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Oil prices can be described as long-term, medium (or intermediate) term, or short term. The most recently quoted price is usually called a spot price, and this can be thought of as the price at which oil is being sold for delivery in the very near future. Using an elementary difference equation, I have suggested in my paper 'Economic theory and some aspects of the new world oil market' (2009) that if we look at a plot of oil prices over time, we should expect to see a trend -- going up, or down -- over weeks, months, or years, as well as fluctuations around trends that display price peaks and troughs.
Beginning four or five years ago, the trend price of oil moved up until the final months of 2008. Then it declined until early in 2009, when it turned up again. Explaining the first two of these occurrences is easy: a long period of global economic growth moved both oil supply and demand curves to the right, with demand tending to outrun supply. Unfortunately, this was followed by the beginning of a global macroeconomic meltdown, with demand falling fast (and supply decelerating). We still experience a falling demand for oil, but supply is also declining, and occasionally at a rapid rate. I have discussed the mechanics of the latter behaviour in my energy economics textbooks (2000, 2007), and so it does not need to be treated in this contribution, but other supposedly complex phenomena will be touched on because they are occasionally overlooked.
Price Levels and Inventories
In my work the following diagram is crucial, and so I made it clear to my students in Bangkok last year that they must be able to reproduce and explain its logic if they preferred a passing to a failing grade.
Assuming that the model in Figure 1 is valid, some simple algebra might be useful. Rather than formulating a differential equation on this occasion, I merely ask students to comprehend a simple relationship for explaining short-run price movements. This equation is below.
The rate of change of price with respect to time is a function of the difference between desired stocks (or inventories) AI and actual stocks, DI. Readers would be doing themselves a great favour if they stared at this diagram and that relationship until it is perfectly clear.
This is a stock-flow models with the short-run price (and price fluctuations) mostly determined in the stock market, while the trend price is determined in the 'flow' portion of the model (where s and h are the key variables). A relevant observation here is that if for some reason the physics of oil production and production result in a change in the inventory of oil, there is often an 'impact' on the price spreads between adjacent maturities of oil futures contracts.
In case the reader is vague on the topic of futures contracts, I can refer to some work of Bassam Fattouh in a book edited by Robert Mabro (2006), as well as the simple explanation offered in a section of my abovementioned article. One of the key observances in this regard is that futures prices tend to become inverted (S>F) when inventory coverage (AI/h) = (I/h) is relatively low: i.e. the price of a contract whose maturity e.g. is 't' , is higher than the price of a contract with maturity 't+1'. This is called backwardation. The opposite situation will often develop over longer maturities of futures contracts when inventory coverage is high. In that situation the price of a contract with maturity 't' is substantially lower than one with maturity 't+1'. This is called contango. Alert readers should focus on these terms, because sometimes it is a good career move to be able to discuss them in an authoritative tone of voice! The situation with backwardation (or inversion) is that consumers and producers of oil expect benefits from holding certain minimum levels of a commodity because of profits that might originate in future sales that will compensate them for the expense that is involved, and/or in order to fulfil various expected or unexpected commercial obligations. Backwardation is where the expression convenience yield comes into the exposition. With S>F, it can be thought of as a negative cost -- or put another way, the cost of convenience.
It might also be useful to indicate that when inventories are low, then in some cases their rationing among individual inventory holders requires inversions between successive maturities of futures. Furthermore, if inventories become increasingly short, then discounts which the more distant futures establish relative to the nearest futures tend to become larger, which means that (ceteris paribus) some inventory holders are accepting a palpable financial penalty for not selling at least a part of their stock and replacing it with a lower priced contract (of some sort) for delivery in the future.
In an article dealing with the present world oil market, Dave Cohen (2009) points out that at the present time "investors in oil funds push up futures prices, making it profitable for others to store crude and sell it forward, which is another reason inventories are high." The present paper is too short to embellish Cohen's important remark, however as I have tried to clarify in a number of papers and lectures, in general any price resulting from the conduct of 'oil funds' or speculators will have to be ratified by the actions of players in the physical markets in order to be sustainable. For instance, if the aggregate of speculators concluded that the price of oil was going to collapse, and as a result sold futures contracts en masse (i.e. went short) in order to profit on a putative fall in the spot price of oil, then (ceteris paribus) that price might indeed have fallen to the $35/b that Cohen cited as justified by the fundamentals. However an increasingly confident producer's organization like OPEC is no longer prepared to accept market outcomes that they find highly unfavourable. The best student of oil reserves and production in the world, Jean Laherrere, writing in the superb Energy Politics, believes that substantial 'cheating' by some of the OPEC countries still takes place, which may or may not be true. However, even if 'cheating' still happens, it is much less prevalent (or significant) than it was a few decades ago when Nobel Laureates in economics like Professors Milton Friedman and Gary Becker actually seemed to believe the preposterous theory that OPEC countries would remain passive indefinitely if the oil market imposed ridiculously low prices on their invaluable oil.
The curve in Figure 2 indicates that that futures prices tend to become inverted (or S>F) when inventory coverage is relatively low. For example, I/h < A.
A normal arrangement in this matter of holding inventories, and perhaps hedging with futures, would be that holders of inventories only increase (or maintain) 'inventory coverage' if they believe that the development of the oil price will make it is possible to recover the costs of carrying additional inventories. Or somewhat more abstract, futures contracts can be sold at a premium sufficient to compensate for storage costs: for instance, the nearest futures contract trades well below the next nearest, as might happen to the right of 'A' in Figure 2.
