augmented, poses a clear and present danger to the international macroeconomy, due to the presence of various other macroeconomic and financial stresses. There is also the danger that this price could spike to an extreme value in the event of what is sometimes called an ‘anomalous event’ in or close to one of the major oil producers, where ‘anomalous event’ is a polite way of describing gunfire or extensive property damage caused by high explosives.
The agenda of the foreign producers in Saudi Arabia ostensibly featured a progressive raising of oil production to twenty million barrels of oil per day (= 20mb/d), and keeping it there as long as it made economic sense – i.e. was profitable. The thing to be understood is that the strategy underlying this production profile turned on maximizing profits over a limited time horizon, and here I want to emphasize that the choice of a time horizon was as important or even more important than other components of their production strategy, which is an observation that you did not encounter in Economics 101. You didn’t encounter it because the teachers of Economics 101 do not know how to handle the production of exhaustible resources like oil. However, after the assets of these companies were confiscated by their previous hosts, a very different agenda was introduced
The apparent intentions of the confiscating governments, and especially Saudi Arabia, also turned on maximizing profits, although over a much longer time horizon. In addition, when the opportunity presented itself, these profits were to be used to diversify their economies in such a way that the main source of prosperity would be reproducible capital – i.e. structures and machines – rather than exhaustible natural resources such as oil and gas. The opportunity arrived in full bloom when the price of oil suddenly exceeded 40 or 50 dollars per barrel, because those prices gave the governments of many oil producing countries the kind of freedom that President Bush and his colleagues believe only comes about by living or trying to live the American Dream. Everyone who has watched CNN or the U.S. program ‘60 Minutes’ has probably seen a brilliant example of this process in that lucky and superbly managed country Dubai. Returning to the agenda for Saudi Arabia, ‘sustainable’ oil production over an indefinite future was envisaged at about 10 mb/d, or less, while an additional 1-2 million barrels per day were to constitute surge capacity (which is capacity intended for use over a short period).
Notice the or less in the above, because the present King Abdullah of Saudi Arabia recently said that the world cannot count on large increases in the output of his country after 2010, which is interesting because some observers think that today’s oil production is less than Saudi production a year ago.
Needless to say, this kind of thinking and acting on the part of Middle Eastern governments did not win approval everywhere, although I want to confess that it made all the sense in the world to me. By way of contrast, the position taken by an outspoken Nobel (Prize) Laureate, the late Professor Milton Friedman of the University of Chicago, was that the general welfare was always best served by unambiguous profit maximizing behaviour, supervised by hard-core capitalists. When the assets of the short-run profit maximizers throughout the Middle East were confiscated, and formal production quotas for oil established by OPEC, Friedman predicted that the price of oil would collapse and OPEC would fall apart. Friedman’s irrational forecast is best forgotten, but even so I want to present and comment on a similar vision of the Middle East oil scene that was put together by another University of Chicago Nobel Prize Winner, Professor Gary Becker. Writing in Business Week (March 17, 2003) he presented his audience with the following soap-opera:
“Middle Eastern nations are far less important to world oil production than they were immediately after the formation of OPEC. Their share of world oil production has fallen from almost 40% to less than 30% now. In order to raise the global price of oil the OPEC cartel, led by Saudi Arabia, had to restrict its members’ production. This raised prices, encouraging non-OPEC nations, including Russia, to expand production. Also, oil companies have made greater efforts to find new deposits deep in ocean waters, in the frozen tundra of Siberia, and in China and elsewhere.”
This statement is completely without any scientific value, and will be touched on later, but a comment is in order now. Becker’s twisted faith in deep water deposits, as well as large new deposits becoming available in Russia and China is best described as bizarre. Although a few years ago the best energy economist in Russia said that his country could raise its oil production to 30 mb/d of oil and keep it there, the truth is that oil production in Russia has now roughly flattened at about 10 mb/d. According to Leonid Fedun, vice-president of the largest independent company in the Russian oil sector, it is unlikely that output will ever exceed that amount. He could be slightly wrong of course, but it would hardly increase by enough to result in Professor Becker being nominated for another Nobel. Something that needs to be appreciated by all oil importers is that Russia is potentially a very rich country, and an increasing fraction of Russian energy production is going to be consumed domestically.
China is already a country with a large oil deficit and where the growth in oil consumption is much larger than the growth in domestic supply. These deficiencies are probably increasing faster than anywhere else in the world, to include the United States. Oil companies are making great efforts to find new deposits “deep in ocean waters”, are drilling boreholes everywhere, exploiting deposits in remote locations in the far north of Alaska, and perhaps far up in the Arctic Ocean, and desire greater access to coastal waters. Regardless of how much desiring and drilling and exploiting they do however, it will not suffice to replace Middle Eastern resources, nor greatly depress the oil price. Only a new energy technology in conjunction with a reduction in demand growth for conventional oil is likely to do that! This unpleasant truth has escaped Professor Becker, but it is well known in the executive suites of both ‘Big and Little Oil’.
Finally, attention can be directed to the decline in OPEC production that was mentioned by Becker, and which that scholar interpreted as a misfortune for those nations. The earlier decline in OPEC production, and its present slow increase, is the key source of the new economic strength of the Middle East, as well as some of the other OPEC countries. If they had maintained their output at 40% of the total, they might still be trying to raise the price of oil to $28/b.
Iraq and Iran
Alan Greenspan is not my favourite economist, but I am sure that he is highly talented professionally and socially, completely at home in the great world of banking and finance; and despite accusations of late that his judgement was occasionally unsound when he was chairman of the U.S. Federal Reserve System (where he was frequently described as the second most important man in the United States), I think that very often he had information to offer about energy matters that should have been given a maximum amount of attention.
His latest contribution – apparently surfacing in his recently published memoirs – is that although not usually discussed in public, everybody knew that the war in Iraq was about oil. By everybody he didn’t mean people like me, but people like himself: serious insiders with important places to visit and important things to do after they arrive. People who are relaxed when in the presence of minds that move the world – as they are called on CNN. Minds that were and perhaps still are at the disposal of Sir Alan, both in elegant conference rooms, and at tasteful dinner parties where high-level gossip is circulated with the same nonchalance as coffee and brandy. In one way or another Mr Greenspan has been told, and probably a number of times after the cognac has gone around the table, the same thing that Matt Damon told viewers of the film Syriana, and that being the case, some of the decision makers in his network pondering this supply-demand dilemma have almost certainly found themselves thinking or suggesting or implying or insisting that extraordinary measures might someday be necessary to keep the wheels of economic progress spinning in the oil importing countries.
Everything considered, I feel it necessary to ask another question at this point: if you can’t believe Alan Greenspan on this issue, then who can you believe.
Having once inspected at great length the map that I mentioned to the young lady in Rome, and having heard Sir Alan say aloud and in English what he believes is the reason for the Iraq war, and knowing that in the widely read Time Magazine Henry Kissinger once broached a military option, it has lately become easy for me to accept that the United States might be prepared to go to war to ensure the future availability of oil. But that isn’t the entire story. In addition to liberals and ‘peaceniks’, some very conservative persons in the United States and elsewhere – ladies and gentlemen who belong to what Newsweek (Magazine) has labelled the super-elite – have made it clear that they believe it foolish to enter into an open-ended project like the present Gulf War: open-ended in that nobody of importance in or out of government has the slightest idea of what the bottom line will turn out to be. I am thinking in particular of people like Frederick W. Smith, chairman and CEO of Fed Express, and General P.X. Kelley, formerly commander of the United States Marine Corps, who are co-chairmen of the Energy Leadership Council in the United States, and both of whom have stated that they believe it counterproductive to employ enormous military resources to protect the highly vulnerable oil production and distribution network emanating from Middle Eastern sources.
How all of this will play out in the event of a Republican victory in the coming U.S. election, or for that matter a Democratic victory, even though both Democratic aspirants want to reduce the U.S. Middle East liability, is uncertain. Let’s remember the Carter Doctrine from 1980, from which the following quotation is extracted: “Every attack by a foreign power to win control over the Persian Gulf will be interpreted as an attack on the vital interests of the United States. Such attacks will be repulsed employing all necessary means, to include military force.” That warning was of course intended for the Soviet Union, but today “foreign power” could mean the lawful government of any country in the Gulf, and to a limited extent elsewhere, if their actions in the oil markets seemed foreign to busy or confused public servants and politicians in the energy importing countries. Furthermore, Professor Michael Klare, editor of the journal Current History, who is often asked to comment on the geopolitics of energy, has said that “If the oil from the Persian Gulf cannot be kept under U.S. control, our possibility to remain the dominating power in the world could be brought into question.”
Those of us who study or teach game theory might be tempted to call the phrasing in the Carter Doctrine ‘cheap talk’, which means employing carefully worded statements, which might contain implicit or explicit threats, as a substitute for having to resort to more costly activities at a later date; while Professor Klare’s remarks might be passed off as Sunday Supplement bluster. But what is not bluster is the well known fact that when the U.S. military entered Baghdad, the only public building that received adequate security was the oil ministry. Libraries, museums, small and large businesses and even hospitals were for the most part ignored. The exact reasons for this lopsided deployment I neither understand nor want to understand, but in a class or seminar room I might be prone to claim that the oil resources of Iraq are not only large but, in theory, large enough to buy the time needed to establish the new energy economy referred to above, and which – unless they are comatose or irresponsible – every upper echelon politician and civil servant in the energy importing countries knows will have to be established sooner or later – although like myself they do not know how. ome numbers might be informative to curious readers. According to last year’s BP Statistical Review of World Energy, Iraq has 115 billion barrels of proved oil reserves, as compared to 264 billion barrels for Saudi Arabia. Current sustainable output for Iraq is probably less than 3 mb/d, while before the present war the maximum output was close to 3.5 mb/d. More important though, of Iraq’s discovered and evaluated oil resources, a sizable fraction may still be unexploited. One of the most important observers of both Iraqi (and Middle Eastern) oil is Dr. Mamdouh G. Salameh (2004), who points out that in many respects the oil resources of that country are more impressive than those of Saudi Arabia.
Consequently, some influential and not so influential people think that Iraq can and should raise its production to 6 mb/d, and there has even been some talk of getting it up to 8 mb/d. According to a former Iraqi oil minister or decision maker though, output in this range would create the greatest problem ever faced by OPEC. That’s putting it mildly, because if, for some illogical reason Iraq abandoned OPEC quotas, it could – could, not would – threaten the living standards of millions of persons in the Middle East, to include Iraq. I doubt whether this is an outcome that would please any responsible government in the world, but at the same time I have never seen any evidence confirming that the health and welfare of the people of Iraq are or were high on the list of priorities of either the Bush or the Clinton or the Blair governments. Expressed in a slightly different manner, it is clear to me that putting OPEC in its place might have been one of the key goals of the present war.
Why is it clear to me? To use an expression making the rounds in the United States, DO THE MATH!
Five or six years ago, the price of oil was $22/b, predictions were that it would fall under $20/b, and OPEC was desperately trying to get the oil price up to a sustainable $28/b. So let’s think in terms of the latter figure, and round off U.S. oil imports both at that time and today to 10 mb/d of oil. If for computational purposes we take the present price of oil to be $120/b, then the U.S. is paying almost a billion dollars a day more for imported oil than they were paying six or seven years ago, which is about the increase in the amount received by exporters to the U.S.
Now think about Saudi Arabia, which might be exporting about 9 mb/d of oil. A movement of the oil price from the desired $28/b to $120/b means an increase in daily income of about 900 million dollars when various expenses are taken into consideration. In these circumstances it is easy to understand how Saudi Arabia plans to finance the establishment of four new economic zones that will include state-of-the-art manufacturing facilities, and also to understand why that country feels it unwise to invest in additional oil producing capacity. WHY SHOULD THEY OR ANY OTHER COUNTRY IN THE MIDDLE EAST INVEST? WHY CONTRIBUTE TO OR INITIATE AN OIL PRICE DECREASE?
Some months ago I read that President Bush asked the Saudi King to increase capacity and output, and apparently the answer was yes, however as things have turned out it wasn’t the yes that means yes, but the yes that means something else. This might explain the president’s decision to pay a visit to Saudi Arabia on his latest trip abroad, however as I understand the situation, he was mostly ignored when he introduced his beliefs about the oil market.
Moreover, before the latest meeting of the OPEC Council, President Bush apparently reminded the OPEC directors that considerable economic harm could result from their not increasing output, but on that occasion the answer was not a yes or a no, but a string of platitudes, such as ‘we will make additional oil available if we think it necessary’, followed by a clear-cut expression of the belief that at the present time it was unnecessary. How the president reacted to this is uncertain, but since the oil price has now touched $124/b and I haven’t heard anybody say recently that they expect a sustained decline, he probably has been told by his energy advisors that Americans could get some very bad news from the diesel and heating oil markets before the end of the present year, which together with other economic defects might impact in a very negative fashion on the aggregate/average standard of living.
That brings us to Iran. Iran is a fairly large producer of oil, whose listed reserves are larger than those of Iraq, and is one of the best endowed countries in the world where natural gas is concerned. This is also a country with a highly intelligent, self-confident population that (ceteris paribus) is capable of competing with the populations of any industrial country in the world, but even so its present level of development is clearly below its capability. A key problem here, as I see it, is the size of its population, but that issue belongs in a course that I gave at a United Nations Institute in Senegal many years ago, and whose fundamentals I have unfortunately completely forgotten.
