Big Oil and Alternative Energy
Posted by Robert Rapier on May 3, 2006 - 7:11pm
First of all, a disclaimer for those who don't know: I work for Big Oil, but my opinions should never be misconstrued as the opinions of my employer or of Big Oil.
I ran across the following editorial in The Bellingham Herald: Drilling is No Answer to U.S. Oil Dependence
It's not as if the money we are all spending is just disappearing into the ether. Exxon's latest quarterly report showed $8 billion in profits. Other oil companies are enjoying record profits as well. If you are a stockholder in these companies, congratulations. But we hope you recognize your increased nest egg is coming at the cost of every American citizen, business and the economy. Anyone with stock in these companies should be pushing the board of directors and executives to reinvest a large part of the profits in research for new alternative energy sources.This is a good editorial, and worth your time to read. But I want to focus on the last sentence above. The idea of reinvesting profits into alternative energy is something that has been repeated in the media, by politicians, and by ordinary citizens. However, this is just wishful thinking.
Even BP, who has generated a lot of publicity from their alternative energy investments, is still investing far more into the core oil business. BP's CEO John Browne admitted as much recently on CNN's We Were Warned:
John Browne: We are investing $15 billion in the oil and gas business because it is up and running.Frank Sesno: So alternatives are still a drop in the bucket.
John Browne: At the moment, of course they are.
When Big Oil decides that there is money to be made from alternative energy, they will start moving in that direction. Concerns about Global Warming will be unlikely to accelerate this move, unless it clearly and directly affects profits. There is no guarantee that oil companies won't miscalculate and make their move too late. But the investment decisions will be based on enhancing shareholder return, and right now the general belief is that the best way to achieve this is by investments geared toward bringing more fossil fuels to market.
I am not making judgments about the wisdom of this course of action. I am just stating the way it is. To stimulate a serious move away from fossil fuels, the market is going to have to drive prices up much higher, or the government is going to have to intervene. Government intervention can take several different forms. One, they can subsidize alternative energy technologies that they believe have the best opportunity to compete against fossil fuels. I don't particularly favor this option, because I don't believe the government will necessarily fund the best long term options.
The second way government can intervene is to substantially raise taxes on fossil fuels, while leaving the (renewable) alternatives untaxed and unsubsidized. This would allow the alternatives to compete against one another on a level playing field. I also believe that government should intervene in a BIG way to encourage conservation and prepare us for what's to come, but that is a subject worthy of its own essay.
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If it ever looks like Congress is really going to nationalize them, I'd advise you to get a bicycle and make sure you're fit enough to use it. 'Cause Congress would be doing it in order to loot them.
In short order they'd work in the same dilatory and/or dysfunctional manner as public toilets, public freeways, public busses, Amtrak, the Postal Service, air traffic control, and almost everything else that's ultimately run by government. Heck, somehow government has even made our numerically trivial commitment in Iraq - a whole 140,000 troops, a massive, overwhelming 0.05% of our population - into an insupportable burden.
Of course, if it's wartime, we could impose wartime income taxes, and make the Lee Raymonds of the world pay 98% at the margin. But then again, that might disincentify football players and Hollywood "stars". If that happened, what would the Great Shiftless Moron Mass do for entertainment, except maybe to shoot even more holes in highway signs?
The reason why public transportation and such are in bad shape is because not enough is invested in them (in some countries, particularly European and Asian, public transportation is quite decent). I'm sure that mistake wouldn't be make with oil since it's such a big cash cow (and public transportation isn't).
Breaking up ICE is a major goal of CAFTA, called TLC down here, and is one of the reasons the treaty is still opposed. It faces a tough fight in the coming legislature, but it will probably pass.
At least for now, any frustrations incurred dealing with the ICE bureaucracy is more than made up by the quality and efficiency of the service. My bill for electric, water, sewer, garbage, phone, and internet run less than $100/mo.
Arizona Public Service, which was "privitized," raised theirs something like 35 percent.
We have a good co-op with lots of citizen participation. It really pushes conservation programs.
It's a great thing, in my opinion.
There are only two ways to allocate a scarce resource--through market forces (price) or through force. We either pay the higher price, or we do without, or we seize foreign oil fields, which I suppose is what we may be doing in the Middle East.
We have an economy where the majority of Americans live off the discretionary income of other Americans. This is not in any way sustainable. Whether we like large homes and large SUV's or not, we are going to be forced to become a country focused on providing essential goods and services.
My opinion for quite some time is that oil exporters are going to seriously begin to question whether they should continue to give us oil in exchange for dollars, and to question their rate of production.
You, and perhaps others, have made this point before. I think it's a very important one, in that it makes clear the lack of sustainability in a world where it is likely to become impossible to provide necessities for most. So why are we providing frills, when we can't provide necessities? The market will change this, though perhaps tortuously.
I may know of an exception to this, however. Last year I had a client briefly (paid speech on calculating ROI of intangibles-speaking of non-essentials!) whose business is to provide sophisticated computer systems (software plus hardware) to 4* resorts, hotels and casinos to enable them to provide extraordinary levels of pampering to their extraordinarily rich customers. Since there will (probably) continue to be a very rich class for some time (a few decades? until control breaks down), this niche may survive for quite a while.
