Amory Lovins is chair of the Rocky Mountain Institute and has been serially – and incorrectly – predicting the end of fossil fuels for the better part of four decades. He has been reliably wrong on the big picture issue of energy for nearly his entire career, but that does not prevent major organizations like Time Magazine from naming him one of the 100 most influential people in the world (to be fair, nobody says you have to be correct to be influential). This month, the journal Foreign Affairs offers him a platform for his essay A Farewell to Fossil Fuels. I could not possibly disagree more with Lovins – I have repeatedly called the 21st Century the “Shale Age” or the “Second Age of Oil” – but readers interested in balance should read Lovins’ opposing view. Our view is simple: Fossil fuels are simply too cheap, too abundant and too powerful to be moved from their place at the top of the energy hierarchy any time soon. They have the advantage of being ready for the built infrastructure and the ability to be easily transported. The Three Ps – Price, Portability, and Potency – are all heavily in favor of fossil fuels over any other current alternative. Other energy sources such as solar and wind will incrementally increase their share where suitable (and EGP remains a strong proponent of micropower -local, distributed and unsubsidized), but the heavy lifting will be done by King Carbon for the rest of my life and probably all of my son’s life as well.
Archive for the ‘energy policy’ Category
The micropower revolution
April 23, 2012I have never been a big fan of large, industrial scale wind and solar energy projects. The supply is too inconstant, energy storage is not sufficiently developed, and the installations are enormously expensive. Big Solar and Big Wind are simply not competitive without ongoing government subsidies.
At the same time, however, I have long been a fan of distributed wind and solar – small scale projects developed by landowners for their own local use, with the ability to sell excess power into the larger grid (and, eventually, it would be nice if small scale local producers could sell directly to their immediate neighbors).
Bloomberg Markets has a good story up about how micropower is revolutionizing the third world, and how large corporations – especially mobile phone providers – are finding ways to enable and profit from it. Distributed power can eventually break the power of energy utility monopolies, kill (or at least radically transform) the subsidy-dependent failures of Big Solar and Big Wind, and, of course, enhance personal freedom. Win-win-win.
I must note, however, that I disagree with Jeremy Rifkind’s contention that distributed power is causing carbon based energy systems to “sunset.” Distributed power is an additional input into global energy consumption, but solar and wind still lack the potency and portability of carbon fuels. Distributed power will lessen some demand on fossil fuels, and thus extend their life expectancy (another reason why Peak Oil is a zombie theory).
Peak Oil theory is dead . . . even if it’s proponents don’t know it
April 18, 2012Robin Mills, writing at the European Energy Review, details the large number of factors that have rendered Peak Oil alarmism obsolete. Read the whole thing.
This does not mean, of course, that a price decline is imminent. So long as OPEC maintains its market share and its internal discipline, we can expect oil prices to remain high. While there is a possibility that the natural course of events will drive prices down, there are also policy decisions that the United States can make that will ensure that outcome. Chief among them are the adoption of the Open Fuel Standard, which would either directly weaken OPEC’s market position, or else frighten OPEC energy ministers into internal disarray that would have the same effect. Another policy option would be to take up a new version of the NEED Act, which would further enhance domestic fuel production.
DOE, Environmental groups blocking access to lucrative LNG market
April 10, 2012Despite vast reserves of unconventional natural gas that have sent prices plummeting (and made many shale plays uneconomic), US gas producers are missing out on an international market hungry for natural gas in its liquified form. Although the global market is growing at 40% annually and is expected to reach a demand of 300 million tons per year, US producers are functionally locked out of the market because of the lack of liquefaction and export terminals. There is currently only a single terminal available for producers wishing to export gas – the Sabine terminal on the Texas/Louisiana border. A second terminal in Kenai, Alaska, is currently shut down and its owners are evaluating the 50 year old facility for future use. However, its location rules it out for use by the massive shale plays in the lower 48. There are multiple projects planned to build new facilities that could allow US companies to ship their goods overseas – creating jobs in construction and running of the plants, and maintaining jobs in the extraction industry – but they are held up for approval by the Department of Energy, under pressure from environmental groups who believe that they can stop fracking by limiting access to lucrative overseas markets.
