Peak Oil News: 09/01/2008 - 10/01/2008

Monday, September 29, 2008

Ammonia Fuel—The Other Hydrogen Future

The Cutting Edge News

By Larry Bruce, Joe McClintock and John Holbrook

America’s approach to the transformational challenge of Peak Oil has resembled nothing so much as a Keystone Kops two-reeler. Not since Jimmy Carter has an administration demonstrated a commitment commensurate to the challenge, perhaps because President Carter was sent packing back to Georgia with his cardigans after an attempt to rouse Americans from their blissful dreams of a future where Exxon and Mobil would ensure that no one would have to line up for gasoline ever again. Thirty years later, we are just one Category Four hurricane in the wrong place or a Strait of Hormuz terrorist attack away from waiting in long lines to buy fuel we can no longer afford for the SUVs we no longer love. Recent events in Nashville suggest that even imagined shortages will have the same results. We need a rational approach to energy transition, and nothing exemplifies the lack of a comprehensive energy policy as much as the magical-time-machine thinking involved in the promise of a "hydrogen future."

To appreciate this policy void, we have to clearly understand where we are right now. Cheap and plentiful petroleum has defined almost every aspect of our modern economy: from automobile-dependent McMansion suburbs, to mega-box retailing of cheap Asian consumer goods, to petrochemical-based agriculture, we are addicted to the concept of a single energy source. For the last century that single energy source has been petroleum—light, sweet, cheap crude oil. Hydrogen offers the hope of a single vehicle energy source, which is a key element of its appeal. The reality is that we are faced with a transition to a multi-source energy future.

The real problem in transitioning to a new comprehensive energy system is a power source for individual transportation. Electricity generation has many options, including coal (cleaner—we hope), natural gas, hydropower, nuclear energy, and, increasingly, renewable sources such as wind and solar. In the case of transportation, the options for replacing gasoline and diesel fuel are severely limited. Electric vehicles have a limited range. Liquid fuels can be produced from coal although the investment cost is high and this approach generates significant carbon dioxide emissions. Plant-derived liquid fuels such as ethanol and bio-diesel can be domestically produced and offer the benefit of being carbon neutral when consumed, yet what is less clear is the total cost and carbon balance when fossil fuels are used in farming, transportation, and processing these "clean" bio-fuels. In addition, the diversion of food crops such as corn and soy beans to fuel production impacts the world food supply and may lead to political unrest.

Gaseous fuels, mainly natural gas and hydrogen, are also candidates for transportation fuels. Natural gas and hydrogen may be stored in a vehicle as cryogenic liquids or as high pressure gasses. The complexity and energy cost of cryogenic liquids has made them unpopular in transportation applications, so high pressure storage has been the choice. High pressure storage requires a heavy, expensive container and does not provide much driving range. Despite this, high pressure hydrogen fueling stations are being built, and California has plans for a Hydrogen Highway that will run the length of the state.

Now that America is awakening to the prospect that our energy system is under fire and possibly nearing collapse, hydrogen is being promoted as the magic bullet. It’s the clean, carbon-free answer to the question, "What single energy source will replace petroleum?" But hydrogen energy infrastructure is decades away, a fact admitted by even its most vocal proponents, as they attempt to address the key challenges of a fuel with an extremely low volumetric energy density and the propensity to escape every vessel and effort to contain it. Those promoting a hydrogen future (a group which includes every major oil and coal company) fail to mention that the most prevalent feedstock for their "clean" fuel is natural gas or coal, or that the process [what process?] generates massive amounts of carbon dioxide which will need to be sequestered. So much for the promise of clean hydrogen energy.

It may indeed be the case that pure hydrogen will be one of the many solutions that can be harnessed to rescue us from our current reliance on imported oil. There is much promise in today’s research. But the technical challenges facing pure hydrogen today in economic production, storage, and transport put that piece of the puzzle years in the future—and we need answers right now.

What if this vision of a distant hydrogen energy future ignores a critical reality: that an alternative approach to hydrogen fuel is available immediately; that with minimal modifications we could convert the bulk of our gasoline and diesel internal combustion engines to an existing hydrogen based fuel, eliminating carbon emissions and reducing our dependence on foreign oil; that a proven technology exists to produce this hydrogen based fuel without carbon dioxide emissions; and that new and more efficient synthesis is already in coming online? What if we do not need to wait for the hydrogen future of the year 2030? What if our hydrogen future is within our grasp right now?

It is.

The one pollution free, hydrogen-based renewable fuel we could begin using today on a large scale is anhydrous ammonia, one of the most commonly synthesized chemical compounds on the planet. Anhydrous ammonia is already used worldwide as fertilizer for its nitrogen content, and delivered by a well-established and safe infrastructure. Due to its hydrogen content, anhydrous ammonia (NH3) can be used in both gas and diesel internal combustion engines with minor modifications, can be used in direct ammonia fuel cells, and can provide hydrogen feedstock for standard hydrogen fuel cells.