It's the $3 latte that is vulnerable to $4 gas. BTW, gasoline here in my California suburb is now $3.599 for a gallon of regular.
At some point, it will, but by that time there won't be anything left. One of the points that has stuck with me from reading Orwell's The Road to Wigan Pier is that people routinely cut solid necessities to the bone in order to afford cheap luxuries. It happens over and over, in every economic circumstance. And he wrote that book in 1934, before the advent of modern marketing.
Human beings aren't rational; we see this demonstrated over and over every single day. Basing the future survival of our civilization on an economic theory which presupposes that we are is a recipe for disaster.
Looked at in another way, its not "Big Oil" that is making these decisions, but our financial structure which rewards current performance and extrapolates it forward via discount rates or other financial models. What we really need is an overhaul of how wall street values companies shares - this would require an ubiquitous understanding of net energy. Its also counter to human nature, which is to focus on the present -the future is discounted heavily.
Also, oil is very high quality energy, so as it gets scarcer, it will still be higher quality than wind or solar, so the companies that can pull it out, will be getting multiples of what they get now.
Ive said for a long time that the market only prices at the marginal barrel and was not designed to properly value a scarce resource that has a very large fixed usage in society.
That's pretty bold classification of Human Nature. Even those posts that make this claim of short-sightedness as the basic 'American Human Nature' are being extremely general. Sure, there are countless examples of it, as there are also examples of people building well-designed infrastructure meant to last for generations, just as these Renewables that we should be installing ought to be. NYC water tunnels, Brooklyn Bridge, Holland's great Dikes, Terraced Irrigation systems.. etc..
What you might have said was that this is counter to the 'prevailing business-models' that we have since allowed to run some (most) of the systems that we rely upon to survive, without also retaining a limber mechanism (Government?) for looking any farther ahead to our developing needs than these businesses do, so that someone can step in in a timely way and say 'some new preparations have to be made now'.. As it stands, business leaders can 'legitimately' say that they cannot let their love of Humankind force them to make 'Irresponsible' business decisions.
Jokuhl wrote: "That's pretty bold classification of Human Nature."
Actually, IMHO it isn't too bold. This is the way the entire rest of the animal kingdom works. AFAIK, humans are the only species that gives any thought whatsoever to the future. So I would adjust the original statement to say, "It's also counter to all nature, which is to focus on the present."
It's a real credit to humanity that we give any weight to the future at all. It's strong evidence that we really are smarter than yeast. The next question is, are we smart enough to avoid the outcome of all yeast? So far, we have several thousands of years of track record in our favor :-) Of course I've never heard of yeast going to war :-(
What some Americans now claim to be human nature is no more than what they've been taught to believe by the propagandists of consumption. The conduct they claim to be universal is actually no more than a relatively recent materialist ideology.
regards,
Backstop
Of course it's also true that bees don't "think" about putting honey aside for the future. Bees just do what bees do.
The Swiss voted in 1998 to do a twenty year, 31 billion Swiss franc (= to $1 trillion for US) upgrade of their rail system. The keystone of the entire project will take 17 years to complete (from memory).
Miami wants to build a 103 mile elevated "subway" over 25 years. 90% of the population will be within 3 miles of a station, over half within 2 miles. They are taking themselves a 1/2 ¢ sales tax to pay for it.
Large dams, etc.
and i think behavioral economics does document a discounting of the future ("intertemporal choice," etc.). such discounting may be an advantage because it is statistically correct ... but that's the whole point of the "black swan" argument, that we are less prepared (by nature) for the statistically infrequent.
... and peak oil is a classic black swan
http://www.fooledbyrandomness.com/blackswan.pdf
If you want an example - in times of negative interest (when money was not a good store of value for instance due to taxes upon money levied by local lords) long term thinking was order of the day. Hence the construction of cathedrals in mediaeval England. Building a cathedral took generations but guaranteed income (via pilgrims) for even longer ...
The fact that oil companies are not investing much in alternative energy doesn't mean that their profits are in any sense going to waste.
Money is a flow, and it doesn't get created or destroyed by commerce. When oil goes up in price, more money flows to oil companies. But it would be more correct to say that money flows through oil companies. It doesn't just pile up there.
Oil companies invest some of it on more oil - and that's a sensible investment! That's the business they have expertise in, the one they know. Readers here are well aware of the problems posed by production declines. We are approaching the situation where we have to "run as hard as we can just to stay in one place". Oil is tremendously valuable, and society benefits when we spend more money to make more oil available. What the oil companies are doing makes good economic sense.
At the same time, much of those oil company profits flow on into the rest of society, into the pockets of individuals and other businesses. And yes, into the pockets of oil sheiks. What happens then? They spend and invest that money.
Ultimately, investment money flows to where it is expected to provide the highest returns. These days energy investments are highly profitable. That includes both conventional and alternative energy. More and more money will be going to alternative energy investments as those technologies become cost competitive.
