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An article published in the Infantry Journal (U.S.) many years ago contained the following exotic question: “If you only had an hour in which turn civilians into soldiers, what would your instruction consist of?”
I'm not sure that I answered that question correctly, however these days I am interested in an equally important query, which has to do with OPEC's intentions where the production and export of oil are concerned. This time I am certain that I have the correct answer. It begins with this: OPEC intends to export (and perhaps produce) as little oil as possible. It ends with: OPEC intends to export (and perhaps produce) as little oil as possible, regardless of what they say or do! It might also be wise to repeat this mantra a number of times in the event that your friends and neighbors want to discuss this topic for an hour.
The logic in play here is an extension of the work of three brilliant economists. Professor Gunnar Myrdal, who was one of my teachers at the University of Stockholm; Professor Howard Chenery, who organized a small conference I attended in Paris in the 1980s, and whose book (together with Paul Clark) I used when I taught at a U.N. Institute in Dakar (Senegal); and of course the superb article by Professor A.A. Kubursi 'Industrialisation in the Arab States of the Gulf: A Ruhr Without Water' (1984).
A short comment about these gentlemen is highly relevant. Gunnar Myrdal, Nobel Laureate in economics, and known and famous throughout the world, was unbeatable in a seminar room or conference (or for that matter at the Nobel Banquet in the Stockholm City Hall in 1974). His belief was that the study of development economics should be based on a study of the economics and sociology of successful economies. The two countries he recommended for study were the United States and Sweden.
Howard Chenery, a Professor at Harvard, went almost unnoticed by the Nobel Academy, which was another of their characteristic misunderstandings, although he was a leading mathematical economist in the study of economic development (and on the 'applied' level above the first winners of the economics 'Nobel': Ragnar Frisch and Jan Tinbergen). More remarkable however is the neglect by economists of Professor Kubursi (of McMaster University, in Canada), although the big mistake here might be the failure of Professor Kubursi to adequately market his theories of economic development to the 'academy'. The only place that I have seen or heard his name called is in my books, articles and lectures, although it is not impossible that he discussed his work in OPEC councils, because somebody (or persons) in those councils listened to or read what he had to say, and we see the results today. By that I mean high oil prices, and an expansion of refineries and petrochemicals in some OPEC countries.
The explicit observation by Professor Kubursi -- and implicit in the work of Gunnar Myrdal and Howard Chenery -- was that instead of exporting oil in its crude form, if the development process is taken to an optimal conclusion, that oil should be used in OPEC owned refineries, and a large amount of the refinery output used in the production of petrochemicals. More important, simple mathematics leads us to conclude that investing in facilities to produce refinery products and petrochemicals in e.g. the Middle East without having enough crude to utilize these facilities for 'X' years is a serious mistake! (The book edited by Professor Jean-Marie Chevalier (2009), and used at his institute at the University of Paris (Dauphin) deserves mention here.)
Rather than elaborate on mistakes of the kind noted above, I would like to present the opinion of a distinguished oil economist who definitely is NOT a friend of OPEC, Professor Morris Adelman of MIT, and his colleague Martin Zimmerman (1974).
“In the production of petrochemicals, most LDCs (less developed countries) are at a severe and permanent disadvantage for lack of know-how, and the high opportunity cost of capital and feed-stocks. Other countries, particularly OPEC members, who do not face these obstacles, are expanding their petrochemical capacities. This too will drive prices down, lower the profitability of all plants built today, and force losses on many investors. Few can compete with those that get their feed-stocks at a fraction of world prices, and are willing to earn low or negative rates of return.”
Earning “low or negative rates of return” is not (and probably never was) the goal of new OPEC refiners and petrochemical producers, since with the huge amounts of feed-stocks at the disposal of these firms, acceptable margins should be available for a very long time for these firms, as well as impressive national incomes for countries in which these firms are located. Moreover, even if desired outcomes are not immediately achieved, major oil producing countries can look forward to returns that result from transforming inexpensive refinery products into high-priced petrochemicals. This was pointed out by the Nobel Prize (in chemistry) winner Sir Harry Kroto many years ago.
It cannot be overemphasized that since energy costs are the key burden for chemical industries, the combination of inexpensive energy and state-of-the-art technology will ensure that the center of gravity of the global petrochemical industry will move toward the 'least-cost' Middle East. According to the time honored theory of comparative advantage, that is where it belongs.
