Archive for September, 2012

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European Parliament to consider Arctic oil drilling ban

September 24, 2012

While it is far from a finalized regulation, a leftist coalition of Greens, socialists and communists in an obscure but key subcommittee in the European Parliament pushed through an opinion that would, if authorized by the full Parliament, ban Arctic oil exploration by European Union members.  However, even if passed, the ban would have little real effect.  The territory of the Arctic is claimed by eight sovereign nations, only three of them are members of the EU.

The Arctic Eight are:

  • Russia
  • Canada
  • Norway
  • Denmark
  • United States
  • Sweden
  • Finalnd
  • Iceland

Of those, only Denmark, Sweden and Iceland are member of the EU, and most of Denmark’s claim come from Greenland, which has home rule and is not bound by EU law.

The EU could (conceivably, but unlikely) try to exert market power to force non-EU members to enforce such a ban, but in reality, Arctic drilling law is going to be set by the two largest Arctic powers – Russia and Canada – with healthy input from the US, Norway and Greenland.  Everyone else is just a spectator.

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Analysis of effectiveness of Strategic Petroleum Reserve releases

September 21, 2012

Blake Clayton, the Energy and National Security fellow at the Council on Foreign Relations, has conducted an analysis of the 2011 release of reserves from the SPR and has some recommendations for policy makers as they consider another release this fall:

– Policymakers should be under no illusion that tapping public stocks can allow them to dictate prices. Broader market forces can easily overwhelm an SPR release’s effect on the domestic price of oil. But that does not mean that SPR releases are inconsequential. Their primary value, though, is often in helping to keep prices from rising further, not in ensuring they decline.

– An SPR release aimed at lowering prices is hardly a free lunch. Yes, it can stop the bleeding for a time—but once the sharks smell blood, it can make matters worse.

– The advisability of an SPR release should be measured by its ability to lessen the economic pain of a significant supply disruption. True, the magnitude of the oil lost (or “likely to become” so, according to the 1990 amendment to the Energy Policy and Conservation Act, or EPCA) is a necessary condition for an SPR release. But the shortage’s likely impact on the national economy is another vital variable for policymakers to keep in mind. The wording of the 1975 EPCA, which first established the SPR, makes this clear. It’s not just about barrel counting; the economic context, and what (if anything) an SPR release can do to help, should be a major part of a drawdown decision.

We need to point out once again that there is already a significant disruption – the total stock of distillates have been below the 5 year average all summer long.  If anything, the release should have come weeks or months ago:

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China’s water/energy problems and their influence on geopolitics

September 20, 2012

Water is a key component in energy production.  Most energy requires water – whether directly, as in hydropower dams or steam driven turbines, or indirectly via water used in mining and processing of fuels.  Yesterday, the Beyond Brics blog at the Financial Times noted that China, in particular, faces severe water shortages that could constrain their planned energy growth as much or more than will fuel shortages.   Last spring, Debra Tan at China Water Risk gave a more detailed overview of the shortfall that China will face in its water/energy nexus if it proceeds with its schedule power plant build schedule.  Tan uses 3D imagery (see below) to note that there might be a solution in exploiting hydropower potential below the Tibetan plateau, but this will no doubt only increase complaints from China’s downstream neighbors.  China Water Risk has a history of dismissing such fears, but her neighbors are not so easily mollified.

Map from China Water Risk, 2012

Chinese companies already dominate the global hydropower market, both internally as well as internationally.  These companies are a powerful – and growing – voice in Chinese governance, and their needs are increasingly influential in China’s geopolitical choices.

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Chinese fishing flotilla fizzles

September 20, 2012

The reported flotilla of 1000 Chinese fishing boats headed to the Senkaku Islands to protest Japanese government ownership of the islands have not materialized.  The Japan Times reports that a smaller number – about 700  boats – are fishing in a region about halfway between the islands and mainland China, over 100 miles away.  A smaller group of fewer than 25 boats may be within 75 miles.  There are no reports of any Chinese military ships in either mix.  There is no indication of whether the initial report was a hoax or just over hyped.

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What would a China/America war look like?