The point is that even money spent on oil circulates around through the economy and can eventually go to support alternative energy investments. Money goes to where it is most productive, and even though oil companies don't spend it on wind turbines (any more than Microsoft spends its profits on gold mining), the money will ultimately get there, along with everywhere else that a profit can be made.
While the corporate profits do flow back into society, at the same time this results in shifts of ownership and control of money. One of the biggest problems of capitalism is that it results in consolidation of power and I think one can see by it's nature returns to an equivalent of dictatorship under a different name. Again practically by definition, fascism.
I personally don't see how we're going to solve problems related to peak oil without money reform. We have a system in the process of breaking down and money reform will eventually be an outcome. Debt based money will have to change or go altogether as we enter a world without growth.
I'm an independent landman, and feel that the problem with the major companies is that they are in denial about the real situation. The problem is not that all the oil is exhuasted-in Texas over 80% of the oil discovered is still- in the ground-but rather that the cheaply produced oil is mostly gone. With their huge overhead costs for exploration and production they can't make a profit on a ten barrel per day well, while an independent can make a great profit on small production. With these prices a barrel a day well can be operated and make a profit.
The real problem is that the world population has tripled since I was born in 1951 and all the Asians, Latin Americans and Africans want to live the same profligate life style that we enjoy, thanks to TV and the internet. The earth can't support it and production of cheap energy is declining rapidly.
The morons all want a single cheap solution, and it ain't gonna come. As a society we need to adopt many partial solutions including conservation, wind, solar, nuclear, and tertiary production methods and be willing to help the developing world as much as possible in getting a decent life style. But mostly we need to limit births whether it is religeously palatable or not.
I believe in watching what people do, not what the say. The majors are building about 30 Liquified Natural Gas terminals in Texas alone. Almost any gasoline engine can be modified to use gas for less than a couple of grand. This seems to be their solution to the transportation mess, because there is still a large world gas supply. Note that Exxon is developing Qatar's gas, about 25% of the world reserves.
But none of the integrated oil companies are going to tout this solution while they can still get enough fuel stock for their refineries. Too big a capital investment to abandon.
"Quantifying gas, oil, and brine migration in a 125 x 200 km area of the offshore Louisiana Gulf of Mexico: A modeling analysis of hydrocarbon chemistry and gas washing, hydrocarbon fluxes, and reservoir filling. Department of Earth and Atmospheric Sciences, Cornell University, Ithaca, New York, 14883"
http://www.geo.cornell.edu/eas/research/GeoModeling/BasinLAB/Gri2002_Modeling_Report.pdf
They carefully stick to the scientific analysis of the data and how to get better data. They avoid stating how the data could show something like - new oil fields. However, in Table 8 they state that the "Expulsion Potential" of the area is many times greater than the "Produced + Reserves." Hmmm.....
What happens is that oil is denser than gas and lighter than water. So as the kerogen is cracked to oil and gas, most of the oil is pushed up through any cracks in the formation by water, and most of the rest of the oil is pushed down below the lip of the formation by gas.
Then it seeps to the surface. That's how people originally decided where to drill, before seismic and modern geological formation mapping and other techniques.
Vestas Wind Systems: 2May05 US$12.67, 3May06 US$29.00 +129%
SolarWorld Ag: 24May05 47.75EUR, 3May06 252.18EUR +428%
SolarWorld is an FT600 company and is growing like the early days of IBM, Xerox, Intel, Apple, etc. Yet it is almost unknown to US investors. I am baffled as to why anyone with cash on hand would not want a piece of this action.
A list of US wind developers cna be developed from the project list (sorted by state) at http://www.awea.org/projects/
A bit of work to find the name sof the developers/operators, but some good small plays can be found that way.
This company increased about 3500% in the last years. The interessting point here is what happened early this year.
Shell solar obviously had problems with its silicon grade supply, therefore the factories in California and Germany where running out of material. Somehow in the end solarworld took over the silicon pv business from Shell and became number 3 in the world.
If Shell really takes alternatives seriously, so why do they leave this market, which is grwoing worldwide with more than 30% p.a.? Probably the leaders are not yet convinced about this.
A couple of weeks ago, in the FAZ (Frankfurter Allgemeine Zeitung) newspaper, there were two advertisments on one page. One investments fonds with alternative energy stocks (which has been really a bullish market the last two years here in Germany), the other from BP, describing its planned investments in renewable energy.
Maybe there is paradigm change going on. However I think this will happen in large parts without the big energy companies. The formerly small companies are now capable to get enough money from banks and other investors and don't need to sell shares to students. ;-)
matthias, berlin
yes, this was the official explaination. Would you sell a factory which already produces products which can be sold on a booming market? A lot of profit can be made with solar cells right now and very likely in the ongoing years. Their problem was the supply of solar grade.
Any company which sells factories which can run profitable to start research in a future technology would become bancrupt in a short time.
The CIGIS-film technolgy is a serious technology. However as you write potentially 1/30 thickness and therefore cheaper.
I personally have my doubts putting something on a roof which contains cadmium.