“Center of gravity” though does not mean complete domination. At any time this industry is a mixture of small and large, low and not-so-low cost, new and old, etc, and so theoretically the OPEC commitment will be adjusted so that the price will be high enough to keep some of the less favorably endowed plants in operation in order to supply total demand. Even so, many firms in this line of work have become unpleasantly aware of the realities brought about by the cheaper methods of production at the disposal of countries that no longer want to be a hostage to unfavorable oil or gas prices. Exactly how traditional firms will react to this challenge is uncertain, particularly in the short run, although in the long run many of them have no choice but to cut-and-run, to use one of President George W. Bush's favourite expressions.
After reading my above thoughts on this subject, and once again reviewing the paper of Professor Kubursi, I would like to say that while you may not find the observations at the beginning of this (shorter than one hour) essay relative or attractive, it is impossible to deny the bottom line. OPEC strategy is going to turn on producing and exporting as little crude oil as possible, and their business and political acquaintances abroad will simply have to get used to and adjust to this arrangement.
References
Adelman, Morris A. and Martin B. Zimmerman (1974). 'Prices and profits in Petrochemicals: an appraisal of investment by less developed countries'. Journal of Industrial Economics (1974).
Banks, Ferdinand E. Banks, (2011). 'Energy and Economic Theory' Singapore, London and New York: World Scientific'
(2008) 'The sum of many hopes and fears about the energy resources of the Middle East'. Lecture at the Ecole Normale Superieure (Paris), May 20, 2008
Chenery, Hollis and Paul Clarke (1962). Interindustry Economics. New York: Wiley
Chevalier, Jean-Marie (2009). The New Energy Crisis: Climate, Economics and and Geopolitics. London: Palgrave McMillen (with CGEMP, Paris-Dauphine).
Eltony, Mohamed Nagy (2009). Oil dependence and economic development: the tale of Kuwait. Geopolitics of Energy (May).
Kubursi, A.A. (1984) 'Industrialisation in the Arab states of the Gulf: A Ruhr without water'. In Prospects for the World Oil Industry, edited by Tim Niblock and Richard Lawless.
London and Sydney: Croom Helm.
For information on purchasing reprints of this article, contact sales. Copyright 2013 CyberTech, Inc.
Good discussion of a very important and accurate thesis. I've had no doubts about this since hearing it explicitly stated in a documentary by a powerful middle eastern government minister decades ago, but the need to get the message (your access to petroleum is about to drop off) through to large numbers of voters is acute.
Harry Valentine 1.20.11
The article is well timed. There are indeed plans to produce various oil-derived petro-chemicals, pharmaceuticals and other related products in the Emirates. One of the world largest natural gas wells is located under the Persian Gulf with another large well recently discovered under the Mediterranean Sea off the coast of Haifa. There are definately plans to produce synthetic diesel from natural gas, at many locations around the world where natural gas is available. Sasolburg from South Africa is even setting-up-shop in Alberta, Canada to convert Alberta natural gas and coal to numerous other fuel products. About 2-years ago, when world oil prices exceeded US$100 per barrel, Sasolburg in SA was converting coal to oil for about US$30 per barrel . . . and prodicing premium jet fuel.
Ferdinand E. Banks 1.21.11
Thanks for the comments. There is so much theoretical oil being discovered these days that people are inclined to forget the real thing. I've said for years that OPEC is not going to sell its priceless oil for bargain basement prices once it gets the opportunity to do otherwise, and now they have the opportunity. The thing to do is to ask people who think otherwise is WHAT WOULD YOU DO IF YOU WERE IN THEIR PLACE? The same thing is probably true for gas, at least in the Middle East. I believe the government of Qatar announced a few years ago that they were changing their plans so that their gas will last a hundred years.
Jack Ellis 1.25.11
Another nice article, Dr. Banks. I was beginning to think you'd dropped off the face of the earth.
In the case of oil, I agree that OPEC has the rest of us by the short hairs, but there are also encouraging developments (other than corn-based ethanol) that might undercut OPEC's plans.
In the case of natural gas, it's entirely possible Middle East producers will have significantly less leverage now that a cost-effective means for exploiting large reserves of shale gas in the US and Europe has been perfected. Unless, of course, fears that shale gas development could irreversibly contaminate drinking water supplies prove well founded.
Mark McClurkin 1.25.11
Dr. Banks, how does the increasing use of electrics in the transportation sector affect the oil/refined product exporting countries? It appears that any impact by electrics is quite some time off in the future (20+ years?), but as we transform from petroleum based transport to electrics how do you see that transition? In simple terms as more electrics come on to market and therefore reducing the demand for petroleum the price of petroleum should drop, but then petroleum based transportation will look cheaper thus reducing the production of electrics and so the cycle goes on and on back an forth from electrics to petroleum powered vehicles. So does this mean wild swings in petroleum pirices as this transition takes place? What does it look like when half of the world's vehicles are electrics?