Ammonia fuel is a more effective hydrogen fuel than pure hydrogen. It is a molecule composed of one atom of nitrogen and three atoms of hydrogen. It has similar physical characteristics to propane: it is a gas at normal temperatures and atmospheric pressure but becomes liquid at slightly higher pressure. NH3’s ability to become a liquid at moderate pressure allows ammonia to store considerably more hydrogen per unit volume than compressed hydrogen, and 50 percent more than cryogenic liquid hydrogen. Anhydrous ammonia delivers 4.5 times more energy per liter than pure gaseous hydrogen at 5000 psi. In addition to providing a practical means to store and transport hydrogen, ammonia can be burned directly in internal combustion engines and direct-ammonia fuel cells—today.

Ammonia fuel offers an easy solution to one of the greatest challenges facing an energy system based on renewables. What do you do when the wind doesn't blow and the sun doesn't shine? Plans currently under discussion include pumped hydro or storing compressed air in underground caverns to drive turbines. With ammonia fuel synthesis equipment co-located with wind and solar facilities, power produced in excess of grid demand can be used to generate ammonia fuel, which can be easily stored on site. When the wind fails or the sun goes down, that stored energy can be harvested by using ammonia fuel to generate continuous, reliable power that is completely carbon free.

Ammonia has been synthesized for nearly a century using the Haber-Bosch process, which combines hydrogen and nitrogen. Although the hydrogen for the process is normally derived by reforming a fossil fuel, such as natural gas, hydrogen can also be produced without using carbon based fossil fuels by the electolytic splitting of water using any source of electricity, including hydropower, wind and solar cell power, or nuclear power. This is where the renewable angle comes in. There are several "wind-to-ammonia" demonstration projects underway across North America. These projects largely use "stranded" wind resources (wind resources that are not near electric transmission lines) to produce ammonia for use as fertilizer or fuel. The goal is to refine the process so that, as the cost of fossil fuel stock for ammonia such as natural gas increases, renewable production of ammonia can be brought online rapidly to replace it.

At the same time, improved technologies are coming on-line including lower cost electrolyzers and an approach called solid-state ammonia synthesis (SSAS), which makes ammonia without making hydrogen as an interim step. In particular, SSAS promises to reduce the electric energy required to produce ammonia from water and air by 35 to 50 percent, and to lower the capital costs as well. Using these advanced technologies, ammonia can be produced from renewable and nuclear electric power for a cost cheaper than today’s gasoline and diesel fuel, and without a trace of greenhouse gases. Even with the existing electrolyzer and Haber-Bosch process, ammonia is cost competitive with gasoline retailing at prices above $3 per gallon, and can only become more economically attractive as oil prices rise and/or the cost of ammonia production falls due to improving technology or economies of scale.

Ammonia has a long and successful history as a substitute for petroleum based fuels. In 1935 the firm of Ammonia Casale, Ltd. received a patent for a system to burn a mixture of ammonia and hydrogen in internal combustion engines. During World War II, because of a severe shortage of diesel fuel in Belgium, municipal busses were operated using a mixture of coal gas and ammonia which was readily available. The Department of Defense also studied ammonia as a potential fuel in the 1960s on the Energy Depot Program, since it could be manufactured from water, air, and electricity. The concept was that a portable nuclear reactor that could drive a generator to produce electricity and ammonia, could be manufactured to fuel vehicles. The NASA/Air Force X-15 Rocket Plane was powered by ammonia, and ammonia fueled engines are in operation right now, demonstrating the viability of this fuel source.

Of course, ammonia is not without its challenges. Ammonia is an inhalation hazard and must be handled with respect. But, the world ammonia industry produces and delivers 130 million tons a year with an exemplary safety record. About 20 million tons of ammonia is consumed in the U.S. annually, largely as fertilizer, and delivered by truck, rail, barge, and 3,000 miles of small-diameter, underground carbon steel pipeline in the U.S. agricultural heartland. Ammonia is not classified as a flammable liquid by the DOT, and does not have the fire and explosion hazard of gasoline, natural gas, propane, or hydrogen. Although hazardous when inhaled, it is lighter than air and disperses into the atmosphere when released, and without residual harmful effects. Ammonia is not a greenhouse gas, and does not attack the ozone layer.

For ammonia to be in wide use as a transportation fuel, design standards for on-board ammonia fuel tanks must be established as well as procedures for ammonia transfer from storage to vehicle tanks, however much of this work is already in place. Although propane-powered personal vehicles are not a staple of the American road, they are relatively common overseas, and the technical challenges are almost identical. If an Australian can pump propane into his utility vehicle and drive away, an American can refuel with ammonia.

The best features of ammonia are those it shares with hydrogen: it can be used both in internal combustion engines and in fuel cells, it produces no greenhouse gasses on combustion, and it can be produced from a wide variety of renewable energy resources.

If hydrogen is the answer to the energy challenge of peak oil, then there is absolutely no reason to wait. The better hydrogen future is ready right now with proven technology, from production and distribution to storage and engine modification. An aggressive program to use wind and solar power to generate this carbon-free fuel can create a sea of change in our energy policy. Ammonia fuel is not the one single answer to peak oil, because there is no single answer. But as an existing implementable strategy to cut greenhouse gases, reduce reliance on fossil fuels, and create new green collar jobs, ammonia is the stepping stone to the hydrogen future that up until now seemed decades away.