Interessting about this deal is the possibility which was provided to solarworld to become partner with shell in future, producing these CIGIS cells. Another point is, Shell has sold the distribution offices in South Africa and Singapore as well to Solarworld. There is obviously no product which can be distributed right now from Shell.
matthias, berlin
When
But the ground glass would give you indigestion...
The way the system is set up now, the oil companies are going to reap massive profits no matter what, the less oil, the more they're going to make, until some viable alternative. Relying on the oil companies, who nothing except oil and natural gas to come up with alternatives is ridiculous. This has now been proved for 30 years, in fact they have with the help of their bought and paid for political servants have actively quashed alternatives and efficiency.
Tax oil, give them a five percent profit, and make the money available not to federal bureaucracies but to efficiency, public transportation, alternatives etc. And why the hell should alternatives receive no subsidies when fossil fuels have been subsidized out the wazoo for a century?
We really need to start thinking creatively and abandon our myths, no matter how cherished.
Because two wrongs don't make a right.
Governments are notoriously good at picking losers when it comes to subsidies. Also, because there's potential to profit, private companies do their best to maximize the flow of money (ie. increase and maintain subsidies) usually far beyond what is optimal.
And as a taxpayer who is nearing off-grid status and who doesn't own a car, I'd rather not pay for services that I don't directly use. Why should I subsidize your consumption?
As for your remarks in this post, I have a few comments.
Re: "... the investment decisions will be based on enhancing shareholder return, and right now the general belief is that the best way to achieve this is by investments geared toward bringing more fossil fuels to market.... I am not making judgments about the wisdom of this course of action. I am just stating the way it is.
This is a fantasy that the IOC's are holding onto which I know you do not endorse. They're making money which will not increase supply but will certainly make some people very rich.
Re: "Government intervention can take several different forms...."
Although I agree with you about the need for government intervention, if it is done correctly, in the current political climate there is little or no chance that intelligent policies will be put forward. Leadership from the top is lacking, to say the least. Welcome aboard.
best, Dave
Not clear what you mean here ... can you elaborate ?
Do you mean that they are not investing ALL of their money in finding and pumping oil (as opposed to other investments or return to shareholders) ?
Do you mean that the money that they are investing in increasing the supply will not bring more fossil fuels to the market ?
Or something else ...
Thanks
IOC's like ExxonMobil, Chevron, etc. (and we do not know about Middle Eastern NOC's --we are clueless, as Stuart said recently) are not increasing production from E&P (exploration and production) activities. They are pretty much staying even year on year despite their activities all over the world.
They are making so-called "windfall profits" off of existing production which has low $/barrel costs. It is a myth that these profits will increase IOC production rates in the future due to increased E&P. This is simply not true. There is not much more (conventional) oil to find. Natural gas is another factor but is largely controlled by state-owned oil companies who contract with the IOC's for development.
The bottom line is that IOC's are making big money from previous contracts. The idea that those profits will be invested successfully in large new sources of supply is one of the biggest lies they tell us, a lie that is perpetuated by the MSM.
I can not emphasize the importance enough of what I've just stated above.
best, Dave
But the real issue is not whether total production rates will be higher than in some previous period (they may or may not, for some time to come, depending on whether we are at the peak), but whether production rates will be greater if they make the investments than if they don't make the investments.
Clearly, if they had stopped making the investments, there would be lower production rates than if they had not stopped the investments.
If production rates were staying even year-on-year despite large investments (itself not true -- on average over the past few years the world production rate has still been rising), then if they were not making that investment the output would be going down even faster.
The investment is important whether it is used to increase total production rates or to slow the decrease in total production rates (actually, even more so for the latter).
So it probably all comes down to the fact that decisions of control are made by decrepit old farts and not forward looking youth.
"The total alteration in underlying circumstances has not been squarly faced. As a result, we are guided, in part, by ideas that are relevant to another world."
Peak Oil is symptomatic of the problem but does not constitute a monoploly over the concept. In the PO world, every oil company is making increasing profits for itself and thus doing as Adam Smith commanded, doing the best for its own self interest.
Yet when you step back (as M.K. Hubbert did) and add up the total numbers and total trends you realize that the trajectory of our summed activities is one that takes our society over the cliff (over production peak) and towards a grave yard spiral down into oblivion. There is nothing in the Adam Smith model that forces participants to look out for the common welfare --for the long-term good of their neighbors as well as for the short-term benefit to themselves.
In addition to making $8.4 billion in the first quarter and investing $4.8 in capital spending (+41%), ExxonMobil spent another $7 billion on shareholder distributions (+67%), consisting of $2 billion in dividends and $5 billion in share repurchases. (Source)
If you believe in the theory of the "core competence of the corporation," which essentially boils down to "stick to your knitting," then it is better for XOM to return capital to shareholders rather than to make a series of potentially ill-conceived investments in alternative energy. The shareholders can then reallocate their investment profits as they see fit, including making new investments in alternative energy.
Full disclosure: long XOM.