Jim McBride 1.25.11
This makes perfect sense, and there are numerous petrochemical projects under construction now to prove the point.
The USA should be investing in alternate modes of thermal energy production. I'm skeptical about the economics of solar furnace technology (run a petrochemical plant only 1/2 the day?). But some basic research into high-temp nuclear would be worthwhile.
It would also be interesting to try tapping methane hydrates off the arctic coast.
Len Gould 1.25.11
These natural gas reserves and resources are a real wild-card.
"The size of the global gas hydrate resource is staggering, holding more ultimate energy potential than all other fossil fuels combined, according to the U.S. Geological Survey (USGS). In the United States, where gas hydrate occurs beneath the permafrost of Alaska's arctic north and below the seabed offshore, the volume of this resource is massive. USGS estimates that the Nation's gas hydrate deposits contain 200,000 trillion cubic feet (Tcf) of natural gas. Compare this with a known recoverable natural gas resource of approximately 1,500 Tcf."
By comparison, EIA states that the world total proven reserves of natural gas is 6,254 Tcf, of which 309 Tcf are in N America. (2009) US production is about 26 Tcf / year (2009), so estimate N America at 30 Tcf / yr.
Proven reserves, 10 yrs production. Known recoverable resource, 50 yrs. USGS estimates M Hydrate 7,000 yrs?
Michael Keller 1.25.11
Dr. Bank's analysis strikes me as quite logical and the implications are deeply disturbing for our children's future.
The West has been complaining about being gouged by OPEC for decades but we continue to be subjected to self-inflicted myopia while sticking our heads in the sand. (Gee, that also sounds like our approach to the looming US debt crisis).
So Professor, any suggestions on how to get out of this mess or are we doomed?
From my limited perspective, I vote we stop wasting valuable time and money we do not have on "Global-warming-we-are-all-going-to-die" nonsense and concentrate on using energy more wisely. In the transportation sector, that means massive but cost effective efforts such as much better fuel efficiency, hybrid/electric vehicles, alternative fuels (but not our food supply) and yes, more drilling.
To be blunt, the emerging oil crisis is a clear and present danger to our republic while "global warming" is not because of its much longer time horizon. We need to save our sinking ship. We'll worry about getting it to the right port a little later, once we are out of imminent danger of “swimming with the fishes”.
The common sense approach I propose will, no doubt, offend some of the more radical members of the “green religion”. However, for those more rational environmentalists consider this: as we use transportation energy more wisely, we automatically greatly reduce greenhouse gas emissions.
Malcolm Rawlingson 1.25.11
Who could not agree with Professor Banks.
Not sure it takes a genius to figure it out though. The assumption that the Middle East oil fields will keep producing and the world will keep buying no longer holds water. If you were OPEC would you keep exporting your only natural resource until there is none left or would you realize that the goose that laid the golden egg is getting old and will not keep laying forever. Your reaction would be to curtail exports slowly but surely to avoid market panic and use your oil and that of other nations to produce petrochemical products the world needs cheaper than anywhere else with a guaranteed raw material supply. That is simply smart business.
In addition despite all the baloney in the press tar sands oil is making dents in the reliance of the US on Middle Eastern oil. The Keystone Phase 1 pipeline from Hardisty in Alberta to the mid-west refineries started pumping 550,000 barrels of oil a day from Canada to the US on June 30th. With the Keystone Phase 2 project that will double to 1.1 million barrels a day. It will also pick up oil from the Bakken oil formation along the way. And the tar sands is nowhere near full production. New technologies are reducing extraction costs and it is quite possible that North America will not be dependent on Middle Eastern oil within a decade or two. Allied to that is the replacement of oil by natural gas. The technology already exists and rather than a surge of electric cars first you will see existing engines operating on natural gas and refueled at home. The economics of electric cars do not make sense for the average buyer. Having to replace the battery (about a third of the cost of the car or more) every few years does not make it very attractive except for the enthusiast. The economics of natural gas vehicles does.
As mentioned oil shale gas from both Bakken and the Marcellus shales are transforming the US energy picture in a big way. There will be no market for middle eastern LNG. And don't think China will be begging at the door for middle eastern oil either. They are buying into the gas shale extraction technology to exploit their own oil and gas resources and their gas shales are predicted to be even larger than those in the US.
So if you were a wise sheikh you would see the writing on the wall and do exactly as our dear Professor says. Starting making money in a new way. Very smart people indeed.
