Energy

Another Confirmation of Oil Depletion

2010-04-22T19:33:00.000-07:00

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Of all the very large companies in the oil business, one has to particularly admire the business strategy of Schlumberger. This company is the world’s leading supplier of technology, integrated project management and information solutions to customers working in the oil and gas industry. Employing more than 87,000 people in approximately 80 countries, Schlumberger attempts to work with the national governments that actually own the world’s oil resources on a cooperative basis. This non-competitive, cooperative, strategy brought Schlumberger revenues of $27.16 billion in 2008.

Because of its stature, I listen when this company comments on industry trends. In the following excerpt from a January 23, 2009 press release, Schlumberger Chairman and CEO Andrew Gould talks about the availability and price of oil. I highlighted a few key points in italics:

“….. The sharp drop in oil and gas prices due to lower demand, higher inventories and the belief that demand will erode further in 2009 as a result of reduced economic activity, is leading to rapid and substantial reductions in exploration and production expenditure. At current prices most of the new categories of hydrocarbon resources are not economic to develop. It will take time for inflation to be removed from the system and to bring finding and development costs more in line with lower oil and gas prices.

We expect 2009 activity to weaken across the board with the most significant declines occurring in North American gas drilling, Russian oil production enhancement and in mature offshore basins. Exploration offshore will be somewhat curtailed but commitments already planned are likely to be honored. Seismic expenditures particularly for multiclient data are likely to decrease from last year. …

The key indicator of a future recovery in oilfield services activity will be a stabilization and recovery in the demand for oil. The recent years of increased exploration and production spending have not been sufficient to substantially improve the supply situation. The age of the production base, accelerating decline rates and the smaller size of recently developed fields will mean that any prolonged reduction in investment will sow the seeds of a strong rebound (in exploration activity). ….”

For those of us who have been concerned about oil depletion, this statement provides yet another confirmation of our analysis and conclusions. Most of the new categories of hydrocarbon resources (including “tar sands”) are not worth developing unless world prices are higher than the current $45 per barrel of oil equivalent. The decline of hydrocarbon resource development guarantees deficient supplies when the world economy recovers. Oil supplies will again be tight, leading to another round of upward price volatility.

TCE
www.tce.name
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Oil Shortages?

2010-04-04T10:31:00.000-07:00

It’s Happened Before. And It Will Happen Again.

Introduction
We love our cars, our pickup trucks, and our SUVs. They present us with the possible. Freedom of movement. Personal mobility. We are no longer confined by the boundaries of local geography. The open road calls. Owning a car has become a rite of passage to personal independence. We have arrived.

And we built our national culture around this concept of personal mobility. It sets the parameters of our space and time, enables the range of daily activity, and expands the universe of opportunity. Approximately 75 percent of America's 135 million workers commute to work. Alone. One person to a vehicle. Only 12 percent of us bother to car pool. Public transportation, once the primary means of personal mobility, now accounts for under 5 percent of commuter traffic – and this mostly in the highly populated North East corridor. Of the remaining commuters, 3 percent walked to work and just over one percent rode a bicycle or motor cycle or climbed into a cab. The rest of us don't commute at all. We work from home.

Our average travel time to work is 25 minutes. But that statistic doesn't mean much to the 10 million Americans whose daily commute to work takes an hour or more, or the millions of Americans who find themselves fighting frustrating freeway gridlock almost every day.

So here we are. The supreme irony.

We have become the captives of our freedom.

Every workday, over 117 million of us get into our vehicles to begin the commuting ritual all over again. Doomed conformists condemned to bear the stress and aggravation of congested freeways.

But wait. Aren't we overlooking something? See that river of vehicles? Millions of engines burning gasoline and diesel fuels. Clouds of hydrocarbon waste. We consumed - on average - over 555 million gallons each and every day in 2005. More than 4.8 billion barrels of motor fuel in a year. Poof. Gone forever. Can we assume we will always have an unlimited supply of affordable fuels to sustain our existing means of personal mobility?

No. Of course not. Shortages are coming. I can not tell you when. There are far too many variables. But the ominous signs are everywhere. Fuel shortages. Higher prices.