Larry Bruce is an international consultant in strategic planning and enterprise development and Marketing Director of Joe McClintock is a physicist investigating alternative fuels. John Holbrook is Director of AmmPower LLC and Chairman of the Ammonia Fuel Network.

The tank isn't empty


By Steven Martinovich

The Myth of the Oil CrisisIt is taken as an article of faith, thanks largely to a decades old prediction made by M. King Hubbert on American oil production, that the world is in imminent danger of running out of oil. Peak production, the day when oil production begins its irreversible slide, may be less than a decade away, say some experts, and the world economy could collapse overnight in response.

Except that isn't the truth, argues Robin D. Mills in The Myth of the Oil Crisis: Overcoming the Challenges of Depletion, Geopolitics, and Global Warming. He believes that the world is in little danger of running out of oil, that the world has enough conventional and unconventional sources of oil to last it many decades – even centuries. The peak oil arguments are based on faulty logic and science and assumptions which aren't grounded in reality.

The peak oil argument largely stems the prediction made by Hubbert in 1956 that American peak oil production would take place in 1970. The problem with Hubbert's methodology is that it has only ever been proven correct that one time. His succeeding predictions, including that the world would hit peak oil production in 1995, have been uniformly wrong. That hasn't stopped his acolytes from continuing to promote the notion that we are in imminent danger of running out of oil.

Mills, a petroleum economics manager for the Emirates National Oil Company in Dubai, argues that peak oil advocates have long underestimated the amount of estimated and proven reserves and that exploration has largely keeping pace with production when necessary. The recent rise in oil prices doesn't reflect scarcer resources but underinvestment on the supply side and global economic growth on the demand side.

To support his argument Mills carefully surveys the world's oil producers and analyzes their past, present and predicted future output. Unlike peak oil advocates, Mills generally takes a guardedly optimistic view and argues that many nations have untapped resources that haven't been exploited for various reasons which include economics, technical and environmental, or that they simply aren't needed at the moment.

From there Mills examines what he refers to as "unconventional oil", oil that is derived from deep sea drilling, the arctic and shale, among other sources. He estimates reserves as high as a trillion barrels of oil, more than enough to keep the global economy moving for decades. Mills also looks at the role that alternative fuels will likely play in lessening oil use and acting as a cushion for the inevitable day when we transition from an oil-based economy.

Unlike many peak oil advocates, The Myth of the Oil Crisis is a thoroughly sourced effort. And while many nations are reticent to release internal data on the state of their oil resources, Mills is well-placed as an industry insider to make educated guesses utilizing available data. He has crafted a balanced and reasonable approach to the subject – one that is certainly very persuasive.

The Myth of the Oil Crisis does have one weakness and that is Mills' unquestioning belief in anthropogenic climate change. While he is rigorous in sourcing and analyzing his data and resulting arguments when it comes to oil production, he simply accepts as a given that climate change is being caused by human activity. While it doesn't detract from his wider argument on the sustainability of oil production, it is a disappointing flaw when compared the quality of his work.

That aside, The Myth of the Oil Crisis is a valuable addition to the debate over oil production. Peak oil advocates have long had the ear of the media and most of the space on book shelves despite the fact that their arguments seemed more grounded in ideology and bad science. Mills' efforts to argue the other side of the debate are welcome and a forceful rejoinder to Hubbert and his many acolytes. ESR

Steven Martinovich is a freelance writer in Sudbury, Ontario, Canada.

Saturday, September 27, 2008

Poll: Have We Reached Peak Oil?

Over the past year, American drivers have found themselves longing for the days when two dollars per gallon seemed expensive. Oil prices are rising at an unprecedented rate, and as a result, many are questioning whether the Earth's available oil supply has reached its peak. Are there still oceans of oil awaiting our discovery? How much pain you'll be feeling at the pump in the future depends on the answer.

Click to record your opinion

Thursday, September 25, 2008

The Myth of No Oil

American Thinker

By Janet Levy

Oil prognostication and exploration have come a long way since the first U.S. oil well was drilled in Pennsylvania in 1859. At the time, wood and coal were the primary sources of energy and the nation's petroleum supply consisted of crude oil that oozed to the surface. Fifteen years later, when Pennsylvania was the nation's leading oil producer that state's geologist warned of supply depletion, forecasting that only four more years of oil remained to light the nation's kerosene lamps.[1]

Predictions of nationwide oil supply exhaustion soon became regular occurrences, with seven made prior to 1950[2], even though the United States was the world's largest crude oil producer until 1973. Indeed, through the mid-1980's, most oil consumed in the country was of domestic origin. Today, however, the United States imports the majority of its oil and, due to environmental regulations, has not authorized the construction of new refineries since the mid-1970s.

Yet, our country does not lack adequate oil resources. Rather, supply estimate methodologies seriously undercount our true oil resources. This and our lack of political will to use advanced recovery technologies contribute to the myth of no oil. This myth hobbles our ability to draw on our own existing resources and keeps us in a dependent posture, looking to others to provide for us.

