The 2009 EIA Energy Conference: Day 1
Posted by Robert Rapier on April 13, 2009 - 9:53am
The Plenary
I covered Energy Secretary Steven Chu's comments in the previous post. Here, I will cover the rest of Day 1. This is not so much a comprehensive summary as it is a collection of observations and things I otherwise found to be interesting. My notes at times are spotty, so if someone was there and feels like this essay contains an error, please let me know.
Following Chu's talk, Professor William Nordhaus of Yale gave a talk entitled Energy and the Macroeconomy. I got called out during his talk, so I missed most of it. What I do remember him arguing is that oil embargoes are completely worthless, because oil is fungible. If Venezuela decided not to sell their oil to the U.S., they would end up selling it to someone else, which would displace some other seller, which at some point would end up with someone else selling it to the U.S. I missed the next point, but Gail the Actuary was there and said "a corollary of this is that there is no point in protecting the US oil and gas industry. We can just buy what we need elsewhere."
Next up was John W. Rowe, CEO of Exelon, which has the largest market capitalization in the utility industry. John speaks very slowly, but he speaks with authority. I took quite a few notes during his talk. Rowe supports cap and trade as a way of controlling CO2 emissions. One thing that I am very interested in is the expected value of a ton of CO2 if a cap and trade law is passed (Full disclosure: This potentially impacts my current company as a price on carbon emissions could benefit us). John put up a slide that indicated (at least to me) that the price could be $125/metric ton. I saw other presenters who had values ranging from a few dollars up to $500. That last number was one that the presenter expected would be needed to make several of the more marginal technologies economical.
Rowe was clearly concerned about CO2 emissions, and pointed out that Exelon had far exceeded their targets for emission reductions by closing down inefficient coal plants. But he was also concerned about the impact cap and trade might have on electricity costs. In one example he gave, electricity costs in California could go from $0.18/kWh to $0.30/kWh.
The Future for Transport Demand
Thus ended the plenary, and I next attended The Future for Transport Demand. Speakers were Lew Fulton from the IEA, David Greene from Oak Ridge National Laboratory, and Lee Schipper from Stanford. The moderator was Andy S. Kydes from the EIA. Had the sessions not been concurrent, I would have attended What's Ahead for Natural Gas Markets. But there is a pretty good summary of this session by Dave Summers.
Fulton said that the expectation of the IEA is that oil production would reach 105 million bpd by 2030. There was quite a bit of consensus that non-OPEC production has pretty well maxed out, and that the new production would come from OPEC. Fulton also mentioned that there is a lot of skepticism out there on biofuels.
David Greene followed, and gave perhaps the most sobering talk of the conference. He referred back to Fulton's comments on OPEC filling the void, and essentially said "With all due respect, that's not going to happen." He also said that cellulosic ethanol "makes no sense" and that the IEA was engaging in wishful thinking. I was quite impressed with Greene as someone who really understands the seriousness of the problem, and that the future is likely to be quite different than the rosy projections.
Lee Schipper was up next. Schipper was quite witty, and sounded to me just like Richard Dreyfuss. (You can see a short video by Schipper here). I have often commented that we don't seem to understand the scale differences between the energy we use and what biofuels could reasonably be expected to contribute. Schipper had a similar observation: "Our problem is that we can't count." He went on to say that even though China has very low levels of motorized transport, Chinese cities are already becoming frozen by traffic. Finally, in the category of stating the obvious, he said that "Transport is very politicized."
Meeting the Growing Demand for Liquid Fuels
The next session featured Eduardo González-Pier from PEMEX, David Knapp from the Energy Intelligence Group and Fareed Mohamedi from PFC Energy. The moderator was Glen Sweetnam from the EIA. Dave Summers attended this session as well, and has quite a thorough account on his blog.
This panel engaged in a round-table discussion, and covered different areas of the world with respect to potential for increasing production. I will just add a couple of observations to Dave's account. David Knapp was asked about Venezuela, and said he was very pessimistic. Brazil, on the other hand, was viewed as a success story, and Petrobras was singled out by Fareed as having a bright outlook. Of course I feel the same way, which is why I loaded up on Petrobras stock last November. (As I write this, that investment is up 106% in about 5 months).
Two of the more eyebrow-raising comments came from González-Pier, who predicted: 1) PEMEX can stabilize production at 3 million bpd for many years; 2). Mexico won't become a net oil importer for 2 decades. Consider me a skeptic.