Malcolm
Alok Misra 1.26.11
India Intends to complete it shale gas exploit by 2014- meaning it will be working double speed if luck and god permits- atleast that is what they have announced/.Electric Vehiclesill soon appear here as I know Nano is a candidate for this.Already the fuel prices are out so much that even better paid Indians feel the pinch.So the fuel is not going to be predominately oil anymore.There are however other regions where natural gas and oil will be found but we know that if we stop this drain on resources and develop things that we have the money saved can add remarkably to development.There are aleady some 11 cities that are to have metro and this should cut the dependence on oil.So from all reckoning India is not basing its future on oil unless it owns it. There was some substance in a 1907 cable from the British Rep in Middle east to Viceroy in India to delay exploitation of Oil in Middle east. Oil was found there in 1903.By depending on their oil we have made them very quarrelsome because enormous amount of money has flowed in the region for which did not have to work like rest of the world.It is high time we stop this flow of money.
Paul Stevens 1.26.11
The primary advantage of centrally controlled economies is the ability to look 5 - 6 decades ahead.
While many of the forward looking OPEC nations will scale back export of crude or refined oil in the interests of producing higher priced derivative products, the US, Canada and most of the rest of the West will chew through their existing stocks of petrochemicals as fast as possible at the lowest market price.
China, as an example of a forward looking controlled economy, will use income that is made possible through the use of cheap energy from coal and shale gas to build nuclear stations. They will then hone the factory production of them (made possible because they have determined to construct 100 in the next 30 - 40 years) so that they will have a long term, stable, baseload electrical system using reprocessed uranium fuel rods for the next two hundred years.
Within 15 -20 years, China will be the worlds foremost developer and exporter of nuclear facilities. And a significant portion of their own energy infrastructure will be nuclear based. They can then divert most of their petrochemical resources (or resources they have either purchased or locked up with long term contracts) to the production of higher cost end products while the West is running out easily extracted energy resources.
China most assuredly has paid attention to Kubursi's work and it's implications for the world's economy in the next 30 years.
Paul Stevens
Ferdinand E. Banks 1.26.11
The bottom line, the answer, to any questions in the above comments is the observation by Michael Keller, which is that we should stop wasting valuable time , and do what has to be done before the next macroeconomic melt-down begins. One of the things that has to be done is to accept the simple truth about the oil market, and the present and near future position of OPEC. Incidentally, I read the other day that they intend to increase their spare capacity by 7mb/day. Would you do that if you were in their place? Hint: the answer is NO!
In an ideal - i.e. textbook - world people like the US Energy Minister would have figured out what the people in the above comments have figured out, and with the assistance of the splendid experts in the Department of Energy building would inform us of the correct medicine for possible present and future energy ailments. Where oil and nuclear are concerned I don't need their help, thank you, but I don't know what to believe about shale gas. I don't like a lot of what I hear, although. If the nuclear future goes the way that I think it will and should go, then more electrification of the transport sector is probably justified, where the emphasis here is on 'probably'. The problem is how much electrification, and what kind of subsidies might be necessary to obtain it, although if a much larger amount of electricity turns out to be optimal, then what appears to be subsidies will - in the long run - turn out NOT to be subsidies. I figured that out on the basis of what happened in the Swedish nuclear sector.
They are trying to get their energy act together in Europe, and in the course of that noble project, some of the proposed solutions are compltely and totally absurd. The problem is that they believe their own nonsense about renewables and alternatives, although it is certain that more of these will be needed. Unfortunately nobody seems to be able to provide a sensible answer as to how much.
I really wish that I could convince myself to work on or think about this natural gas business, but I can't. What I can say however is 'dont believe everything you hear'. If what we hear is true, then we are really and truly out of the woods, but...
Bob Amorosi 1.26.11
I think all the comments above have hit on valid points. Natural gas will increasingly displace oil in North America over time for transportation, but it will be a gradual overtaking, not an overnight thing. The biggest question is where will NG be used more, in vehicle engines or in electricity generation to power electric vehicles?
NG for vehicle engines has been around a long time already in fleet vehicles and buses but average consumers have never embraced it much in spite of NG fuel being much lower cost than gasoline or diesel. The reason is that convenience matters to consumers even at extra costs.
To use NG in vehicles requires more equipment adding hundreds of dollars to a vehicle’s cost, and uses much larger tank volume than gasoline for a given driving range. The biggest factor is the more extensive gasoline refilling station infrastructure network than there is for NG if you don't count home refilling. The latter one requires a home compressor which again is more inconvenience and equipment costs for the consumer.
In spite of all the inconveniences of NG for vehicle engines, as oil escalates in price it will gradually push more consumers into NG or electric vehicles because convenience costs have limits before they become intolerable. Electrics will compete with NG vehicles especially if NG electricity generation (or nuclear) is greatly increased to power them.
It promises to be an exciting future in competition between electric and NG vehicles.