Despite its huge gas reserves, Iran may be a net gas importer. This is what Winston Churchill might have called a mystery within a mystery, and it probably can only be put right by speeding up industrialization to the extent that these reserves can be fully ‘monetized’, by which I mean that events take place which indicate the true value of these reserves if (or when) an ‘optimal’ investment program is carried out. (A good example here is oil from the tar sands of Northern Canada.)
The present price of gas in international trade is above $11/mBtu, which suggests – to me at least – that it makes economic sense to do everything possible to get more of these gas reserves moving toward the gas deficient countries of Europe. And not just Europe: fifteen years ago there was talk of large quantities of LNG originating in Iran being sold in the U.S., where the LNG price at the present time is well above $11/mBtu. I once wrote a book on natural gas (1987), and gave this matter some thought, but despite coming to the conclusion that the appearance of Iranian gas in Europe would be a major energy happening, I was vague about the details, and the same applies to a possible large-scale gas trade between Iran and the U.S. , but I was and am clear about the advantages of such trade for both of these countries.
Intuitively, I am sympathetic to suggestions that some day nuclear will have a role to play in the developing Iranian economy, both for providing electricity for industrial operations as well as a more prosperous household and small business sector. I am sympathetic to this because any country in any part of the world that requires very large amounts of electricity that is both reliable and comparatively inexpensive will eventually have to consider nuclear.
If I were forced to say whether this is fortunate or unfortunate, I would say that it’s unfortunate, but what it comes down to is that this choice is an economic and not a political matter. I am also aware that this is a sensitive issue for a country like Iran, as well as other countries in the region, and apparently also the United States, since according to Alan Carruba (2008), the American aircraft carrier groups in the Gulf are there because of Iranian nuclear ambitions.
In regard to the above two countries, and others, I would like to point to a hypothesis by Mr Thierry Desmarest, the former CEO of the French oil group ‘Total’, who according to Carola Hoyos of the Financial Times, (September 13, 2004) has made it clear that for global oil supply to meet growing demand, OPEC must open its doors, and open them very wide for investment in exploration and new production. By that he means of course supply meeting growing demand without the price of oil exploding upward.
Something else that is taking place, according to Ms Hoyos, is that technology is now being developed to ‘squeeze’ more crude out of existing deposits, and I have no doubt that ‘Big Oil’ would like nothing better that to apply this technology to deposits in the Middle East – technology which, as I have been incorrectly informed on a number of occasions, is only found in the possession of the major oil companies.
Before continuing, let me use this opportunity to say that in my opinion foreigners are not needed to provide expertise for any oil and gas producing country in the Middle East, other than in a ‘mercenary’ or non-proprietary capacity. This is an opinion that some concerned energy professionals and students do not share, as I was unexpectedly informed by a recipient of one of my humble research efforts, however I was able to find an answer to his touching concern for the fortunes of the Middle Eastern and Russian oil producers by employing the kind of jargon often used by Frank Sinatra: If you fall into the arms of the oil majors, it might be for keepsville!
Some Background Items
Last year I taught the course on oil and gas economics at the Asian Institute of Technology (Bangkok), and at some point I asked one of my students what he thought of my discussion of the ‘peak oil’ theory. He had no problem with it, he said, but the director of the oil company for which he worked thought that it was nonsense. I also received that judgement from a gentleman in New York who occupies a prestigious position in the energy world, and who published one of my short papers on oil. He published it, he said, in the interest of fairness, because he – or “we”, as he put it – did not believe in the peaking of the global oil supply, which struck me as odd, since ‘we’ and his friends and his network must have been even more aware than I am that a large majority of the world’s giant deposits have peaked or reached a plateau, and the same applies of course to smaller deposits.
I mentioned earlier the published opinion of a man that I call “the best energy economist” in Russia on the oil supply of that country, and perhaps I should note that the oil minister of Saudi Arabia once said that his country could raise its production to 15 mb/d of oil, and maintain it there indefinitely. If these things were really true, and Professor Becker was just partially correct in his evaluation of the world oil scene, then nobody has to worry about a peaking in the near future of the global oil supply and what that could mean for an oil price that is already too high. At present one hears as much about the detrimental effect of increasing food prices as the danger posed by escalating oil prices, but the former is partially dependent on the latter, because of the high energy intensity of modern agriculture.
The position taken in this exposition is that none of the optimism that may be circulating about the oil future is justified. The statement by the Russian gentleman, given his competence, was probably a simple mistake, and the Saudi oil minister later suggested that his remarks were misinterpreted, and if he hadn’t suggested it the position of the present King (Abdullah) of Saudi Arabia was quite clear. In other words, the declaration thirty-five years ago by the Saudi head of state that the oil of his country was to be placed at the disposal of both present and future generations of Saudi citizens and not motorists in the oil importing countries was the real deal and not idle chatter.
What about the director of the oil company where my student was employed, or for that matter a similar contention by the directors of Exxon – the largest and most profitable oil company in the world – who have repeatedly rejected the idea of peak oil, or the gentleman in New York who published my paper, although ‘we’ didn’t believe in peak oil, or the people in the U.S. Department of Energy (USDOE) and the International Energy Agency whose forecasts of the global oil production in 2030 are (or were) masterpieces of absurdity, or the well known consulting company Cambridge Energy Research Associate (CERA), with offices in North America and Europe and probably elsewhere, and a Pulitzer Prize winning oil expert as its chief, which has come to the goofy conclusion that while there might be a peak, it will be an undulating peak. What is going through the heads of the people involved here?
“It’s called money, Virginia”, to use some of that beautiful Wall Street terminology”.
As a result, it is perfectly logical for the boss of my student to want to give the impression that in reality there is a very large amount of oil in the crust of the earth, and so present or future technology will have no problem with its discovery or extraction, and therefore a resort to unconventional energy sources is unnecessary. Whether he or his colleagues at Exxon and a few other major oil firms, or the present oil minister of Saudi Arabia, and oil ministers and tycoons elsewhere, actually believe this song-and-dance in their heart of hearts is completely irrelevant. They know, even better than I do, that discovery in the Middle East has peaked, and it is only a matter of time before output from the largest deposits peak. Of course, in one sense it doesn’t make any difference whether Middle Eastern and other deposits peak or not, because the relatively small increases in their output will not be able to match the dynamic growth of demand in China and India: this unambiguous process can be reduced to the supply and demand curves in Econ 101.
Let me also note that if the Saudi King is serious about not raising production, then the largest producing country in the world might already be in the process of peaking. You can interpret for yourself what that means, but the billionaire investor T. Boone Pickens interprets it to mean that global peaking is already taking place.
Simultaneously, there has been – and perhaps still is – an attempt by oil buyers to convince the owners of Middle East oil that it is a mistake to save their oil until later, because at some point in the near future enough oil will supposedly be found and produced to flood the world markets with that commodity, in which case they might find themselves having to sell a barrel of oil for the same price as a barrel of Coca-Cola, which was close to the situation in the last years of the 20th century. Rather than cite more examples of this nature I will simply say that the opinions of many prominent oil optimists are overwhelmingly based on prejudice and/or blatant self-interest, mixed with the kind of self’deception that generally has a political background, and even when they accidentally make sense in terms of economics and geology, these opinions are not based on scientific or quasi-scientific reasoning. For instance, the Chief Administrator of the U.S. Energy Information Agency (EIA), who once worked as an energy analyst for both the CIA and International Energy Agency (IEA), once said that Saudi Arabia would have no problem producing 20 mb/d of oil, and maintaining an acceptable reserve to production ratio.
In case anyone is interested in why someone would say something like this, the answer is that if Saudi Arabia does not eventually produce that much oil, then the forecasts of the EIA and the IEA are meaningless. However, as you now should suspect, they are not going to produce that much oil under any normal circumstances. That brings me to the last item on this topic before the final remarks. That item of course has to do with the likely peaking of the global oil production in the not too distant future, because the peaking or likely peaking of world oil might turn out to be the most important factor influencing the long-term economic future of the Middle East. As an analogy, if global warming melted all the snow in the French and Italian Alps, then the income of the skiing resorts of Sweden and Norway might be greatly increased.
The important thing for me where this topic is concerned was or is informing students and others how they should study the subject. The approach here is simple, and not a single one of my students at the Asian Institute of Technology had a problem with it. What it involves is examining in detail the peaking of oil in the United States, which is often labelled the richest country in the world, and thus able and willing to mobilize the absolute latest and most sophisticated technology, as well as employ the best managerial and scientific and engineering talent in the world to supervise and upgrade that technology.
The peak oil drama in the U.S. can be reduced to the following. The peaking of oil discovery in the U.S. took place in the early l930s. The peaking of production in what is called the lower 48 – i.e. the U.S. minus Alaska and Hawaii – took place in late l970, or about 40 years later. Furthermore, the giant Prudhoe oil structure in Alaska came on stream after the peaking of production in the lower 48, and as a result output in the (entire) U.S. turned up, but even so it never reached the 1970 peak – which mathematicians would therefore call the global peak for that country. One more item belongs here. Even though output in the U.S. peaked in l970, today the U.S. is producing about 5.5 million barrels of oil per day, or more than any country except Saudi Arabia and Russia.
This indicates that the peaking of production in the U.S., or in the British and Norwegian North Sea, or in Russia, or the peaking that will eventually take place in the Middle East, is an economic and not a geological phenomenon. But certain phenomena that involve both economics and geology are worth emphasizing, especially the reality that if discovery peaks, then eventually output will peak. Global discovery peaked about 1965, and according to the present Vice President of the U.S. in a talk that he once gave – but his conservative friends choose not to remember – the peaking of the world oil output cannot be avoided, and he thought that it could take place as early as 2008. This is probably not correct, but Mr Cheney is an insider in the oil world, which means that he is not in the habit of saying things that would offend his friends and neighbours.
Moreover, global oil consumption exceeded global discovery for the first time (in modern times) in 1980, and for every barrel of oil discovered, about three are consumed. These factors help to explain why the oil price is so high, along with the fact that almost all oil producers understand that it is a mistake to produce oil today that could be produced and sold later at a much higher price. If enough producers feel that way, then it is almost guaranteed that the higher price will come about.
Final Remarks
I would like to begin this section with a couple of quotations. The first is by Len Gould in EnergyPulse (January 8, 2008) “In 20 years I predict energy wars over oil and gas resources. 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 not to fight over remaining supplies.”
Note the reference to transport. There are an estimated 900 million vehicles on the world’s roads today, and according to Eric Holthusen of Shell (2008), there will be 2 billion in 2050. What the fuel will be in these 2 billion ‘vehicles’, the cost of this fuel, and who will own them is unclear. Similarly, in a recent issue of New Scientist (2004), Bob Holmes and Nicola Jones offer the following. “If production rates fall while demand continue to rise, oil prices are likely to spike or fluctuate wildly, raising the prospect of economic chaos, problems with transporting food and other supplies, and even war as countries fight over what little oil is available”.
I hope that people who have listened to or read or will read this talk now have a ‘better than average’ insight into some of the most important aspects of the Middle East oil picture, and in addition will give some thought to the above quotations. Of course, what I fear is that I might be naïve, because recently I published work on oil and gas which met with very strange criticism, however it would have been much worse a decade or so ago when some of the people who came to my lectures on oil and gas were obviously in cloud-cookoo land where the present subject is concerned, and very definitely did not want to hear any mainstream energy logic. On this score I can mention that what is true for oil today will be true for gas some day.
It has been said in one way or another, for many hundreds of years, that a rich person has more options than a poor person, and that is how the situation in the Middle East has developed: some oil and gas producers possess options today that a decade or so ago they never dreamed existed. According to Professor Becker those options will or could be limited by locating large new oil and gas deposits, but this unrealistic hope should be abandoned as soon as possible because it interferes with the formulation of comprehensive energy policies in the energy deficient countries.
More emphasis is required here, because I am certain that many of the people taking an interest in this subject have been told about the copious amounts of oil becoming available from the Caspian region, from tar sands in the north of Canada, and perhaps in the long run from the heavy oil deposits of Venezuela. Someone mailed me recently that a huge new oil strike has been made in North Dakota, in the U.S., and in theory the enormous amounts of shale in the middle of the United States contain more barrels of oil than in Saudi Arabia, or perhaps even the entire Middle East. There is also the growing amount of natural gas that is or will be transformed into synthetic oil, or so some experts say. One of the best known and possibly most respected academics at one of the leading U.S. universities brusquely informed me last year that there are four large deposits in Saudi Arabia that would soon begin producing large amounts of oil, and I didn’t have a clue about the future of oil and gas.
My advice here is the same that Timothy Leary gave his audiences during the l960s, which was to tune out, because a large part of this so-called information hardly deserves to be called infotainment, and to a considerable extent is politically motivated or intended to increase share prices and the flow of investment capital, etc. In her important book, Professor Maureen Crandall of the U.S. National Defense University (2006) has labelled claims emanating from the Caspian a “scam”, while Dr Fredrik Robelius of Uppsala University (2006) has called talk about the enormous oil riches that will ostensibly be hauled from the deeper waters of the Gulf of Mexico a “bluff”. That might sound harsh, but let’s remember that oil output is Mexico is falling, and falling rapidly. So rapidly that there is talk of bringing in foreign firms to assist the nationalized industry. In point of truth, they could bring in any firm or collection of firms in the world without being able to substantially resuscitate the oil production of Mexico.
