Archive for June, 2013


Go North, young man, go North

June 28, 2013

Scott Borgerson writes in the current issue of Foreign Affairs on the economic bounty that awaits as the Arctic warms and opens its international shipping routes:

The Arctic’s unique geography is an asset unto itself. Viewed from the top of the globe, the region sits at the crossroads of the world’s most productive economies; Icelandair has started offering circumpolar service between Reykjavik, Anchorage, and St. Petersburg, and planned underwater telecommunications cables will link Northeast Asia, the northeastern United States, and Europe. The Arctic’s high latitudes make the region a good place to expand existing ground stations for satellites in polar orbits. With some of the world’s most powerful tides, the Arctic has spectacular hydropower potential, and its geology holds tremendous capacity for geothermal energy, as evidenced by Iceland’s geothermal-powered aluminum smelting industry. Cool temperatures also make the Arctic an attractive place to construct data-storage centers, like the one Facebook is building in northern Sweden. A vault dug into the cool bedrock of the Svalbard Islands stores hundreds of thousands of plant seeds for preservation.

Borgerson envisions a not-too-distant future in which Anchorage and Reykjavik become as dynamic and nearly as important as Singapore and Dubai are today.  But, as exciting as the potential for an ice free Arctic is from a commercial point of view, it is also potentially dangerous from a geopolitical point of view.  The impassability of the frozen north was a physical certainty upon which a century’s worth of geopolitical theory has been built.  Suddenly, nations that believed their northern shores were protected will suddenly be subject to the potential of naval incursions.  An ice free Arctic arguably knocks the foundation of MacKinder’s Heartland Theory right out from under it.

And, of course, there is China.  We have written several times before about China’s desire to become an Arctic power.  Borgerson details some of their more recent efforts:

China sees Iceland as a strategic gateway to the region, which is why Premier Wen Jiabao made an official visit there last year (before heading to Copenhagen to discuss Greenland). China’s state-owned shipping company is eyeing a long-term lease in Reykjavik, and the Chinese billionaire Huang Nubo has been trying for years to develop a 100-square-mile plot of land on the north of the island. In April, Iceland signed a free-trade deal with China, making it the first European country to do so. Whereas the United States closed its Cold War–era military base in Iceland in 2006, China is expanding its presence there, constructing the largest embassy by far in the country, sending in a constant stream of businesspeople, and dispatching its official icebreaker, the Xue Long, or “Snow Dragon,” to dock in Reykjavik last August.

There is a mistaken belief in the United States that the Chinese character for “crisis” is made up of the two characters “danger” and “opportunity.”  While that etymology is incorrect, in the case of a warming Arctic, danger and opportunity are certainly presenting themselves together.



More on EROI

June 27, 2013

Long and thoughtful post by Suzanne Waldman at her blog here.  Waldman acknowledges the importance of energy return on investment, and compares  a number of different energy sources in a search for a 21st century power source.  The one comment that I would make is that Ms. Waldman, by focusing on “green” energy,  is trying to square the circle. To be fair, I think she realizes this herself:  We cannot feed 7 billion, soon to be 8 billion, and then 9 billion by mid-century without immense energy input both directly in farming and indirectly in transportation and distribution.  Currently existing (and, I would argue, foreseeable) green energy technologies simply cannot substitute for fossil fuels.  If you read through Waldman’s post, it seems inevitable that greens face a dilemma:  either embrace suddenly abundant shale gas as a substitute for dirtier fossil fuels, or endorse an global buildout of nuclear power plants.  President Obama’s new Climate Change Plan  (link opens PDF) has very clearly embraced the first option.


Obama’s climate plan relies on natural gas

June 26, 2013

President Obama’s climate action plan has and will continue to receive a lot of criticism.  It is really more of an outline than a plan at this point, but one thing is absolutely clear:  it relies heavily on natural gas.  And the only way we can rely on natural gas is if we expand fracking to take advantage of our vast resources of natural gas.  Which is why the new finding on the exceptionally high EROI of shale gas is such a profound story.  Shale gas is cheap, plentiful, efficient and (relatively) environmentally sound.    Shale gas is driving a renaissance in US manufacturing and it is making political bedfellows out of fossil fuel advocates and environmental activists alike.  It may well prove to be the single most important development of the 21st century.