While XOM has returned a lot of $$ to shareholders, I believe it was RR who said Conoco invested all of it's profits and then some. Not sure what the other IOC's are doing, but I'm wondering why we see the difference between CP and XOM.
I'd like to take a closer look at one of RR's assertions as well, namely that "energy investments are extremely profitable right now."
If you're talking about buying shares of XOM, then I'd agree that's profitable, but does not represent real investment.
If you mean real investment in rigs and exploration, I'd like to see this threshed out a bit further. It's my understanding that the IOC's are extrememly profitable right now because they are selling oil that costs $20/barrel to extract. It costs $20 to extract because these are older fields that have been developed in the past.
My concern is - are NEW oil projects really that profitable? I've seen plenty of information right here at TOD to indicate it might not be so. Drilling costs are going up a lot due to rig shortages, manpower shortages, commodity shortages (like steel) etc. Energy costs themselves play a part. And finally, the oil fields that are discovered are smaller than in the past and yield less recoverable oil.
Maybe that means it costs $30/barrel instead of $20/barrel to extract the oil, in which case it would still be a very profitable investment. But maybe it costs $60/barrel for new projects, in which case the margin is too low to justify the investment, especially if the IOC's are afraid of the price going down.
Basically I'm trying to see how the numbers work out. I've seen qualitative information that could be used to argue either side.
It's just a different philosophy between the companies. Some on Wall Street have actually complained that COP is investing too much back into the business. One analyst said this after last week's earnings release.
I'd like to take a closer look at one of RR's assertions as well, namely that "energy investments are extremely profitable right now."
I didn't write anything like that. I said "they see the extraction and refining of oil as the core business for a long time to come", and that this is driving investment decisions.
RR
My apologies. Indeed, you wrote nothing of the sort. I must have gotten confused (sadly it happens more and more as I get older).
Still, I'm interested in seeing if you have any input on this. What kind of cost/barrel are the IOC's seeing on current investment in E&P? Do you have any info to share?
Hence some people's fondness for the income tax. Discouraging work is a hobby among certain segments.
And ... are there no "goods-entering the country tariffs" for goods entering the U.S. ? I'm no expert, but I'm really surprised by that. I could have sworn I'd read about tariffs for goods enetering the U.S. (timber from Canada, ethanol from Brazil, maybe sugar ...)
Residential property taxes place the most burden on those who are retired and have their home values rise tremendously, not on higher paid workers.
As for purely financial assets, if I have my money in my matress, it is true that it is not taxed. If I have it in government bonds, it is not taxed. However, for virtually any other use of financial assets that results in a financial gain, that gain is subject to tax when the gain is realized.
When the income tax was introduced, it was for many years only a tax on the very highest incomes. It was broadened over the years to include even modest incomes.
The biggest lie corporations tell us is that they create jobs. Show me a prospectus or corporate charter that says it is the goal of the corporation to maximize the number of employees. Corporations are constantly looking for ways to do without the employees they already have. They just call it improved productivity.
I do know that corporate property taxes raise quite a large amount of money in my state.
I was merely pointing out that in general real capital is taxed, because Brian had implied that it wasn't. He also implied that we don't raise taxes with tariffs, which we do.
Thanks
See http://www.usitc.gov/tata/hts/bychapter/index.htm for an impressive list of tariffs for items entering the US. It lists 99 categories, each of which lists quite a large number of items.
Lowering of taxes by Bush & Co. went hand in hand with the idea that they would tax people indirectly by inflation (expanding the money supply). The war must be paid for and using inflation distributes that cost over the world rather than only the american tax payer.
You comment about the limitations of scaling down process industries is right on. This is one of the reasons why things like chemical plants, metals smelting operations, and paper mills tend to be larger rather than smaller.
Then you have the problem of labor. The process industry is not very labor-intensive, but there is a certain irreducible level of labor that is required. It might take one operator per shift to oversee the operation of a 100 ton/day chemical reactor. However, it might still require the same one operator per shift to oversee the operation of a 10 ton/day chemical reactor. So, the smaller operation gets hit with higher unit labor costs.
A lot of people advocating highly localized industrial manufacturing and power generating operations don't sufficiently appreciate the problem of scale. I'm not saying that the problem is insurmountable, but it is there nonetheless and must be factored in when considering such schemes.
The very worst example I can think of is Mao Zeodong's edict sometime during the 1950s that each village was supposed to build its own steel smelter so that each village would be self-sufficient in steel. Well, there wasn't exactly an abundance of skilled metalurgists in rural China at the time, and the result was that the steel produced was typically of such wildly varying composition and of such poor quality that it hardly even qualified as steel and was found to be virtually useless. Villages began to pile up mountains of the stuff. It was a collosal failure, as I'm sure any experienced Chinese steel person knew it would be from the start but who rightly feared for their lives if they dared tell Glorious Leader that it was an inherently dumb idea.
What it says to me is that the oil producers, who have the best information and the most to gain, do not believe in near term Peak Oil. Also renewable energy systems are not a good investment for them. Part of this might be a hangover from the 70s when big investments in renewables failed to pay off. The Peak Oil Now argument is that these people must be deluded and should be putting their money elsewhere.