The oil from tar sands in the North of Canada is another big deal in the political and economic weeklies, however the output from that particular source is relatively quite modest, according to official Canadian statistics, and it might be useful to note that the amount of energy from a unit of tar-sand resources is probably less than the input of energy going into obtaining this unit, which might be acceptable in the short run, but raises some questions when considering the long run. Given the opportunity, I would also inform the professor mentioned above that the only big new deposits in Saudi Arabia about to go into large-scale production are in his dreams about riding first class on some kind of energy consulting gravy train.
And finally, one of the most crank beliefs of all is that the oil price escalation is due to (financial) speculation, and not the realities of physical supply and demand. This was mentioned recently by the chairman of OPEC, who predicts that speculation might be a reason why the oil price could touch $200/b in the near as opposed to the distant future. That figure has also been put forward by the EU Energy Directorate as a possibility, as well as Goldman Sachs, the leading investment bank in the world. I have my doubts whether the oil price will reach $200/b in the near future, but about one issue I am certain. The evaluation of the influence of speculation on the oil price makes no empirical sense, and here I can make special reference to the thinking of so-called experts at the investment bank Lehman Brothers, who claim that a 40 billion dollars per year investment by various ‘funds’ accounts for the present high oil price. Somebody at that institution fails to understand how small an annual investment of 40 billion dollars is in the context of turnover on either the physical or paper (i.e. futures) oil market.
Rather than concentrating on obtaining large amounts of oil and gas from sources where in reality “large amounts” do not exist or will not become available, in the Middle East and elsewhere, or blaming speculation, it might make more sense to accept that the rise in energy prices has completely changed the situation for the major producers of the Middle East, who now hold the balance of power in the oil world, and who to a certain extent share this balance with Russia in the gas world. For instance, Qatar, has said that it intends for its gas to last 100 years, by which they almost certainly mean ‘at least’ a hundred years, and I doubt whether the gas giants Russia and Iran are less ambitious, or rational.
This kind of approach is theoretically capable of putting a floor under energy prices everywhere, which according to the economics and finance that I teach means that it will become increasingly attractive for countries in the Middle East to establish state-of-the art facilities for petrochemicals and perhaps other manufactured products, which in turn will very likely mean reducing their exports of crude oil, since progressively larger amounts of their oil and gas output would be used as fuel and feedstocks for the new plants. I can put this another way: if they did not reduce their exports of oil and gas, it would interfere with the intended diversification of their economies, which is the ultimate and most sensible goal ,
Let me take this opportunity to offer another unwelcome comment about the geopolitics of the Middle East. Just as a rich person has more options than a poor person, they also have more to lose if something goes wrong. It is possible, though far from certain, that the wealth they are going to enjoy will make countries of that region less willing to undertake certain types of military adventures, particularly if – win or lose – the outcome is widespread or even total destruction. For instance, it is almost impossible for me to believe that the population of a rich country in the Middle East or anywhere else would find being the object of poverty-watch appealing. Just as in many places there will always be conflict and rumours of conflict, actual or hypothetical conflict can probably be absorbed if conventional weapons are used. As for unconventional weapons, for example nuclear devices, the dilemma is that almost everybody thinks in terms of the weapons that were used in the second world war. These were enormously destructive, but there are other nuclear weapons that are at least several times more powerful! Much more powerful than most people comprehend!
The balance of terror associated with the Cold War could have lasted centuries if necessary, because it was understood by the leaders of the countries involved and many of their citizens that an all-out nuclear exchange would – would, not could – completely destroy their future and the future of many coming generations. Chairman Mao (of China) once called nuclear weapons a paper tiger, but when President Eisenhower threatened to use them during the Korean War he modified his judgement. This tells me that the global television audience should be provided with suitable and perhaps dramatic reminders of the precise meaning of ultra-modern nuclear war, because many of them seem blissfully unaware.
They are also blissfully unaware that some of their most visible energy experts have lost their perspective in the crucial matter of energy prices. A few years ago several energy experts were asked for their opinion of the future of oil prices, and one of these experts, from the Centre for Energy Studies in the UK, took a position similar to that of Steve Forbes (editor and publisher of one of the best business magazines in the world), who felt then and apparently still feels that the fundamentals are working in favour of a decline in the oil price, which happens to be the wrong way to feel at this time.
I can still recall a contribution by the gentleman from the UK in a long paper in Petromin, perhaps the most important energy publication in Asia, in which he made heavy weather of a dramatic claim by his employer, Sheikh Ahmed Zaki Yamani, which was that there were still plenty of stones available when the Stone Age ended. Apparently this was intended to inform the producers of oil that they should go easy where the oil price is concerned, because if they didn’t, and technological developments in the main consuming countries were capable bringing the oil age to a premature final stage, they might find themselves the not-so-happy custodians of a few hundred billion tonnes of a nearly worthless commodity.
As I noted in a following issue of that publication, when I am confronted with this kind of talk, I’m inevitably reminded of Billy Joel’s song ‘In a New York State of Mind’, because wherever these oil optimists may wander, their thoughts are implacably focused on the next oil price meltdown. I don’t think however that I possess the ‘distinction’ or the ‘chemistry’ to be taken seriously by certain oil experts, and so I conclude this contribution by referring these ladies and gentlemen to the judgement of the star journalist Robert J. Samuelson, in Newsweek (April 4, 2005).
According to him “Global demand is rising inexorably; global supply seems less expansive. Dependence on precarious Gulf oil will probably increase…” to which I add there is no “probably” about it. Samuelson continues with “The global economy remains hostage to uncertain or expensive fuel. Producing countries may become stronger, consuming countries weaker.” A suitable comment here is that “may” – as in “may become stronger” – should have been left out. Finally, he says “There may be more competition among consuming nations to secure long-term supply contracts”. That can be transposed to ‘more competition that in the long run might turn very ugly’, which could mean almost anything, much of it extremely unpleasant, as indicated by the quotations at the beginning of this section.
REFERENCES
Banks, Ferdinand E. (2008). ‘OPEC and oil’. Petromin.
______ (2007). The Political Economy of World Energy: An Introductory Textbook.
London and Singapore: World Scientific.
______ (2004). ‘A new world oil market’. Geopolitics of Energy (December).
______. (2001). Global Finance and Financial Markets. Singapore: World Scientific
______ (1987). The Political Economy of Natural Gas. London & Sydney: Croom-Helm.
______. (1980). The Political Economy of Oil. Lexington and Toronto: D.C. Heath.
Caruba, Alan (2008). ‘From the Soviet Union to Putin’s Russia’. EnergyPulse
(www.energypulse.net).
Crandall, Maureen S. (2006). Energy, Economics and Dreams in the Caspian
Region.Westport Connecticut: Praeger.
Holmes, Bob and Nicola Jones (2004). ‘Brace yourself for the end of cheap oil’. New
Scientist (2 August).
Holthusen, Eric (2008). ’Future transport fuels: meeting the growing demand in an
environmentally and socially responsible way’. Hydrocarbon Asia (Mar-April).
Robelius, Fredrik (2006). ‘Oljefyndet är en bluff’. PsX Press.
Salameh, Mamdouh G. (2004). Over a barrel. Salameh: Surrey England
Saunders, Harry D. (1984). ‘On the inevitable return of higher oil prices’.
EnergPolicy(September).
For information on purchasing reprints of this article, contact sales. Copyright 2013 CyberTech, Inc.
Excellent article. You haven't missed anything that I can see, and hit all the right emphases. Perhaps in the discussion about "application of new techniques to recovery from old oil fields", it would have been worthwhile to mention EREI, or better OROI (as I note you did reference tar sands). Tar sands are an unusual case though, because though perhaps true that the energy return may be less than the energy invested, it is easily forseeable how to get the required energy from very low-value waste coke and un-processed tar (in-ground Toe-To-Heel heating, coke gassification to produce hydergen et.), so there is still a significant Oil Return on Energy Invested. Conventional oil fields and particularly offshore ones present a different case, as most of their energy inputs come from high-grade oil and refined products. There can be no discussion of their further development or operation once their Oil Return on Oil Invested goes negative.
Bob Amorosi 5.21.08
Fred,
It must be gratifying to publish this article today as oil has just reached $133 as I write these words. With each passing week you can say to all the disbelievers you have written about 'I told you so all along'. Superb article in not only its eloquent command of the English language in writing, but also in its sobering message to the western economies that import oil.
Knowing the ingenuity of western engineering historically, and knowing how design engineering has advanced tremendously with the help of computers in all fields of engineering over the last 20 years or so, there is an element of truth to that gentlemen's paper in Petromin. At the oil price levels we are headed for, western private enterprise is already salivating at developing and perfecting and commercializing alternatives to oil, particularly for transport energy needs as Len has said. The prospect of making lots of money in an energy hungry world is steadily becoming a powerful motivator to innovation in step with rising oil prices. I sincerely hope some enterprises become wildly successful before it is too late and (more) wars are started over oil.
A related example of this motivation is happening here in Ontario Canada. Our provincial electricity industry regulator the Ontario Power Authority has signed up so many wind and solar energy applicants to build these alternatives in Ontario, it has amounted to something like 10 times the amount they expected to sign up over a number years, all on board in just one year !
Keep up the great words on this website Fred, it needs more people like you to be vocal on it.
Jeff Presley 5.22.08
Another gold star article Fred. You'll like this article, just published today in the Wall Street Journal I'm sure. I'd also recommend watching the video on that page. Bob is right however, in stating that the high price is indeed a GOOD thing, and is bound to bring out replacements or behavior modification. Hopefully one of those happens before the Cassandra-like predictions of doom and gloom manifest themselves. As always the item in shortest supply worldwide is actual intelligent thought, versus what we are treated to on a daily basis by our so-called 'leaders'.
Michael Ponzani 5.22.08
Boy are we in trouble. And they're all clubby, no matter where you go. I do believe in conspiracy theroy, too, but in some circumstances it's hardly necessary. Wait till the Chinese and Indians want their cars, and big ones too!
Ferdinand E. Banks 5.24.08
"I told you so all along". Music to my ears, but I'm afraid that what we need now is not music is a way out of this mess. Agreed, technology and the right kind of leadership can do the job, and in fact will do the job - but will it do it soon enough.
What we also need is for someone to go into these great comments on EnergyPulse - especially the ones about alternative energies - and formulate a coherent/comprehensive description of a coherent energy policy. I must say though that in the middle of my song-and-dance in Paris I suddenly had a bad feeling about what is around the corner oil-wise. .
In my lecture I think that I made one mistake - I put in a good word for nuclear. That put a frown on a few faces. Funny, but even in a country where nuclear supplies eighty percent of the electricity, there are some high achievers who think that wind and wave will keep them supplied with Armani gear.
Fred
Jeff Presley 5.25.08
Here's a little ditty for your musical tastes there Fred. I know you're not keeping up on things here stateside, but after all, when the US sneezes the rest of the world catches a cold. When I spoke of leaders, I couldn't have asked for a better second verse than this one: INCONVENIENT TRUTHS ABOUT OIL
Nothing funnier than politicians out to excoriate oilmen getting eviscerated instead. Naturally, the usual media suspects couldn't be bothered to report on this.
Ferdinand E. Banks 5.26.08
Thanks Jeff
Jeff, I really liked that piece until its author mentioned the wonders of shale. That's when Fred tuned out. Most of the oil that he is talking about aint there. Trust Big Oil and Big Business on this.
As somebody pointed out in this forum, what is needed is a comprehensive/coherent energy plan based on the scarcity of oil (and perhaps also gas). I can't think of any persons in the world better suited to the framing of this program than the regular contributors to EnergyPulse - by whom I mean first and foremost the individuals contributing comments. Some people dont have much to offer here, where by "some people" I am primarily thinking of yours truly (i.e. my good self), but if those commentators could put their knowledge into articles that might be just what the energy doctor ordered.
But, regardless, we must all try to pull our weight in this. Even ol'' Fred has decided to try and get over his basic distaste for environmentalists and do his part, as long as doing his part doesn't mean having to rub elbows with politically correct academics and similar hypocrites.
Fred
Bill Corbin 5.27.08
Enjoyed the article very much, and I'm going to buy your book; my curiosity demands it.
I have seen one plan for an alternative which was very technically practical, realistic, and achievable documented in ISBN 978-0-595-43519-7. As an aside, if you read it, my view on the financial side, is that it could cost about the same as the estimate for ethanol. It was been presented by populist to several governors in the US today, and many commentors like the one who confronted you in the past have been outed in the process. They really to need to hire qualified people instead of actors.
Anyway, there is another saying in the 'American' Navy too, "One ship, one screw"; and many people aren't intended to get the message as well, too risky.
Ferdinand E. Banks 5.27.08
Thanks Bill, and now that we are trading sayings from the US Navy, I will give you another: 'Every ship can serve as a mine-sweeper...once'.
Anyway, I received a letter from a gentleman telling me that I didn't know mine from a hole in the ground because I said that the energy input into tar sand oil might be greater than the energy obtained. I think that this is very likely, though I am not certain, however since he only took into consideration the energy in the gas that is used to obtain that oil, I had to inform him that maybe he didn't know what he was talking about.
But let me say that I am NOT against the exploitation of tar sand oil, nor am I losing any sleep over the possible energy deficit involved in obtaining that oil. The more oil from any source the better, but the point is that it is not going to be enough for reasons that I suggest in my paper.
Bill Corbin 5.27.08
Your welcome Fred, and I'm in complete agreement. Here in old USSA, I'm watching the political response, and it wasn't gotten to the point where they're running "UFO" stories, so sad. Anyway, I tend to think, if it doesn't work in the 4 years, then 'they' need to pray for Fado music and carnations.