EROI projections for Marcellus Shale gas

June 25, 2013

A new article in an upcoming issue of the Journal of Industrial Ecology gives preliminary estimates on the Energy Return on Energy Invested (EROI) for horizontally drilled/hydraulically fractured wells in the Marcellus Shale formation.  EROI is the net value of an energy source – the surplus that remains after the energy used to acquire the energy is accounted for.  EROI is an important concept – it is not a measure of the financial viability of a project, but rather of the long term societal viability.  Modern economies depend on large energy surpluses in order to grow.  Fossil fuels have strong EROIs, although they decline over time (for example, a new oil strike can be a “gusher,” requiring little additional energy to produce the oil, but as the field ages it will require more and more effort to pump the remaining oil out).  EROI is a measure fo the quality of energy, and the quality of an economy is directly related to the quality and quantity of energy available to run it.  Here is a table of the EROI values of various sources in use today:

EROI table

The declining EROI of oil is a key factor in Peak Oil theory.  The argument is that, even as alternative sources of oil are found (shale oil, tar sands, ultra deep water fields), the quality of the energy as an economic factor inevitably declines as the EROI declines.

With all that as a preface, the new study in the Journal of Industrial Ecology looks at the huge Marcellus Shale formation in the Eastern United States and tries to make a preliminary estimate on the EROI of the natural gas that will come from well heads in the formation.  The study contains many assumptions that may turn out to be incorrect – but it is unknown at this time whether those assumptions are too liberal or too conservative.  So, the results are a best estimate at this time.  According to these estimates, we can expect and EROI of between 64:1 and 112:1, with a mean of 85:1.  This is a tremendous finding.  The authors’ put these values in context:

The range of EUR values in this study is not dissimilar to the 50:1 to 85:1 range that is reported for coal, and higher than the 20:1 to 40:1 range that has been estimated for natural gas in general. The range is higher than some estimated EROI values for wind (20:1), new nuclear (15:1), and photovoltaic electricity (10:1) and much higher than two other new sources of FF, tar sands, and oil shale, which a 2011 study asserts are in the range of 5:1 to 3:1 (Murphy 2011).

The following table puts this into perspective visually – the red X represents the estimated position of Marcellus Shale natural gas.

2000px-EROI_-_Ratio_of_Energy_Returned_on_Energy_Invested_-_USA modified

And, at the high end of the estimate (112), fracked gas could surpass even hydro.

This is a tremendous finding.  Shale gas is plentiful, cheap, efficient and clean.  We cannot say it often enough:  Welcome to the Shale Age.


A New Horizon for Oil & Gas Production

June 24, 2013

Despite the despite the technological advances that have led to a boom in unconventional oil and gas production, and despite the spectacular failure of Deepwater Horizon in 2010 , the international extraction industries are expected to experience an even bigger move toward ultra-deep sea drilling in coming years.   This is because the combinations of technical know-how and (relative) regulatory stability that have led to a thriving unconventional sector in North America are unlikely to be replicated elsewhere.  This is the Second Age of Oil, but it will not be driven entirely by shale.  Overseas, the future is under the sea.  Fuel Fix outlines some of the upcoming deep sea plays:

East Africa: Anadarko, based in The Woodlands, and Italian oil and gas firm Eni have discovered more than 100 trillion cubic feet of gas off Mozambique in southeast Africa.

Mediterranean Sea: Houston-based Noble Energy made a new deep-water natural gas discovery off Israel, the seventh consecutive field discovery for Noble and its partners in the Levant Basin. Discovered gross resources, combined with those in an adjacent block, are estimated to range from 1.6 trillion to 2 trillion cubic feet of natural gas, the company says.

Brazil: The South American country is the site of some of the biggest crude discoveries this century. Bloomberg reports Brazil is relying on the pre-salt region, so named because significant amounts of oil and gas are believed to lie below a deep layer of salt, to double production by 2020.

The Arctic: Irving-based Exxon Mobil Corp. plans to pump $200 million into a research center in Russia, where it is partnering with Russia’s Rosneft to explore of more than 180 million acres in the country’s Arctic region. Norway has issued licenses to companies including its own Statoil, Royal Dutch Shell and Paris-based Total, to explore for oil and gas in the Barents Sea.

Australia: British oil giant BP is eyeing deep-water drilling operations off the southern coast of the country, in what is known as the Great Australian Bight.