The last interesting bit in this panel was that a slide was put up that projected production costs for various technologies. Gas-to-liquids (GTL) came in at $40-$110/bbl, coal-to-liquids (CTL) came in at $60-$110/bbl, and production from oil shale came in at $50-$110/bbl. Again, consider me a skeptic, particularly over the lower end of these ranges. There are a couple of problems with these projections. First, because all of these technologies are highly dependent on the cost of energy, they will proceed along a sliding scale (the so-called receding horizon problem). Second, there is really very little data on what the economics of commercial facilities might look like over the long haul, because very few facilities actually exist. (In the case of oil shale, no facilities exist to my knowledge). So the projections are subject to the same criticisms I have offered up for cellulosic ethanol economics: They are projections based on precious little scaled-up operating data.
Renewable Energy in the Transportation and Power Sectors
The speakers for this session were Matt Hartwig from the Renewable Fuels Association (filling in for Bob Dinneen who had been called away), Bryan Hannegan from EPRI, Denise Bode, an enthusiastic Okie and CEO of the American Wind Energy Association, and David Humbird, a fellow Aggie now with NREL. The moderator was Michael Schaal (who I had lunch with the next day), Director of the EIA's Oil and Gas Division (which also covers biofuels).
While Humbird seemed to have a good understanding of the some of the challenges of commercial cellulosic ethanol production (he specifically mentioned the logistical issue that I predict will be the death knell for conventional cellulosic ethanol), he nevertheless put up a slide that suggested production costs for cellulosic ethanol at $2.61/gal, and for gasification at $2.40/gal. While I agree with the relative positions of cellulosic versus gasification (long-term, I think gasification can be commercially viable) I don't think there is any chance that a commercial cellulosic ethanol plant can get close to $2.61/gal. Maybe he was factoring in a tax credit of up to $1.01/gal for cellulosic ethanol; in that case his numbers would be in the ballpark of production costs that I have seen of around $4/gal.
But the thing that isn't usually discussed in these sorts of analyses is "What assumptions are you making?" Are you assuming you are getting biomass from the immediate vicinity, and the process steam comes from $3 natural gas (or even cheaper coal)? It is quite easy to make overly optimistic assumptions that grossly underestimate production costs. I have seen this happen numerous times, and these sorts of assumptions have doomed many plants (of all sorts) once they start up and have to start operating in the real world.
Humbird also mentioned that it would be better to find microbes and yeasts that can produce gasoline and diesel instead of ethanol. Because hydrocarbons phase out of water, have higher energy density, and are compatible with our current pipeline systems, this sort of solution is potentially more practical. As Humbird mentioned, there is a lot of research project going on, both government and in private industry, in this area. Companies that Humbird mentioned were LS9, Amyris, Virent, and Coskata.
I had to take a call during the presentations, and only caught pieces of the rest. For Denise Bode's, two things stood out. First, she was by far the most enthusiastic speaker I saw; a combination cheerleader and firebrand. Second, she mentioned that the U.S. is now the world's largest producer of electricity from wind, a story that I had somehow missed when it was announced in February. I unfortunately missed all of Bryan Hannegan's talk.
Matt Hartwig's talk was what one would expect from a non-technical person who works for the ethanol lobby. We got the standard talking points, a couple of which bear repeating. When asked if corn ethanol could ever be competitive without the subsidies, he not suprisingly claimed that the ethanol subsidy actually benefits oil companies. This is of course incredibly misleading. While the blender's credit is indeed received by the oil companies (initially as an incentive to buy ethanol that was otherwise uncompetitive), the primary beneficiary is the ethanol industry. If you disagree, ask yourself which industry - oil or ethanol - is constantly lobbying to keep the credit. Hint: It isn't the oil industry. So one would certainly be puzzled by the notion - if Hartwig's claim is true - why the ethanol industry lobbies to keep a credit that benefits the oil industry. If you ever hear an ethanol booster make that claim, tell them "Then let's get rid of the credit."
The other notable thing Hartwig did was fire a preemptive complaint over the upcoming EPA ruling on GHG reduction for ethanol. In 2007, Congress ruled that ethanol must reduce emissions relative to gasoline by 20%. The problem - which I warned about at the time - is that politics are going to play a big role. While the methodology and results have yet to be announced, ethanol interests are jockeying for position which is exactly what would be expected given the way this was set up.