Murray Duffin 1.26.11
I am a lot less complacent than Len. Gas hydrates (clathrates) are widely dispersed, not concentrated, and no effective way of recovering them has ever been developed, especially undersea. The Japanese have been working on this for a long time w/o success so far. As for shale gas, the optimistic estimates that have been published have used the recovery experience from the best areas drilled to date, times the total areas potentially available. In fact the gas is not evenly distributed, and the "sweet spots" in the fully explored deposits (like the Barnett) are perhaps 1/3rd of the total area. Add the need for huge volumes of water and contamination problems, and you should divide said optimistic estimates by at least 3. It's still good, but no silver bullet.
Christopher Noble 1.26.11
Sorry for being flippant, but isn't this rather obvious? If you had a commodity whose price was likely to rise a lot in the future, you would be a fool to sell it right now; better keep as much of it as possible for when the price rises. That is the classical free-market behavior that we preach.
I hope the Saudis have the political will to resist the pressure of the West to produce as much as possible as quickly as possible. That way, maybe we can be coaxed to make a real commitment to renewable energy, and maybe there will be some petroleum left for my great-grand-children's generation.
Michael Keller 1.26.11
So how exactly does renewable energy run millions of vehicles?
Don Hirschberg 1.26.11
It seems to me that as the price of oil goes up so does the inducement for OPEC members to cheat- to produce more than their allotted quotas, particularly tempting for the poorer and less stable members.
It is easy to think of OPEC as monolithic and able to discipline its members. But is it and can it? We already see street demonstrators, some having toppled governments, and who care not a whit about decisions made by Oil Ministers at OPEC meetings.
Len Gould 1.26.11
I certainly grant your point, Murray. I don't hang out on The Oil Drum - True believers in peak oil catastrophy for nothing. If one is to believe even half of the discussion articles and posts posted there, then we're in for a very rough economic ride in the near future. Many of them IMHO are nearly as smart as we are (LOL).
For me, the future of our western economies only shows up "through a glass darkly". If economic recovery of even a portion of clathrate gas is possible in future, then perhaps we have time to "wait out" the environmental extremists who are blocking logical implementation of more gen 3/4 nuclear electric generation, breeders, sodium-cooled breeders feeding on spent fuel and thorium. Perhaps we can afford to wait for low-resource high-tech nations like Germany and Sweden (and soon China and India) to sort out what path is the most logical.
The question for me is, what then becomes the adverb to describe our economies? If they're high=tech and we're not.......
Len Gould 1.26.11
(Sorry language police, that should have been adjective)
Malcolm Rawlingson 1.26.11
It will be interesting to see how natural gas plays out as a competitor for oil. Bob Amorosi identifies some limitations of natural gas powered vehicles but I see no difference between NGV and electric vehicles in this regard. NGV's can switch from gasoline to Nat Gas at the flick of a switch while moving so when the real gas runs out the liquid gas is available - just like current hybrids. People seem to be prepared to pay a premium for hybrids so why do they not want to pay a premium for NGV. Price will drive the change. People will want to drive on the cheapest fuel and as oil prices rise the NGV will win hands down on price even accounting for the conversion costs. That of course is another advantage. You can convert an existing vehicle to natural gas very easily. You cannot convert an existing vehicle to electric power. The range of the Chevy Volt on pure electric power is 40km a distance selected as the average distance driven to work by the average American. The range of a similar vehicle on Natural Gas is three or four times that. I don't see nuclear power as having any effect on the oil market except to produce the electricity to power EV's. Oil is not a competitor for nuclear. Gas is so I expect the availability of natural gas to drive the construction of natural gas generators and slow down the nuclear expansion. The use of Solid Oxide Fuel Cells in homes to produce electricity and hot water may also be a game changer. As the high cost of renewables inevitably drives up the cost of electricity supply SOFC will become competitive and when the all-in costs of having a grid connection are factored in it might force many homeowners to ditch the grid connection in favour of silent and highly reliable SOFC units operating on natural gas. So I think the oil shortage we will likely see in the coming years will not be as bad as imagined but will likely mark the end of gasoline powered engines.
On the subject of gas shale supply estimates I tend to look for confirmation in the business decisions companies make not the exploits of Government planners who nearly always get it wrong. When companies operating in the Bakken field sign long term deals it gives me some confidence that the deposits they have will last a reasonable length of time. The new Transcanada Bakken pipeline is well subscribed with such long term contracts so I think the estimates are not too far off. We'll see.
Unless the nuclear power industry in North America wakes up and realises that new nuclear plants are pricing themselves out of existence the promise of this technology will not be fully realised. It will be realised in China, India and France who understand what this technology can do if properly managed and mass proiduced.