As reported last weekend in Oilprice.com,
Now what about building LNG liquefaction plants? Unit Economics says it can cost $3 billion for each million tons of annual capacity for the entire liquefaction supply chain, which includes production, pipelines, the port and the facility itself.
The Wall Street Journal reports there are seven additional projects seeking approval from the Department of Energy to ship LNG to most foreign nations. If all of these projects gain approval they could handle about 25 percent of U.S. gas production. However, the news source reports that approval for all of the facilities is unlikely.
An additional hurdle to the LNG market in the U.S. is political opposition to sending the energy source overseas. The American Chemistry Council has warned the U.S. government that it “should not undermine the availability of domestic natural gas,” but is not necessarily against exporting the substance.
The Sierra Club is concerned that exporting more natural gas will cause companies to increase their fracking operations. While there has been little to no evidence that fracking itself harms the environment, a groundswell of opposition to the practice has emerged, making investing in greater production difficult for the industry.
What accounts for the price of gas?
April 9, 2012Marin Katusa, an analyst at Casey Research writing at Mining.com, writes about several factors currently influencing the high cost of gasoline in the United States. It’s a pretty good analysis as far as it goes, but it leaves a lot out. However, the comment section of this particular piece is fantastic, with many very good points made. Read the whole thing, including the comments.
Hat tip to Instapundit, who linked to the article over the weekend.
The staggering renewable power industry
February 22, 2012One after another, large scale renewable energy firms are declaring bankruptcy – Solyndra, Evergreen Solar, and RangeFuels are among the highest profile casualties. In December, BP, which had been an industry leader for decades, declared that it was dropping its solar power division, which had once been envisioned as a future profit center. The fact of the matter is that alternative energy sources are not technologically advanced enough to survive in a marketplace without large government subsidies, and the current global financial climate cannot support such subsidies. The overall energy profile of fossil fuels remains superior to any alternative, as they hold unsurpassed superiority in what I call the 3 Ps: Price, Portability, and Potency. A ton of coal or its equivalent in petroleum or natural gas can bring more energy to bear with more versatility than any existing competitor. Nuclear can bring more potency, but the regulatory hurdles surrounding nuclear have prevented construction of a new plant in the US in decades.
The demand for energy is only growing, and there is no feasible recourse except fossil fuels to meet that demand. We can either be serious about finding environmental mitigation for fossil fuel use, or we can freeze in the dark. You know we aren’t going to choose the latter, so let’s drop the ideological stances (on both sides) and finally get serious about energy.
Europeans find their high cost sustainable energy policies are fiscally unsustainable
February 15, 2012European nations have been leaders in developing “green energy” technologies, and European politicians were for years leaders in promoting policies that subsidized green energy in the belief that they could create economies of scale that would force prices to come down to levels competitive with fossil fuels. However, in the face of the ongoing financial crisis, governments are being forced to cancel their green energy subsidies and the true cost of these programs can no longer be hidden from consumers. Across the continent, sustainable energy programs are failing. This European approach, and in particular the “Spanish Model,” was the foundation of President Obama’s own energy policy. The failure of government backed green energy programs is playing out a bit differently on this side of the Atlantic, where it often plays out as cronyism and scandal.
BP projects North American energy self-sufficiency by 2030
January 25, 2012BP has published its second version of Energy Outlook 2030. It presents a very favorable global energy picture over the next few decades – despite a continued reliance on fossil fuels. While BP does foresee a growing use of renewable resources, the biggest changes in the future energy outlook are (1) increasing efficiencies in energy use and (2) the massive reserves of unconventional resources that new technology has made economically feasible. At first glance, this might seem to be a repudiation of the very rationale for this blog – the singular importance of energy as a geopolitical driver over the next quarter century. However, I contend that is quite the opposite. It is likely that only the US and Canada among developed and rapidly developing nations will enjoy security of supply (an argument that I have been making since before I began this blog), and that security combined with the relative insecurity of other nations will allow the United States to use both its resources and its growing geostrategic military reach to maintain its lead position on the world stage for the foreseeable future.
However, there is a glaring omission in BP’s projections: there is little attention paid to the impact of growing (even if decelerating) fossil fuel use on global warming. However, it is my belief that growing supply could very well outstrip growing demand over this time frame, which would cause prices to fall. That would leave room for carbon taxes, the revenues from which should be diverted to mitigation efforts. The latter will be a hard sell – there are entrenched interests on both sides that will fight it (from the right, carbon taxes are anathema while forces on the green left are hostile to a geo-engineering approach), but as water seeks its own level, so, too, do obvious policy choices.