Our future.

It's Happened in America.
Yes. Here in the United States. Three times in my lifetime. Ration books in 1942. Long lines at the gas station in 1973. Tension in 1979.

WW2
Although very young, I was acutely aware of WW2 gasoline shortages. I was in charge of the ration stamps. Precious little pieces of paper that bestow the freedom of personal transportation. I hid them in a special place. Counted each one with care. Each coupon was good for a little more of the precious fluid. Automobile owners counted the days until the next issue of stamps were scheduled to arrive. The distance of every trip was carefully calculated. They knew to the drop how much gasoline was left in the tank. And then a crucial decision. Is this trip really necessary?

I do not remember why we got gasoline ration stamps. We did not have a car. But it was fortunate for our family we did get them. They could be traded for ration coupons that allowed us to buy other goods we needed in a land of shortages: food, shoes, fuel oil, and so on. It was very sad. And frightening. More than once, someone would knock at our door, pleading for a few pieces of paper.

And of course with rationing came a sleazy black market in stolen and counterfeit stamps, competition among people of influence for the special privilege of extra rations, and “back room” deals for allocations of gasoline. All very ugly.

GASOLINE - A, B and C coupons each are worth three gallons. T coupons are good for five gallons each. The A coupons numbered 5 must last through July 21, which is double the time of previous ration periods. B and C books bear own expiration dates. Information on price control may be obtained at the O. P. A. offices in the Empire State Building, Chickering 4-7300.

We were all very glad when WW2 ended.

1973 Oil Crisis
Egypt and Syria jointly attacked Israel on October 6, 1973, on Yom Kippur, the holiest day of the Jewish calendar. Other Arab states contributed troops and financial support. When America came to Israel’s rescue, Saudi Arabia then led the Arab world in an oil embargo imposed on the United States and other western nations.

Oil prices increased by 251 percent. The current rate of inflation soared to 6.2 percent in 1973, 10.97 percent in 1974, and 9.14 percent in 1975. Unemployment reached 8.5 percent in 1975. During this period, American oil consumption dropped by more than 4 percent, and oil consumption efficiency increased by over 20 percent.

Congress took desperate measures. It set a maximum highway speed limit of 55 mph, ordered all new cars to have fuel economy stickers, put daylight savings time into effect for the whole year, invoked a car fuel economy standard of 27.5 mpg, and gave tax credits for the development or use of alternative forms of energy. President Nixon ordered the Department of Defense to stockpile oil reserves, had rationing books printed (never used), called for voluntary carpooling, and formed the Department of Energy.

Many gas stations closed on Sundays, refused to sell to customers they did not know, and restricted fuel sales to 10 gallons per vehicle. They often had no gasoline. Motorists waited in long lines for a few gallons of the precious fluid. We turned down our thermostats, burned more wood and coal, purchased fuel efficient cars (mostly Japanese), and carpooled. The airline industry canceled flights and raised the ticket prices.

The oil embargo triggered a worldwide recession. OPEC was now in a position to manipulate world oil prices.

1978 Oil Crisis
President Jimmy Carter appeared on national television in 1977 to declare America’s dependency on foreign oil to be “the moral equivalent of war”. Few listened. Certainly not Congress.

That left America vulnerable – again – when the Shah of Iran was deposed in 1979. Iranian oil production came to a standstill. Oil production was further reduced when war erupted between Iraq and Iran. Shortages pushed oil prices up 162 percent by 1980, and the price of gasoline doubled by 1981. Inflation exceeded 10 percent per year for three years in a row. By 1983, unemployment had reached 9.6 percent.

Tens of thousands of Americans waited – sometimes vainly – in long lines at the filling station. There were shootings, riots and strikes. Congress reinstated controls on gasoline consumption. Some areas imposed an odd/even plan on gasoline purchases.

It took until 1983 to get inflation under control. Unemployment finally declined to 5.5 percent in 1988.