Chris Neil 5.27.08
Fred,
You indicated that high oil prices could provide an opportunity for technological development. One person pursuing technological solutions is Vinod Khosla. He was a co-founder of Sun Microsystems and was also involved in several other dot-com companies. He is providing venture capital for about 35 companies, mmany of which deal with alternative energy supply or demand. Keeping with the Inconvenient Truth theme, his recent presentation is titled "mostly convenient truths from a technology optimist." It is located at:
Another Gem of an article Fred. A fascinating insight and (if I may say so) brilliantly written. Of course the west does have a technically viable source of energy easily capable of replacing oil and natural gas combined and then some....but chooses not to use it - at least for the moment. That is nuclear power of course. We choose not to deploy it to its full capability because of some irrational fear, perpetuated by the know-nothings (and vested interests) of the world. At the same time as we agonise over radiation exposures so small as to be less than that from eating a banana, we glibly talk of invading oil producing countries to secure that asset. Apparently it is OK by comparison to wipe out a few thousand American and British soldiers to secure oil energy so we can drive Hummers ...a sad, sad reflection on our society. Of course the inescapable fact is that whoever "owns" the oil does not change the obvious conclusion that it will run out....don't know when but it will. Nuclear power will never run out. It is unlimited. Once you can produce electricity from otherwise useless lumps of rock you can produce hydrogen from water which the planet seems to have alot of. One carbon atom and four hydrogen atoms gives you methane and every other hydrocarbon known....all from useless Uranium (and Thorium) rock. If you agree that nuclear power is unlimited and will not run out and you agree that water will never run out then you must be drawn to the conclusion that the production of hydrocarbons synthetically is also unlimited. An oil well that never runs dry - ever....all for the radiation exposure of a banana or two.
You mentioned the Alberta Tar sands. They produce about 0.5 - 0.75 million bbl/day there right now - not very much on a world scale. But it will grow as more developments (Albian Sands) come on stream. The limit to production is likely natural gas supply and labour shortages but I suspect those difficulties will be overcome. Bruce Power is planning to build Nuclear plants to generate steam to extract the oil without natural gas...indeed Saskatchewan (the Province next door) has also requested Bruce Power to consider building a nuclear plant or two there. In Peace River Alberta (another area rich in Bitumen deposits) Bruce Power intends to build the two reactors. So its not just the Middle East that benefits from high oil prices. Canada is doing very nicely thank you. The growing realisation that oil is not an unlimited commodity is sure to drive the price ever upward and at some point the inexpensive and very safe nuclear energy solution will replace it. As the old adage goes you pay me now or you pay me later but pay me you will.
Of course there are those that continue to live the pipe dream of renewables and -just like the lack of understanding of the power of modern nuclear weapons - there is a total disconnect between the amount of energy that can be produced that way and the amount of energy (not just electrical energy) needed to run the world...way too little by several orders of magnitude. To me it's like trying to light up the Eiffel Tower with a flashlight battery. But despite the plethora of facts to the contrary some still cling to that misguided notion. Once again I thank you Fred for a really informative and witty article. Your work is always a joy to read. Malcolm
Malcolm Rawlingson 5.27.08
Just a word of caution to Bob Amorosi. At the outset and for the record I am not against renewable energy quite the reverse. However I am against perpetuating the notion that it can provide even a very small fraction of the worlds energy and I am very familiar with what is going on in Ontario. The unfortunate fact is that installed nameplate capacity is no measure of the amount of ENERGY produced. A trap you appear to have got caught in. While there may be lots of windmills going up there is not lots of wind to keep them running at 100% of their nameplate ratings. Very far from it. Most wind farms are lucky if they make it to 20% capacity factor. You can build a million wind towers but when the wind ain't blowing they make no power. A sad but irrefutable fact. The same applies to solar panels. The Sun - if I am not mistaken - does not shine at night so the best you can do is 50% capacity factor....that is abysmal performance for a power plant and explains why the power costs 10 times more than most other "conventional" methods. Of course that makes the assumption that it is sunny every day of the year in Ontario....and I think you will agree that is clearly and irrefutably not the case. The very best you will get from a solar array is about 25% CF or less. So a 40 MW solar array covering dozens and dozens of acres of land effectively only produces 10MW average. I do applaud the efforts being made - I do believe it is being done with the best of intentions - but it is a drop in the bucket and a very very expensive drop in the bucket at that. If you want a 1000% rise in your electricity costs solar and wind are the way to go....just don't expect Ontario to have any manufacturing industry left. It will convert us very rapidly to a have not Province.
Once you get your head around the scale of energy use in this Province and other jurisdictions (electricity, oil, gas and coal combined) you will quickly come to the understanding that renewables are simply not powerful enough to meet the demand. There is only one energy source capable of filling that void and - like it or not - take it or leave it - that is nuclear energy. The rest are simply far too small. Malcolm
Paul Stevens 5.28.08
Point well made Malcolm. The whole premise on which rising oil prices are based is rising demand. My understanding is that the US consumes more oil than any other nation, and most of it is used for transportation. A significant portion of that demand could be removed if the rules governing acceptable transport were changed.
The structure of North American society is based on a dispersed (relatively speaking) population. Suburban sprawl, a desire for rapid truck based transport, and long travel distances to work have forced the construction of a large network of highways. The federal government has mandated crash worthiness tests and advertisers have promoted the large, living room on wheels versions of personal transport that can only be operated economically on cheap gas. If high mileage vehicles, such as are seen around the world in countries where disposable income is less, were allowed to operate in the US and Canada, what would happen to demand for gasoline? If such lightweight vehicles were allowed, how many could reasonably be operated by battery? If wide spread adoption of nuclear energy kept the price of electricity low, and the North American population were allowed to operate lightweigth electric or gas powered vehicles, would that not change the equation?
I am not sure, but I suspect that a lot of people would jump at the chance to purchase personal transport with a roof, heater and radio if they could get 75 mpg (or a days worth of operation from their batteries) and only have to pay $6,000. No reason why such vehicles couldn't be licensed for urban use only, or restricted from travelling on certain highways for safety reasons.
A 20% drop in demand for oil in North America could have a significant impact in the price per barrel I suspect. Or maybe it would be taken up by growth in China. Not sure, but I do wonder about the tight restrictions on the type of vehicles allowed on our roads. It has certainly served the big three well for many years.
Jim Beyer 5.28.08
Build plug-in hybrids (PHEVs) that use renewable methane as fuel. Maybe a small liquid fuel tank too, for range and to connect with the existing infrastructure. That's what we need to do.
As Paul Stevens has said, North America has been built into a sprawl, but its not that sprawled, so a PHEV that can go even just 20 miles all-electric could accommodate most commutes, especially if charged on both sides. Yes, kind of a pain, but it can displace a good chunk of our oil use. Of the 20 million barrels of oil used each day in the U.S., 2/3rds of that goes to transportation, and about half of the total (10 million barrels) goes to gasoline.
Since we can't easily increase supply, as Fred has shown, we need to reduce demand. We can do this the hard way or perhaps the less hard way. PHEVs are the less hard way.
Since the big cost of PHEVs is the batteries, and not the electric fueling, even alternative energy strategies of solar or wind would be cost-effective to the consumer's eyes when recharging a PHEV. (A gallon-equivalent of electricity at $0.20 per kW-hr would cost $2.40.) Distributed generation from even these expensive sources could serve to reduce the infrastructure demands of many PHEVs charging up.
Bio-methane is the lowest cost, most efficient, and easiest route of cellulosic biomass to a usable fuel. It easily interfaces with our existing NG infrastructure. It is cost effective NOW, either via anaerobic digestion or pyrolytic means. This is likely to remain the case for some time. Even if someone can get cellulosic ethanol to work, it will likely tie up the technology with some kind of patented microbe or process. Just like what happened with NiMH batteries. Or what probably will happen with Lithium Ion batteries. But bio-methane is an old mature technology, we can do it now. NiMH batteries lose patent protection by 2015. They already have a proven track record with the RAV-4 electrics (good for 10+ years, 150K+ miles). Definitely good enough technology for PHEVs and even EVs.
If more goods were shipped by train, then PHEV-style trucks could perform the last 50 or so miles of transport. This would save lots of diesel, and the truckers could still keep their jobs. Trains still use diesel, but they are incredibily efficient with its use compared with road vehicles. So, beef up the rail system too.
If broadly implemented, PHEVs + biomethane could destroy up to 9 million barrels/day of demand in the United States. If applied even more broadly, then even more oil demand could be reduced. Enough to buy us some breathing room if we started yesterday. (Yes, that's a lot of nickel used, but spent batteries can be recycled, so it's more of an invested resource rather than a consumed material.)
Anyway, I don't know if its a "plan" but there you have it - use our existing infrastructures (NG and electricity) to replace the 3rd one (oil) that is running out.
Len Gould 5.28.08
Jim: Just a quick aside re. your calculation "(A gallon-equivalent of electricity at $0.20 per kW-hr would cost $2.40.)" -- that doesn't account for the difference in use efficiency of the energy onboard a vehicle, eg. gasoline at 25% v.s electricity at 90% so the "gallon-equivalent" in electricity will actually only cost about $0.80 or less, even at $0.20 / kwh.
Len Gould 5.28.08
Only real question, for me, is whether there remains the petroleum resources out there to implement one more serious drop in oil prices in order to, once again, kill enthusiasm for alternatives, as 1990's. This one uncertainty is probably the biggest hurdle for alternatives to overcome.
Len Gould 5.28.08
10 kwh energy per gallon gasoline.
relative efficiency factor = .25/.90 = .278
2.78 kwh electricity onboard a vehicle can do the work of 1 gallon gasoline.
Purchasing 3.37 kwh can probably put 2.78 kwh onboard the vehicle. (85% charger effic.)
3.37 kwh x $0.20/kwh = $0.68 / gallon equivalent.
Len Gould 5.28.08
Of course the previous ignores other effic. benefits of electric auto drives. Energy recovery from braking. Elimination of idling. Elimination of reduced effic. (well below the 25% used) of gasoline engines operated at low speed.
And those who will come back with "what about the batteries getting sucked dry by air conditioning need to understand that gasoline auto A/C units are also driven by the engine, and the same efficiency calculations used above apply equally well.
Jim Beyer 5.28.08
Len,
Now there you go again confusing things! Who do you think I am, Jeff? :)
A gallon of gasoline contains about 35-36 kW-hr/gallon, so I already took that efficiency thing into account. Assuming .3 efficiency, you get about 10-12 kW-hr of electric for a gallon of gasoline. Ethanol is way worse, because it is only about 65% of the energy content (per unit volume) of gasoline.
One you point about uncertainty, I don't think there really is any, but the automakers are always gunshy and poor. And bureaucratic. So they lack the vision and drive to implement these needed changes. The answer here is to foster retrofits which should help encourage the automakers to make the needed changes. They just HATE it when they see other folks making money that they could be making. (Toyota is WAY gunshy about PHEVs apparently due to the NiMH patent issues. If it wasn't for them, they would probably be taking a more leadership position in this area.)
And just to be a stickler (and conservative) I think one should compare the benefits of PHEVs to HEVs, not ordinary vehicles. Since HEVs are already out there, one needs to justify PHEVs as an additional step from them, not just from ordinary IC vehicles. I think in an odd twist it might be that in quantity, PHEVs might even be less expensive to build than HEVs, but that's another story that I won't get into.
Len Gould 5.28.08
argh.... Jeff may be right...
Bob Amorosi 5.29.08
Malcolm,
You are correct. No one really believes that solar PV and wind turbines will displace the conventional large central generators in Ontario, merely just compliment them. The thinking I believe is that when the wind and sun ARE blowing and shining, their contributions to the grid will result in that much less output needed from the large central stations, whose fuel costs are continually going up.
Storage is another big potential. If battery storage technology keeps getting better over time as it has, and if its cost goes down, then there will be energy from some renewables available 24/7, admittedly only maybe only on small scales at first in microgenerators.
Ferdinand E. Banks 5.29.08
Gentlemen, in case you missed it, there is a discussion in the latest or next latest Newsweek which contains a discussion between the (former) pro-nuclear Greenpeace boss and Amory Lovins. It reminded me of an expression I once used to describe the members of the economics section of the Nobel Prize committee: dumber than stupid.
Fred
Malcolm Rawlingson 5.30.08
Thanks Fred, I don't normally read newspapers but the Newsweek article you mentioned might persuade me to buy it. Not that I am a fan of Mr. Lovins. And I thank you Bob for your comments. Unfortunately there are many people who DO indeed believe that solar power and windpower can substitute for the massive power plant infractructure. In fact many members of the public are quite convinced that the 1.8 MW wind tower outside of the local nuclear plant was built to replace it. I have pointed out to alot of people that it takes several thousands of such windmills to replace a nuclear plant....they still do not believe it and who can blame them when the media continue to promote these low power technologies as "the answer" to our electrical energy supplies. They are not and they never will be. You are also correct that fuel costs are going up. Where the fuel cost is a significant component of the total cost of electricity - as is the case with - coal oil and natural gas fuelled plants - I agree 100%. For nuclear that is not the case at all. Nuclear fuel costs have risen as a result of increased Uranium demand, however the fuel is such a small part of the cost of nuclear generated electricity that a doubling or even tripling of nuclear fuel costs has almost no effect on the price of electricity produced. Nuclear power is almost free as far as fuel costs go.