How to lose money and waste resources on a grand scale
December 12, 2011The green energy bonanza grew quickly, produced vastly less return than investment in fossil assets, destroyed its investor credibility and image in public opinion, and is now declining sharply.
That is Andrew McKillop on what he calls “the trillion dollar boondoggle” of green energy investing. This is, I believe, a very important piece. Read the whole thing, and remember it when you hear politicians rambling about the promise of the “green energy economy” in the upcoming election season:
We can ask: did a carbon trader running a “carousel” trade of buying emissions permits in a European country where VAT is not applied, and selling it another where VAT is applied – then pocketing the difference and running for it – really contribute to the sacred quest to “fight” global warming ? From 2005 to 2009 this was regular practice on those squeaky clean carbon markets of the European ETS. About 5 billion euro-per-year (around $6.5 billion/year) went down the drain, or in fact exiled itself to the Cayman Is and other “climate conscious” outposts of the neo capitalist financial community, simply from that one single rip-off. One among a long list of others. All known. All documented. All ignored by our political deciders who like to “keep the party going” with their finance sector chums.
Climate and Energy: Where is the tipping point?
December 5, 2011The International Energy Agency’s 2011 World Energy Outlook was released last month, and it was a gloomy report. This is primarily because the IEA has accepted the notion that global warming must be contained to an increase of 2 degrees Celsius above pre-industrial levels, and that this cannot be done if CO2 reaches a level beyond 450 part per million (PPM) in the atmosphere. The IEA reports that 80% of the 450ppm level is already “locked in” to the equation because of existing infrastructure, and that the world will likely use up the remaining balance within 5 or 6 years, primarily because of the heavy use of coal by developing nations, especially China. Basically, according to this report, the CO2 gate is closing faster than the carbon-fueled global economy can adapt, and there is scant evidence of the existence of the political will necessarily to change things in a hurry. The race is all but lost.
Or is it? What if the 450PPM model is incorrect? A new article in the journal Science indicates that this might be the case; that the +2 degree tipping point might not occur short of concentrations of 600PPM or even greater. This would mean that the world has more time to achieve growth through a fossil fuel economy, while at the same time developing more efficient technologies for burning coal or for capturing and sequestering or utilizing carbon emissions. Bringing vast amounts of cheap shale gas to market to substitute for coal would buy even more time. The crisis, it seems, is not imminent at all.
Methanol powered cars
December 2, 2011Bob Zubrin describes how, with a few minor modifications that cost less than a dollar, he modified a 2007 Chevy Cobalt to run on 100% methanol fuel. On methanol, he was able to achieve over 24 miles per gallon in the vehicle.
This is a big deal because methanol can be made from American sourced raw materials – biomass or the massive US reserves of natural gas and coal. Also, methanol is a high octane fuel (109, much higher than the normal choices of 87, 89 and 91 at most gas stations and higher even than the “high performance” 100 octane gasoline available at a few), and it is thus both more efficient and produces more horsepower.
Zubrin has long been a champion of an open fuel standard – let the market decide which fuel is best, not politicians and regulators. An open fuel standard would not only put us on the path to energy independence, it would also help jump start the economy.
Obama administration poised to kill Keystone XL
November 10, 2011The US State Department has demanded changes to the route of the Keystone XL pipeline that will delay the pipeline for at least another year:
The State Department is ordering the developer of a pipeline that would carry oil from western Canada to Texas to reroute the project away from environmentally sensitive areas of Nebraska.
That decision could delay a final U.S. decision on the project until after the 2012 election.
The decision will require an environmental review — and that could take at least a year.
TransCanada Corp. is seeking to build the $7 billion pipeline. Part of the 1,700-mile pipeline would pass through Nebraska’s Sandhills region and an aquifer that supplies water to eight states
Two senior State Department officials who are familiar with the project described the decision to The Associated Press. The officials spoke on condition of anonymity because they weren’t authorized to discuss the decision before an official announcement.