It Happened in Cuba and Venezuela.
Two nations, Cuba (1991), and Venezuela (2002) have gone through the chaos of oil shortages. In both cases, local meat production and locally grown fruits and vegetables suddenly became very important. Local community neighborhoods learned greater self-sufficiency. They had to change their lifestyle in order to get by with less energy. And they were forced to make these changes in a hurry.

Cuba 1991
Fidel Castro called it Período especial en tiempo de paz - "A Special Period in a Time of Peace". It began in 1991, after the collapse of the Soviet Union. It was a period of economic and cultural crisis. Cuba suddenly found that Russia was no longer able to supply it with the economic subsidies and oil products Cuba needed to survive. Oil imports dropped by approximately 53 percent, crippling Cuba's oil fired electric power system. Refrigeration and air conditioning failed. Chronic power shortages crippled transportation, agriculture, and industrial production. Estimated GDP declined by 33 percent, real wages fell, and unemployment soared. There were food shortages. It has been reported that Cuban adults lost an average of 20 pounds.

The Cuban people adapted to the crisis. From 1991 to 1995, they introduced locally grown sustainable agriculture, overhauled their economy, changed their diet, and adopted new lifestyles. They innovated new modes of mass transit. Authorities enforced car-pooling. Locally grown fresh vegetable production increased 10 fold. Annual population growth declined from .8 to .4 percent. Eventually, GDP growth resumed. Although the Cuban people still have severe economic problems, the "Special Period" got them through their initial crisis.

Although Castro runs Cuba like a socialist dictatorship, he did not use coercion to meet the challenges of Cuba's "Peak Oil" crisis. Instead, he loosened the reins on private enterprise. He told his people that things would be very hard. The Cuban people were forced to find their own solutions. They quickly figured out how to get by with less energy.

In some ways, Cuba serves as a model for an energy detensive economy. Cuba has ordered 8,000 high mileage buses from China as well as 12 locomotives to build a rail system. They are continuing the development of a surface mass transit system with trains to travel the length of the island, replacing energy intensive air travel. In January, 2006 Castro announced a plan to decentralize Cuba’s power system, gradually replacing five decrepit thermoelectric plants with smaller, regional plants supplemented by solar and wind power. He also said Cuba had ordered more than 4,000 diesel and oil generators, with more than 3,000 already delivered. Distributed local power systems are being implemented. Organic farms and urban gardens. A home grown mass transportation system. Decentralization and localization. That’s the plan. Conserve, cutback, curtail, innovate and change. Emphasis on cooperation rather than competition.

Venezuela 2002
In less than 12 months Venezuela went through a political crisis and a devastating economic crisis. The coup d’etat of April 11 was followed by an oil industry lockout and strike that lasted from December 2002 through February, 2003. At the time, Venezuela depended on oil for 80% of its export earnings, 50% of its government revenue, and 30% of its GNP. Unfortunately, events drove oil production down from approximately 3.2 million barrels per day in October, 2002 to a low of 25 thousand barrels per day in January of 2003. Production did not recover until May 2003.

Unemployment increased from 11 percent in 2001 to over 20 percent in March, 2003. Inflation rose from 12.5 percent in 2001 to 30 percent in 2002. The market for personal services was decimated. Customers had neither transportation nor cash. The banking system limited withdrawals. Small businesses were forced to close. Fuel deliveries had to be protected by the National Guard. Consumers waited for hours to fuel their cars and trucks. The availability of air travel evaporated. Caracas became a ghost town. Only a few abandoned cars could be found on previously busy 8 lane freeways. Price regulation was introduced to prevent profiteering. There was a shortage of food in urban areas. Thousands of farmers responded by bringing locally produced meat, fruit and vegetables into the City.

This – in a nation with plenty of oil.

The resumption of oil production brought about economic relief and life began to improve by the fall of 2003.

Conclusion
There are four concepts that thread their way through all five of these oil shortages.