Storage of electrical energy is an interesting topic Bob and yes I do agree that storage will indeed assist with the availabilty of renewables. I have stated many times on various posts here that storage is the key to the usefulness of renewable energy. However should large scale storage become available the industry that will benefit most is nuclear not renewables. The reason is that nuclear is only useful up to the limit of base load on the grid. Cycling of nuclear plants is undesirable (at least the current designs) and it is far more desirable to keep then running at full power all the time. With cheap energy storage available nuclear can increase its contribution because the base load will increase by charging the storage in off peak times. But I do not see the cost of this storage going down any time soon and the exotic metals and materials used in the technologies I have seen will make their widespread deployment very very unlikely. What is a much more likely scenario is the production of hydrogen by electrolysis and the subsequent production of methane. Fuelled by nuclear generated electricity the production of hydrogen is much like a storage device. renewables can benefit from this approach too. But the scale of renewables is far too small to have any significant impact and - sadly - we are going to learn that truth the hard way because we simply do not as a public understand or comprehend the scale of current power plants. Replacing Nanticoke with windmills is not quite as easy as it sounds is it? At 20% capacity factor for wind you need about 10,000 2 MW windmills to replace it and tens of square miles of PV cells. Or just three nuclear plants. I think nuclear is by far the best and most reliable option for a Province with no fossil fuels...the very reason they were built in the first place.
Comments appreciated as always
Malcolm
Ferdinand E. Banks 5.31.08
I received a mail from a gentleman in Austria telling me why I was on the wrong track with this article. According to him all would be made well by horizontal drilling, more exploitation of oil in far Arctic waters, and of course the recent Brazilian 'strike' somewhere in the Atlantic. It is indeed theoretically possible that we will come out on top in this oil game, but these three things will have little or - most likely - nothing to do with it.
Horizontal drilling cannot obtain oil that is not there; for the time being talk about Arctic oil is mostly infotainment; and as a commentator in this forum pointed out, it might be ten years before the quantitative aspects of that Brazilian strike can be fully ascertained. Let me tell you how I think this thing should be approached: we need coherent/comprehensive energy policies based on the liklihood that oil is going to be really really expensive, regardless of how things eventually turn out in Iceberg Alley or the South Atlantic.
Fred
Malcolm Rawlingson 5.31.08
Fred you are not on the wrong track.
Even if you believe that there is more oil to be found (and that it can be found and extracted at a reasonable price) no sane person could agree that the commodity is in unlimited supply. If it is not UN limited it must be LIMITED. If it is limited it will - sooner or later - not be there depending on how fast it is consumed.
When there is none left then what exactly does one do then?
Would you pose that question to your Austrian correspondent. Of course there needs to be an energy policy that has as its fundamental precept the fact that fossil based energy resources will eventually not be available. At that point some time in the near or distant future the following list of machines will no longer operate bacause there will be no fuel to operate them. There will be no fossil fuelled power stations, no aeroplanes, no diesel engines, no gas turbines,no gasoline engines, no gas powered lawn mowers, no motorcycles, no steel (uses carbon) and the list goes on and on. Only the following energy sources will be available, wind, solar, tidal and nuclear energy. Wind and solar may make a contribution (insignificant compared to total energy demand). Tidal may be more of a contributor in future years but much work to be done on that technology - promising nevertheless. But the aggregate total of all of these alternatives is not very large compared to the sum total of all electrical and fossil energy consumed. All require some type of energy storage to make them viable 24 hours a day seven days a week.
And that leaves nuclear energy as the only viable large scale means of replacing all of the energy we use now. And even that source will find it difficult to replace ALL of the energy we use now.
Or we use less - alot less. When there is no energy, or the price rises to where only the wealthy can afford it then we will have reverted our society rapidly back to the dark ages.
Without a coherent energy policy from our politicians that day is coming much faster than many think.
Malcolm
Ferdinand E. Banks 6.1.08
Malcolm, I'm pretty sure that I'm on top of this oil thing, but making that gentleman in Vienna understand would not be easy - unless we were in the same room, where other persons were present. Then he would understand - or at least say that he understood. Pardon my French, but in considering my experiences in the educational wars, I would rather try to teach American soldiers who can only add and subtract thermodynamics than attempt to teach many economists with PhDs energy economics.
This thing with nuclear is of course amazing. Whether a nuclear reactor is the most flexible piece of equipment in the world is indeed uncertain, but once you have the comparatively inexpensive electricity and heat that a reactor produces, I suspect that you can go a long way where flexibility is concerned. But try to explain that to the TV audience.
Fred
Len Gould 6.2.08
When is someone going to make "The Demonic Comedy:" by Paul William Roberts into a popular movie?
Todd McKissick 6.2.08
Rest assured, there are many ways of using alot less energy. For starters, we could use motion sensitive LED street lights with PV on their tops. We could inform drivers of impending greens so they could better time their approach to avoid stopping. We could run a DC bus around our houses to eliminate the dozens of 70% or less efficient AC to DC power supplies in all our latest digital (DC based) equipment. We could make use of the .99 to 4.99 mhz of unused internet bandwidth in most households to make a smart grid today, instead of way in the future. We could integrate a point-to-point lightweight maglev rail in a majority of densly populated and high transportation areas which could also serve as a driverless frieght system. We could also encourage more local food products as opposed to shipping it half way around the world. These are all in addition to the efficiency/conservation pushes currently underway.
Of the remaining energy needs, we have a number of things available to help meet the demand. We could spread out large scale wind (towers and high altitude farms), geothermal, solar thermal, hydro, tidal and possibly a few others across the landscape as their resources allow. We can't forget the solar thermal aluminum foundries going in in the 'other' countries. On the smaller scale, we could continue with PV and wind, but build up the market for solar thermal and ground source heat pumps while waiting for fuel cells, hydrogen / methane / compressed air and run-of-river turbines to make it. Many of these systems produce capturable waste heat which effectively doubles it's usable energy output. For the still unhappy commuter, there's the HEV and PHEV and the latest round of pure BEVs that rival a porsche in 'fun'. For those STILL unhappy, we can grow genuine gasoline in greenhouses from photosynthesized algae or refine our veggie oil. For rail, we won't need as much to transport as today since my neighbor's train runs averaged 88% coal last year. For them and the airline industry, we can direct our biodiesel towards for their power. Since the personal rapid transit system is private and point-to-point at high speed, I'm guessing air travel will be more limited to overseas.
Since storage on a small scale is virtually identical as demand reduction (DR) and distributed generation (DG) is an extension of storage, as far as the grid cares, we only really have DR. No one cares if I shut off my 1000w light or my neighbor kicks on a 1 kw genset. The same is true for large scale systems where hydro can cover peaks better except that there's more of a coherant intelligence behind the timing. What's needed is a way to extend this purposeful decision making down to the small scale where economies of scale (unit quantity vs. unit size) take effect to make a massive collective difference.
Currently, our energy is being used in many ways that make no sense at all. How much of our oil, in barrels, goes to move other energy around? How about the daily shipments of fresh alaskan fish to most major cities in the US? How about the truck driver going all over town to fill a load before driving it to another city? I don't even see anyone discussing traffic aggressiveness as opposed to the lame argument of speed alone. We're all in for a long and redundant battle until we start to address these types of issues and dismissing them in favor of any one-size-fits-all approach is purely emotional passion. I say get the government as far out of the game as possible and let the markets decide on all levels what works best for them. I'm sick and tired of paying my middle-eastern counterpart so much money.
Bob Amorosi 6.2.08
Todd,
You have touched on many cultural issues as well as what's technically possible to reduce our energy needs, and changing a culture takes a lot of effort read time and money in free market systems.
Energy has been so plentiful and cheap to us westerners for so long that we have grown a culture that is pervasively inefficient in so many ways. Getting us off our old habits into radically new ones will never take place in the free markets as long as consumers and businesses have the choice available of using the cheap old inefficient methods.
The only way free markets will work to get us off the old habits is when the cheap old methods become too expensive to bear, which is about the only thing good about the current escalation in oil prices. Trouble is the new competitive technologies can't come into the mainstream fast enough before our middle-eastern counterparts get very rich in the meantime. Legacy methods and infrastructures that are inefficient will not disappear overnight unfortunately.
Todd McKissick 6.2.08
Bob, Agreed that people are set in their ways and won't really make a change until it benefits them. That's why I limited my list to items that are cost equal or cost negative. That is, unless they only consider the next pay period's timeframe, which, unfortunately is how most people make decisions.
Malcolm Rawlingson 6.2.08
I don't have any fundamental disagreement with Todd that there are lots of ways to conserve energy....I probably practice most of them and that we can do lots to make homes and offices more efficient. There is nothing inherently wrong with anything proposed here except that it is order of magintude too little. I just do not comprehend how you run an aluminium plant or a steel plant consuming electrical power in the tens to hundreds of megawatts when it is supplied by PV cells and wind towers that may (or most often may not) be producing any power at all. You cannot shut down a steel plant when there is no electricity - all the furnaces will be destroyed. Electrical storage in the hundreds of megawatts is just not on the cards right now. I think what is at the root of it is a lack of understanding of the processes that modern society relies upon and the fact that they are very energy intensive. All of the gadgets that Todd notes are useful - but they do not grow on trees. Alot of energy is used to make them - very often more than the device will save over its life. The same with storage batteries. Hopefully better technology will come along to allow high capacity storage - but I would not bet the farm on it. Whoever cracks that one will be a bazillionaire overnight. But all of this avoids the basic question that you cannot have the industrial society we live in with renewables and conservation only. You cannot conserve what you do not have. While Todd and I have had this debate before...the underlying principles of why nuclear power is the only real answer is this:- if we are to elevate the living standards of two thirds of the worlds people to anything even close to our own then massive increases in energy supply (100 to 1000 fold) will be required. Solar and wind are not even close to meeting that and we sure are not going to be able to do it with coal or oil without significant environmental damage.
Malc
Malcolm Rawlingson 6.2.08
Fred, Yes I can imagine trying to persuade those with closed minds of the need for an energy policy - at least while their lights are still burning brightly every night. But that is the nature of the beast and its probably not worth your energy trying to teach people who just don't want to know. Viennese Ostriches by the sound of it. About flexibility of nuclea plants...the control logic and systems of older generation nuclear plants were not up to making nuclear reactors follow the load so they are all run at base load. With the newer reactors load following is very feasible. Even with that flexibility he large capacity of nuclear plants (modern plants are in the 1000 - 1500 MW range) the economics favour continuous full power operation (ie base load). Pebble bed reactors now being developed and built in China and South Africa offer much higher outlet temperatures and can be used for electrcicty production as well as process heat and steam production and will be able to replace much of the coal oil and gas installations used in many industrial plants for making steam and hot water. But the key to using nuclear to get away from oil and other fossil fuels is to harness the unlimited energy production capability to produce methane on a large scale from hydrogen. In other words connect nuclear plants to the gas infrastructure via the on-site manufacture of hydrogen. That way there is no new "hydrogen" infrastrucure required. It uses what is already there. Of course methane is the key bulding block to the synthesis of all hydrocarbons and therefore the key to fossil fuel independence. It would be wiorth trying to figure out the economics of such a system. It is the only viable way I can see of getting off of the oil bandwagon. No doubt trying to convinve the Vienna crowd of THAT concept would be most difficult indeed.
malcolm
Malcolm Rawlingson 6.2.08
Todd, A recent post on the limits to renewables describes one man's efforts and costs associated with installing Government subsidised solar PV arrays on his house roof in California. Clearly this is a thoughtful man and he cannot make such a system pay for itself in a reasonable time frame even at rates as high as 36c/kwhr in peak times. If he cannot make a go of it in Sunny California WITH subsidies and WITH high electricity costs - surely it does not take a rocket scientist to understand that doing it anywhere else is just a non starter economically. And that is without the cost of a battery to power his home overnight.
Remember in the ideal world of renewables there can be no other power plants to back up your system overnight. They are all off line shutdown and dismantled. Solar, wind and hydro is all you got.
The pay back time in Canada is never. Power rates here are about 7c - thanks to lots of Nuclear Power - and a nice amount of water power (good old Niagara Falls). The Sun does not shine alot (seems like never in the winter time) and its strength is far less than in California. So if it is not economic in California it sure ain't gonna be worthwhile here and Canada is a very big and very cold country.
malcolm
Malcolm
Todd McKissick 6.3.08
Malcolm, Thanks for your comments. Indeed, we have discussed this and it always comes to the scalability sticking point. The problem is that the subsidies greatly favor (possibly even conspire toward) only the renewables that do have the problems you mention. You are correct that PV would have a very difficult time running an aluminum smelting plant but a solar thermal one is not only viable, it has been running for a while now in Uzbekistan. With only backup fuel being occasionally needed, it is proving much better economics than electric plants. Too bad the US has listened too long to those saying it can't work. The reason I keep harping on the subsidies, it that those have overpromoted the PV and Wind you use to measure all renewables against. For those, your arguments are all valid, but for many of the other, they are not. They don't follow the bigger-is-better economies of scale that most energy guys subscribe to. They follow the 'stamp out millions of cheap little ones' EoS. Think PCs and McDonald's toys. Those things are both so cheap that they impacted the market for their larger predecessors. Unfortunately, they have to be perfected which means they have to be accepted by the masses, which unfortunately today, also seems to mean they need government blessing.