Petroleum Economist states that this is more than a mere delay – that the pipeline is now “all but dead.” This means that the oil from the Alberta tar sands will instead flow west, through a vastly more sensitive ecosystem, and be shipped via tanker to Chinese markets rather than to US markets. I wrote yesterday that Obama is poised to run as a Warrior President; however, for all those victories, it is difficult to paint any of them as beneficial to US energy security, which I believe is our most vital foreign policy concern for the next half century. This decision further weakens the president on that front ahead of the election campaign, even as he tries to defer a formal decision until after the election.
US to begin shale gas exports to Europe
November 9, 2011Yadullah Hussain, writing for Canada’s Financial Post, states what we at EGP have been saying for years: The US is poised to experience a fossil energy boom that could reverse its status as a net importer and turn it into a major exporter of energy. Hussain reports that:
Britain’s BG Group has become the first company to export liquefied natural gas from the United States, inking a landmark US$8-billion deal with Cheniere Energy, shows how the American North Eastern shale gas revolution could not only allow the U.S. to meet much of its energy needs domestically, but also turn into a strong natural gas exporting powerhouse.
Europe will not be the only destination for gas from the Sabine Pass terminal. Expansion of the Panama Canal will open the Asian market up to American sourced natural gas as well.
We cannot repeat this often enough in these difficult economic times: There is a fortune beneath our feet. Technological advances and increasing prices for conventional fuel has made previously uneconomic resources economically sound, and the US has vast quantities of untapped fossil fuel resources that can revitalize our nation’s finances. Royalties and leases for sources on public land would flow into state and federal treasuries , as would increased taxes derived from both primary and secondary sources, and the sudden reversal of a balance of trade formula that has been running against for decades would revolutionize the US financial. There are certainly environmental costs that must be considered, but a serious negotiation between pro-extraction and pro-environmental forces can certainly find a way through this thicket to a bright, energy led American economic future.
Solar energy the next bubble?
November 7, 2011Interesting report out of Pennsylvania, not a state one would normally think of as a solar powerhouse, but where a solar energy bubble has bloomed nonetheless. Because of a state mandate for solar generated power, coupled with a state sponsored tradeable credit scheme, there has been a rush to install solar capacity in PA. However, that rush has created a glut of solar capacity – nearly 2 times the mandated capacity is now installed. This has led to a crash in the value of the credits, from $325 per credit at the start of the year to just $25 today. Without the value of those credits, the installations are not cost effective, and new projects have been halted or abandoned. One CEO of a Pennsylvania solar company admits “This is an industry that is the next dot-com boom.”
The most distressing part of this report, however, is the proposed solution: more and extended government subsidies. Follow the logic: government mandates and subsidies created a bubble; the bubble deflates rapidly; therefore the government must step in with taxpayer dollars to reinflate the bubble. It’s the same circular logic that has the national and world economies spiraling the drain.
One definition of insanity is to continue to do the same thing over and over again while expecting a different result each time.
EU energy and climate policies on verge of collapse?
November 3, 2011The European Union has been on the vanguard of the transition to Green Energy for over two decades. However, while the monetary union is staggering under the current financial and economic pressures, so too might its climate-energy vision. Andrew McKillop, writing at the European Energy Review, sees the policy on the verge of chaos and collapse:
At this moment, major political parties in Europe, including some governing parties, are already beginning to distance themselves from the ‘carbon neutral and climate correct’ policy package, due to this rising opposition from the public, trade unions, industrial energy users and analysts. For example, at the annual conference of the UK Conservatives in Manchester in October 2011, the commitment to “carbon neutral and climate correct” policies was notably diluted by major speakers, including the prime minister.
In many countries and in the EU itself climate and energy policies and programmes are already being adjusted or abandoned. This includes the downsizing or cancellation of plans for biofuels production (especially food crop based bioethanol), reduced plans and incentives for massive offshore wind farm development, delays in investments in large-scale electricity grids and interconnections, including so-called smart grid projects, and reduced subsidies and lower feed-in tariffs for solar and wind power.
It is very likely this trend will accelerate as a result of growing political and public opposition, especially in view of the economic crisis. Increasingly, policymakers and the public will come to the conclusion that the EU’s climate and energy package is too ambitious, too expensive, too complex and in the end also ineffective. This could lead to a heavy clash with supporters of the current climate and energy policies, which in turn could result in even worse chaos in the energy market. To avoid such a potentially disastrous situation, it is high time for policymakers to develop a plan B.