Imagine that the EPA comes up with the wrong answer - according to the current administration. What happens then? Political pressure to come up with the right answer. In this case, Hartwig was complaining about inclusion of land use issues (explained in this article) which some studies have found cause ethanol to come out worse than gasoline with respect to GHG emissions. The industry will of course fight that tooth and nail. However, such a ruling would be a strong incentive for the industry to minimize fossil fuel usage in the production of ethanol.
Thus concluded Day 1. In the next installment, I will cover the panel session that I was on, as well as the session Investing in Oil and Natural Gas.
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One of the disappointments at this EIA conference was the relative lack of slides. Many of the speakers did not use slides. What few slides were used are not yet up on the EIA website. I always prefer to have slides available to write about, because a "picture is worth a thousand words".
I believe the lack of slides was "feature" of the conference. Except in the plenary session, the typical arrangement of the panel of speakers was seated around a table. Most presenters had either no slides, or only a few slides. Quite often, their remarks were more or less to each other. In some cases this lead to kind of cryptic remarks, using the "lingo" of the speakers, and assuming a fairly high level of knowledge going into the talks. I know Dave Summers and I sat together at the "What's Ahead for Natural Gas?" talk on Tuesday, and remarked that we were barely able to figure out what the speakers were saying. It seemed like people without a good knowledge of the subject would miss quite a bit of what was being said.
Nothing written allows plausability of denial.
Only hearsay evidence to prosecute with!
Thanks, Robert, these accounts are very helpful to those of us who could not be there ourselves.
It's interesting how IEA has seen the writing on the wall and has begrudgingly moved their forecasts (more than once, it appears), though their past forecasts seem to have a flywheel effect to where they can not zero in on much lower projections without a painfully protracted organizational-wide groupthink change.
Regarding William Nordhaus's remarks on Economics, I have already commented previously on his bathtub analogy, with the three spigots in and three spigots out.
I was looking back at my notes. One of his comments is about the high correlation between prices of oil from different parts of the world. He said the median correlation coefficient is .994. For other energy products, such as saw logs from the Pacific Northwest, there is much less correlation ( about .75) Since this high oil price correlation has occurred in the past, he assumes (but doesn't say that this is an assumption) that it will continue to happen in the future.
Nordhaus says that this doesn't mean that there is no concern about supply--just that the concern is about global supply. A crisis anywhere is a crisis everywhere.
He noted that if oil demand increases, the price will go up, and with it the total cost of consumption. This doesn't depend on whether the oil is imported or domestically produced. These higher prices can lead to recessions. (I am not certain if he also showed a Hamilton slide on this--I know Steven Chu did.)
He showed a slide showing that petroleum amounts to only 10% of total US imports. If we are cutting imports, why not cut something else instead? Comparative advantage belongs to oil as much as anything else (my comment: but oil is a higher percentage of exports and it looks like we are not producing enough products with the oil to pay for it.)
He feels the reasons for countries trade deficits and surpluses are primarily because of the low US savings rate and the high Chinese savings rates. Also the misaligned exchange rates.
He feels that we should get rid of subsidies around the world. There should be no subsidies for US oil and gas companies. There should also not be subsidies for substitutes, such as ethanol. And oil exporters should not be subsidizing local use of fuels.
His main message was "We are all in the tub together."
There were some things in this talk I could agree with -- including the problem with recessions. He seems to have missed the exports and geopolitical risk issue. Also, the fact that prior correlation does not prove future correlation of oil prices.
"but Gail the Actuary was there and said "a corollary of this is that there is no point in protecting the US oil and gas industry. We can just buy what we need elsewhere.""
You go, girl! I'm glad that sanity at least had a bit of a voice at this high-level meeting. But I can't see much chance of such an obvious policy to be implemented, given the huge influence the industry has on politicians (or should I say their ownership of nearly the whole political system?).
As for John W. Rowe's concern about increases in electricity costs, shouldn't all energy costs be going up? I thought the advantage of C&T was that it wouldn't raise rates, though. I have always been skeptical of this. This again leads me to think that a straight forward high tax that then could be redistributed especially to the those least able to pay would be preferable.
Rationing is what we really need. And what we really really need is a general understanding that rationing is necessary because we face something much more serious than WWII, the last time widespread rationing of various products was in place. This awareness would add a moral weight to the rationing, and make cheating morally reprehensible (like "war profiteering") rather than laudable, which all and any kind of profit seems to be these days, no matter how ill gotten or how harmful to the common good.