On the argument that we can't scale any of these up fast enough to make a difference, I refer you to the old 8' satellite dish industry. Those things were a huge capital investment to the consumer to provide independence from a then overcharging industry, and they looked very intrusive. But they sold over 5 million of these things in just a few years and that adoption rate was only bottlenecked by the manufacturing capabilities. This is because financing, assembly, installation, setup and maintenance were all distributed to the local community (or the end consumer himself) and only manufacturing was centralized. Now drop a plant every state or two and add in a few competitors and you've got tens of millions of 1 - 5 kw systems going in each year starting this year. This is the power of the DG industry that's silently growing up around our feet.
On financing, if you compare the economics of large scale to DG systems, you'll find a few differences. The large guys will include every last cent in the proposal and fight for that last basis point of interest. The little guys are more subject to emotional passionate decisions, miss adding in the extras and have an easier time raising the project's funds immediately. This makes them more succeptable to less lucrative deals (read that as earlier adoption), but it also provides a larger market for the DG systems manufacturers to compete for. Once again, the free market prevails.
No sun in Canada? Hmmm, much of Alberta has the same yearly average (4 khw/m/day) and January minimum (2 kwh/m/day) as most of the midwest USA WITH a colder medium to discharge waste heat to and more domestic uses for that heat. As an engineer, I'm sure you can see this translates to better system utilization of either solar thermal or even some concentrating PV systems. If you still don't want solar, there's wind, seasonal storage systems, run of river hydro, bio-fuels or any of the new systems which still need fueled but are just more efficient. Otherwise, you can stick with nuclear or just have me send you some of my excess. ;)
By the way, most of the die-hard, off-grid, remote-living guys that I've followed all live in Northern Ontario and one runs a personal foundry!
Len Gould 6.3.08
It's the attitudes like Malcolm which have gotten societies into this mess to start with. I call it the "big utility" or "engineer's don't create" mindset. No possibility of anything working which hasn't already worked for the past 20 years.
Agreed, engineering schools have been in the business of stomping the creativity out of young minds for the past 50 years or so, on the theory that guys calculating stress levels on bridge girders had better stick to the rule books and not be creative. Let someone else do the creating. Problem is, the only other qualified "someone else's" are all too busy writing engineering textbooks and teaching at engineering schools to be creative, so nothing really novel ever gets done.
Jim Beyer 6.3.08
Malcolm,
I agree with your mindset and viewpoint in general, but it is also a bit of a closed mindset, and thus somewhat dangerous. It's not hard to show the non-economics of PV, but the numbers are much better for something based on solar thermal or concentrated solar. Solar powered water heating is fairly easy to justify cost-wise.
And even with PV, what if that electricity was put into a PHEV.? Then even at high electricity rates, it still might displace gasoline economically (albiet ignoring the cost of the battery packs). Another thing that kind of grinds me is when other conservative folks chaffe at the infrastructure cost involved with charging PHEVs yet do not seem to acknowledge the infrastructure benefits that DG such as PV also provide.
I agree that nuclear makes sense now, and will even make more sense in the future. Solar and Wind only make sense if their intermittent sources can be used effectively. Smart metering, PHEV charging, and temporally-displaced HVAC (via freezing water) are all examples of technologies that can help make these sources more effective.
Conservation is another one. We always seems to forget that one.
I also have to voice some of the anti-nuke sentiment (though I am NOT anti-nuke) that if nuclear power is such a great deal, then why isn't the private sector going whole hog and building them? You could argue public sentiment, but again, if they are such a great deal, then why isn't the private sector lobbying and campaigning furiously to the public so they can get them built? Personally, I feel nuclear power plants ARE a great deal, and should be built, but I think the private sector is scared of them. They are so big and problematic to build that they are not comfortable investments for them. Who wants to spend $5 Billion on something that may have a 50% cost overrun? That's just too scary a notion for interests with that kind of money. This is a shame, but nonetheless the case.
Say what you want about solar or wind, but at least the investments are in smaller portions.
Ferdinand E. Banks 6.3.08
Malcolm, I heard from that Austrian gentleman again. This time it was about nuclear, and you will be happy to hear that he was in your corner. I also heard from someone at the Rocky Mountain Institute about participating in a conference call arranged by none other than Amory Lovins.
Unless I am mistaken, Meester Lovins is familiar with this forum, and if he wants to go to war over nuclear, I am sure that there are plenty of people in this forum who will gladly provide him with the satisfaction he deserves.
Fred
Todd McKissick 6.3.08
Fred, I had the opportunity to speak with Mr. Lovins in February after one of his presentations. He seems a nice enough guy and very sincere about his beliefs. I found them only slightly narrowed by blinders. For the most part, everything he was promoting was sensible and doable. I know he's against nuclear but I don't know the root causes for that belief. I think it's more based on that we don't need to go down that road if we get our act in gear elsewhere.
Bill Corbin 6.3.08
I'd like to see a really good updated debate with validated and numerically research data to back up everything as much as absolutely possible. Too bad that the Integral Fast Reactor went through, modern day Gallieo's. What do I know, I was looking at BlackLight Energy today, and thinking, whoa, I'd love to see that prototype
Jim Beyer 6.3.08
Bill.
The debate about the cost of nuclear power has been beaten around quite a bit on EnergyPulse. Lots of thoughtful people have provided insight on this issue to the extent that (at least in my mind) some things seems fairly clear. Among them:
Cost of waste storage is not a significant issue with nuclear power. That being said, it is still not completely resolved, but when it is, it won't cost all that much. Less than half a cent per kw-hr of energy produced.
Likewise, the cost of Uranium is not a significant factor, and won't be for quite awhile. Even a 10X rise in fuel prices will not significantly raise the cost of power produced. It's simply to small a portion of the overall costs.
The big cost bugaboo with nuclear power is plant construction costs. These are NOT included in EIA numbers, which only cite the operating costs of nuclear power. These are around 3-5 cents per kw-hr, and include fuel, maintenance, and (I think) the cost of waste storage.
So, what everyone scratches their head about is, how much do plants really cost, and how much does this impact the overall cost of nuclear power?
The good news seems to be that newer plants will last a long time; closer to 60 years than 30. This bodes well that eventually they will be cost-effective generation strategies.
The bad news is that cost controls on building these things do not seem to be well-established. The track record is spotty and overruns are common. Many blame excessive regulation. Whatever. This is the reality, at least in the States.
All that being said, my own guesstimate is that the true price of nuclear power is probably close to 6-8 cents per kw-hr, when plant construction is amortized into the equation. This is probably high, given the plants could last 60 years, but it's hard to price something out that far. The best future (as a plant owner) would be to get one built and then know, eventually, you will be able to make a lot of money off of it after it has been paid off.
6-8 cents is higher than nuclear proponents would like to claim, but much lower than nuclear critics (like Lovins) would claim. As a result, it probably isn't that far off. If you look at the data, it's hard to see how claims of 14-20 cents are justified. Likewise, claims of 2-3 cents are hard to believe, given the reality of cost overruns, maintenance costs, and fuel price increases.
Anyway, just my 2 cents.
Malcolm Rawlingson 6.3.08
Len, Engineers for the most part are realists. We make stuff work. We keep your lights on day after day after day, week after week and we do it so well you complain when they go off for even a few minutes. When you tell me that "solar" or "wind" is the answer or conservation my training and many many years in the energy business tells me to look at the numbers because numbers tell me what is really going on without the politcal spin doctoring.
The numbers tell me that Solar energy of any sort CANNOT operate when there is no Sun and that is 50% of the time on average. That means that to make power at night you must store it during the day. That means you must have more capacity during the day to power the day needs aswell as the night storage needs That means you must build a solar facility AND a solar storage facility if you are to provide power round the clock. A similar case for wind. Different conditions depending on wind availability but the story is the same. Not against it but with capacity factors at the best sites of 20% you will need many more than the nameplate tells you you need. Please post on this site a plot of actual electrical output over a year from any wind generator of your choice and plot it against its nameplate rating over the entire year....what it should produce IF the wind was blowing all day and all night which it never does. Perhaps that will convince you and everyone else that wind power is not sufficient.
I am not preventing nor would I want to prevent, any one from installing solar panels on their roof or building a windmill in their back yard and I applaud any Government that wants to promote it- go ahead you are free to do what you want. Your neighbours might not be too pleased at having a view of your 50 foot windtower outside their living room window. But even with incentives I do not see hoards of people doing so. I can only assume that it is either too expensive or the way that electricity is currently provided is the better choice for most people. In Canada they would spend most of the winter brushing the snow off them. I cannot envisage the average senior citizen climbing up on the roof to brush off their solar panels before the fridge will work or the lights will go on. Might be OK for Todd but the average person - not a chance.
And of course you missed the whole point of the discussion that sooner or later fossil fuels will run out. It is not a maybe - they will. and there must be a truly viable alternative available when that happens or we are all in trouble.
Fred raised the issue about energy policy and my argument is that some thing must be capable of replacing ALL of the fossil fuel energy supply AND the electrical energy demand.
Neither solar energy, wind, nor conservation can do that. Not even close.
The point was raised above that private companies are not rushing to build nuclear power plants. I beg to differ. In Canada, Bruce Power - a private consortium - is planning to build two nuclear plants (privately financed) in Alberta and possibly one in Saskatchewan.They are already refitting four power plants using private money. They also want to construct another plant at the Bruce Nuclear Site in Ontario....plans for this number of provately financed plants hardly supports the notion that they are not economic. The are a very economic method of producing large amounts of electricity, hydrogen and heat safely and cheaply.
Numerous private corporations are planning construction in the US. Many countries around the world are rapidly building up their nuclear capacity. So the argument - often repeated - never verified is that no-one wants to build nuclear. Plain wrong.
The good thing for the sane people of the world is that we (lowly engineers) know how to build an operate nuclear plants we do now and we will do in the future when there are hundreds more.
Call me closed minded if you will but I'd sooner have a closed mind and provide reasonably priced energy to 6 billion people than an open one sitting in the dark waiting for the wind to blow.
Malcolm
Malcolm Rawlingson 6.3.08
Todd, Great response...I always enjoy your comments and feedback thank you You forgot one thing. It snows in Canada - alot. Darn stuff covers up all your solar arrays and energy prodcution drops to nuthin on cold snowy days. Perfect. Who pray tell is going to get up on the roof top and brush that lot off. Not your average 85 year old grandma for sure. My son works on the tar sands in Northern Alberta. Unless you're burning wood you are going to be very cold in the winter up there. In Ontario we just about exhausted all our water resources - it is why we went for coal and nuclear - no hydro power left...There is a bit more we could exploit but really not that much even on a small scale. wind and solar will help - but not much really. You also must bear in mind that being "off grid" is OK for the fit and able bodied but that is not everyone. I am quite sure my Mom would not be able to keep these systems running in her home. She would not be able to survive. And it is not just the elderly what about the sick and injured and disabled folks in our midst. Home based systems are fine for the likes of you and me with an interest in these things but on a larger scale using this approach for everyone is unlikely to work.
Interested in the size of the Uzbekistan smelter. What is its output in tons of aluminium per day? Alcan (I think) is building a plant in Iceland...wonder why they went there and not the dessert to build a solar thermal one. Maybe they missed something.
And I am curious to hear your opinion as to why developing countries like China and India (who essentially have a clean slate) are building large power plants on an unprecedented scale. One large coal plant a week coming on line in China. If solar or wind or small scale anything would do it why are they NOT doing that. Sure China is also building wind farms and solar arrays but the bulk of their electricity will come from coal and nuclear. If small scale was "growing up all around us" you'd think they would be the first to be doing it. So explain to me why they are not? Perhaps their engineers have been brainwashed by the engineering colleges too. Maybe the University of Bejing is in cahoots with US universities to ensure the golden truth about wind power and solar does not get out to the public....I smell a conspiracy....Or could it be that they crunched their numbers just like we did and came to the same conclusion - Nuclear or coal and when there ain't no coal left....well leave that to you to figure out.
Malcolm
Ferdinand E. Banks 6.4.08
Todd
If Josef Goebbels said the things that Amory Lovins says, they would be called lies. I think that 'misunderstandings' is appropriate here.
The most important for me though is that he did not reply to the criticism he received on the two articles he published in this forum. Perhaps just as important is the simple fact that while his "doable" proposals might be just what the doctor ordered on the rim of the Kalahari, they dont make any economic sense at all for this country (Sweden).
By the way, I was informed that Dubai is not a country, and according to Google it's an 'emirate'. I suspect that emirate means pretty much the same as country, but in the future I will call it an emirate.
Len Gould 6.4.08
Malcolm: The raw economics of solar PV today may not make sense, agreed, but we all already knew that so what's your point? Other systems however, like micro-CHP solar thermal cannot be so easily dismissed. There is simply no technical or economic argument that you can make which will prove that such systems cannot be implemented economically, certainly in high-insolation areas od the west (clear daytime skies is the biggest factor, not latitude). Certainly steam or Stirling engine technology is theoretically capable of electricity generation from such, and at today’s electricity costs, or those which will apply the first day Bruce Nuclear’s first reactor hits the SMD market, these should be do-able.
Micro-solar thermal CHP with bio-fuelled or N Gas or propane backup (for grandma) should be able to generate electricity at lower costs TO THE OWNER than purchasing from a market where the minimum price is set by the newest baseload nuclear. But we'll never know, will we? We'll more likely all be frozen in the dark by the time you engineers figure this out yourselves, then spend twenty years undoing all the stuff you've convinced the boardroom members of so you can finance another twenty years of needed actual development work on the engine and collector technology, and associated manufacturing technology, building integration technology, automated cleaners etc. etc., then get past the errors always made on introduction of a new technology, etc.