There is a widespread belief that at the present time, total world inventories of oil are excessive (e.g. well to the right of A in Figure 2). Accordingly, the market mechanism must ensure the attractiveness of holding these assets (where assets = items of value). As Dave Cohen noted, it does this by offering attractive carrying charges in the futures market. If contango prevails in the futures market, and F is sufficiently greater than S, then it makes sense to buy physical oil, and sell futures (i.e. go short). This locks in the oil price, and in addition provides a hedge against a falling spot price. Moreover, if it appears that the oil price is going to rise, it is usually painless to offset a short futures position by a purchase of futures.
I have been told on more than one occasions that even if the futures market is in contango, it may not provide attractive carrying charges, and so the demand for inventories will fall, which (ceteris paribus) could lead to a lower oil price. This is certainly true, however to my way of thinking the ability of the OPEC Directorate to meet at short notice, and agree on a cut in the oil production, carries more weight than the sudden appearance of market circumstances that could upset either the psychological or the economic equilibrium of the most influential OPEC producers.
The first thing to be pointed out here is that readers who are serious about understanding the movement of oil price should obtain an elementary knowledge of the oil futures market. My new energy economics textbook (2007) contains a minimum amount of the information that they will need in what I hope is an easily readable form.
This note attempts to make a few important pedagogical remarks about the world oil market, and will function as a 'handout' the next time I lecture on this subject. It also makes no attempt to suggest that there will soon be good news for those of us on the buy side of that market. Often we are subjected to another opinion by clumsy analysts of the energy markets, however I want to mention that in considering the actions and claims of certain oil companies and energy 'experts', some words of the billionaire Canadian investor Stephen Jarislowsky should be kept in mind: "It's absolutely unbelievable what's going on. We're living in just about the most dishonest time in the history of man." He could have added that neither the price system nor technology are likely to relieve our oil miseries, at least in the short run. Some strong medicine is absolutely essential, which unfortunately the new American government does not seem inclined to support.
The new United States Energy Minister, Doctor Chu (who is a Nobel laureate in physics) has declared himself "agnostic" in the matter of natural gas. It would not be a good thing however if he took this approach to some other important energy resources, because regardless of what they may claim, it is not at all certain that the large OPEC producers can or will provide the oil that we think that we deserve, and which in any case we cannot do without.
Banks, Ferdinand E. 2009). Economic theory and some aspects of the new world oil market. Geopolitics of Energy (March)
______ (2008) The Political Economy of World Energy: An Introductory Textbook. London and Singapore: World Scientific.
Cohen, Dave (2009). 'Mr Market gets it wrong again'. 321 Energy (May 29).
Laherrere, Jean (2009). 'Forecasting world oil and gas production under strong economic constraints'. Energy Policy (Spring).
Mabro, Robert (2006). Oil in the 21st Century: Issues, Challenges and Opportunities. Oxford: Oxford University Press
For information on purchasing reprints of this article, contact sales. Copyright 2013 CyberTech, Inc.
An excellent article, Fred. A simple enough presentation of a complex topic that even I understood most of it. Many thanks. I will try to understand and always keep handy the information contained.
Harry Valentine 9.14.09
I'm not surprized that nobelaureate economists like Drs Milton Firedman and Gary Becker would draw erroneeous conclusions in regard to OPEC and oil markets. While econometrics has short term value in particular sectors of the economy, the independent variables can change over time. This means that to accurately calculate economic events the mathematical equations need considerable revision and have to be related to real life events . . . like BP's discovery of a new large oil reserve under the Gulf of Mexico off the Texas coast or matters that pertain to the Bakken oil reserve in north-central USA. Good Luck to anyone who tries to develop mathematical variables and accurate numbers that could link these events to the the future price of oil.
Ferdinand E. Banks 9.14.09
It will be a long time before we see large amounts of oil from that BP strike. As for the Bakken reserve in the US, that one is off the radar of oil experts.
Murray Duffin 9.22.09
Fred's model deals with stocks and flows, not hypothetical reserves. BPs famous GOM find may have impressive stocks, but will never have helpful flows, so it just doesn't factor in significantly to a price analysis. Murray
jay Mc Inerney 9.22.09
Dear Sir, Have you actually ever traded? I thought I was reading an Oprah excerpt to push one of her book club selections, erroneously explaining the premise of the "futures and option markets". While it looks good on paper, and you quote some credible sources, you do the readers a disservice with articles like this. This may work well for your Econ 101 class, but in the real world of energy trading, it simply is not valid. You leave out too many variables that actually drive the fundamentals, and the technicals that perpetuate markets. Stop pushing your books and the self aggrandizement. JMAC
Fred Linn 9.22.09
--------"..........because regardless of what they may claim, it is not at all certain that the large OPEC producers can or will provide the oil that we think that we deserve, and which in any case we cannot do without."-------------
I agree----except the "can not do without" part. VW is now selling cars that are gasoline/compressed natural gas-- make the engines Flex Fuel so that they can use either gasoline or E85---and it is possible to drive as much as you want using almost no petroleum at all. Flex Fuel uses no new technology and costs the same to produce as conventional gas engines. The driver fills up with whichever he wants, gasoline or E85, or any combination of the two. It is his choice which to use. A switch on the dash allows the driver to switch from liquid fuel to compressed natural gas.
VW is also introducing Clean Diesel/CNG vehicles. Diesels are high compression/high thermal efficiency engines that get similar efficiency to hybrids with no complex and expensive electrical and battery components. Diesels can use biodiesel up to B100 with no modifications. By 2010, all diesel sold in Europe and the US will be B5 biodiesel. Diesels have always had a problem with starting and running in cold weather----which causes the fuel to gel, both petroleum and biodiesel. Since methane(CNG) is already a gas, there is no problem with this for bifuel engines----simply start up and run the engine till it is warm on CNG and then switch to liquid fuel when the engine is warm if necessary. With a diesel/CNG bifuel engine, running on B100, you can drive as far as you want, have all the power and amenities you want and have now, and you need never use a drop of petroleum again.