There was plenty of oil in the ground. These oil shortages had nothing to do with world oil reserves or potential production. They happened anyway.
All five oil shortages were related, or directly caused, by cultural conflict. A world war. Two regional wars. Cold war isolation. Internal political and labor strife. Above ground factors caused a decline in oil production.
All five oil shortages had a chaotic impact on the affected national economies. All had higher rates of inflation. With the exception of WW2, all produced higher rates of unemployment. Real GDP growth was erratic.
Government could not avert the economic or cultural impact of an oil shortage. People had to fend for themselves. Solve their own problems. Adjust their own lifestyles. We had to solve our personal transportation problems, find new jobs, scramble for food resources, learn to conserve fuels, improve energy efficiency, and so on. Government regulation and welfare could only provide a minimum of support.

On the other hand, we have to be impressed by the resiliency of the human spirit. In every case, we did adjust, we did innovate, we did take the initiative, and we did survive.

So. Here we are.
Every week, thousands of trucks ply our freeway system, delivering vital goods and services to our communities. They all run on fuels derived from oil. Every day, thousands upon thousands of containers move over our docks, millions of passengers land at our airports, and multiple thousands of rail freight cars move through our nation. All powered by oil. Every workday roads are paved, roofs are replaced, tires are changed, prescriptions are filled, lawns are fertilized, bugs are sprayed, and garments are purchased. All of these transactions depend on the unlimited availability of low cost oil.

We are a voracious consumer of energy. We have developed an energy intensive economy and lifestyle. Our culture assumes energy will always be inexpensive and readily available. Our values, laws, regulations, social customs, ambitions, and social progress have been inexorably linked the ever-increasing consumption of coal, oil and natural gas. Material abundance and population growth mirror energy consumption. The freedom of personal mobility is ingrained into our psyche. These things, we believe, are a natural right.

They are not.

America is vulnerable to an energy shortage. We almost had another one in 2005. And eventually a chronic downtrend in energy consumption will occur because it is no longer affordable or readily available. We are going to learn to live in an energy detensive world. Our energy intensive lifestyle will give way to a daily routine that consumes less energy.

Detensive. The word of our future.

TCE
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NPC Report: Hard Truths About Energy

2007-07-20T09:51:00.000-07:00

When I started working on oil depletion in 2003, there were a handful of lone voices in the wilderness sounding the alarm. Since then, the IEA, EIA, multiple government agencies in several nations, and several oil industry executives have determined oil shortages are possible. Multiple reports and books have been written. Congress has taken testimony. Key figures in Washington have made speeches. Although there are some differences in the details, they are trivial in comparison with the broader perspective.

At some point, oil demand could exceed oil supply.

A draft of the U. S. National Petroleum Council’s report “Facing the Hard Truths about Energy, A comprehensive view to 2030 of global oil and natural gas” was released July 18, 2007. It was balanced, well written, and informative. World oil reserves are plentiful. But access to these reserves is limited. The average IOC estimate of production in 2030 is 107 Mbl/day versus an estimated demand of 138 Mbl/day, a 23% shortfall. To quote from the Executive Summary: “Over the next 25 years, risks above ground—geopolitical, technical, and infrastructure—are more likely to affect oil and natural gas production rates than are limitations of the below-ground endowment. This range of outcomes emphasizes the need for proactive strategies to manage the accumulating risks to liquids delivery in 2030.” Assuming these risks do not disrupt production, supplies appear to be adequate through 2015. Production thereafter is less certain.

Precisely the points I make in “The Report on Oil Depletion”. The NPC has confirmed that by 2030, oil demand will only equal oil supply if there is substantial demand destruction. Furthermore, accumulating above ground risks could disrupt oil supplies at any time between now and 2030.

The NPC has acknowledged the importance of dealing with CO2 emissions and Global Warming. The report includes a long list of specific recommendations, including many which deal with energy efficiency and conservation. (Yes. The oil industry is actually telling us to use less oil.) The report conveys a sense of urgency. The NPC has effectively called on Congress to establish a comprehensive energy policy for America that includes the creation of a clearly defined regulatory and legal environment, and urges energy become an key factor in American foreign policy.

The outlook for natural gas is more encouraging. Assuming the unrestricted flow of LNG, supplies will be adequate through 2030. The outlook for coal is also encouraging. Assuming we agree on an ecologically responsible and energy efficient consumption plan, there is enough coal to satisfy America’s through the end of this century.