Gail -
That three -spigot/bathtub analogy is so obviously flawed that I don't know why this person Nordhaus hasn't been called to task on it. (Or has he?)
Going back to the analogy, it hardly matters how many spigots you have going in and coming out of the bathtub. What really matters is i) who controls the individual spigots, and ii) where and to whom the outlet spigots are connected. This geopolitical reality makes the water in the bathtub nowhere close to being perfectly fungible, particularly if certain outlet spigots go not to he who pays the best price but rather to he who has made a long-term bilateral security arrangement with the controller of that spigot and has thus effectively taken a certain amount of bathtub water off 'the market'.
A far better analogy would be a game of musical chairs, as 'the market' does not determine who gets a chair and who doesn't, Rather, that is determined by who is more ruthless, opportunistic, and aggressive.
This is why I tend to dislike analogies, as there is rarely a perfect one-to-one correspondence of the elements of the analogy with the reality it is supposed to describe. Analogies can often be a cover-up for sloppy thinking.
Economists seem to live in a world of their own. I like your musical chairs analogy.
With respect to Meeting the Growing Demand for Liquids panel that I also attended with Robert, once got the impression that three out of the four panelists were oil production optimists ( Glen Sweetnam of the EIA; David Knapp of Oil Market Intelligence, but formerly of IEA and I believe EIA; and Eduardo Gonzalez of PEMEX). The only one questioning the high forecast amounts was Fareed Mohamadi of PFC Energy, who did not see production rising to 119 million barrels a day.
One comment made both by Fareed and Gonzalez was that in the future, they expected to see more pairing of IOCs with NOC, because the IOCs have more money to do projects, and because of the difficulty NOCs are having doing some of the new projects on their own.
Robert commented on the future high oil production projections from PEMEX. I happened to sit next to someone from PEMEX on the airplane going back home after the conference. He explained that the amounts shown in the slides were the "official projections" for showing to outside sources. It sounded to me as though there was a different set of numbers used internally.
The EIA has their 2008 net export numbers out (subject to revision). They showed 1.07 mpbd in net exports from Mexico in 2008 (my estimate based on Pemex data was 1.0 mbpd), down from 1.9 mbpd in 2004.
It will be fascinating to see how the next four years play out regarding domestic consumption. Using Mexico's current production decline rate of about -10%/year, they would have to cut their consumption in half over the next four to five years if they wanted to maintain current net oil exports.
The EIA shows our three closest major sources of imported oil--Venezuela, Mexico & Canada--declining from 5.3 mbpd in combined net exports in 1998 to 4.0 mbpd in 2008, an overall decline rate of -2.8%/year. The 2008 decline rate was -9.5%/year, and net exports from all three countries fell in 2008. Extrapolating their recent three year volumetric decline rate would put them collectively at around zero net oil exports in about 17 years.
The conference just proves that DOE isn't going to push any national energy policy whatsoever and will merely produce salaries for eggheads. They think energy policy is someone else's job, probably Big Oil and the electric utilities. Chu and most of these fools need to be fired ASAP.
There is obviously a huge disconnect between the administration commitment to GW reductions and energy independence and the 'green economy' and the behavior of the Obama's appointees.
On ethanol, obviously it is going to continue to be the biggest part of the US liquid fuels mitigation, everything else being off-the-table.
The studies which R^2 uses to support his anti-ethanol bias are as silly as ever.
The idea biomass crops produce more greenhouse gas emissions than oil is downright stupid on its face: With oil you dig up billions of tons of carbon and put it into the atmosphere, with biomass you harvest crops that get their carbon from the atmosphere(carbon neutral). The Searchinger indirect land use study is an unbalanced worse-case analysis. Really, it is silly to blame US ethanol for land use changes in Asia, Latin America and Africa(there is a tariff on Brazilian ethanol). Obviously if we use wood in cellulosic ethanol we would'nt be changing land use.
http://www.ethanolrfa.org/objects/documents/2298/scope_report.pdf
And the paper ignores the depletion of oil completely so it's a red herring IMO.
The studies which R^2 uses to support his anti-ethanol bias are as silly as ever.
First, I don't have an anti-ethanol bias. If I did, I would never have anything positive to say about ethanol (of course you and Kdolliso never seem to find any fault with ethanol; negative peer-reviewed studies are rejected in favor of science fair projects and statements from the ethanol lobby). Ethanol as a fuel is just fine as far as I am concerned. I have an anti-propaganda, pro-scientific method bias. Second, which studies are you talking about that I used to support my 'bias'?