All this is here, now, and on the market. With a little planning and foresight, and ramping up of ethanol and biodiesel production capacity----we can reduce and eliminate the need for petroleum almost completely in just a short time.
Regardless of what anyone else does---those people who buy bifuel engine cars can give themselves the assurance that no matter what happens with the petroleum market that they will be able to keep right on truckin' since they won't be at the mercy of oil companies and Arab shieks. Not only that, natural gas is one of the cheapest energy sources we have, cheaper than electricity----no one heats their home or hot water heater with electricity if natural gas is available.
Jack Ellis 9.22.09
The value in bi-fuel vehicles is optionality with respect to the fuel source. I'm not prepared to assume natural gas will be as cheap three years from now as it is today. Natural gas producers in the US are no less rational than OPEC members - with prices this low (apparently below the cost of production), production is bound to contract even as demand recovers..
Len Gould 9.23.09
Fred. All the agricultural land on earth couldn't produce enough bio-fuels to replace petroleum, so that is a dead-end route. Smarter to invest the energy (while it is still available) in switching to electric powered transportation.
Fred Linn 9.24.09
Len--------"Fred. All the agricultural land on earth couldn't produce enough bio-fuels to replace petroleum, so that is a dead-end route."---------
With bifuel vehicles we don't need to replace petroleum. Most drivers will use natural gas as much as they can because it is cheaper. Liquid biofuels will be an option for when natural gas is not available.
Len-------"Smarter to invest the energy (while it is still available) in switching to electric powered transportation. "---------
Don't look for that to happen. Battery and advanced electric motor technology depends on rare earth elements. China is the current source of rare earth elements. China is begining to impose restrictions on the export of rare earth elements. The richest source of rare earth elements in the world outside of China is the Mountain Pass Mine in the Ivanapah mining district in California near Reno on the Nevada border. Mountain Pass mine is owned by Union Oil company and is currently shut down. It is not likely that Union Oil is going to be in a big hurry to open up Mountain Pass mine to allow electric vehicles to replace petroleum. Union Oil is in business to sell oil.
Fred Linn 9.24.09
Jack----what do you suppose is going to happen to the price of petroleum when economic recovery begins to increase demand again?
I think it is a pretty safe be that we will see the price of oil heading north at a fast trot----if not in a full gallop.
Len Gould 9.24.09
"China is the current source of rare earth elements. China is begining to impose restrictions on the export of rare earth elements." -- Chances are they are restricting the export of the raw material, but not the permanent magnet motors manufactured from them or the entire autos. That won't affect the progress of electric vehicles since the US provably doesn't want to manufacture anything anymore anyway. (see free trade logic for proof)
Allowing Union Oil to hold Mountain Pass off the market in the event of a serious shortage which harms consumers is entirely a political decision. Means exist to remedy, from unfair competition laws to national emergency powers. Let a bit of voter pain happen, then see. (Provided you can maintain any voter power in he face of the disaster capitalism assaults).
Besides, permanent magnet material have a fixed market window, rapidly becoming obsolete as soon as room-temperature magnetic-field-resistant superconducting materials arrive. Any decade now. Before an oil crunch? Maybe.
Fred Linn 9.24.09
Len----------"Besides, permanent magnet material have a fixed market window, rapidly becoming obsolete as soon as room-temperature magnetic-field-resistant superconducting materials arrive. Any decade now. Before an oil crunch? Maybe. "-------------
Fred------"VW is also introducing Clean Diesel/CNG vehicles. Diesels are high compression/high thermal efficiency engines that get similar efficiency to hybrids with no complex and expensive electrical and battery components. Diesels can use biodiesel up to B100 with no modifications. By 2010, all diesel sold in Europe and the US will be B5 biodiesel. Diesels have always had a problem with starting and running in cold weather----which causes the fuel to gel, both petroleum and biodiesel. Since methane(CNG) is already a gas, there is no problem with this for bifuel engines----simply start up and run the engine till it is warm on CNG and then switch to liquid fuel when the engine is warm if necessary. With a diesel/CNG bifuel engine, running on B100, you can drive as far as you want, have all the power and amenities you want and have now, and you need never use a drop of petroleum again. "----------
Right here, right now, no waiting, no politicians, no problems. No more oil monopoly. Use petroleum if you want to----don't use it when they screw you. It costs the same as similarly equipt conventional models, and you'll go a about twice as far(or more) using natural gas as you will using gasoline for the same amount of money.
Len Gould 9.25.09
Fred: I do support your proposal as far as it is economically sound, as a bridge over depleting petroleum to avoid damaging economic shocks, but worry that a) such increased use of N Gas will cause a surcharge on N Gas prices used for all other purposes, so perhaps not be as beneficial for economy as hoped. b) it is not a long-term solution, simply delaying the inevitable beginning of dire shortage from ?20 years out? to 50 years out.
A switch now to electric transport allows equally efficient use of N Gas for transport via eg. 60% efficient combined-cycle power stations serving 70% efficient electric distribution/charging/storage/drivetrains with no need for even pilot diesel fuel. To match that, mixed-fuel CNG vehicles would need to oerate at 42% efficiency, a number perhaps achievable for long-haul constant-speed truck engines but very unlikely for stop-and-go city-driving autos. Then the gradual transition required to truely long-term sustainable energy systems can be restricted to the electricity generation infrastructure.
I'm simply not happy leaving bio-fuel anywhere in the ground transport picture at all. Right now, it should be restricted to providing necessary jet fuel, an application which cannot be switched to eectrical. Even just the added requirement for pilot fuel at 10% is a huge burden on our currently unsustainable agriculture.