Like many of my “Peak Oil” associates, I am disappointed the NPC did not give us more specific information, and I am very disturbed that the world’s largest independent oil companies do not have better resource data. Never-the-less, the NPC has opened the door to having a positive, constructive, dialogue about the oil challenges that lie ahead.

Going forward, we need to focus on three things:

1. We need to be sure we take an integrated approach to contemporary concerns about global warming and fossil fuel depletion. Global warming and fossil fuel depletion are in fact evil twins, and if we want to make intelligent choices, we need to deal with them as a package. Let’s start by drawing Al Gore into our discussion.

2. We need to push our elected officials into the formation of an oil and natural gas consumer’s union. Start with the United States, Canada, and the European Union. Invite China and India. This will give our nations the leverage we need to deal with supplier cartels, and – hopefully – lead to resource sharing agreements. I firmly believe working together is a far better option than the existing perilous alternative.

3. We need to find a way to deal with the Middle East. No. It will not be easy. The region overflows with insidious virile hatred. But the unpleasant fact is this: the future of the world’s oil and natural gas supplies depend on what happens in the Middle East. For the sake of world peace, we must control the outcome.

The NPC report confirms what we all knew. It is time to move on. We must work together to mitigate the impact of oil depletion.

As for our political leaders, there is absolutely no excuse to ignore the energy challenges that lie ahead. Time is running out. We need positive, constructive, legislative leadership. And we need it NOW.

To do otherwise would be an act of criminal neglect.

TCE

The GAO Report on Oil Depletion

2007-03-29T20:10:00.000-07:00

Uncertainty about Future Oil Supply

Makes It Important to Develop a Strategy

for Addressing a Peak and Decline in Oil Production

The GAO Report on Oil Depletion

United States Government Accountability Office

February, 2007

GAO (1) examined when oil production could peak, (2) assessed the potential for transportation technologies to mitigate the consequences of a peak in oil production, and (3) examined federal agency efforts that could reduce uncertainty about the timing of a peak or mitigate the consequences. To address these objectives, GAO reviewed studies, convened an expert panel, and consulted agency officials.

Most studies estimate that oil production will peak sometime between now and 2040. This range of estimates is wide because the timing of the peak depends on multiple, uncertain factors that will help determine how quickly the oil remaining in the ground is used, including the amount of oil still in the ground; how much of that oil can ultimately be produced given technological, cost, and environmental challenges as well as potentially unfavorable political and investment conditions in some countries where oil is located; and future global demand for oil. Demand for oil will, in turn, be influenced by global economic growth and may be affected by government policies on the environment and climate change and consumer choices about conservation.

In the United States, alternative fuels and transportation technologies face challenges that could impede their ability to mitigate the consequences of a peak and decline in oil production, unless sufficient time and effort are brought to bear. For example, although corn ethanol production is technically feasible, it is more expensive to produce than gasoline and will require costly investments in infrastructure, such as pipelines and storage tanks, before it can become widely available as a primary fuel. Key alternative technologies currently supply the equivalent of only about 1 percent of U.S. consumption of petroleum products, and the Department of Energy (DOE) projects that even by 2015, they could displace only the equivalent of 4 percent of projected U.S. annual consumption. In such circumstances, an imminent peak and sharp decline in oil production could cause a worldwide recession. If the peak is delayed, however, these technologies have a greater potential to mitigate the consequences. DOE projects that the technologies could displace up to 34 percent of U.S. consumption in the 2025 through 2030 time frame, if the challenges are met. The level of effort dedicated to overcoming challenges will depend in part on sustained high oil prices to encourage sufficient investment in and demand for alternatives.