This does not mean that the Peak Oil argument is wrong per se, but I have difficulty believing that the oil industry insiders who put down all these billions could be as blinkered as the Peak Oil advocates imply.
Furthermore, more and more oil is in the hands of NOCS and the big oil companies should recognise that sooner or later these NOCS are going to come to their door looking for all that fancy EOR technology. The exception of course is Saudi which has large investments in oil technology of its own. It is all very well for Venezuela to nationalise its oil industry but what do you do when production starts to drop. They will need the expertise of private companies such as BP, Exxon etc.
High oil prices will fuel investment in renewables by themselves. The oil companies will do what they do best, producing oil.
This is simply not true.
Oil companies find previously untapped oil deposits every day.
Investment goes toward this, as well as drilling new wells in previously known deposits, and to maintaining production from currently producing wells.
I can't recall hearing an oil company say "Don't worry-the big oil finds are right around the corner" ... do you have a recent source for this quote ?
However, to say that the size of the largest new fields is declining, or that we are discovering one barrel for every six used, in no way proves the point that the investment is wasted. Quite the contrary.
If you would like to try to make that argument, let's hear it.
Like they do in India and Brazil.
http://www.communitysolution.org/04conf/af1.html
Tax away!
Robert Rapier, have you heard of Blume? Is this viable?
And here's a clickable link :)
"You take the carbohydrate, whether it is sugar or starch, and nowadays we are up to being able to use cellulose as well, the plant fiber that is part of every living plant, and break this down into sugar. We feed it to yeast. And then the yeast do an imitation of humanity. They go ahead and eat everything in sight until they pollute themselves to death and choke in their own waste. So that gets up around 12 percent or 13 percent alcohol..."
First, he goes on about how they used to make ethanol, and how great this was. He ignores the fact that even the pro-ethanol USDA will admit that the energy balance only turned positive in recent years. So, all those years of making moonshine to burn in engines were done at a net loss of energy. In fact, even today the only time the energy balance is positive is when applying modern farming methods and using the most up to date ethanol plant technology.
He makes the following claim: The more complete analysis of subsidies for oil show it to be subsidized at about $15 per gallon. Now, any time someone makes such a claim, they are either completely ignorant, or they are intentionally misleading people. Let's think about that for a minute. A $15 per gallon subsidy? So, a barrel of oil is subsidized at the rate of $630? We use about 3 billion barrels of oil in this country a year. So, he is suggesting that oil is subsidized at the rate of almost $2 trillion a year. His credibility is completely shot right there. But that's not all.
He claims: So, we first get alcohol, we also by the way got CO2, because carbon dioxide is given off during fermentation, we collect that and sell it, and we also get the dry distillers' grains. Right, because there is such a big market for CO2. Hey, I think I just solved the sequestration problem for power plants. Just collect the CO2 and sell it. Simple as that.
He commits the expected ad hom on Pimentel, and then makes the positively ludicrous claim that the energy return is actually 2.94:1. Not even the USDA makes that claim, and they are counting the by-products as BTU outputs. Another serious shot to his credibility.
He goes on and on about Brazil, while ignoring certain facts about Brazil like 1). They use sugar cane, which gives about twice the yield of corn; 2). Their per capita energy usage is far less than ours, because those people who do drive own tiny little fuel efficient cars.
He claims: And as my study shows - we took an average field in Nebraska, 160 bushel per acre cornfield... The average yield in Nebraska, according to the most recent USDA study, is 134 bushels per acre.
He says we burn 160 billion gallons of gasoline a year, so we will need 160 billion gallons of ethanol a year to replace it. Bzzt. He is overlooking the energy inputs to make the ethanol, and he is overlooked the fact that ethanol has fewer BTUs. He addresses this later in the essay, so I don't know why he didn't catch this before he published the essay.
His yield comments in the Q&A are grossly exaggerated. You will never see any scientific study report yields that high. I could go on, but that's enough.
In conclusion, you have pseudoscience, false claims, exaggerations, and conspiracy theories all in one neat essay. When he publishes this in a peer-reviewed journal, I will take his claims seriously. For now, he shot his credibility with me by making claims I know to be false.
RR
But think again about the magnitude of that number. $2 trillion is almost equivalent to the entire budget of the United States. To argue that oil companies are subsidized to that level is ludicrous.
RR
I'm still confused about the 30% less mpg number that anti-ethanol people use. I've seen numbers ranging from -30% to +15%!
http://www.fueleconomy.gov/feg/byfuel/FFV2000.shtml
You will see a substantial drop in gas mileage. The pro-ethanol people will claim that you can change the compression ratio and get some of it back, but I have yet to see a government study showing that.
RR
When it suits your argument.
So either the government is full of ethanol worshippers or people who see it as a fraud. Which is it? You can't decide, can you? Oh, right, when it suits you.
I repeat, ethanol need not have any fossil fuel inputs into its manufacture. India and Brazil have many plants just like that now.
I repeat, BTU's are not a valid form of measurement in determining the efficiency of liquid fuels. Ethanol's high octane and better efficiency as a fuel more than compensate.