Tudor, Pickering, Holt & Co. analyst Robert Kessler said he sees opportunities in the new frontier for firms of all sizes and geographic locations. He also sees the majors playing catch-up in some riskier, more time-consuming plays.

“In some cases, you have early entrants that are not the majors,” he said. “But the majors are so big. They are everywhere. They need to be everywhere to have the options to maintain their portfolios over time. If they are not always the first participant in a given market, they are likely to keep their eye on that market. There is a need to keep the hopper full.”



Future Wars: Seven potential conflicts US planners are preparing for

June 21, 2013

Small Wars Journal this month is presenting a long paper examining seven flashpoints around the globe that contain the potential to break into open warfare that draws in the United States.  While the paper seems a bit like a first draft and relies on some sketch sources (e.g., Debka), it is an interesting read.  If any of these flashpoints do explode, there will be no excuse for US planners to be caught flat footed about the nature of the combatants.  One value of the last ten years of warfare is that, should conflict arise again, the US will bring not only the largest military force to the fight, but the most experienced, as well.

The seven are:

Part One: Asia

  1. Siliguri/Sikkim Corridor: Involves India, China, Nepal and Bhutan
  2. Jammu/ Kashmir Corridor: Involves India, Pakistan, China and Afghanistan
  3. South China Sea: Involves China, Vietnam, Philippines, Taiwan, Japan, Malaysia and Brunei.

Part Two: Middle East

  1. The Hojjatieh Society: Involves Iran, Israel and the United States.
  2. Sinai Peninsula: Involves Egypt, Israel and Palestine.

Part Three: Western Hemisphere

  1. V.I.R.U.S:  Involves Venezuela, Russia and Iran.
  2. The Border: Involves Mexico, U.S., Drug Cartels, TCOs (Trans-national Criminal Organizations), Terror Organizations

Part One of the paper is here; Part Two is here.  Part Three will be released next week.



Rationalizing the US pipeline infrastructure

June 20, 2013

Terrific article from Forbes on how a convergence of factors is about to create a period of low cost for steel, earthmoving equipment and construction workers.  This, in turn, will provide a window of opportunity for the US to engage in an intense period of gas and oil pipeline construction.  Rationalizing the US pipeline system would have benefits not just for the various industries involved, but for manufacturers, consumers and diplomatic and military leaders, as it could unleash a wave of energy production that would drastically alter the picture of global energy geopolitics.

Read the entire article, but here is the conclusion:

To start to put it all together. The Canada oil could be piped to Houston if it could be diluted by natural gasoline. Eagle Ford natural gasoline would then be very valuable if it could be piped to Canada and then the mix piped to Houston. This would increase the profitability to fracking new supplies in Eagle Ford and continuing to ramp up Canadian production. That encourages evermore North American production, which would displace imports and push down the world price of petroleum and gasoline.

In a similar vein, piping the ethane rich natural gas out of Pennsylvania to the Natural Gas processing complex in Mount Belvieu (MB) would do several things. First, it would increase the profitability to fracking in the Marcelus Shale, which would increase North American production – of nat gas I know but hang with me.  This produces even more ethane that will be relatively cheap in MB. This means first that it will be unprofitable to crack propane or butane for petrochemical purposes. That means more butane can go to Houston as an input to refined motor gasoline and more propane can go abroad where it is used as a gasoline substitute.  Second, cheap ethane in MB means that BASF will be induced to move petrochemical production out of Europe and to Texas.

In Europe, however, the feedstock for petrochemicals is Naptha – which is essentially refiner produced natural gasoline. We could call it unnatural gasoline and indeed Naptha is raw gasoline before it has the appropriate mix off additives thrown in. Less petrochemical production in Europe means less demand for Naptha which means more supply of gasoline.

Finally, more pipeline capacity from the Permian simply adds baseline supply.

What this means is that an intensively beefed up pipeline infrastructure in North America would allow new resources to be refined more efficiently. That means greater prices for producers, which will induce them to increase production. That increase in production means less demand for foreign oil, which means lower global prices for oil and importantly gasoline.

Increased US energy production has already given a kick in the shin to OPEC.  Rationalizing the pipeline system and unleashing the full potential of our unconventional stocks would be a full fledged kick in the groin.

Oil and Gas pipelines in the Continental United States

Oil and Gas pipelines in the Continental United States