Federal agency efforts that could reduce uncertainty about the timing of peak oil production or mitigate its consequences are spread across multiple agencies and are generally not focused explicitly on peak oil. Federally sponsored studies have expressed concern over the potential for a peak, and agency officials have identified actions that could be taken to address this issue. For example, DOE and United States Geological Survey officials said uncertainty about the peak’s timing could be reduced through better information about worldwide demand and supply, and agency officials said they could step up efforts to promote alternative fuels and transportation technologies. However, there is no coordinated federal strategy for reducing uncertainty about the peak’s timing or mitigating its consequences. (My italics... TCE)

TCE

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The Hydrogen? Economy

2006-07-01T16:13:00.000-07:00

Although I fervently hope we humans will be able to transition to a "Hydrogen Economy", I also understand the associated challenges in research, development, manufacturing, distribution and consumption. In addition to the usual economic and technology hurdles, we will be forced to deal with a new concept – EROEI (Energy Returned on Energy Invested). On this basis, existing technology provides an uncertain answer to our impending energy crisis. Current hydrogen production processes are far too energy intensive to yield a self-sustaining energy solution.

The following letter was sent to the Editor-in-Chief of BusinessWeek because I firmly believe our business media must play a key role in disseminating accurate, fact based, journalism on our impending energy crisis and the practical value of potential solutions.

For more information on hydrogen and the United States Department of Energy's hydrogen program go to http://www.nrel.gov/programs/hydrogen.html . The National Renewable Energy Laboratory (NREL) is the nation's primary laboratory for renewable energy and energy efficiency R&D. NREL is managed for the DOE by the Midwest Research Institute and Battelle.

TCE

January 27, 2005

Mr. Stephen B. Shepard

Editor-in-Chief

BusinessWeek

The McGraw-Hill Companies, Inc.

1221 Avenue of the Americas

New York, N. Y. 10020

Dear Sir:

In order to keep up with issues and events of interest to business people, I have been a BusinessWeek reader for over 30 years. Most of your magazine's articles have been informative, interesting and reasonably accurate. My only complaint is that from time to time, BusinessWeek has failed to maintain a policy of consistent editorial quality control. Two or more articles in the same issue, or in subsequent issues, reveal conflicting information and opinion. It is as though BusinessWeek wants to take all sides of a subject. The reader is left to figure out the truth.

Lately, however, BusinessWeek has apparently succumbed to siren of lazy journalism. Articles reflect a lemming like adulation of pop culture and politically correct thinking. Truth is fashioned from opinion rather than fact.

Such is the case with your unfortunate infomercial on hydrogen (Science and Technology, Hydrogen Cars Are Almost Here, But There are still serious problems to solve, such as: Where will drivers fuel up? BusinessWeek, January 24, 2005 pp. 56). This article reflects the contemporary pop culture mantra that pollution free hydrogen fuels will save the environment, a belief that ignores the pollution penalty of hydrogen production, distribution and consumption. It also obscures hydrogen's primary disadvantage: hydrogen is an energy intensive alternative to motor fuels derived from oil.

Here is why.

Fire and Explosion

Your article claims that hydrogen is less dangerous than gasoline. In a limited sense, this is true. Like gasoline and diesel fuel, hydrogen is highly volatile. Because of its very low boiling point (-252.77 degrees C.), and a low gas density, it will dissipate very rapidly in an upward direction if released as a gas into the atmosphere or spilled as a liquid onto the ground. This very high rate of upward dissipation compares favorably with the slow dispersal rate of gasoline vapors which tend to fall and collect near the ground. Furthermore, gasoline can ignite at a concentration of 1 percent. By contrast, hydrogen needs a concentration level of roughly 4 percent before it will ignite. Since it has such a high dispersion coefficient, hydrogen dissipates rapidly and it is thus almost impossible for a hydrogen explosion to occur in an open area. It is also true that a hydrogen fire will burn out faster than a petroleum fire. These factors appear to make hydrogen safer than gasoline or diesel fuel as a source of explosion and fire.

But that does not mean, as your article implies, that hydrogen is not a potential source of explosion and fire. According to published Material Safety Data Sheets, it has other characteristics that make it dangerous.

Although the flame will usually burn out very quickly and dissipate little radiant heat, hydrogen ignites over a wide range of concentrations (from 4 to 74.2 percent).