Oil-supply Estimates & Prices

Oil supply estimates have been historically understated. That's because they are calculated using oil reserves - the amount of oil that is considered economically and physically recoverable using available technology - rather than the much larger oil resources. Resources are significantly higher than reserves because they include developing and yet-to-be developed technologies that can be used to extract oil from more challenging and unconventional oil resources.

The lower calculations use current oil prices and existing production rates and technologies. Plus, they overstate depletion, using current production and usage rates against existing reserves.

Even with these limitations, estimates have grown considerably throughout the 20th century. In 1920, geologists announced that the world supply was 60 billion barrels. But by 2000, 900 billion barrels of oil had been produced[3]. In 1950, 1970 and 2000, estimates were constantly raised upward to 600 billion, 2,000 billion, and 3,000 billion barrels, respectively.

Further, oil exploration and development, like any commodity in a free market economy, responds to efficiencies at particular price points. Since 2005, the price of oil has not dropped below $40 a barrel. Oil prices were as high as $145 per barrel in June and now hover around $95 per barrel. Thus, oil that may not be economically recoverable at $20 a barrel may become financially attractive at $40 a barrel.

Also, as the price of oil rises, set-up and investment costs for unconventional oil sources appear increasingly feasible. Typically, oil resource estimates don't incorporate price fluctuations, yet prices can significantly affect supply. Thus, market interference and political instability can be more significant factors for price and supply than actual geological constraints.

New Technology

Further impacting oil reserves are improved technologies. The first American oil well was drilled to a vertical depth of 69 feet. With vast improvements in drilling technology since then, well depths now approach 30,000 feet on land and, in offshore drilling, water depths to 9,000 feet. The yield from a single well has increased greatly through the use of horizontal drilling techniques. Instead of a single well accessed through one vertical shaft, multiple horizontal shafts are now bored from a vertical shaft, resulting in substantially greater yields.

Other new technologies that have increased the efficiency and effectiveness of oil discovery and exploration include:

* Hydraulic fracturing - Injection of fluids into a well under high pressure to release oil from rock formations.
* Tertiary recovery techniques - Injection of C02 or natural gas into the well to improve oil viscosity and draw more oil into the well bore.
* Reservoir simulation technology (RST) - Computer modeling of reservoir properties through mapping and behavior simulation to aid in resource prediction.
* 4-D seismic imagery - Use of time intervals and dynamic evolution of reservoirs, to lessen guesswork and allow geologists to view reserves below the surface. It also reduces drilling risks and improves recovery by identifying drainage patterns and bypassed petroleum sources.

In addition, technological advances have led to re-tapping of previously capped wells and opening of closed formations to production. It has also dramatically reduced the oil-production footprint. In the 1970s, wells were spaced at least 100 feet apart. Today, with drilling and equipment advances, wells can now be placed 50, 25 and even 10 feet apart. An oil field covering 65 acres thirty years ago would use less than 10 acres today.

The affect of new techniques and technologies on oil exploration efficiency and effectiveness has been considerable. According to energy economist Michael Lynch[4], the success rate for exploratory petroleum wells has increased by 50 percent over the past decade.

Unconventional Sources

Although substantial oil resources exist and are increasingly viable at today's prices, unconventional sources for oil - such as shale, tar sands and coal, abundant in the United States and Canada - are not included in oil-resource estimates. As extraction and processing technologies improve, production costs for these unconventional sources will drop, greater efficiencies will be achieved and more resources tapped.

A potentially significant supply of oil is trapped in shale in the American West. Rocks in Colorado, Utah and Wyoming alone are believed to contain over 1,500 billion barrels of oil. Previous government experiments with shale oil production were labor and energy intensive and environmentally disruptive, producing little oil. But efforts by private companies have revolutionized the extraction technology with development of an in situ process of heating rocks, trapping oil and extracting it profitably at oil prices of just over $30 a barrel. Shell Oil, the leader in this new technology, estimates that it will be able to produce one million barrels of oil per acre.

Meanwhile, it is estimated that oil production from tar sands in Canada and South America would add an additional 600 billion barrels to the world's supply.[5] Canada, which does not segregate conventional oil from tar sands, is currently the largest U.S. oil supplier with about half of Canadian crude derived from oil sands. This oil is forecast to reach 3 million barrels per day in 2015. The Economist[6] recently noted that there exist "174 billion barrels of proven reserves in the oil sands of Alberta" alone.

Another technology, coal liquefaction to produce oil, becomes competitive when the price of conventional oil is higher than $30 per barrel, according to U.S. Energy Department estimates. The coal-to-oil process produces natural gas and removes pollutants that are released when coal is burned to produce electricity. With the United States possessing 27% of the world's coal supply, U.S. coal-to-oil production could be substantial. South Africa has been producing petrol and diesel from coal since 1955 and currently produces 40% of the country's oil from this source. China has begun experimenting with coal liquefaction and predicts that it will produce one million barrels of oil per day from coal by 2020. Currently, the U.S. Air Force, the country's largest user of jet fuel, is experimenting with this technology as a way to reduce its reliance on fuels from hostile or unstable countries. The Air Force intends to use its vast purchasing power to spur the development of a coal-based synthetic fuel industry in the United States. It hopes to fly all stateside missions using synthetic fuel by 2016.