I'm sorry you see corn as the only possible source for ethanol in this country. Very narrow-minded You seem only to see the world as you think it is, not as it could be. That's very Pimentel-like, he refuses to look beyond existing systems and design new ones.
I would hope you would try to find solutions. Better energy system design is always the answer in these matters.
And first hand studies have shown mileage can be as good if not better.
Why do you say it can be done if the government says so? Why don't you listen to people who've done experiments and found otherwise? Because they don't fit your paradigm?
When it suits your argument.
So either the government is full of ethanol worshippers or people who see it as a fraud. Which is it? You can't decide, can you? Oh, right, when it suits you.
Please do not misrepresent me. It has nothing to do with whether or not it suits me. It has to do with whether I find gaping flaws in the research. The USDA studies have gaping flaws, and I have documented them on my blog. I have dissected them in detail, and had correspondence with the authors in which we discussed these errors. If you are aware of some gaping flaws in the mileage tests to which I linked, now is the time to bring it out. Ad hominem arguments and hyperbole won't get you very far with me.
I repeat, ethanol need not have any fossil fuel inputs into its manufacture. India and Brazil have many plants just like that now.
I repeat: The situation in Brazil is very, very different. The ethanol yield from sugarcane is much higher than from corn, which reduces the amount of fuel required for the distillation. This is not the case with most substrates. Let me know when someone in the U.S. builds a process that doesn't require a healthy input of fossil fuels.
I repeat, BTU's are not a valid form of measurement in determining the efficiency of liquid fuels. Ethanol's high octane and better efficiency as a fuel more than compensate.
Not according to multiple published mileage studies. BTUs and not octane push your car down the road. Gasoline burns with a very high efficiency. For ethanol to compete on an efficiency basis, you would have to have unburned hydrocarbons coming out of your exhaust. But well over 99.99% of the gasoline is combusted in the engine. Given that ethanol only has 70% of the BTUs of gasoline, it can't make up the difference via efficiency.
I'm sorry you see corn as the only possible source for ethanol in this country. Very narrow-minded You seem only to see the world as you think it is, not as it could be.
Open mouth, insert foot Fuelaholic. I have actual experience with this. I have made ethanol from wheat straw, bagasse, corn stover, municipal solid waste, and sewage sludge. I have done the energy balances and run the economics. What is your experience? Do you have something other than what you have read on the Internet? I am interested in real arguments, not hyperbole and ad homs.
And first hand studies have shown mileage can be as good if not better.
Why do you say it can be done if the government says so? Why don't you listen to people who've done experiments and found otherwise? Because they don't fit your paradigm?
What do you think my paradigm is? I have spent years researching alternative energy in the lab. I am all for alternative energy. I am just not for wasting money on boondoggles. But I am anxious for you to tell me what my paradigm is. As far as the mileage studies that show that ethanol "can be as good if not better" - show me. All I have seen is anecdotal evidence. I have never seen any actual scientific tests that showed anything other than your mileage will drop when you use ethanol.
Your turn. Let's see some actual arguments.
RR
Saab has yet to announce official mpg figures, but the performance boost from E85 comes with an approximate 12.5 per cent increase in combined consumption.
RR
"I repeat: The situation in Brazil is very, very different. The ethanol yield from sugarcane is much higher than from corn, which reduces the amount of fuel required for the distillation. "
This is patently false. The yield per ton of sugar cane is less than
for corn although the yield per acre is higher. Yield per acre only
affects the energy used to grow the crop not the energy of distillation
as you state above. What's different about Brazil, which gets over an
8:1 return on energy input (Macedo 2002) is that they use bagasse to
power the plant instead of fossil fuels. Although I am not a fan of
corn, using corn stover to fire boilers, or distiller's solubles to
produce methane to power the plant are both viable means to eliminate
all fossil fuel inputs for distillation. India chooses the methane
route, Brazil the biomass fired boiler routes. Neither needs fossil
fuels. All it will take is natural gas to go over $12 per million btus
and all the US alcohol plants will install methane digestors rather than
just the new ones going in. There is already one US plant that feeds is
mash byproduct to cattle, produces methane from the manure to run the plant.
"This is not the case with most substrates. Let me know when someone in the U.S. builds a process that doesn't require a healthy input of fossil fuels."
Using corn as the primary source of ethanol as a fuel is intellectually
dishonest since corn is a minority crop in world alcohol production.
"I repeat, BTU's are not a valid form of measurement in determining the efficiency of liquid fuels. Ethanol's high octane and better efficiency as a fuel more than compensate."
"Not according to multiple published mileage studies. BTUs and not octane push your car down the road. Gasoline burns with a very high efficiency."
False. Gasoline is essentially refinery waste after producing everything
valuable from oil. Everything else gets dumped in gasoline; over 400
different chemicals on any given day. As a result engineering for
gasoline has to deal with widely varying fuel characteristics and must
be done for the lowest common denominator. It is a rare gasoline engine
that tops 20% thermal efficiency. Alcohol, a single substance, capable
of taking high compression rates has been proven in D0E studies to top
40% thermal efficiency yielding 22% better mileage than DIESEL in a
modified diesel engine. Btu's are not a measure of fuel's work. Btu's
are a heat measurement and heat is a waste byproduct of engine work.