Unfortunately Canada and the US who along with the British pioneered this technology and developed fast breeder reactors and other technologies mentioned by Len above will lose out massively to the Chinese and Koreans. A sorry epitaph for a great industry.
Malcolm
Malcolm
Malcolm
Malcolm Rawlingson 1.26.11
Sorry for the three Malcolms. There is just one of me. Don't know what happened there.
Malcolm Rawlingson 1.26.11
Alok, I agree very much with your comments and India as well as all other economies need to cut their dependence on oil. You should depend only on those energy resources that are with your borders if possible otherwise you are held hostage by those that have what you need.
We have indeed distorted the economies of the Middle East and have paid a very heavy price for protecting these assets that every one of us has become dependent upon. It is high time that ended. We have the know how to do it yet we seem content to plod along the same old pathway until it finally send us all right over the edge of a cliff.
I am impressed by nuclear power development in India and the wider electrification of the country but as noted above these will not alter India's oil dependence very much.
Malcolm
Don Hirschberg 1.27.11
Malcolm says: “I am impressed by nuclear power development in India and the wider electrification of the country but as noted above these will not alter India's oil dependence very much.” From what I read and understand India is going balls-out for coal, building new coal burners like crazy, opening and expanding mines, expanding their rail system to handle more coal, buying foreign coal producers and making deals all over the world to secure coal deliveries. They have recently gone through some close-calls to get enough coal delivered to keep existing plants going.
India's will soon surpass China’s population. It is hard to construct a scenario in which Indians will all have even minimal electric service.
While it is easy to fault India for increasing coal usage the amount of CO2 produced per Indian is very low. These new coal burners will be running for a long time.
Ferdinand E. Banks 1.27.11
Don Hirshberg used the expression "...poorer and less stable members" Anybody doing any formal or informal research on this subject should focus on that declaration. All I will say is that poorer and les stable members are not in the Gulf, so that in the fullness of time the poorer and less stable will be even more poor and unstable.
Len Gould 1.27.11
Don:
Coal use China 2009 MTOE = 1537, increased about 250% since 2000
Coal use India 2009 MTOE = 245.8, increased about 80% since 2000
Coal use USA 2009 MTOE = 498.0, decreased about 8% since 2000
It's China which is really burning coal at phenomenal rates, India less so.
You are correct, there are very similar technical and refilling limitations between using NG versus electric powered vehicles. The main reason consumers are embracing electric-gasoline hybrids much more than NG-gasoline hybrids is, as I am saying above, much to do about convenience for the consumer.
Car manufacturers are providing electric hybrids ready to roll off their dealer showroom floors, and electricity is ready to plug into at home for any direct 120V plug-in models. For NG hybrids consumers must typically buy aftermarket retrofit kits, usually with government subsidies available, to install after purchasing their vehicle, whereas car manufacturers are not readily offering NG-gasoline hybrids for sale. Then after doing the retrofit, they have to buy and install a home compressor if they want to refill NG at home.
Don Hirschberg 1.27.11
Thank you Len but I have these numbers, except in Mt (from coal folks) rather than MTOE (from oil folks). My comment somewhere above is about the likelihood of India having a paroxysm of building of new coal burners in this decade to match china’s building in the last decade, a fait accompli. And all after the pompous Kyoto Protocol. Kind of makes those who at some sacrifice shut down economic coal burners look foolish.
Both China and India talk and posture quite green, and it seems every time either announces an alternate energy project or a nuke the media goes gaga. Since India has such a small CO2 emissions rate per capita it’s not hard to commiserate with Indians who want electricity before they die.
Professor: I have a 1967 atlas I sometimes rather foolishly still try to use. I say foolishly because so many countries considered stable when the atlas was printed have disappeared, have been split-up, have new names or new borders, usually with different political systems.
Len Gould 1.27.11
It really is incredible though eh? In the past 10 years China has built 2x as much new coal generation as the entire USA presently uses, or the equivalent of the entire US grid connection all generation types, since coal is about 50% of US generation. In 10 years. Gives a picture of what's possible.
Too bad the US isn't in any position to complain to them about their CO2 emissions.
Malcolm Rawlingson 1.27.11
Yes I agree with you Don, Coal is king in both India and China and the nuclear plans of both countries pale by comparison with developments in coal in those countries. The point I was making and your post reinforces is that oil is not used for electricity generation on anywhere near the same scale as coal, hydro and nuclear. The competition to oil is those technologies that displace transportation uses of oil. There aren't many of those. One of the few viable ones is natural gas. Bob Amorosi makes a good point above that people want convenience but I think once the electric car euphoria wears off and customers have to fork out several thousands of dollars when their batteries need to be replaced you will see a decisive move by car makers to the only real solution left which is NGV.