Current Supply Estimates

Although Congress has not authorized a thorough inventory of offshore resources for over 30 years, the American Petroleum Institute estimates recoverable U.S. oil resources at about 86 billion barrels offshore and 32 billion barrels onshore.[7] This estimate doesn't take into consideration technological advancements, unconventional sources and recent discoveries.

Currently, the United States is the only industrialized country in the world not actively seeking to explore new offshore resources. In fact, offshore drilling is allowed in most of the Gulf of Mexico but prohibited on the East Coast, West Coast and Alaska. Only 17% of non-park, non-wilderness federal land is open to energy development and 85% of coastal waters are off limits. Further, since 1983, the amount of federal land available for development has decreased by more than 60%.

Recent assessments of the extent of economically recoverable, conventional oil in two important locations -- the Bakken Formation and the Arctic National Wildlife Refuge (ANWR) -- could increase these estimates considerably.

First discovered in 1953, the Bakken Formation covers part of Montana, North Dakota and Saskatchewan. In April of 2008, the U.S. Geological Survey (USGS) estimated that Bakken contains 3 to 4 billion barrels of technically recoverable oil, a 25-fold increase from the agency's 1995 estimate. Market conditions and drilling and production advances could transform Bakken, the largest continuous oil accumulation in the lower 48 states, into one of the largest producing oil fields in the world.

Meanwhile, petroleum experts have estimated that ANWR contains anywhere from 9 to 16 billion barrels of technically recoverable oil and could prove to be one of the largest oil fields yet in North America. Since current USGS estimates are based on the petroleum geology of adjacent lands, the true potential for oil recovery is uncertain.

Environmental arguments about risks to wildlife and pristine forests have kept ANWR off limits to energy development, even though such risks are unfounded. Drilling in the region would cover a mere tenth of one percent of its 19 million acres. Plus, ANWR is a flat, treeless plain with temperatures inhospitable for most animal species. The area is already home to a village of Native Americans, who support its development. It currently contains an airstrip, power lines, an oil well and a military radar site. Two decades of drilling in the North Slope area has had no negative effects on the ecology of the area and, during that time, the caribou population actually increased sevenfold.

[1] E. D. Porter, "Are We Running Out of Oil?" API Discussion Paper No. 081, 1995, American Petroleum Institute.

[2] Ibid.

[3] McCabe, Peter, "Energy Resources - Cornucopia or Empty Barrel?" Table 2.2, "World Crude Oil Production, 1991-2000," Energy Information Administration, U.S. Department of Energy, 2001.

[4] Lynch, M.C., "Forecasting Oil Supply: Theory and Practice," Quarterly Review of Economics and Finance, Vol. 42, 2002, pages 373-89.

[5] Deming, David, "Oil: Are We Running Out?," AAPG Memoir 74, 2001, pages 45-55.

[6] "Please Buy Our Dirty Oil," The Economist, March 13th, 2008,

[7] "The Truth About Oil and Gas: An API Primer," American Petroleum Institute, September 2008, page 20.

Wednesday, September 17, 2008

Were We Wrong To Fret About Peak Oil?

Environment and Energy

By Bradford Plumer

Remember when $200-per-barrel oil looked inevitable? Or, at the very least, a $100-per-barrel plateau looked certain? Plenty of oil analysts thought that was just over the horizon (yes, I was also guilty of this). But now crude futures are hovering down around $90, despite the succession of brutal hurricanes in the Gulf of Mexico—mainly due to fears that the crisis on Wall Street will knock more wind out of the U.S. economy and further dampen demand. So does that mean all the frantic concern about "peak oil" and all the apocalyptic blather about the end of mass air travel and so on and so forth was all totally baseless and wrong?

Well, I'm not sure about that. Production figures and forecasts still suggest that oil production really may peak in the next few years—and, at best, won't be able to keep pace with growing demand in the developing world. But it's worth trying to clarify what peak oil would actually entail. Here's Richard Heinberg of the Post Carbon Institute: "Sometime around 2010 (give or take two or three years), growing decline rates in oil production from existing oilfields will overwhelm new production streams coming online. The price of oil will rise dramatically. However, when it does it will cripple the trucking industry, the airline industry, tourism, agriculture—essentially, the whole economy. A serious recession will ensue, which will reduce demand for oil (among other things). Oil’s price will temporarily drop in response. Then, as declines in oil production worsen, the price will resume its upward march—but again in a sawtooth or whipsaw fashion."

