Category Archives: opinion

A Brazilian oil carnival?

 

Inside the Sambadrome during Brazil's Carnival. Image from Wikimedia

My Brazilian friends are recovering from their Rio carnival, which ended on Tuesday. One of these years, I’ve got to go and throw my Dutch, and usually somewhat reserved, self in the energetic mix.

Brazil is not just famous for its carnivalistic energy, but also for its liquid energy. In the Bush years, Brazil was heralded in DC as the big example for ethanol production. The sugarcane ethanol produced in Brazil would not make a great dent in our consumption. At its peak it is just under 0.5 million barrels per day, which is around two-thirds of the daily US ethanol production and under 3% of our total daily consumption. I am no fan of biofuels and would not applaud a growth in this area, not here and not anywhere. Sugarcane plantations in Brazil have driven other crops further into the Amazon leading to deforestation, have led to depletion and erosion of valuable land, and many have been proven to abuse large numbers of poor workers for the benefit of the few, as Father Tiago so passionately describes in his 2007 interview.

But, it is not really ethanol that Brazil is known for in liquid fuel circles. Instead it is its growth in oil and gas production, particularly offshore.  The oil, and gas, production in Brazil is predicted to increase dramatically in the next decades. Petrobras, the Brazilian oil company, is rapidly growing, in Brazil and overseas. In 1999, Petrobas was listed as the 27th largest energy company in the world. This year, it surpassed Chevron and Shell, based on total value (not on annual production) and entered the top 3. This is an incredible growth in just over a decade.

Brazil - The first 100% Brazilian oil platform...

Petrobras' P-51 offshore platform, the first platform built entirely in Brazil. Image via Wikipedia

And Petrobras is hungry to expand further through a five-year investment program of over 200 billion dollars total. This should allow Petrobras to double its production in ten years to over five million barrels of oil per day. Where would it get all this extra oil and gas? The company would tap into the vast pre-salt reserves that have been discovered far offshore and very deep below the ocean floor.  These reserves are very hard to get to as they reside underneath large salt layers or domes. Pre-salt drilling requires much higher pressure than typical offshore oil and the salt layer may shift after drilling. Known for its technological know-how in deep and ultra-deep drilling, the company can probably get to the pre-salt oil, if investors bite. Investors are wary, though, after the BP disaster in the Gulf, and it is not clear if the confidence they have in Petrobras, which is a very well respected company in this field, is high enough to warrant the loans. The tenacious relation that Petrobras has with the Brazilian government doesn’t help. The government now also requires that Petrobras be the lead operator on offshore developments in Brazilian territory. Norway has similar requirements and it has served that country well. The Brazilian government no doubt hopes that revenues will help lift Brazil out of poverty and support its rapid growth.

Despite these uncertainties, there is no doubt that Brazil will be a strong and growing exporter of oil in the years to come. With a dwindling excess capacity in OPEC, and turmoil in the Middle East, this is perhaps not so bad.

What to think about natural gas?

Large scale renewable energy projects are not in a great place right now. Last week I wrote about the threat posed by sections 1425 and 3001 of the House Continuing Resolution (CR) that would eliminate the loan guarantee program for renewable energy projects. But even if these sections are removed, there is a growing push away from large scale renewable energy production to gas fired power plants as primary candidates for replacing coal plants. Proponents argue that renewable energy can not grow sufficiently fast at this stage, and that there is an abundance of gas in the USA and friendly nations. Also, which is true, natural gas plants will on average emit only half as much carbon dioxide as coal plants. There is particular enthusiasm in the US for shale gas. Partly this is because of the large estimated shale gas resources in the continental US. But primarily, the excitement results from the relative ease with which shale gas has thus far been produced. This is true in particular for the Barnett shale. Excellent production numbers in the Barnett spurred intense exploration of other shales.

But, there are a couple of issues missing from most discussions, including the recent article in the New York times.  Let’s first focus on production. Shale gas is not an easy to produce fuel. Shale is a very low permeable rock. To enable production, gas flow must be stimulated, which is typically done by fracturing the shale, thus creating flow paths for the contained gas. “Fraccing” is still more an (engineering) art than a science: when designing a production process little is known about the rock properties of the deep lying reservoirs. A successful Barnett does not guarantee that similar production successes will be booked in other fields with different geologies at different depths. I believe therefore that the gas industry is over-estimating the ease with which shale gas can be explored. The other issue is political in nature. Many of the coal states also contain shale gas resources. This no doubt makes it easier for any administration to sell a shift from coal to gas, rather than from coal to renewable energy projects. And I wonder how much this political advantage plays a role.