I did a calculation recently based on Canadian prices and with no rebates to distort the picture a conversion pays for itself in about three years which is a relatively good investment. Assumptions are that the price of gas is constant but I expect it will increase making better returns.
Earlier I mentioned shale gas developments which will add substantial supply to the US - even when reduced by Murray Duffins factor of three...there is still 50 to 60 years of supply. However that does not take into account coal bed methane which is also slowly but surely coming on stream. Bottom line is the US now has a lot of natural gas and, if the it is serious about ending dependence on Middle East oil it needs to use that gas in cars to directly displace oil imports. Using it to make electricity makes no difference to oil imports.
One of the serious drawbacks of electric vehicles which has yet to be fully understood is the impact of millions of electric and hydrid vehicles on the market price of Lithium. Almost all of these use Li - ion batteries and there are few places in the world where the stuff can be mined cheaply. The most promising is in Colombia (note that is one of the countries Obama wants to do free trade agreements with - what a coincidence). So you can expect the price of Lithium to go through the ceiling and those batteries that need to be replaced every few years will get prohibitively expensive. Any investor in Lithium has made some very tidy profits over the last year (smile) but as the reality of owning these vehicles hits the wallet (not mine) then the euphoria will wear off and reality will set in.
It will be most interesting to see how governments react to the huge loss of tax dollars from oil. Governments you see are the largest beneficiaries from the sale of gasoline and diesel and if all of a sudden the bottom falls out of their revenue stream one wonders where they will turn to to make up their losses. Tax electricity or tax natural gas. It will be one or the other and I suspect it will be electricity.
Malcolm
Malcolm Rawlingson 1.27.11
Don, I very much agree with your post regarding the stupidity of shutting down coal plants in the west while the Chinese and Indian Governments are building them like they are going out of style. We in Canada are shutting down Nanticoke Generating Station halfway through its useful life in the hopes of making our air cleaner - laudible objectives but also quite laughable when one considers that a Nanticoke equivalent is built every two months in China and India is doing the same.
So while I am no supporter of burning coal to make electricity in reality that is where most of the worlds electricity is going to come from for decades whether the west likes it or not. Malcolm
Ferdinand E. Banks 1.28.11
I wouldn't use that word stupidity when discussing environmental matters, Malcolm. You never know exactly whom or what you are referring to.
For instance, according to some information that I have somewhere, Sweden is No. 2 in the world where environmental matters are concerned. Let's say that stupidity got into the measuring process, and so in reality they are No. 5. In any event, here in Sweden the voters are constantly reminded that they have got to cut carbon emissions. A gentleman in the leadership of the environmental party was always talking about green electricity. As it happens, with most Swedish electricity generated with hydro and nuclear, "green" was the color of the day before the crooks in the electric generating utilities were issued licences to steal by ignorant believers in electric deregulation.
So, we have got to cut emissions even more in order to make room in the upper atmosphere for the emissions from still another dozen or so Chinese coal burning plants. The only thing left is automobiles. As a result in winter sleighs pulled by reindeer might soon be in fashion , while in summer rickshaws pulled by human beings - for instance person with my frame of mind - will fill the streets of wonderful Stockholm. Yes, I may yet be given a chance to serve this community, although I dont know how many trips I will be able to provide.
Jim Beyer 1.28.11
The one optimistic point in all of this is that OPEC may not be able to act rationally, even if it wants to. Although it might make the most sense to produce as little oil as possible, many of those countries are faced with rising populations and rising expectations from those populations as well. I'm not sure Prof. Banks analysis accounts for the "domestic push" which might make them sell more oil than they would do so otherwise. The OPEC countries as a whole, have not made wonderful progress in diversifying their economies, nor have the improved their governments/social organization for the long term benefit of their general population (note what is happening in Tunisia and Egypt - though not OPEC members, definitely of the region).
The rising economies of the OPEC countries also means more domestic consumption of their own oil. I guess this just portends to less being available for export. But this might mean that the future of OPEC is not so much being in the driver seat, but rather another player in a world that is running out of oil.
Don Hirschberg 1.28.11
Sure Malcolm, and when Canada shuts down a coal burner what happens to the coal no longer burned in Canada? Canada is already the 7th biggest coal exporter so will not this coal get exported, the market is very tight – and wouldn’t you suspect the importer will burn it? Additional CO2 will be emitted getting it delivered. (Japan, China, South Korea, India, Taiwan, Germany, UK, none a short haul, were the biggest importers in 2009.) It looks to me shutting down a coal burner with remaining economic life is counter- productive CO2-wise and a waste of money to boot.