In other words, whether global production is peaking or just failing to keep up with demand, we may be in not so much for an inexorable march upward in the price of oil and a permanent $150-per-barrel plateau, but rather lots and lots of volatility—which would prove just as damaging in the long run. (What good is cheap oil if we have to suffer through a recession to get it?) Now, if Heinberg's right, then it's a good time to start reducing our vulnerability to oil shocks, which in the long term means getting off the black gooey stuff for good. In the short term, that means—among other things—lowering the energy intensity of the economy by improving efficiency (especially in the transport sector), which would minimize the damage inflicted by rapid price fluctuations. The fact that prices have rocketed back down rather quickly is no reason to get complacent. On the other hand, if we're in a world of wildly volatile—rather than permanently high—oil prices, that also makes it much harder for alternative energy sources to get a foothold in the market without smarter policies from on high.

Sunday, September 07, 2008

John McCain's Energy Follies

The industries that create energy — coal, wind, nuclear, ethanol, and, of course, oil and gas — all clamored to be heard at the Republican convention. At cocktail receptions and in hundreds of ads, each claimed to welcome the challenge of creating a cleaner, greener energy future.

A lot of that was corporate boilerplate. But one advertisement, from Chevron, seemed strikingly on point. “It took us 125 years to use the first trillion barrels of oil,” it said. “We’ll use the next trillion in 30.” This nicely framed a big part of the energy challenge. It was also a reminder of why John McCain is proving, so far, to be such a disappointment on issues he once seemed to understand better than almost anyone else in his party.

The world is consuming oil at a ferocious pace because of runaway demand in India and China and because America — the world’s largest consumer — is only beginning to confront its addiction. This cannot go on forever. Even the conservative United States Geological Survey predicts that oil production will peak by midcentury, meaning that future prices will make today’s $3.70 gas look like chump change.

Emissions from fossil fuels — not just oil but the coal and natural gas used in power plants — are the main drivers of global warming. Mainstream scientists have warned that unless they are sharply reduced the planet will face rising sea levels, prolonged droughts, widespread famine and other frightening consequences.

Global problems obviously require a global response. As the world’s most profligate user of energy, and as one of its most technologically gifted nations, the United States can and should lead the way by developing more efficient vehicles and by expanding carbon-free energy sources like wind and solar power.

The John McCain of a few years ago understood this. He sponsored a bill with John Kerry that would have aggressively raised fuel economy standards, and another that would have put a stiff price on carbon emissions to encourage investment in cleaner technologies.

Unfortunately, that John McCain has receded from view just in time for the presidential campaign. He has dropped his opposition to offshore drilling, pandered shamelessly by urging a gas tax holiday, and missed several crucial votes on bills extending credits for wind and solar power.

And while his acceptance speech promised “the most ambitious national project in decades,” including efforts to improve energy efficiency, increasing oil production remains the centerpiece of his strategy.

These positions divert public attention from an unavoidable truth: a nation that uses one-quarter of the world’s oil while owning only 3 percent of its reserves cannot drill its way to happiness or self-sufficiency. And they trivialize the very hard work that lies ahead.

Mr. McCain’s choice of Gov. Sarah Palin of Alaska as his running mate raises even more worrisome questions. Her strategy is drill here, drill there, drill now.

She would open up the Arctic National Wildlife Refuge in a heartbeat — something Mr. McCain continues to oppose. She has sued the Bush administration for declaring the polar bear a threatened species, fearing it would interfere with oil exploration in Alaskan waters. She has questioned whether humans are responsible for climate change. Governor Palin’s views are alarmingly out of touch with reality. No less alarming was Mr. McCain’s decision to welcome them into his campaign.

Oil crisis needs real fixes, not gimmicks


By Raul Grijalva, (D) U.S. House of Representatives, Arizona

We are all experiencing high gasoline prices. The drilling-at-any-cost proponents link high gas prices to short supply and believe that if we open up protected federal coastal waters and interior public lands such as the Arctic National Wildlife Refuge in Alaska, drilling will lower prices at the pump.

This is simply untrue; this reasoning will overturn years of protection of our coastlines and federal lands and only benefit oil companies, while those who have to decide between buying groceries and getting to work in the morning are left to continue being gouged at the pump.

Consumers need relief at the pump now; drilling in the Arctic Refuge will not provide it. It is estimated that if the Refuge were opened, peak oil production would not be reached until at least 2022, at a dismal 780,000 barrels per day. Similarly, if the waters off the coast of Florida were made available for drilling, oil production would not take place until 2012. This would do little to lower the price of gasoline.

We need immediate solutions for the price of gasoline. We cannot drill our way to energy independence and lower gasoline prices. Between 1999 and 2007, the number of drilling permits issued for the development of public lands increased by more than 361 percent. During that same time, gas prices increased. Clearly there is little connection between increased drilling and gas prices.

Further, oil companies currently hold 68 million acres of leased, but inactive, federal lands on which they can drill for oil. It is estimated that the oil in these inactive lands could produce more than six times the estimated peak production of the Arctic Wildlife Refuge. Why do we need to make more land available for drilling when so much is still not being used?

It's not a matter of not having access to enough places to drill. The oil companies themselves have admitted that they simply don't have the equipment to drill in all the places that have been opened up to them during the last 7 years of the Bush Administration.