And it would also help if some metering technology engineers got a clue as well, because without a market, none of this can actually happen, but that's another whole topic. If a (very near-term likely) breakthrough in fabricating optical rectena PV panels with (theoretical >50%, likely >25%) efficiency at the price of a few ounces of carbon and some wire and plastic, happened tomorrow, the inventing company's management would likely fire the developing scientists because there's no market for such systems, no infrastructure of PHEV battery systems to absorb the peaks, and their engineers have told them it'll never make sense.
(Many or most) engineers are just far too conservative and narrow minded, and have no view of the future. I know, I work with them too, though I know of a few rare exceptions who never get anywhere in hierarchical systems. BTW regarding wind, I am agnostic. I can do the same numbers you do, but am prepared to grant that just maybe T. Boone Pickens might just know something I don’t.
And yes, I should spend more time on the grammar and spelling of this, but I loose patience with spellcheckers which insist that nuclear must be spelled nu {space} clear.
Bob Amorosi 6.4.08
Malcom: it’s obvious to most of us engineers that solar and wind distributed generation will likely never replace most base-load large central nuclear or hydro stations, and are not yet practical as you say for absolutely everyone to have on their rooftops, especially IF one thinks that the homeowner must maintain them. Granted our elderly mothers may never be able to clean snow off them in winter, but many seniors will pay someone else to do it for them just like they pay young kids to shovel their driveways. Even better, there may be an opportunity for someone to develop a heating system to melt the snow automatically, and once melted the sun's heat will keep it clear just like my black asphalt driveway stays once it is cleared (until the next snowstorm of course).
Solar and wind discussions should be divided into two areas really to avoid confusion; the rooftop systems for individual residences, and secondly the large farms out in rural areas or on lakes. There are many large scale solar and wind farms being built with the full expectation that they will operate only part time, expecting the grid to buy their output when available. Once their construction costs are paid for, their owners will have virtually free energy fuel sources on a part-time basis, and expect to make lots of money I'm sure. It's why they are lining up to get signed onto contracts the Ontario Power Authority has been doling out.
Consider this - if rooftop systems were deployed for even only say 20% of residences, what would the net reduction in total grid demand be during the daytime on a hot sunny summer afternoon. It would make the reductions from everyone replacing lights with compact fluorescents pale by comparison.
Jim Beyer 6.4.08
Some points:
Alcan built their smelter in Iceland because of the free geothermal energy available there.
Lovins is dangerous because he's a charming, charismatic, and persuasive speaker. And he's about 70% wrong. He's wrong about carbon fiber, as it is still too expensive for automobiles. It's barely economical for passenger jets! Maybe in 10 years it will get cheap enough. He's wrong that nuclear power is too expensive, because he dismisses the storage issues w.r.t. intermittent sources as has been mentioned above. He's right about conservation ("negawatts") but again is not practical about implementation. He was WAY wrong about hydrogen, but doesn't talk about that so much lately. He's a late convert to PHEVs. I asked him a simple question when he spoke in our city: "Will PHEVs supplant the hydrogen economy?" He babbled on for several minutes and never answered the question. (BTW, the answer is YES.)
I think the only bad agenda that Lovins really carries is face-saving. I think if you advocate something for a long time, and then figure out you are wrong, you need to face up to it. He, GM, and the NHA are about the only voices left still advocating hydrogen. This energy stuff is tough stuff, so it's easy to get mixed up. But we can't afford going down the wrong path when we know otherwise. He should be better about admitting his mistakes and moving forward.
Finally, I wonder when nuclear advocates are going to admit that global warming is the single best thing to happen to their industry in 30 years? Wipes 3 mile island and Chernobyl off the slate. It's clean again! You get a free re-do. Don't blow it this time.
Len Gould 6.4.08
Jim: Lovins is likely not wrong about carbon fiber, simply a bit too early. And if auto companies had listened to him 10 years ago on that one, the volume production involved would probably have the costs down to at least competitive with metals, even given that metals prices would now be much lower. Sure would help with fuel mileage also...
Bill Corbin 6.4.08
Thanks for the reply Jim. In your estimate, did you include the 100 or so reactors built during Reagan ? I know the construction management results are superior, probably learning curve benefits. But for the nuclear power industry, it seems to me that 3rd generation and earlier reactors are done (especially 1st/2nd gen hybreds Chernobyl), its got to 4th generation now and start the clean up while simultenously contributing to climate change. I personally do not think that fusion is here, but I'm all for trusting and verfiy. On a related note, I see that defense/space industry has lost its capacity to calculate a critical path, there's alot damage that has to undone from the post 1992 reigmes. I'm just not sure that it happen, the K-car/computer industrial complex wants to believe in solar just like Icarusus (excuse my spelling errors).
Len Gould 6.4.08
Bill: Jim's number appears to be in line with stated costs of current proposed builds, eg. multi-repeats costing "in the range of" $2,500 to $3,000 per kw. The numbers I did (unofficial) for a 4,400 mw ACR1000 plant came in at a production cost of "about" $0.08 to $0.09/kwh cost of production to the bus. Selected financing costs are everything though....
Len Gould 6.4.08
Malcolm: For balance, here's a perfect example of the dumb things we need to stop doing, fast. Clearly they're not both correct, but neither is clearly wrong.
Clearly the first is biased against nuclear, and makes several unsupported assertions. But the second is no better, and nuclear proponents need to do better. Attacking CSP is the wrong approach.
Len Gould 6.4.08
( I failed to point out that I'm discussing the second section of the second reference above, the part titled "Comment from Michael Stuart"
Todd McKissick 6.4.08
Jim, Since carbon fiber is really only oil pitch heated in the absense of oxygen, is it really too expensive or is the technology just sitting idle collecting the low hanging fruit? In looking at bringing it inhouse last year, we found the big expenses to be the molds, oven and energy. All three of those are minimal in mass production which seems to be why my neighbor kids now have CF hoods and spoilers on their cars and CF skateboards. I just can't believe that on a production scale like GM has, it can't be cheaper, mine-to-melt, than steel. What would be believable is that the molding cost is exponential with size - hence your aircraft body statement.
Regarding Amory's presentation, perhaps he learned from your question and has since toned down the hype.
Bob, Your idea to heat the collector for snow removal is already in the plans on at least one upcoming system that I know of.
An interesting discussion comes up from the question of what percentage of homes could actually make use of renewables. You suggested 20% which may be either high or low, but there's another consideration. Small businesses effectively can be counted as a residence with minimal loads 2/3rds of the day. They can still take advantage of CHP features and some efficiency improvements too. Medium businesses up through commercial and industrial can use these benefits as well. With 107+ million families in the US, we could guess that there's about 60% single families. With the average 5 workers per small business, how many of those rooftops are there? How about WalMarts, schools, Costco's and Tee shirt factories? Should we try to find out the total roof space and apply 20% to that or to just the sunny single family homes with a large south facing roof? In trying this a while back, I estimated over 1000 sq. ft. of rooftop per capita. Anybody else know any further info?
Bob Amorosi 6.4.08
Todd,
I tend to believe your comment about CF production costs being comparable to steel. We don't see the auto industry using CF in a big way in spite of it for several reasons. I am from Canada's steel industry city, Hamilton Ontario, and can speak from experience.
The globalization of the steel industry happened before the 1980's which eventually brought about huge competition for North America's steel producers, and ultimately its widespread decimation. The Canadian and American producers have shrunk to a shadow of their former size, with steel prices behaving as pure commodities suffering deflation over time. The only ones who have survived and prospered are those that developed higher quality steels for automotive applications.
Dofasco in Hamilton has had a longtime PR logo "Our product is steel, our strength is people" to advertise steel's best quality for automotive use - its physical strength and that this conveniently satisfies government crash safety regulations.
Another consideration is the world-wide steel industry already has a huge foundry capacity in place, paid for a long time ago. To put up similar scales of production for CF in auto applications would cost billions (I think) that most investors will not touch when there is cheap steel available everywhere already. Conversely the investments required to build production facilities of hockey sticks and other high profit consumer items in much smaller volumes is considerably less. So this is where you see investment money go into first, the ones with smaller risks.
Bob Amorosi 6.4.08
Todd, the North American auto industry is also not liked by many of its component suppliers. The competition for suppliers is so fierce from the far east that some suppliers simply get out of supplying the auto industry altogether because they cannot make a profit operating in North America.
To give you some idea, I work in the electronics industry and have dealt with automakers in past. Their purchase philosophy is simple for a new product you have designed and are ready to produce for them. They tell you OK I will buy your product from you today if you set your price at a level they specify, but you MUST also implement a price reduction plan to lower your price next year and each year afterwards. If you don't like our starting price or refuse to implement the price reduction plan, fine, they will take their business elsewhere.
Bill Corbin 6.4.08
Thank you for the reply Len. I'll check back in 09-10, and see how the public debate has changed. Doesnt seem terribly 'expensive' to me to convert spent rods and A-bombs into fuel, electricity,etc. Theres only 10,000 years worth of the stuff that needs to be cleaned up. I'm sure the K-Car/computer industrial complex and the electrical engineers within will figure out how to minitaturize frequency regulators and goverors someday, until then looks like same old same old to me.
Jim Beyer 6.4.08
Todd,
I think you explained the problems with CF for cars in your comment. Molds, ovens, etc. That's just a very different (and slower) process compared to a metal press with a single die that can punch out hundreds of doors per hour. Each CF piece has to be in each mold for how long? 12 hours? So 500 parts per day means 1000 molds. That's a lot of money. Plus, new molds are needed for every part change, and dozens or hundreds of molds are needed for each car. I don't think you realize the cost pressures on automobiles. Gas will have to get a lot more expensive for CF to make sense, or they need a better way to make the parts.
Aluminum parts are still rare in cars, for the same reasons, and that's a much simpler switch than carbon fiber.
One could argue (well) that HEV and PHEV technology would better benefit from reasonably-priced ultracaps to increase regenerative braking. Then the weight of the vehicle would be less critical with respect to fuel consumption. And the same ultracaps could be used in all car models.
The economics of aircraft (weight, weight, weight, fuel, fuel, fuel) favor lighter materials much more so than cars.
Todd McKissick 6.4.08
I think we've pretty much nailed down the issues with using CF in cars and it amounts to which side of the line you're on. If one believes that improvements in making parts from it are too expensive then you won't support it. This is the state of the art today. If, on the other hand, one believes that with an coordinated effort to go that way, you'll get that high tech process you desire, then you would most likely agree with Mr. Lovins. Personally, I am on the fence since I haven't researched the latest progress for a long time, but I am mostly looking his way.
I think most of these improvements that are mentioned on this forum are worthwhile and could actually be implemented in cost comparative manners but the imbalance of support (both subsidy and promotion) is hampering all but the most creative individuals. We're only seeing those systems make news when we could be seeing them skyrocketing and seeing their lesser known counterparts making news. That's the mix I want to be able to pick from. Right now it seems we can only choose from clean coal, nuclear and one distributed method which has many problems - PV.
Jeff Presley 6.4.08
Carbon fiber. It so happens I supplied some of the original industrial computer equipment to Boeing on their original carbon fiber implementation (mid 80's). They start with a device that CREATES the carbon fiber. Then this incredibly sophisticated machine spits the line out and it falls through the air, cooling as it falls (about 5 stories). The machine points the line at extremely precise angles (tolerances of 1/10,000th of an inch) and as it falls, it effectively weaves a blanket even though it is only one mono filament, miles long. In fact, my company's computer system actually drove the thing (thankfully I had no hand in programming it).
Now you have the composite fiber base, but of course it would just un-weave in a second, like pulling a piece of yarn out of a sweater. Therefore, you need the incredibly expensive and sophisticated epoxies and resins that can be cured in expensive vacuum heating chambers to help you mold the design you want. Pound for pound it is vastly stronger than steel, but as Bob was stating, it is no picnic to be on the receiving end of a steel vs carbon fiber collision. On race cars, where they start with the high strength steel roll cage, this isn't such a bad thing, but passenger cars have a long way to go to reach that level of sophistication.
BTW, all those resins and epoxies that I know of are based on fossil fuels.
Bill Corbin 6.5.08
Look at all of things that can be done with cheap fossil fuels. Which one of the military-utlity-industrial complex will be the first one to consumers a choice to purchase electricity by burning A-bombs ? And, then list out all of the over-whelming environmental benefits. Somebody needs to create a lobbyist/business group for Future Nuclear Power Operators.
Bill Corbin 6.5.08
Len, In 'theory', a selected financing could operate with 'carbon offsets', renewable energy credits, sulfur & nox allowances, and a well focused consumer education program. The fuels could be vintages like , 1945 to 1950, etc...and the forward curve would probably be about 60 years. Bernake would love it.
Ferdinand E. Banks 6.5.08
With all due respect Bill Corbin, this is hardly the time and place to be concerned with the loves of Mr Bernake. Shortly after assuming office he announced that there was no need to be worried about an escalation of the oil price, because the futures price did not lead to this conclusion.
Unfortunately, the liquidity of the (distant) maturities he seemed to be thinking about was such that only someone who had no practical knowledge of futures trading could arrive at the conclusion that they could provide usable information about the oil price in the future.
Len Gould 6.6.08
Jeff: Sounds like an excellent application of fossil petroleum resources to me.