I have no doubt that it is a good idea to replace some of the coal with gas as soon as possible. But this should not come at the detriment of investments in renewable energy projects. Wind and large scale solar are at a stage where they can be implemented, relatively fast. Costs are claimed to be too high still, but as I’ve argued often before, there is no level playing field. Hidden tax advantages for fossil fuel projects are typically not taken into account, and investment money available to the renewable energy industry is simply not as cheap as that for other energy resources. Certainly without a loan guarantee program, capital costs will be too high.

The argument is often made that we should keep investing in renewable energy projects, but need large shale gas investments now to create a bridge between a coal dominated electricity industry and one based on renewable energy production. But, it is a zero sum game, and would it not be a bit naieve to think that after huge investments in shale gas and natural gas production, the gas industry would happily phase itself out in a decade or two? I believe that this simply won’t happen: unless we prioritize renewable energy now, we’ll be living in a gas dominated USA in the future. It may give us fewer carbon emissions than coal, but its emissions is still far above zero.

One step forward, ten steps back??

Politics is full of surprises, but this week gave a very nasty one in the form of sections 1425 and 3001 of the House Continuing Resolution (CR) now under consideration. These sections would abruptly eliminate the Department of Energy’s loan guarantee program for clean energy. Just like that. After the long hard fight we had for those same loan guarantees in the last two years, after we finally got loan guarantees for several large scale solar plants in the Southwest that would allow the solar industry to get its foot in the proverbial energy market door. This is not just a step back, this is ten steps back. If we cannot break ground this year on several of these large scale solar projects, it would deal a devastating blow to the US solar industry.

In the words of Arthur Haubenstock of BrightSource (about to break ground on the Ivanpah project): “It is a terrible threat to a fledgling industry”.  Arthur thinks that Ivanpah itself may not be affected, depending on when Ivanpah can close financing, but it would certainly  jeopardize other projects, such as Blythe, and send exactly the wrong signal.

An alarmed Senator Feinstein sent a letter to congress on Tuesday expressing her concern and strong opposition to these CR sections. She writes that “Five conditional loans already issues to renewable energy projects would have to be withdrawn, while 26 loan agreements with final term sheets in hand could never be completed”. These projects affect 35,000 US workers and $9billion in equity investment from the private sector.

Congress created the loan guarantee program in 2005 to assist large innovative energy projects that face great challenges in obtaining affordable long-term financing in the financial market. The total allocation since then has been $23 billion. This may sound like a lot, but for every dollar appropriated, the loans drive thirteen dollars of private sector investment. Other countries are supporting the renewable industry with similar guarantee programs. China, for example, provided nearly $37 billion in project financing last year through the China Development Bank.

What gets me also is that at the same time as these cuts, large loan guarantee programs are proposed to support nuclear development.

All in all, this is a shortsighted CR, which could hurt the US renewable energy industry, a lot. I’m following the debate anxiously.

 

Oil shocks and oil peaks

Wikileaks and oil peaks. Not a completely surprising combination and this article is a nice read. But, it’s been clear for a long while that the oil market does not have much excess capacity and resource estimates are notoriously uncertain and often exaggerated for political or economic gains.

Peak oil is simply expected, and could arrive sooner than we imagine. Non-OPEC crude oil production has declined since early 2005, despite record-high oil prices. And the shift to unconventional substitutes—a symptom of peak oil, rather than an argument against it—is well underway. These substitutes, such as tar sands, are not an easy substitute for crude oil, as they are hugely capital and energy intensive. One wonders whether energy providers would go to such lengths to fill our gas tanks if peak oil were only a myth.

Both supply and demand for oil are relatively inelastic (that is, they do not respond readily to prices), causing the price of gasoline to rise and fall more rapidly than our other regular purchases. Even small shortfalls in crude oil supply can cause significant price increases. Therefore, when spare capacity is tight, real-world events in far off places can have huge impacts on our economy. This has been observed numerous times in recent decades, and the effect has been worsened in recent years by stagnating production from existing conventional oil fields, as was clearly evident in the strong oil price peak in 2008. I will not be surprised at all if a new oil price shock will happen soon.