Len Gould 9.25.09
Though I certainly grant you that battery technology is as yet "not there" to entirely eliminate engine powered backup for long trips, it is very near and getting rapidly better. One of the european mfgrs, VW, has just shown at Frankfurt what I consider the future, the L1. Currently a diesel-electric, all-electric is obvious esp. IF someone like Eestor makes it. It's a 2-passenger city car weighing aboutof 850 lb. (making its battery requirement minimal). Advantage total carbn fiber construction, a far better use of carbon than combining it with oxygen and releasing it to atmosphere.
Fred Linn 9.25.09
-------"To match that, mixed-fuel CNG vehicles would need to oerate at 42% efficiency, ..............."---------------
They do. Diesel engines are already high compression/high thermal efficiency----and achieve their efficiency in both stop and go city, and over the road driving(unlike hybrids that achieve most of the efficiency gain increase in city, not OTR) That is because the compression ratio for diesels is typically 16:1 vs. 9:1 for gasoline. With biofuels, we can even take that further, both biodiesel and ethanol can support compression ratios of up to 18~24:1. Scania AB(a Swedish company) has developed an ethanol diesel engine that gets 43% efficiency----and is running of fleet of over 900 buses on ethanol in Sweden and the UK.
---------"Even just the added requirement for pilot fuel at 10% is a huge burden on our currently unsustainable agriculture. "----------
Using Fischer-Tropsch, we can make diesel fuel from any type of cellulosic plant material. Agricultural waste(straw, stover, bagasse, etc.---there is even a plant being built in Florida to produce ethanol from citrus rinds left over after juice is made and aquatic plants dredged out of canals.) Range Fuels is just completeting a plant in Soperton GA to produce 100 million gallons/yr of ethanol from wood logging and milling waste when full capacity is reached. http://www.rangefuels.com/conversion-process.html Electrical generation fed into the grid is a co-product of the same operation.
Biofuels are stored solar energy in chemical form. Methane----natural gas---is also a biofuel, we can make it by treating sewage.
I think you are worried about something that you need not worry about. The end result of biofuel production regardless of method used is either compost or ash/char. Both are what nature has used to fertilize the soil for billions of years.
Don Hirschberg 9.26.09
Let’s not judge efficiency by mpg. Those large engined cars of yesterday – the ones with 400 to 500 CID engines, four barrel carburetors and high compression ratios were more efficient than the economy cars. In the days of 3cc/ gal of TEL regular gasoline had 93 RON and premium blends could be near 100. The high compression ratio cars could not use mere 93 RON – they would knock like the devil on acceleration.
The great mpg figures for diesels stems from two things: higher compression ratios and that a gallon of diesel fuel contains a pound more fuel than a gallon of gasoline, and higher compression ratio. The Otto Cycle (spark ignition) is actually more efficient than the Diesel Cycle at equal compression ratios.
The effect of raising compression ratio is greatest at low ratios. When all that was available were “straight run“and “natural gasolines” compression ratios were 4 to 5/1. Tetra ethyl lead was found to be a great octane booster and particular development of modern refining. Going from 4/1 to 9/1 increases efficiency by a factor of 1.3. Going from 9/1 to 20/1 only gets an additional factor of about 1.2. Increasing beyond 20/1 doesn’t gains very little.
When there is a claim of 43% thermal efficiency we need to know much more. Likely this number was obtained at the “sweet spot” – that combination, rpm, cutoff ratio and load that got the best efficiency on the test stand. Change anything and the efficiency goes down. These conditions might be applicable to driving a generator but not to driving a bus or car.
Coal is stored sun energy. Can we call it biofuel? Daily we hear how inefficiently we use energy. Compared to what? We are pretty much dependent, past and present, on photo synthesis. God gets about 5% thermal efficiency.
As for storage batteries I am not holding my breath. The lead-acid cell is well over a hundred years old and is still the battery in virtually every vehicle or piece of machinery today. I have before me two electric car reproduced ads, Pope Motor Car Co. 1905, and Baker Electric Vehicle Co. 1909. The accompanying text tells us that by 1910 battery cars could go 75 miles at 25 mph on a charge. Before you laugh remember it was almost impossible to go even 25 mph at the time. There were no paved highways and city streets were clogged with horse drawn vehicle s and street cars.
In over a hundred years of battery development seekers of a great leap forward have pretty well gone through the Periodic Chart. Now we are going into the rare earth permutations.
Ferdinand E. Banks 9.27.09
Gee, I thought that my paper was in the basement. I forgot the name of it when I checked this site a few days ago.
Which brings us to Mr McInerny. No Mr McInerny, I have not done any trading, nor have I ever had a desire to do any. But I have been around some traders in Singapore and Sydney, so I know more or less what they do, and how they think.
But that is beside the point. My paper is written for students of economics and finance. It is designed to help make them superior students of economics and finance, and that is exactly what it has done. What happens after that is up to them. You can find this business of stocks and flows in the advanced theoretical literature, and I was once in the habit of congradulating myself because I made it so clear. You can also find some of it in the Financial Times (UK), but you, most teachers of economics, and Oprah fans probably wouldn't know anything about that.
Now let me tell you about a dream of mine. I walk into a classroom here in Sweden. and sitting in the middle of that bevy of gorgeous girls I see your smiling face, just waiting to put me in my place. If you don't believe anything else about me or my work, please believe the following: when you left that room for the break, you wouldn't return. I remember once when some ignoramus was standing outside my classroom during a break, and he tried to tell me some mistakes I had made in a lecture I gave on game theory. So I invited him in to pass the word to my students. And listen, he was a big enough fool to take me up.