Alcohol turns much more of its energy into work and less into heat. If
Btu's were all that mattered you'd put diesel in your tank or better yet
candle wax since they have higher btus.
The point is that fuel qualities and their exploitation is what makes for MPG. The current Saab 9-5 flex fuel vehicle in Sweden has a variable turbocharger so it can generate high compression when running on alcohol. It advertised the same mileage whether on gas or alcohol if it is driven the same way (instead of enjoying the thrill of more torque and horsepower on alcohol.) In
essence on accelration is has better mileage on alcohol and when
cruising slightly lower mileage. It is a big compromise over an alcohol
only engineered engine. Nothing like proof on the ground to diffuse
hyperbole about btus. Reports in auto magazines without professional
drivers to reduce the vaiables, show a small loss but certainly nothing
on the order of btu projections.
University of Minnesotas studies on unmodified gasoline cars running 30%
alcohol had a range of results from less than a 2% mileage loss up to
over 10%. The big difference appeared to be in the sophistication of
the vehicles software with the Ford Taurus having the best results. I
have never lost more than 12% mpg in an vehicle I converted and that
includes carburetted vehicles in the 80's.
All of this is fully documented in my book Alcohol Can Be A Gas due out
later this summer.
"For ethanol to compete on an efficiency basis, you would have to have unburned hydrocarbons coming out of your exhaust. But well over 99.99% of the gasoline is combusted in the engine. Given that ethanol only has 70% of the BTUs of gasoline, it can't make up the difference via efficiency."
Sorry that's incorrect. The exhaust has been processed by the catalytic
convertor, that's why you don't have much more hydrocarbons coming out of
the exhaust. Ethanol typically runs more than 90% lower in hydrocarbon
emissions than gasoline. That's documented in reams of studies. In fact
work I did with Gordon Cooper the aerospace engineer and astronaut back
in the 80's on jet engines showed the exhaust leaving the turbine
cleaner than the LA air going into the turbine in all three major emissions.
"What is your experience? Do you have something other than what you have read on the Internet? I am interested in real arguments, not hyperbole and ad homs."
I have had over 25 years experience in ethanol production and have
worked with all sorts of carbohydrates. In my experience the very best,
most detailed, and world wide respected studies on energy balance come
from Macedo in Brazil and they demonstrate the FACT that Brazil gets between 8-9 units out for every unit in going all the way back to the energy to smelt the steel for the tractor.
http://www.theoildrum.com/comments/2006/5/8/132749/1229/108#108
If Mr. Blume would like to debate the issue, let me know. I won't allow those kind of blatantly false claims that he made above to go unchallenged. He will have to provide references for claims he makes.
Oh, and by the way - I don't even know what this is supposed to mean:
Since you bashed him for having written a paper, versus giving a talk, which is what he was doing, I'll let David Blume respond to your comments.
I didn't bash him, I bashed his claims. The format has nothing to do with it. He did, on the other hand, bash Pimentel with a personal attack.
RR
The Brazilian sugarcane is largely harvest by hand using machetes, a very labor intensive process.
This is not a scaleable, transferable solution.
The relationship between Big Oil and alternative energy in the first decade of the 21st Century is in many respects quite analogous to the relationship between Big Rail and the automobile in the first decade of the 20th Century.
During that time Big Rail was all-powerful, swimming in cash, and had enormous clout in Washington, just like Big Oil today.
Big Rail was too busy making money hand over fist to be bothered by this silly little curiousity, the automobile, just like Big Oil today is too busy making money hand over fist to be bothered by this alternative energy foolishness.
Big Rail always felt that it was in the railroad business, period. It did not comprehend that it was actually in the transportation business until it became painfully obvious that automobile and truck tranportation was going to permanently reduce it to a chronically ill second-class business. Big Oil still feels that it is in the oil business, period. Oh, some oil companies may acquire small alternative energy companies sort of as botique businesses with more public relations than finanacial value. But I think at the core of things, Big Oil will always view itself as producers of oil till the last recoverable drop is pumped and the industry goes the way of Big Rail.
Just as species come and go, so do companies, as well as whole industries. Just as Big Rail wasn't capable of evolving into the automotive industry, it is doubtful that Big Oil is capable of evolving into Big Alternative Energy. If alternative energy ever gets off the ground in a major way, it will be in spite of rather than because of Big Oil.
But the trucks kept getting cheaper, and so did gasoline and diesel, and the gas taxes the rails got passed (so the truckers would have to pay for their own roads instead of getting them for free from the government like the railroads did) went into building more and more roads, and the truckers did a better job of shipping than the railroads did, so the truckers won.
How long do you think it's going to be until Peterbuilt and Mac and the others get together and build a battery powered 18 wheeler that changes batteries every two hours at a truckstop? Set up a coop that standardises the batteries and you just drive over the battery changer and it swaps out your battery and bills your company?