As another note to this article, the real risk of peak oil isn’t that we’ll run out of fuel – it lies instead in what we will do to avoid running out of fuel. The risk is that we’ll respond with piecemeal solutions that emphasize one aspect of the problem while making others worse.

But, expect a volatile oil price in the next years, with sudden peaks and slow declines in between. It won’t be pretty, but we don’t need wikileaks to point that out to us.

Frequent Questions

I’m frequently asked similar questions in my classes, at seminars, on the Smart Energy website and facebook page, or at the coffee shop. Below are some of my answers. If you don’t see the answer to a question you have, leave a comment at the end of the post.

Global warming

Do you believe in global warming?
A better question would be: do you believe that human activities have the potential to affect global climate? The answer to that is yes. Let’s discuss.

Three important observations have been made. First, the scale at which we are emitting green house gases is large enough to affect atmospheric concentrations. For example, there is a very strong correlation between atmospheric carbon dioxide concentrations and the level of human carbon dioxide emissions. So, no question there. Second, there is clear and mounting evidence that the averaged global temperature is rising. Third, comparing carbon dioxide concentrations over many thousands of years to global averaged temperatures, it appears that temperatures increase at the same time as carbon dioxide concentrations increase.

Looking at these observations, it is not a far stretch to conclude that carbon dioxide emissions are affecting global warming, and that the globe will continue to warm if carbon dioxide emissions continue to grow. Most leading global climate models predict a temperature increase for increasing carbon dioxide emissions. Now, it is true that these models are not guaranteed to be 100% accurate. Global climate prediction involves many physical processes that have complex interactions, and not all of these are fully understood. But, what they do show is that there is a strong likelihood that increased GHG emissions affect global climate. That together with the observations made, convinces me that our behavior impacts global climate. And the consequences of this impact can be severe. If there is a risk, with potentially severe consequences, we should insure ourselves against it. No question.

By how much will global temperature increase over the next 30 years or so?
We can not say. Maybe a lot, maybe not that much. The physics is too complex to make accurate predictions. But, that does not mean we can just forget about it all together. As I argue above, the risk that global temperatures will rise is high. We can not afford that risk.

Is there anything we can do? Are we not too far down this path to change anything?
The worst we can do is nothing. And yes, I do believe that we can make a difference. There is no immediate silver bullet, but there are various ways to reduce emissions and change behavior: first and foremost efficiency, then renewables such as wind and solar with electric transport, carbon capture and storage, cleaner fossil-fuel production, cleaner coal burning. We need a portfolio of actions. But most of all we need to stop arguing about who is right and who is wrong and accept that there is a risk, and that we should to our utmost to mitigate it.

Fossil Fuels

Are we running out of oil anytime soon?
Nope, we are not. The easy-to-produce oil reserves are declining, but there is plenty of oil to be found that is non-conventional, including heavy oil, shale oil, tar sands. Estimated resources are a couple of trillion barrels total: enough to last us for quite a few decades. This is also a frightening thought: there is oil, it will likely be produced unless we wean ourselves off oil by moving to alternative transport, but both production and consumption of this oil is damaging to the environment.

Can the US become energy independent any time soon?
No, we cannot. I know this is claimed by many a politician, but it is impossible. We currently import over 10 million barrels of oil per day, more than half of our consumption, and mostly used for transport. I’m not a fan of biomass production for ethanol, but even if we did go that way, there is not a chance we can replace our imports with nationally produced ethanol, not in the next few years and not in the next few decades. The only way to make an immediate impact on imports, and reduce our oil dependency is to consume less. High mpg cars, fewer car trips.

Is it true that we are importing most of our oil from the Middle East?
No. Here are approximate import numbers: almost 20% from Canada (!), around 12% each from Mexico, Saudi-Arabia and Nigeria, 10% from Venezuela and the rest from a list of other countries, all supplying 6% or less. Total imports from OPEC countries are around 40%. Surprised that Canada is our biggest exporter?

Renewables

Why are you such a strong proponent of solar energy?
Because solar energy is the most abundant resource, far exceeding any other renewable energy resource we know of. If we develop technologies to capture this energy effectively, we are in good shape.

Is wind cost-competitive?
Yes, now it is, on good sites onshore. Off-shore wind is still more expensive in terms of costs per kilowatthour of energy produced as compared to coal-fired, gas-fired or nuclear power plants. But that is also only if external costs (health effects, pollution) are not taken into account. It’s frequently claimed that without tax incentives, wind would not be economical. This is a bit unfair, as every energy resource is subsidized, one way or another.