And finally, sir, you use the expression "technicals that perpetuate markets". You mean WITCHCRAFT don't you. Now if you were my student I would call you up after class, and tell you to leave that word technicals where you found it, because it won't do you any good around intelligent people.
Fred Linn 9.27.09
Don--------even if we use gasoline/compressed natural gas vehicles such as the VW Golf----and drivers on average run CNG 1/2 the time------we've still reduced petroleum usage by 1/2.
I think from an overall view diesel/natural gas is a better choice since you have the freedom to choose biofuels with no modifications, there are no restrictions to what can be done compared to what is being done right now, and the cost is about the same----and the natural gas problem option eliminates all of the traditional cold weather bugs that have always been a problem with diesels.
Using biodiesel/natural gas combination----you can drive as far as you want and never use a drop of petroleum.
Even if you use the gasoline/natural gas combination---and run on natural gas half the time----you still cut your petroleum usage 50%. And natural gas is cheaper per BTU than even electricity. No one heats their home or water heater with electricity when natural gas is available.
Don Hirschberg 9.27.09
Fred wrote, “No one heats their home or water heater with electricity when natural gas is available.”
But only recently has natural gas become cheap. I don’t think the relative cost of BTU’s has ever before in history been so favorable towards gas. Where I live it is not available. But even if it were, where I built my house we need air conditioning. (Only use it once a year – from June until September.) So a heat pump/AC was the best solution, probably still is today. We have mostly mild winter weather so our heat pump COP is usually very good. The only time gas would be cheaper is during protracted periods below 20 F when resistance heating chimes in.
Providing compressed natural gas to many thousands of filling stations would have a significant cost in both dollars and energy. Compression costs, fixed and operating are also significant. As is making and fitting heavy pressure vessels to vehicles which both increase the dead weight and reduce usable space.
Question: I remember not being allowed to use a tunnel because my camper had a propane tank. What about compressed gases as a safety issue?
Fred Linn 9.28.09
A heat pump such as you have might change the issue----since a heat pump does not generate heat---it moves it around, like a refrigerator. (good choice-much more efficient for heating) So I'll just stick to heating water. Here is what Gary Foreman of "All Things Frugal" has to say: ------"Should Barbara consider switching away from natural gas? Probably not now or ever. Generally it has been cheaper to heat water with gas than with electric. In February, 2005 the Metropolitan Utilities District of Omaha NE estimated that an electric water heater cost 75% more to operate than a gas heater."------ [ http://www.allthingsfrugal.com/f.h_options.htm ] As you can see, this quote has numbers from almost 5 years ago----and since then, the price difference between electric and gas has become even wider because of recent improvements in gas extraction.
Don says--------"Providing compressed natural gas to many thousands of filling stations would have a significant cost in both dollars and energy. Compression costs, fixed and operating are also significant."--------------
Every filling station I've ever been in has compressed air available(often for free)-----there's no reason they can't put in compressed natural gas too. Most filling stations will already have a utility connection to a gas pipeline. It wouldn't even need to be delivered by truck and the tanks filled in parking lots----the CNG tank and compressor could be located in a safe area, and connected to the delivery area by pipe. Seems safer and much more efficient to me. The operating costs would be much lower than truck delivery too, no trucks or drivers needed.
-----" As is making and fitting heavy pressure vessels to vehicles which both increase the dead weight and reduce usable space."--------
We already ship liquified natural gas by rail car. It would seem to be a very simple thing to hook an LNG car behind a locomotive(or series of locomotives). Exactly the same way that coal tenders were used to haul coal for steam locomotives. We already have the LNG cars built----all we'd have to do is fit connections from them to the locomotives. The connections would not even have to be permanent----they could be made to fit the filling port---and removed when not in use. As for ships----they do not have to be streamlined since the speed is much lower. They could be put on deck.(safer in case of leaks too) They could also be made removable and just dropped in according to need. Cost for LNG fuel vs. bunker oil would be so much lower, I'm pretty sure that shipping companies would want to use LNG. Also----ships are now under regulation to burn low sulphur fuel within certain zones beginning about 200 miles from a port in both the US and Europe------CNG or LNG operation in those zones would simplify monitoring and make low sulphur fuel easier to get and use. Sulphur is removed from CNG before it is used----it is relatively easy since it is already a gas.
---------" Question: I remember not being allowed to use a tunnel because my camper had a propane tank. What about compressed gases as a safety issue? "--------
I don''t know about the tunnel you weren't allowed into--------but I do know that CNG is already used for shuttles and service vehicles in areas that require very low emissions. National Parks use CNG shuttles to maintain air quality. Service vehicles in the tunnel under the English Channel use CNG. Forklifts and other equipment in warehouses(enclosed areas) use CNG. Mines use all kinds of CNG equipment. Walmart uses floor scrubbers at night to clean floors powered with CNG-----with customers walking all around the store while they are in use. They must be pretty safe----if they weren't, I doubt Walmart would use them.
As for availability----most homes and service stations already have a connection to a natural gas utility. With bi-fuel capable engines----you would just switch to liquid if your NG is getting low and you don't have a refill option handy. You could still go anywhere you need to on regular diesel. If you are going to be somewhere that you can't get CNG or regular diesel fuel either one---I'd say you'd probably better get a horse.(LOL----that was a JOKE son, as Foghorn Leghorn would have said).
Don Hirschberg 9.28.09
I’m afraid this thread will expire any minute so I hasten to make a comment before I find myself talking only to myself.
Fred, a compressor that puts air into a tire for a few seconds, at usually less than 50 psig, is not the same as a gas fueling station filling vessels with combustible gas at several thousands of psig. The gasoline station compressed air system can leak, and usually does, and located inside the garage area. The relief valve can discharge harmlessly into the air.