“A green smiley face on the same old corporate welfare”
October 13, 2011Excellent post today from Megan McArdle, peeling away at the layers beneath the Solyndra mess:
I have highlighted what jumped out at me: most of the money has gone to enormous companies that should have no trouble accessing capital. Established utilities, large multinational auto manufacturers, a global warehouse owner. The bulk of these funds are not going to rectify some gap in the capital markets. They’re straight subsidies to huge corporations. Even some of the smaller firms/deals are owned by large corporations like Total SA.
Giving large, established companies extra-cheap loans to build power plants, run transmission lines, and fix up the roofs of their warehouses is, in the immortal words of P.J. O’Rourke, like paying a Dairy Queen owner to keep his ice cream freezers on.This has implications for the default rates. The genuine startups seem to be shaky–it’s not just Solyndra, but also Nevada Geothermal and Brightsource. In other words, the firms that actually need the money are likely to experience a far higher default rate than the overall portfolio.Why does that matter? Because it skews our perceptions of the usefulness of the program. If we loan a bunch of money to firms that could easily get the money elsewhere, and a little bit of money to firms that are very risky, we can claim a high “success” rate even if all the risky firms fail. But we won’t have actually added much value, because the government wasn’t addressing a genuine market failure. It was just giving Ford and Nissan some extra-cheap money.But if we’re not really filling a gap in the capital market, this is a terrible way to go about subsidizing clean energy. We should be subsidizing the outcome we want: more solar panels installed, more clean vehicles purchased. If the demand is there, companies will be able to go out onto the market and borrow to fill it. It doesn’t do us much good to have a bunch of shiny new electric cars–that sit on dealer lots. Or solar panels in the Solyndra warehouse. We should be paying for performance. Otherwise, we’re not winning the future. We’re just sticking a green smiley face on the same old corporate welfare–and the government’s less like a VC than a farmer slopping the pigs at the trough.
Putin announces his Eurasianist dream
October 4, 2011Vladimir Putin is formally spelling out his vision for the future of Russian foreign policy. Building upon the “common economic space” announced earlier this year with Kazakstan and Belarus, Putin has begun to spell out his plans for a Eurasian Union that would reunite the borders of the old Soviet Union under a different political structure. Eurasianism has enjoyed a revival in recent years, and it has a long history among Russian geopolitical thinkers, and the ultimate goal would be to expend the cultural/political/economic space from Berlin to Beijing, with Russia dominating the region, both from its central geographic position and from its control over the vast Eurasian mineral resources and other natural riches.
Russia under Putin has been trying to reformulate classical geopolitics for half a decade. Eurasianism is seen, by the Russians, as a rebuke to Atlanticism (manifested by the US dominated NATO) and as a direct challenge to the Globalization sponsored by the Atlanticist powers. However, Russia has forever vacillated between its dual Western and Oriental outlooks. A reformation of the Soviet Union under a looser confederation is not necessarily a geopolitical threat. However, a sophisticated geopolitics (of which I believe Putin is eminently capable) would use Russia’s “energy weapon” to expand those old Soviet boundaries by drawing European states such as Germany into its orbit, and to forming a political condominium with China. Such a formulation – combining the vast natural resources of the Eurasian Heartland with the immense populations of East Asia – is the nightmare scenario that has worried Anglo American strategists since MacKinder. The need for energy already has the potential to drive Europe toward Moscow; a foolish currency war might provide more impetus for China to look that way, as well. Let’s hope that calmer heads prevail – on the one front, avoiding the conflict with China, while on the other, moving to open up the tremendous North American energy reserves and thus to defuse the Russian energy weapon. These are two clear policy goals that US leaders should coalesce around soon.
North American energy boom reshapes the world
September 30, 2011Glenn Reynolds, aka Instapundit, links to NPR story, with additional commentary from Amy Myers Jaffe.
“Wow, I knew it was big, but I had no idea it was that big,” Reynolds notes.