The idea biomass crops produce more greenhouse gas emissions than oil is downright stupid on its face: With oil you dig up billions of tons of carbon and put it into the atmosphere, with biomass you harvest crops that get their carbon from the atmosphere(carbon neutral).
That comment itself is downright stupid without context. If as a result of the conversion of the biomass you end up using a lot of fossil fuels, then it is certainly possible for biomass crops to result in more greenhouse emissions. For instance, here's one I bet you would admit (that is, if you didn't have such an ethanol bias). Produce ethanol in Nebraska, which has one of the worst energy balances because of the need to irrigate. Ship that ethanol to California for use. Positive net energy balance? Doubtful. Or produce ethanol at a Pacific Ethanol plant and ship it to New York. Positive energy balance? Not a chance. So it should be clear that it is indeed possible for biofuels to produce more carbon emissions even without considering the land usage changes. It's just a matter of whether in any specific case they actually do. What I have said is that I think they are slightly better than fossil fuels, but also very dependent on cheap fossil fuels to keep the show running.
The Searchinger indirect land use study is an unbalanced worse-case analysis.
Yet it survived peer review in Science, one of the most prestigious journals out there. The same can't be said of your link, written by an ethanol lobby paid to promote ethanol. I see the sorts of tactics from Dinneen that Creationists like to use to push pseudo-science. Yet I am the one being silly? Sometimes it's hard to believe that you are being serious.
How did I get dragged off into this? :)
This statement interests me though. "I see the sorts of tactics from Dinneen that Creationists like to use to push pseudo-science."
I've never noticed this. Do you have any examples?
OK. Enough. We don't need an argument about this.
Do you feel I was being argumentative?
No. Just that the discussion was not likely to go anywhere.
So it's not okay to question a hit-and-run ad hom on someone if they're connected to biofuels. Is that about it?
So it's not okay to question a hit-and-run ad hom on someone if they're connected to biofuels.
This from the master of the hit and run ad hom. Pimentel, Patzek, and the oil industry as a whole have all been targets of your ad homs. But since Gail wishes to keep this from degenerating, I will simply point out what I was talking about. Popular Creationist techniques include framing the arguments of the opposition with overusage of the kinds of negative adjectives the RFA used in the release. Creationists characterize the arguments of evolutionists as the RFA did: "oft-repudiated", "highly speculative", "repeatedly disproven", "disputed science", and "unsubstantiated." They figure the more negative adjectives they throw out, the worse the arguments look. They like to talk about "gaps in scientific knowledge" as if this means we really don't know anything and therefore we really shouldn't take any of this seriously.
But the real kicker is the signed statement. Creationists love to trot out the signed statements of "100 scientists who dispute evolution." Here we have "111 scientists" who wrote to the governor to suggest that the science on land usage was controversial. No actual direct rebuttal from those scientists; just an argument from authority. Like I said, tactics perfected by Creationists. I debated them for years, so I am quite familiar with the techniques.
I thought you at least deserved to know what I was referring to, but that will be all.
Robert,
Water demands may--in some areas--be far higher than previously thought, putting another crimp in the problem.
See
http://www.sciencedaily.com/releases/2009/04/090413102225.htm
Here's an easy guide to carbon imposts under cap-and-trade. There's chance in Australia the floor price will be $20 per tonne (metric ton) of CO2. That works out at 2c per kilo since 2000c/1000kg = 2 c/kg.
Now petrol is supposed to emit 2.5 kg of CO2 per litre of liquid. That is 5c carbon charges per litre or 19c per US gallon. Traditional boiler fired electricity from bituminous coal creates around 1 kg CO2 per kilowatt hour. So electricity goes up 2c per kwh, a tad more for lignite fired. Double those imposts for $40 CO2 or prorate whatever price. Hopefully that money goes straight back into green rebates.
Those charges assumes the generator or refiner has to buy the CO2 allowances at a steady $20. Of course the politicians could lose their nerve about a floor price, allow too many bogus offsets, exempt certain industries from C&T or spend the money on stupid rebates like ethanol.
RR: What about coal-to-gas (CTG)? My impression is that this should be a bit more favorable - yes or no?
I would think that doing CTG at the mine site and feeding the gas through the existing NG pipeline system to power plants would make a lot more sense - from the perspective of EROI, CO2 reduction, and just plan cost - than shipping coal to generating plants and then trying to sequester the CO2 in a CCS scheme.