I visualize a compressed gas system having a multistage compressor with intercooling between stages. Off the top of my head something like this: 1st stage to 90 psia, 2nd stage 270 psia, 3rd stage 810 psia, 4th stage 2430 psia, or 2445 psig. It would take a lot of high pressure “plumbing” with no leaks and located within a secured fenced area. The more stages the less energy consumed. The relief system would have to be routed to some kind of a blowndown system, ala a refinery, with a flare stack with a pilot flame.
I recall notices approaching the Holland Tunnel to Manhattan that no compressed gas tanks allowed. This was years ago – I haven’t driven to NYC for a long time. Perhaps someone can tell us the current rules? Got to run.
Fred Linn 9.29.09
Don-----you may be right. I don't know exactly how CNG is handled.
But we have been using compressed natural gas and coal gas for over 100 years.
It was the most popular type of lighting in the 1890s----which was even called the "Gaslight Era" for that reason.
I'm sure that there are ways and means to handle methane safely and efficiently. Most people use it in their homes everyday.
Len Gould 9.29.09
Every taxi in my hometown was run on CNG for years until just recently, when the price of gasoline got so low they scrapped the entire fleet and went to gasoline. The taxi companies simply used a large central filling station which included a decent size storage tank for the 3,600 psi CNG. No tunnels locally, but I don't think there were any restrictions on them. The main problem with implementing CNG is that petroleum occasionally underprices it by selling well below CNG market value, eg. recent dramatic drop.
If I recall correctly, compression energy of hydrogen to 5,000 psi is "in the range of" 12% of energy content, and CNG would be about 1/3 of that.
Fred Linn 9.29.09
Len--------The main problem with implementing CNG is that petroleum occasionally underprices it by selling well below CNG market value, eg. recent dramatic drop. "-----------------
If that happened, or you couldn't find any CNG available, with a bi-fuel engine, you could always switch to liquid fuel by just flipping a switch on the dashboard.
Fred Linn 9.29.09
Len----all the cost comparisons that I find include the cost of conversion of existing vehicles and a compressor unit----costs you would not have to amortize if your vehicle came from the factory already equipt as a bi-fuel engined vehicle.
I don't find too much cost difference with factory equipt. Plus, you have the added bonus of the tanks placed with the vehicle but not in the passenger compartment.(a big problem with retrofits)
The Jetta TDI diesel/CNG bi-fuel gets similar efficiency/mileage to the Toyota Prius(The Jetta is bigger, heavier---but still gets about 35-38 mpg ----yet the MRSP is only $100 difference. Apples to oranges really----but the Jetta has 42 more horsepower than the Prius, 140 vs. 98. I do a lot of mountain driving, I'd take the added hp. any day.)
Make the gasoline versions Flex Fuel, and you could drive almost petroleum free on a mix of E85 and CNG. With the diesel model---you could go completely petroleum free. Either way, you'd have the freedom to choose whichever fuel is cheapest at the time.
I don't see any downside------freedom of choice seems like a good thing for consumers to me.
Don Hirschberg 9.29.09
Some scatter shots: In the gas light era the gases used were manufactured gases (“town gas”) or by-product gases from cokers (at steel mills) plus maybe some local natural gas. Gas to households was at very low pressure, measured in mere inches of water I think. The gases contained deadly amounts of CO. If there was a service outage every user had to be visited for safely reasons before service could be restored. (the house, circa 1870, where I was born and raised had gas piping to every room. Park Ridge, near O’Hare Airport.) Nearly all heating was by coal or more expensive coke.
The first long distance large pipe lines were the Big Inch and Little Big Inch built as marvels of the 2d WW for crude oil – many tankers had been sunk by German U-boats. 24 and 20 inch respectively. No steel pipe had been manufactured before then larger than 12” (?). After the war they were converted to natural gas.
I don’t understand how the dual fuel system is applied using a spark engine. Methane has a very high octane rating. If the compression ratio of the engine is designed for gasoline then when it is using methane the potential thermal efficiency advantage would be forfeited. A plus for a diesel/methane combination.
Fred Linn 9.30.09
--------"I don’t understand how the dual fuel system is applied using a spark engine. Methane has a very high octane rating. If the compression ratio of the engine is designed for gasoline then when it is using methane the potential thermal efficiency advantage would be forfeited."---------
Yes. You are right. The limiting factor is the octane rating of the fuel, not the ignition system. In the case of Flex Fuel engines-----they do run on both gasoline and E85. However, E85 has on octane rating of about 110 vs. gasoline at 85-87. Compression ratio, which determines the thermal efficiency of internal combustion engines must be kept low in order to allow the use of gasoline. If it were possible to drive into a filling station anywhere, and fill up with E85, we'd have no need to keep the compression ratio low to accommodate the use of gasoline. We could make high compression engines that would be much more efficient than gasoline engines. Or, another alternative, we could have turbo or superchargers that boost intake air pressure above ambient pressure-----say 2x-----giving a compression ratio of 18:1, instead of 9:1-----we'd double the thermal efficiency, and you could turn off the boost, and have a lower compression ratio. Ethanol works in diesel engines----with a little finesse. The flash point of ethanol is higher than petroleum or biodiesel. So, in engines designed for those fuels, ethanol needs a small amount of ignition enhancer added. Just a compound that igntes at a lower temperature to start the combustion reaction, the ethanol is still the main fuel. Scania AB(a Swedish company) is doing this. They have been running fleets of diesel busses (about 900) in Sweden and UK for two or three years now.
The comparative octane rating of methane is about 120. So diesel/CNG works in high compression(more efficient) engines. It would also work well in a dedicated ethanol/CNG system, which could also be high compression.