It is immensely big, and I have been hammering on this point for years. Here is my post from last year, The World is Awash in Oil, that details the vast amount of “unconventional” oil at our potential disposal. And, that is just oil. There is also an estimated 750 trillion cubic feet of untapped natural gas in the US. In the oil and gas industries, there is something called the McKelvey Box, which breaks the carbon resources into different sections – discovered, assumed but undiscovered; economically recoverable, sub-economic, and non-economic. Vast amounts of carbon resources that were once in the “sub-economic” or “non-economic” boxes have been unlocked by the technological revolution of the last few years. There are now several centuries worth of fossil fuel resources available to us – I have taken to calling this the Shale Age or, when you consider the near-to-fruition of economically viable coal- and gas-to-liquid fuel, the Second Age of Oil. And, with the proper set of policies, the US is in position to be – at once – the worlds greatest producer and consumer of fossil fuels - as well as the top and exporter of value-added, finished petroleum based products. Simply being energy independent would wipe out much of our trade deficit; the exports of fuel and other petroleum products would put us decisively in the black. And the money flowing into local, state and federal treasuries from taxes, leases and royalty payments would go a long way to solving the debt crisis.
The moment is upon us to save ourselves. To borrow a phrase – We are the Ones We have been waiting for.
As a word of caution, Reynolds also notes “The implications here are huge. If I were Russia and Saudi Arabia, I’d be subsidizing U.S. environmental groups in an effort to stop, or at least slow, the process.”
The reply to that, of course, is to take those environmental groups seriously ourselves, and forestall that line of attack. Ours is an open, democratic system, and environmental groups are powerful, well organized and motivated. We have to be environmentally conscious in crafting our energy policies – even if you disagree with the environmentalists, then work them if for no other reason than to mollify a powerful constituency that could otherwise derail or slow your efforts. Our system works well when organized groups bargain with each other and work out a synthesis approach. Any politics that is based on an assumption that you can simply steamroll the opposition is both sophomoric and doomed to failure. America, and the world, needs access to the bountiful energy resources within our grasp – but we cannot be so environmentally obtuse that we allow the fortune beneath our feet to go unclaimed.
Petroleum Association foresees 50% decline in European refinery capacity
September 23, 2011The European Petroleum Industry Association (EUROPIA) has issued a new report examining Europe’s energy outlook through the year 2050. Specifically, the report analyses the various impacts of the EU policy of “decarbonization.” Although EUROPIA projects a steadily decreasing demand for fossil fuels, they fear that regulatory burdens on the refining and petrochemical industries will cause domestic capacity to decline even faster than demand. Thus, even though over all demand for imported fuels decreases, the cut in capacity could mean an increased reliance on imports of refined products.
The European Energy Review has published an overview of the study here. EER summarizes the key concern of EUROPIA:
This means that policies that make it harder for the refinery sector to compete internationally and to survive - in other words, that hasten the natural decline of the sector - will have highly adverse consequences. According to Europai, such policies will make Europe more dependent on highly volatile international oil markets. They will harm the existing oil and distribution marketing system, putting at risk the EU internal market for transport fuels. And they will hurt the petrochemical value chain and other directly linked industries, leading to economic damage and job losses.
This, of course, opens a competitive door for the US. As the vast supplies of unconventional fossil fuels make North America a leading producer of raw carbons, we should build up our refining capacity in order to supply foreign markets with more value added finished products. Yet another opportunity for economic growth that the Shale Age opens up for policy makers.
Is an aging workforce a limiting factor in oil & gas production growth?
September 16, 2011We wrote yesterday about the National Petroleum Council report that estimates North American oil production could reach 22.5 million barrels per day within 25 years. Combined with the potential for an 85% increase in natural gas production and possible advancements in coal, it is conceivable that the US – or at least North America combined – could achieve energy independence (or something very close to it) in that time frame, even without a “clean energy” revolution.
These estimates, however, are based primarily on the size of the resource base and the technological ability to expand the commercially viable sub-section of the McKelvey Box:
However, there is another important limiting factor beyond the resource base and the technology to exploit it: the petrotechnical professionals (PTP) needed to maximize production. Schlumberger Business Consulting has been tracking the size of this talent base since 2004 and has come to two major conclusions: (1) PTP talent is an important strategic resource and (2) demographic shifts mean that this talent base is both aging and shrinking. Thus, in addition to the regulatory reforms outlined by the NPC in their report, we need to seriously engage in Science, Technology, Engineering and Mathematics (STEM) programs at the local, state and federal levels.