September 19, 2012

As tensions in East Asia heat up, over at The Diplomat, they have begun what is to be a series of posts imagining what a war between the United States and China might look like.  They call it “The Nightmare Scenario.”   I will monitor the series, but I suspect the nightmare would be all China’s, now and in the near future.  The Chinese have little ability to project power beyond their immediate neighborhood, yet they are exceptionally dependent on long, vulnerable sea lines of communication.  Her “string of pearls” strategy remains an unfinished dream and, even if it were complete, would represent an isolated series of outposts unable to mutually support one another.  The US Navy could strangle Chinese commercial activity thousands of miles beyond effective Chinese military power.

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Energy Return on Investment of unconventional resources

September 19, 2012

Many critics argue that simply pointing out the existence of a resource in the ground does not mean that it is economically viable to develop that resource.  Of course, this is true – I have written before about the McKelvey Box, and about my belief in technological positivism – that Incentive + Ingenuity = Innovation, and that – as it has in the past – innovation will bring the price down both in real terms and in terms of energy return on investment (EROI).  EROI is not just a measure of the financial cost of production, it takes into account the amount of energy that it takes to produce a like amount.  As such, it is in essence a measure of the quality of energy – the lower the EROI, the lower the quality of the energy.  A subset of economists believe that it is the high quality of conventional fossil fuels that was the primary cause of the terrific economic explosion of the last few hundred years and that, even though there remains a vast amount of unconventional fossil fuels, the difficulty in obtaining and processing them means that they are not just qualitatively different, but so sub-standard as to represent nearly as absolute a limit on growth as would a pure exhaustion of fuel.

There are two widely used measures of energy efficiency:

  • First Law Energy Efficiency, which is simply energy output/energy input and is expressed as a percentage.
  • Energy Return on Investment, which is (energy output – energy consumed)/energy consumed – this is a net energy return, and the higher the number, the greater the energy return

In the early days of the oil industry, energy efficiency was near 100% – you would drill a well and the oil would gush to the surface.  Over the years, as this easy surface oil has dissipated, the current first law efficiency has fallen to 92%.  EROI is on average 10.5 for conventional petroleum today.

As we move to unconventional resources, efficiency falls further because additional energy is required to process the resource into useable qualities.   Oil from the Alberta tar sands, for example, has a first law efficiency of 82% and an EROI of 7.2.

The table below represents an estimate of the efficiency and EROI of various petroleum, unconventional, and synthetic resources and processes.   Note that I have begun to use the term “kerogen” in replace of “oil shale,” in order to avoid confusion with shale oil, which can be easily mined via fracking techniques and which tends to be in the light, sweet category that does not need extensive processing.

Table based on data from US Department of Energy, Office of Petroleum Reserves

Not included in this table is the new process developed by Red Leaf Resources – the EcoShale process that I have been following for quite some time.  Red Leaf claims that, at scale, EcoShale will convert kerogen at an efficiency above 90% and with an EROI of 10 or greater.  If this claim holds up, it means that the huge Rocky Mountain kerogen deposits (the US kerogen total is about 50% greater than the entire world proven reserves of conventional oil) not only become feasible, but from an efficiency point of view are virtually indistinguishable from so-called “easy oil.”  And, let’s not forget – the EcoShale process uses no water, other than that needed to support the production staff.   The chart below is a reminder of why it is so crucial that Red Leaf’s demonstration project, put on hold earlier this year due to concerns by environmental groups, be allowed to go forward.  If successful, it will change both the energy and geopolitical maps of the world.

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The “gas islands” of Europe

September 18, 2012

Fearing a re-emergence of the Russian “energy weapon,” the European Union has been urging its member nations to build adequate infrastructure to ensure adequate supply from diverse sources.  After several years, a new report shows that many nations remain vulnerable and lack energy security.  The report has not been published, but portions of the report have been seen by EurActiv.com, which has published a summary:

Estonia, Lithuania and Latvia, as well as Malta, Cyprus, Spain and Portugal, are on a “gas island” because of insufficient infrastructure connections with the rest of the EU . . ..  But perhaps more seriously, dependency on a single gas provider also prevails in countries with a better geographical position, such as Slovakia, Bulgaria, Hungary and Romania, the paper says.

Europe’s natural gas pipeline network