Bill Corbin 6.6.08
Fred, perhaps you're correct again. This week the first set of atmospheric micro-burst touched down right in DC's back yard, they're lucky they didn't get some tornadoes. Its a matter of time now. If my model is right, then, another record setting hurricanes will reach DC and NYC within the next 5 years. The K-car/computer/electrical engineer/regulatory industrial complex has had 16 years to catch up with science, the science that they outlawed. I think, that if they cant get it together within the next 4 years, then the Lincolon's greenbacks will need to start up 4th gens on some bases and start cleaning up. Demand side management will become an 'all you can eat'. Full disclosure - Will vigourously short the dollar as required.
BTW, they have it wrong in the article about silver (at least) since that price was caused by the infamous Hunt brothers and Nymex' manipulations. I do agree that there will be demand destruction caused by economic downturn. Demand destruction will be good, to a point, then it gets bad, very bad.
Ferdinand E. Banks 6.8.08
Thanks Jeff
That was a moronic article. Let's get something straight here. According to somebody they are producing oil from shale somewhere in the Dakota badlands. I really wish that I was up there with them, producing and pocketing some of that long green. Of course, they probably dont produce more than enough oil to keep your limo in the fast lane, but that's another matter, isn't it. They are still pocketing the folding stuff, aint they.
As pointed out in my article, the big oil producers are in the driver's seat now. Period. There will be some demand destruction due to the macroeconomic thing, but they could ride that out if they were are smart as you and me...well, at least you.
Outside of that, Fortune has always been one of my favorite publications, but they have this annoying way of getting things about oil wrong. I wonder why?
Fred
Jim Beyer 6.9.08
Thanks for the article, Jeff. Just read "The Long Emergency", which I think is about 80% wrong, but at least it's a thoughtful look. The author James Kunstler is obviously a huge fan of both Tom Wolfe and the movie "The Road Warrior".
It would seem to me that until we get off oil in a big way, the production peak or plateau will continue to stifle economic growth. So we might stall, producing demand destruction, but when we start up again, we will hit this wall of finite oil production, and stall again. And on and on. Subsidized oil consumption by India and China are not going to be particularly helpful in this scenario either.
I would think if there was extra capacity to be released to capitalize on the high price of oil, it would have been released by now, don't you think? Instead, oil futures remain in contango.
If we can get PHEVs working, that might buy us 10-20 years or so, but then we will be back in the same boat again.
Bill Corbin 6.9.08
This has been one of the better experiments in spatial economics that I've seen in a while. After its run its course, and I measure that by looking for dratic collapses in Tier 3 govts (local), Tier 2 govts (state), and finally Tier 1 instabilities, well, Lincoln greenbacks. The sun always rises but it doesnt always shine, and the wind always doesnt blow. Storing air, Hilsch-Ranque vortex tubes. I expect demand curve destruction to end when science is decriminalized in the US. It could take a while. Saw the FERC this morning , 'we need demand elasticity in elecrtricty'. Try it out food first, see what happens. Co-ops
Isarel is bluffing
Jeff Presley 6.9.08
I get RSS feeds on multiple oil topics that interest me, and this one - Oil Fundamentals recently popped up. It is a good description of current leading to future events. He makes a fair point in the article about refining, which has been the overlooked elephant in the room in the oil discussion. The inelasticity of supply and demand being the obvious element.
What no one seems to understand is the vastness associated with the oil industry worldwide. That industry is moving a LOT of physical product from oftentimes remote and barren locales against staggering logistical nightmares. So it doesn't really matter that there is oil in the Bakken formation, unless and until all the infrastructure exists to get it to (1st) the refinery and (2nd) your car. And "it",/b> is a LOT of product. Pipelines are good, but they take years (decades in the case of the North Slope) to design, permit and build. Once installed, it is a non-trivial problem to "jump on" a pipeline that might be going right by your new production play. Those tanker trucks you see plying their loads down the highway carry a trivial amount of product, the biggest of them only hold ~200 bbls. Therefore, even if you discover a million bbls per day well in North Dakota, how many trucks are needed to carry it to market until the pipeline gets built?
I can't say this often enough. The oil industry is vast, and has had 150 years to get this big. There can be no palliative or replacement overnight for the simple fact that 150 years of experience, infrastructure and investment CANNOT be replaced in a short time frame. Period. Meantime EVERYONE needs to do EVERYTHING they can think of to alleviate the problem on the demand side, and do so for about 50 yrs or so, while the (market chosen) replacement gets traction and wins because it deserves to, not because some politicians took a bribe.
Fred, I'll be talking to the oracle of oil in a couple of days, any words of wisdom you'd like to impart?
Jeff Presley 6.9.08
arrgh, forgot a "<" character... :(
Ferdinand E. Banks 6.10.08
The oracle of oil. Is that what they are calling me these days? Well, tell the guy or gal that you will be talking to to read my article, memorize it, and sprout it from every soapbox between the Bay of Fundy and the Capetown Naval Yard. I dont have a copyright.
More oil in the Dakotas and Montana than.... I wonder who is going to get rich on that lie. I just wish it was me. A condo Aspen or Monaco would suit me fine.
Fred
Bill Corbin 6.10.08
Tell the 'Oracle', that there's still about 2 generations of people in the US, who havent had the pleasure of marketing gas with a sidearm and a German Shepard yet. $10 a gallon is fine with me, but there would be so many people in the situation the 'work didnt pay anymore.'
Wind, solar, sounds like a page turner for sustaining GDP at 0.8% annually to me. I'll be back, when science gets decriminalized.
Jim Beyer 6.10.08
Oracle of oil is either Arjun Murti or T. Boone Pickens, right?
Questions/Comments I'd ask/make:
1. How do wind farms really integrate into baseload generation?
2. Will PHEVs really disrupt grid infrastructure in the near term?
3. Should we be buying railroad stocks like Warren Buffet?
4. Why is methane (even renewable methane) reviled as vehicle fuel?
Len Gould 6.10.08
Bill: "We will find neither national purpose nor personal satisfaction in a mere continuation of economic progress, in an endless amassing of worldly goods. We cannot measure national spirit by the Dow Jones Average, nor national achievement by the Gross National Product. For the Gross National Product includes air pollution, and ambulances to clear our highways from carnage. It counts special locks for our doors and jails for the people who break them. The Gross National Product includes the destruction of the redwoods and the death of Lake Superior. It grows with the production of napalm and missles and nuclear warheads.... It includes... the broadcasting of television programs which glorify violence to sell goods to our children. "And if the Gross National Product includes all this, there is much that it does not comprehend. It does not allow for the health of our families, the quality of their education, or the joy of their play. It is indifferent to the decency of our factories and the safety of our streets alike. It does not include the beauty of our poetry, or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials... the Gross National Product measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile, and it can tell us everything about America -- except whether we are proud to be Americans."
1968 speech by R FK 3 months before shot. Hasn't been a candidate who "got it" since.
Todd McKissick 6.10.08
Jim, You're correct in that the Oracle is indeed Mr. Murti so oil and gas related questions might prevail. This is the guy made famous for predicting oil to reach major prices that have now come to pass. It was he who applauded traders for running up oil and denies that any of his wildly overreported predictions had any self fulfilling aspect to them. His motive for the praise was that it will send a message to people to conserve or buy more efficient. I'm sorry, but many people are not in the category holding that option. Since running up this market results in OPEC getting more for their barrel, the traders getting higher margins while remaining under the radar and the oil companies attracting windfall tax hearings to their spoils, why wouldn't he want it to be self fulfilling. It's like Prof. Banks always says - who would do something to help themselves make less money?
I'd have to ask him how much he's made on the 'super spikes' he's predicted and how he can sleep at nights. If he was as serious about being 'green' as he says, he would more likely donate, not invest, to promising technologies. I don't see him doing that.
Jeff Presley 6.12.08
Todd, everyone who's anyone knows the oracle of oil is none other than T. Boone Pickens.
Jim, didn't see your email in time but I did hand him a paper written by one of my partners on wind power, either he'll read it and get back, read it and not get back or not read it at all. ;) Given the opportunity, I'll query him your points and see what he thinks.
Fred, if you were willing to come back stateside, maybe you could take a chair at OSU, Boone's alma mater. You'd be amazed how much he agrees with you or vice versa.
His idea is to begin to use wind power to replace the natural gas consumed in electricity production. That replaced natural gas can now be utilized for transportation purposes and he happens to own a company doing natural gas filling stations. Less pollution, longer engine life, less imports etc.
Don't know if you can see this link or not, but here's some of the talk he gave.
Malcolm Rawlingson 6.16.08
I have been away for a while but I just could not resist informing all those who keep telling me that no-one is building nuclear plants any more that the Ontario Government has decided to build two new nuclear power plants at its Darlington site on Lake Ontario. The Ontario Government has taken a balanced approach and has placed huge emphasis on conservation and renewables but even then it still comes down to a choice between more coal or more nuclear powered electricity. As much as we would like to think otherwise the fact is that nuclear power plants provide low cost reliable electricity with very high capacity factors in very large quantities. Of course I am hoping that the conservation measures will live up to their promise...and the same for renewables...but I doubt that they will at least not without a massive and painful decrease in the standard of living we all enjoy.
Ontario is constructing one of the largest solar PV arrays in the world (40 Megawatts when the sun is shining brightly - 0 Megawatts at night when the sun is shining brightly on the other side of the world). The cost of that electricity is 42 c/kwhour versus the average for Ontario of about 5 c/kwh....800% more expensive. At that price nuclear generated electricity is a quite a bargain. On a world wide scale it has been estimated that over 1400 new nuclear reactors will be needed in the next 20-30 years...just to keep up with demand and replace the present reactor fleet and I suggest we better start building now.
One commentator up above here noted that it took 150 years to construct the oil infrastructure and it cannot be replaced overnight with any thing. I agree but we can easily build enough nuclear infrastructure to replace oil in much less time than that because most of it is already in place.
In my view the oil industry has done a remarkable job of building an infrastructure that powers most of the world...but I think even their engineers as talented as they are will acknowledge that the resource cannot last indefinitely.
Sooner or later we, as a world community, must come to grips with the reality that fossil resources are not going to be there forever and the only sources left will be wind, solar, tidal and nuclear energy. Of those only tidal and nuclear come anywhere close to meeting the present world energy demand let alone a future where everyone aspires to the North American lifestyle and its attendant massive consumption of energy.
Fortunately Ontario understands that reality. Our friends at Bruce Power are forging ahead with bringing all of Bruce A reactors back on line so, as much as some might erroneously espouse otherwise - the nuclear industry is very much alive and well in Ontario.
Malcolm
Malcolm Rawlingson 6.16.08
Len, Thanks for the links. Interesting reading. Dr Wolff seems to be something of an idealist....a bit out to lunch if you ask me.
I cannot envisage the Governments of France and Germany...or any other European Government... basing their whole electricity supply in North Africa....not exactly the most politically stable part of the world I think you would agree. Somehow I think Mr Sarcozy (not sure I spelled his name right) would not agree with that solution. Maybe locate the solar arrays in Spain perhaps...but France has been doing work in the area of solar mirror farms for years and decided to builf dozens of nuclear plants anyway...I wonder why. Perhaps they know something Dr. Wolff does not.
And of course I am assuming that, when the Sun goes down in North Africa, that the output of these solar electric generating stations will drop to zero and the large storage systems (conveniently NOT mentioned by our dear Dr. W) will kick in and seamlessly supply the overnight energy needs of Paris, Munich, Berlin Hamburg, London, Glasgow, Edinburgh.............that is gonna take more than your average AA battery. That is one gigantic storage device.
Not in a million years. Like I said - out to lunch.
The man seems to get mixed up with nuclear fuel costs and construction costs of nuclear power plants. As I have said numerous times here nuclear energy is very insensitive to fuel costs. It is true that Uranium costs have risen...largely due to a supply-demand imbalance but there is lots nuclear fuel available and even if it became 10x more expensive it will not affect the cost of electricity that much.
Nuclear construction costs will rise but the counter to that is that mass production reduces costs and we have yet to see the benefits of that in the nuclear industry -except maybe in France.
My main beef (and I do have a few) with the nuclear business is that it has got to shake off the idea that every power plant has to be one-of-a-kind hand built Lamborghini. If you want to realise cost savings of mass production you have to build blocks of 10 or 20 or 50 all EXACTLY the same. No country with the exception of France has come close to doing that so the real costs of nuclear power plants should be drastically reduced. It is therefore quite wrong to base the future costs of nuclear plants on the costs of past nuclear plants.
It is one of the reasons I favour the pebble bed reactors of South Africa and China. These can be factory mass produced and deployed anywhere.
The questions that the public should be asking is why nuclear plants cost so much and what is the industry doing about reducing those costs.
I am quite sure that a cost of 1c/kw hour is entirely achievable by the nuclear industry - provided it gets out of the one-off mentality and catches up with the rest of the manufacturing industry that has used mass production for nearly a hundred years.
Malcolm
Malcolm Rawlingson 6.16.08
Jeff...nice idea about using wind to replace natural gas. Nat G plants are used mostly as peaking power supplies (they are way too expensive to run on base load) so my question is how do you get the wind to blow at exactly the same time as the peak power demand? The only way that will work is if you also have a storage device
A better idea would be to use the wind energy to make hydrogen from water and then combine the hydrogen with carbon to make Methane. You can store methane quite readily...we do it now...then you don't need natural gas at all and you can use the existing natural gas infrastructure to distribute it.
Seems a much better use of intermittent sources to me. Doubt the economics would make any sense though....it would as a fuel for vehicles but not for replacing Nat G in gas turbines....not 100% efficient