2010: the Year of the Solar Battles

2010 may well become known in the renewable and environmental community as the year of the solar battles. Battle is definitely brewing in California, with the main focus at the moment on Brightsource. Just before the new year, Senator Feinstein introduced a new bill that she hopes will help balance preservation of the Mojave desert with recreation and renewable energy development.

What makes these discussions difficult is that not all relevant knowledge is available (such as impact of large scale solar construction on the desert tortoise habitats, or probability of success of transmigration of such species to other areas). And as always, there are so many different interests at stake.

We’re organizing a forum on large scale solar deployment in April. In preparation, we’ll write a series of fact sheets or lack-of-fact sheets on utility scale solar. As soon as these are finished, I will post them here.

This utility scale solar debate is very reminiscent of the debates on large scale wind projects we had one or two decades ago.

Copenhagen – as expected

Today’s NRC, a Dutch newspaper I like akin to the NYT, heavily criticized the Copenhagen meeting, and it was not alone. All major newspapers expressed dismay after the speeches held by Chinese prime-minister Wen Jiaboa and President Obama. I was not overly enthused by their speeches either. Both repeated mostly old statements, praised their own proposed steps forward, and accused the other of hampering global progress and signing of an effective Copenhagen treaty.

Wen expressed strong desire to keep to the Kyoto-protocol. He said it is essential that developed nations strongly reduce emissions, and that such emission reductions are mandated. Developing nations, however, should contribute only on a voluntary basis. This includes his own country China. His reasoning? Developing countries are simply not responsible for the onset of global warming and should not pay the price.

The US wants to set emission limits for developing countries also that are to be imposed by an international regulatory framework. Obama made it clear that there will be no additional concessions from the US. “This is the bottom line”, he said.

Before his speech, Obama met with Sarkozy (France), Merkel (Germany) and Brown (UK), amongst others, in a last minute effort to move things forward, but apparently to no avail. As I write this, negotations are still continuing. It is expected that the treaty will set a maximum allowable warming of two degrees. But, it is also expected that the proposed emission reductions will not add up to the necessary number, as agreed by the IPCC, to stay below this upper bound.

However, there are certainly some good developments to report on. Hilary Clinton promised the US would help establish a climate fund worth 100 billion dollars to help assist developing countries with necessary technologies to reduce GHG emissions. And China seems willing to now allow an independent international committee to audit its emissions.

These may be small steps, but history has shown that global climate initiatives are very hard to come by. I actually believe that a global treaty would not be the most desirable in any case. Climate solutions are inherently local. They are dependent on resources, on infrastructure, on trade, and of course on mutual benefits because nothing is driven solely by charity. Effective agreements that really may lower GHG emissions can be made, I believe, only at the regional or local scale: country with country; within existing trade organizations; within economic entities. Searching for a global compromise in a way may be actually ineffective: all goals will get diluted because there is simply not one recipe that works for everybody. So, goals and aspirations converge to the very lowest common denominator, and that is indeed rather low.

The real impact of Copenhagen is not measured now. Like with Kyoto it is measured in the years to come. Kyoto seemed disappointing but it did lead to more talk and more action within smaller groups.
There is an interesting paper on such dynamics by Keohane and Victor, titled “The Regime Complex for Climate Change”. The authors explain why efforts to regulate climate change have yielded narrowly focussed regulatory regimes rather than a comprehensive outcome.
They first observe that climate change is not a single problem but actually a series of distinct cooperation challenges with tight couplings. For example, the creation of successful emission trading programs is tightly linked to supplying funds needed to compensate reluctant developing countries that are wary about spending their own funds on global projects.
They go on to argue that successful cooperation despite incentives to defect usually hinges on the creation of private goods whose benefits can be concentrated on the countries and firms that make the first moves in building effective regulatory arrangements. These efforts are much more successful when numbers are small and issues are narrow. Experience selects only the few regulatory changes that deliver benefits to important players. And from players a regulatory regimes form “bottom up” rather than through an integrated, comprehensive original design.
The paper is especially interesting because it gives several good examples of effective changes that resulted from Kyoto.

So, I keep my hopes high. Copenhagen was as expected, no more and no less. The real benefit of the Copenhagen meeting can not be measured now, but in the coming year, at regional or national levels. In reducing emissions, “Think globally, act locally” certainly applies.