We need an energy policy that reduces the demand for oil and regulates the oil companies. The oil petroleum industry has spent the last several decades consolidating their refineries to create greater profits for themselves. A local effort to establish a new refinery in Yuma County has been stalled for some time, not by any federal or state regulatory processes but by a lack of financing and a guaranteed source of crude oil for refining.

We need an energy policy that reduces the demand for oil and regulates the oil companies. We can effectively reduce our dependence on foreign oil by putting into place higher standards for fuel efficiency on vehicles and increasing funding for the development of renewable resources.

We need to pass legislation that stabilizes gas prices and prohibits oil generated from public lands from being exported, which is the current practice of oil drilled from the Alaskan North Slope. We also need to provide tax credits to encourage the purchase of American-made fuel-efficient and alternative-fuel vehicles.

There needs to be expanded oversight of the oil industry through the creation of Petroleum Industry Concentration and Market Power Review Commission to study industry consolidation of ownership for the exploration, production, and sale of crude oil and petroleum products in the U.S. We must not allow Enron-style commodity manipulations to be repeated by oil and gas industries and commodity traders.

We should require windfall profits tax on oil and gas, using the revenue from the obscene industry profits to promote development of alternative fuel and energy technologies. President Bush should immediately put some oil from the Strategic Petroleum Reserve into the retail supply.

The crisis at the gasoline pump offers us the opportunity to come up with innovative, environmentally friendly solutions that lower gasoline prices, and push us toward a new energy future.

The promoters of the oil industry in Congress should realize that big oil companies have, in cooperation with this administration, helped create the crisis, reaped huge profits and helped elect an administration that serves their interest. It is now time to place the American people's interest first.

Saturday, September 06, 2008

Peak Oil and the Curse of Cassandra


By Jamais Cascio

I'm getting a shiver of deja vu these days when I read the peak oil-related websites. Some are boggling over the fact that "global warming" got more attention than "peak oil" in the discussions over the recently-passed Energy Bill in the US, while others are simply furious that the American public (and these websites seem predominantly American in focus) isn't taking peak oil sufficiently seriously. They're particularly bothered that mainstream discussion of the idea, when it happens, often pushes the peak date out by ten to twenty years (or more), making it seem like a distant crisis at worst.

When I read all of this, I realize that it's happened before.

The deja vu comes from my recollection of discussions of the coming Y2K crisis back in the late 1990s. Initially Y2K was the obsession of a handful of terrified (and sometimes terrifying) technologists, who seemed baffled by talk of "end of the century" parties, angry at the lack of concern demonstrated by those who should know better, and convinced that the problem was far worse than was generally acknowlegded. By the last couple of years of the decade, however, the question of what would happen come January 1, 2000 seemed to be a debate between "we're hosed" and "we're so hosed that the living will envy the dead." I expect a similar arc for peak oil -- as the idea moves out of the niche blogs and discussion boards and into the cultural mainstream, driven by relatively popular writers such as James Howard Kunstler, the level of anxiety around what will happen when oil production peaks (or, as some would have it, when the powers that be admit that oil production has already peaked) will skyrocket.

But to mention Y2K now, in 2005, tends to generate smirks rather than contemplation. After all, nothing happened, right? Serious people will argue that Y2K was nothing more than a full-employment act for computer programmers, looking to put one over on the ignorant public. Y2K, indeed; where were the plane crashes, train derailments, nuclear power plant meltdowns and ATMs spewing cash we were promised? I suspect that many peak oil followers will react very poorly to my comparison of peak oil and Y2K -- clearly I'm trying to say that peak oil is a hoax, right?


I have a somewhat different take on Y2K, having worked in the computer field in the mid-late 1990s. I see Y2K as an example of people managing to fix a problem at the last minute, only to be roundly derided by a public that saw the lack of disaster as proof that there was never a danger to begin with. This should have been predictable; even before the Y2K issue arose, I saw, again and again, problems averted before they happened through careful planning and (sometimes expensive) preparation -- and I saw, again and again, executives and accountants complaining that the computer techs were wasting time and money with nothing to show for it. Too few of them saw that the "nothing" was precisely what was intended -- potential (small-scale) disasters were prevented before they happened.

So it was with Y2K. While there were undoubtedly some people who saw Y2K as a way to make a quick buck, they were in a definite minority. Most of the people working on Y2K related programming and computer infrastructure tasks took their work quite seriously. In 1996-1998, every computer programming professional I knew was scared out of his or her wits about what would happen come 1/1/00. Most could cite examples of code they had seen, or even worked on, that would be non-fuctional (or producing serious errors) come the 00 rollover -- if nothing was done to fix it. But by late 1998 and 1999, they began to calm down -- they could see that the problem was being dealt with, and that the worst-case scenarios weren't going to happen.

Y2K is a lesson in what can happen when sufficiently-motivated people around the world work hard to avert disaster. The key here is "sufficiently-motivated" -- without the Cassandra-like voices of Y2K doomsayers, fewer companies and government agencies would have given priority to the problem. Ironically, it was the very success of the Y2K disaster crowd that kept the disaster from happening.