However----you are right, we'd lose the advantage of high compression when we use gasoline-----it will not work with the compression ratios needed to significantly improve efficiency.
Real world-----Flex Fuel or Gasoline/CNG are not the best choices, until we get to the point where we have enough ethanol on the market to get it anywhere. I prefer the diesel/CNG choice----diesel will work fine with either petroleum or biodiesel, or any combination of the two----and biodiesel and methane are close enough in comparative octane to be able to use that choice to run completely petroleum free if we want to and not have to change anything. From a functional standpoint, we can do anything we need to with diesels, they are durable, efficient, powerful for their size, well known and in widespread use, and don't require us to change anything. And, using Fischer-Tropsch process, we can make diesel fuel from any type of cellulosic plant material at all, including trash.
I was against the idea of natural gas for vehicles when T. Boone's plan came out. But the more I thought it, and the more research I did----it began to look better and better. The deeper I dug and researched, I became convinced that the diesel/cng combination has an answer to every single problem we have right now. And not only that, we can use that combination for a long long time if we need to. We can have a clean environment, renewable and sustainable energy from dependable sources, doing all the same things we do right now, at a cost that is comparable or cheaper than what we are doing right now-----and we can start doing it right now, with relatively small and inexpensive changes to the overall system.
Don Hirschberg 9.30.09
“…we could have turbo or superchargers that boost intake air pressure above ambient pressure-----say 2x-----giving a compression ratio of 18:1, instead of 9:1-----we'd double the thermal efficiency…” Fred, an increase of compression ratio from 9/1 to 18/1 in a Carnot (i.e. ideal) engine increases thermo efficiency about 17 percent. But the efficiency increase by using a blower in a real engine would be much less, maybe zero, after accounting for the energy used driving the blower. Engines are supercharged to increase HP not efficiency by cramming more air-fuel mixture through the engine.
I am not sanguine about Fischer-Tropsching cellulose for biodiesel or about ethanol. There are lots of solutions if we had 2 billion people instead of almost 7 billion. And even if we could somehow cope with 7 billion, how about the billions more projected?
Fred Linn 10.1.09
-------------"A high compression ratio is desirable because it allows an engine to extract more mechanical energy from a given mass of air-fuel mixture due to its higher thermal efficiency. High ratios place the available oxygen and fuel molecules into a reduced space along with the adiabatic heat of compression - causing better mixing and evaporation of the fuel droplets. Thus they allow increased power at the moment of ignition and the extraction of more useful work from that power by expanding the hot gas to a greater degree.
Higher compression ratios will however make gasoline engines subject to engine knocking, also known as detonation and this can reduce an engine's efficiency or even physically damage it"-------------
Compression ratio From Wikipedia, the free encyclopedia
Fischer-Tropsch process will be the basis for an ethanol production plant in Soperton GA, that should be starting production later this year or early 2010. It has certifications for a final production target of 100 million gal./yr of ethanol from wood waste from logging and milling operations. It also produces methanol in the same operation(I don't have any numbers for the amount of methanol----but methanol is used in production of biodiesel as a moderatng agent to resist cold gelling). It will also produce electricity utilizing waste heat which will be fed into the grid. By altering pressures, temperature and catalyst beds----we can also produce differing hydrocarbon chain lengths---diesel fuel---using the same process. F-T has been around since 1923, and it has been used extensively. Here is an interactive schematic that will explain the process.
----------" There are lots of solutions if we had 2 billion people instead of almost 7 billion. And even if we could somehow cope with 7 billion, how about the billions more projected?"-----------
You've got me there Don. Now we are getting into philosophy. It is one thing to deal with mechanical and chemical systems, they are predictable------it is another thing entirely to deal with the vaugaries of human behaviors. One of the things I try to do is look at how the same or similar problems were handled in the past. I have an interest in history, especially US history, and have done quite a bit of re-enacting. That's how I learned about many of the ideas that I've latched onto. Our ancestors were not stupid----and have had many very ingenious ways of making the most of what was available. Our biggest flaw is that we in Industrialized Western civilization have come to the 21st Century, but we are still thinking in the 19th Century mind set. Destroy the earth----take the wealth----then move on and destroy some more. If there is to be any hope of survival, we need to change the way people think. We need to reinvent all of society and the way people think.
When it comes to energy---coal and oil---we are still using caveman philosophy. Hunter gatherer. Hunt for mineral deposits---dig them up---burn them---hunt for more deposits. Biofuels have many different pathways---but they represent a farming philosophy---producing something on a reliable, and sustainable basis. In the caveman/farmer scenario, it is food. Farming is the single most important discovery that mankind has ever made. And farming not only food, but energy, and raw materials will be the second most important disovery mankind will ever make. I think we will be farming our fuels---because we'll be producing what we eat from the same crops. To me, biofuels are not a "food or fuel" choice---it means a "food AND fuel" choice.
"If the vehicle is a farm tractor or combine which requires 1 gallon-equivalent of energy per acre per pass, of which 90% is coming from fuel gas produced from charcoal, 5 passes per season requires 1.7 million BTU of biomass. A further 10% of liquid fuel, or 700 kBTU/ac/year, is needed for pilot ignition; since this is relatively small I'll just count it at volume parity with petroleum diesel. This comes to 0.5 gallon per acre per year.
6 Biofuel feedstock availability The amount of available feedstock depends on the productivity of the crop and the fraction which winds up as byproducts, but we can get some estimates. At a yield of 150 bushels per acre, corn (maize) produces roughly 1.5 dry tons of excess stover (not needed for erosion control) per acre, of which 15-20% (0.22-0.3 tons) is cobs. At 17.4 million BTU per ton, the actual fuel requirement is less than 0.1 tons of biomass. Corn would in fact yield a very large excess of biomass energy beyond the needs for farm machinery working the field.