Professor, when I think about the world’s problems I remind myself that world population is as accurately as we can determine 6.93 billion with Sweden and 6.93 billion without Sweden. Countries such as Norway and Sweden have water power by luck, not merit. And Norway’s luck is extraordinary by also having fossil fuels they convert into cash and let those irresponsible buyers emit the nasty CO2.
Great idea, but Stockholm is not level enough for rickshaws and I noticed there are more upgrades than downgrades. I know! , motorize them, enclose them and call this invention a car. I’ve spent a day in Stockholm so I can speak with some authority as an expert.
Ferdinand E. Banks 1.29.11
Jim, the more oil they produce, the less money they will have in the long run. I think that we should leave it at that, because I am not in the advice business at the present time.
We can though go to the expression Don used which is "poorer and less stable members". That is not the OPEC I am thinking of. I leave that OPEC for President Obama to handle, along with his favorites in Asia to whom he is bringing the joys of democracy and freedom.
One day in Stockholm you say Don. I hope that it was in the summer time, for reasons that we both know. I-m trying to arrange to spend some extra time in that great city this year when a big energy conference meets. The arranger of that conference though provided a lot of the theoretical backing for electric deregulation in this country, and I thought of him a few days ago when I encountered a gentleman who had just received an electric bill for 2000 dollars - or more if the exact exchange rate was taken into consideration.
Don Hirschberg 1.29.11
The encountered gentleman must have forgotten and left a 60 watt bulb in the basement burning, (60X24X365X0.09/1000=$47.30/year), for 42 years. I guess I should have taken ten (?) February 29ths into account – but then year 2000 wasn’t a leap year because it is divisible by 400, but because it was a millennial year it did have a leap year day, or do I have that wrong?
Malcolm Rawlingson 2.5.11
Right on Don, It makes no difference to the production of CO2 to shut down Nanticoke. It just means the CO2 is produced somewhere else in the world. Some of the coal used at Nanticoke comes from Western Canada but the bulk of it is from Pennsylvania coalfields in the USA. So instead of it being burnt in a modern highly efficient and relatively clean plant in Canada it is likely now burnt in a 60 year old very inefficient plant in the states addidng to the pollution and CO2 levels.
Also you are quite correct that coal is in very short supply so ending the coal contract at Nanticoke was a windfall for the supplier as they can now sell it for a much higher price. We likely paid them to get out of the contract.
Malcolm
Malcolm Rawlingson 2.5.11
I think the useof the word stupid as a descriptor for the antics of so called "environmentalists" is perfectly applicable. When I hear envoronmetalists touting hydroelectricity as "clean" when it floods massive land areas and wipes out a few billion trees and nuclear touted as "dangerous" when more people are killed and maimed on the roads of Canada every day than in the entire history of nuclear power on the planet (including Chernobyl) then I do indeed believe the term stupid is most applicable.
They have no more right to call themselves environmentalists than I have the right to call myself The King of Sweden.
Malcolm
Ferdinand E. Banks 2.6.11
Since you brought the King of Sweden into this discussion Malcolm, I feel it necessary to say that I have never heard environmentalists complain about hydro in Sweden, of which there is a great deal. Of course, they will NOT hear of hydro being built out, which should take place, but why look a gift horse in the mouth.
Malcolm Rawlingson 2.9.11
Agreed Fred, same in Canada where hydroelectricity is considered a "clean" source of energy. It is not of course. Perhaps run of the river plants are the closest to that but not those that require the flooding of vast tracts of land.
And I too agree that one should not look a gift horse in the mouth but I do expect these so-called environmentalists to be truthful - but that is probably far too much to ask isn't it?
Malcolm, King of Canada.
Richard Vesel 3.8.11
One comment, regarding worries about battery replacement costs in electric vehicles. I just had to go through that expense in my Honda Insight hybrid. The first original pack lasted 109k miles, and cost me about $2k to replace. So that translated into 1.8 cents per mile "battery cost". Hardly a problem when it gets me about 50mpg, and the gas cost is 6-7 cents per mile. Net cost result is that I got the financial equivalent of 38 mpg, with far less CO2 emissions. I hope I get the same mileage out of the current pack - if so, I'll be happy!
IF I owned an all-electric car, I would have to figure in the cost of batteries plus cost of recharging, over 100k or 200k miles, as total cost per mile. So cheap kwh, plus batteries, should still be way less expensive than cost per mile with $5-$7 per gallon gas, OR LNG. Please be aware that early NGV's will benefit from low fuel prices, but if there is a major shift in all energy consumption, going to gas, those low costs won't hang around for long, as the gas glut will disappear, and it will trade just like oil and its derivatives. Just today, I was looking for conversion kits to LNG, out of curiosity...