When I compare Y2K with peak oil, then, my goal isn't to underplay the potential seriousness of the problem or insult the peak oil specialists. Quite the opposite, in fact; the peak oil Cassandras -- Kunstler included -- are perfectly positioned to trigger the kind of anxiety-induced focus needed to accelerate a move away from petroleum dependence. What I hope to suggest to them, therefore, is that they need to keep in mind that there's another scenario besides global doom and blind optimism -- a scenario in which their warnings work.

This isn't a world where everything goes smoothly and everyone transitions to post-petroleum technologies without any issues; rather, it's a world in which lots of people are convinced that it's too late and are desperate to try anything, to do what's needed, to avoid the "collapse of civilization" scenario that seems all too likely -- and they succeed. And then they wonder what all the fuss was about.

So here is my advice to peak oilers: after all is said and done, you're going to be ridiculed, just as the Y2K people were (and still are) ridiculed. Not because you were wrong, but because you were right enough to keep the disaster from happening. In 2025, when most people in the world are driving cheap, Chinese & Indian-made battery/fuel cell/bioflexfuel hypercars, relying on smart agriculture to reduce or eliminate petroleum fertilizers, and using bioplastics as raw fabber materials, those reminded of the "peak oil" scare are going to look around and say:

"Peak oil? What a bunch of nuts. Look -- nobody actually drilled in the Arctic Wildlife Preserve or off the California Coast, ExxonMobil went out of business because nobody needed their liquified coal "oil," and people were more freaked out by oil at $60 a barrel than at $120 a barrel. Where were the wars, the starvation, the collapse of civilization and the ATMs spewing out money we were promised?"

When you hear them say that, feel free to smile and nod, and know that you were right.

Wednesday, September 03, 2008

Peak oil, tech boom share some parallels

By Fabrice Taylor

The most surprising tidbit in Matthew Simmons' peak oil book, Twilight in the Desert, is about a dubious oil consultancy based in Austria.

If memory serves, the firm earned its keep counting oil tankers leaving major ports.

The data were keenly awaited by the marketplace and could move the price of crude sharply and quickly. Investors, users and producers paid handsomely for the information.

What the book revealed was that this towering fountain of information was housed in a small, dumpy office above a corner store in land-locked Vienna and the data weren't, in retrospect, particularly reliable. For all we know, it might have cobbled together its theories by dumpster diving behind the nearby headquarters of the Organization of Petroleum Exporting Countries.

Oil is the lifeblood of the world's economy and yet the oil markets are clouded in dubious information. Take Mr. Simmons' thesis, that Saudi Arabian production was on the verge of declining. The kingdom angrily denied this. The fact that there could even be an argument was only possible because of the secrecy with which it and other OPEC producers guard their data.

Mr. Simmons reached his conclusion by poring over hundreds of technical articles published in academic and industry journals, and sketching what he considered a more realistic picture.

Oil companies disputed the idea. Over the past couple of years, Exxon executives have shaken their heads at peak theories and even the oil price, insisting that their refineries weren't having any trouble finding crude.

That tended not to make headlines, though. What did were predictions of oil at $150 (U.S.) or even $200 a barrel, talk of a "superspike," coined by bullish Goldman Sachs oil analysts a few years ago, and lots of peak oil flame fanning (Mr. Simmons, while a proponent, didn't get into the prediction racket.)

That message fed on itself, the upshot being $145-a-barrel oil, fleetingly. Drowned out by the noise were the warnings, such as this one from the head of Fidelity International's head of institutional investment on June 10: "Oil and commodity markets are in the hands of the investment banks."

What did Michael Gordon mean by that? Quite simply that the investment banks making bullish calls on oil had tremendous sway with investors, or with traders like hedge funds anyway.

They also had a very good reason to tout oil: These big international banks operate huge proprietary trading desks that speculate on and invest in oil and other commodities daily.

Goldman's star oil analysts have moved markets with their calls. I'm willing to bet they've moved the bottom lines of the trading desk too.

Without putting too fine a point on it, there is a parallel to the tech bubble of 2000 in this. It's not perfect of course - commodity producers have big cash flows and real profits, whereas most tech stocks didn't - but the similarity is there: At the core lies a promising and real idea.

Back then it was that there were big profits to be made in the information age. That's certainly true, as Google, eBay, Amazon and others can attest to. And today, it's that there's money to be made owning oil as it runs out. Obviously true, again.

The other similarity is that the ideas were, in broker-speak, oversubscribed (I should say may have been oversubscribed in the case of oil, since it could go to $150 pretty quickly in theory). In both cases, the information that took a sound idea and blew it into a bubble came largely from dealers with a vested interest.

So if investing is about acting on the best information you can get your hands on, where should you turn for oil intelligence? You might start by ignoring the investment banks.

Oil companies and OPEC seem to be a little more conservative and forthcoming, but then again they sure love $125 oil, so they're not likely to come perfectly clean.

Tanker counters? See above.

How about your dog-eared economics textbook though? The one that says commodity prices inevitably move in cycles? Simply put, peak oil or not, the faster prices rise, the harder they'll fall.