Oil for ignition can also come from corn. At 0.5 gal/ac/yr, the ignition requirements can be met by the oil from about 2.5 bushels/acre of corn (0.2 gal/bu). The byproduct of pressing is also usable as food."
Fred Linn 10.1.09
Len-----------"Oil for ignition can also come from corn."----------
Len, just for clarification-----a bi-fuel engine runs on EITHER fuel source----they are not dependent on either one however, it is a choice. There is a switch on the dashboard---you select the fuel you want to use. Price and availability would be the main reason you'd choose one or the other. As a consumer, this would also be good for you because with a choice of fuels, you could use what ever market condnditions happen to favor at the moment, we'd have much more stable markets.
------------" Corn would in fact yield a very large excess of biomass energy beyond the needs for farm machinery working the field. "-------------
Almost all crops do. In the case of grain crops---the amount of energy, grain, that we use represents only a small fraction of the total energy actually produced. Even if we make silage and feed it to cattle with the stover----there is still energy left over after the cattle eat it. Gather up the poop, and you can put it in anaerobic digesters and make biogas(methane) from it. And the end product of that is compost, fertilizer. We'd be getting much more efficient use of the energy that is already there.
Don Hirschberg 10.1.09
Fred, Not only is “high compression desirable” (From your Wikipedia quoting passage) but the author could have said it is the ONLY thing we can change to increase the ideal thermodynamic efficiency of an Otto Cycle engine, and except for cut-of ratio (which always decreases efficiency) this also holds true for the Diesel Cycle.
The thermal efficiency expression is simple and elegant: e= 1-1/r^(k-1) Where r is the compression ratio and k is the ratio of cp/cv for air (specific heat at constant pressure over specific heat at constant volume) taken as 1.4 (cold air standard in general use, or 1.3 hot air standard). For diesels there is a factor, always less than one: e(Otto) x f = e(diesel). For those who want to play with these numbers real engine efficiency is about half ideal – not bad, see next paragraph.
The ideal engine does not pay for pumping in and pumping out 15 pounds of air for every pound of fuel, nor for running water pumps, oil pumps, fans, generators, cam shafts, distributors,etc. a real engine needs, nor friction. We fit large manifolds, more valves per cylinder and fans that don’t run when not needed all to get closer to Carnot e. But there are no end runs around thermodynamic laws. We are stuck with using air that is > 79%inert (N2, Argon, CO2,H2O) gets pumped in, heated up and pumped out hotter than it came in.) We can get more work out of an engine by pressurizing the air supply, supercharging, but the energy is off-set without an increase in e. (Perhaps you could find a case where a slight increase in e is observed, accountable by poor atomization in the normally aspirated engine is improved not by the supercharger but by better atomization.) ___________________________________________________________ I say again, There are lots of solutions if we had 2 billion people instead of almost 7 billion. And even if we could somehow cope with 7 billion, how about the billions more projected?
There are 6.8/0.3 = 23 times as many people now as there were before fossil fuel usage. I’m quite sure libido was not invented or discovered after the fall of the Roman Empire. Large scale parallels with the past are treacherous because there has never been a past such as ours.
We have all heard the expression there is nothing as stupid and irresponsible as a SD. Not to worry when we could only manage to keep 0.3 billion alive at one time. Now with manufactured fertilizers and tractors and irrigation pumps and trucks and freezers and etc, we can keep, alas, as of today 6.8 billion. Now that it is clear how stupid and irresponsible man is about procreation we find it is too late.
Fred Linn 10.1.09
We'll just have to do the best we can, with what we have, from where we are.
Don----you are pretty good at research. Here is a little something you might want to try. Try lookng up demographics for economically developed countries vs. underdeveloped countries. I'd be interested in what you find and what conclussions you might infer from them. I have made some conclussions---let's see if we agree or disagree.
Don Hirschberg 10.1.09
Actually I haven’t done any “research” for anything I have commented on here. The Thermodynamics I learned in the late ‘40s is as valid today, as are the multiplication tables and alphabet I learned in the 30’s. From time to time I do check out a fact lest I write something more foolish than usual. But my too frequent errors are usually of the typo type which I try to correct if germane to the argument.
Fred, when you send me off looking up “demographics” for developed vs undeveloped countries I have a notion of what you are after. Japan and the European countries where people have to watch their diets lest they get fat do not have growing populations. Not only that, but such as the Japanese, Italians and Danes behave themselves very well and have low crime rates.
But they are a small percentage of world population and this percentage decreases every year. Didn’t I just read that Nigeria has 140 million people? – I just now looked it up and it’s 157 million! That is half the maximum world population from the dawn of man until about 1000 years ago. No ancient empire had so many people as does Nigeria today. Not Alexander’s, or Caesar’s, Persian’s or the Mongol’s.
So let’s just convert the teeming billions of folks without to those like the Italians and Japanese and Danes. Well, for one thing the few have already used up a substantial amount of the stuff that got them where they are. There are no re-deals.
Fred Linn 10.2.09
I think you get what I was getting at. Economic development seems to be related to birthrate. One theory proposed for this is a change in child rearing strategy----have fewer children, but invest more in the children that you have.
--------" So let’s just convert the teeming billions of folks without to those like the Italians and Japanese and Danes. "---------
Well, yes, something like that. I think it would be the morally right thing to do.
--------" Well, for one thing the few have already used up a substantial amount of the stuff that got them where they are. There are no re-deals."------------
Yes, that is very true. So I think we have to find new ways of doing things. New ways of doing things that we can do over and over again without destroying or using up the things we need. Because, when the "substantial amount of the stuff that got them where they are." is used up-----the haves will be in the same boat as the have nots.