A potential explosion hazard exists from reignition if a hydrogen fire is put out without shutting off the hydrogen source.

Hydrogen becomes explosively dangerous if it accumulates in the upper spaces of a structure.

In bright ambient light, the pale blue flames are invisible to the naked eye. People have been burned by hydrogen fires before they were even aware they had walked into an open flame.

It takes relatively little heat energy to ignite hydrogen. For example, when hydrogen is released from a pressurized container, rapid gaseous expansion causes an increase in temperature due to its negative Joule-Thompson coefficient and the heat thus generated may cause spontaneous ignition.

Hydrogen is easier to detonate if it is in a confined space, such as a tunnel, garage or the interior of a car. Care must be taken to eliminate sources of ignition, such as sparks from electrical equipment or static electricity, open flames, and extremely hot objects.

One final point on hydrogen's potential fire and explosion potential. Hydrogen is highly reactive with other elements and may combine with them to form new chemicals that are corrosive or explosive.

Other Hazards

Although hydrogen is odorless and nontoxic, it is classified as a simple asphyxiant. In an enclosed space, such as the cabin of a vehicle or your garage, symptoms of anoxia can occur when gas concentrations are within the flammable (and potentially explosive) range. Suffocation occurs because increased concentrations of hydrogen dilute the available supply of oxygen in the air to levels below those necessary to support life. To prevent explosions and suffocation, industrial systems typically employ sensors which trigger venting procedures before hydrogen reaches a concentration of 4 percent. If we plan to use hydrogen as a motor fuel, we will need to devise similar systems for use in garages and tunnels, and we will expect vehicle manufacturers, such as BMW, to automatically vent our cars and trucks in the event of a hydrogen leak.

And last – but not least – all consumers will have to be warned that skin contact with cryogenic hydrogen liquid or its vapors can cause burns and tissue damage.

Fuel Cells

Has anyone developed a reliable, practical and affordable fuel cell for automotive applications? Is it possible to develop a fuel cell that will last the expected life of the vehicle? How will we distribute, install, maintain, collect and recycle the exotic and sometimes highly corrosive chemicals used to sustain fuel cell reactions?

Until there are suitable answers to these questions, automotive fuel cells are, and will remain, interesting laboratory experiments. As a service to your readers, BusinessWeek's editorial evaluation should reflect this reality.

Hydrogen and the Environment

Before we waltz all starry eyed into a hydrogen economy, we need to answer some very tough questions. Remember the Periodic Table that your science teacher showed you in High School? Where is hydrogen on that table and why is it there?

The short answer. Hydrogen is a very reactive element. It will readily combine with any other element or chemical it contacts in the environment that has a suitable electron structure. Because it is lighter than air, hydrogen always dissipates upward.

In our existing world, we use tons of liquid hydrogen and millions of cubic feet of hydrogen gas every year. But most of these applications are for industrial use. In theory, hydrogen is used under carefully controlled conditions using specified procedures by trained personnel. Now we propose to make hydrogen a widely distributed fuel for mobile and stationary applications. Who will use this fuel? Millions of people with little or no training or real concern for the commodity they are handling. Leaks are inevitable. Accidental release will be a fact of life.

As this highly reactive gas ascends upward into the atmosphere, it will combine with oxygen and form water droplets. Will this contribute to global warming? Or cooling? And will hydrogen reach the ozone layer? If so, do we humans run the risk of destroying the ozone layer with our hydrogen energy solution?

The average composition of the low atmosphere (up to 15 kms) includes: nitrogen, oxygen, argon, carbon dioxide, ozone, methane, nitric oxide, hydrogen, nitrous oxide, carbon monoxide, and water vapor. The ozone layer or ozonosphere is generally the region in the upper atmosphere between 15-40 kms. The ozone layer contains nitrogen, oxygen, argon, hydrogen, hydroxyl and methyl radicals, hydrogen peroxide, and water vapor. There are continual photochemical reactions in the stratosphere because of the influx of short-wave radiation. Ozone is continually created and destroyed in catalytic reactions with oxides of hydrogen, nitrogen, and chlorine.

What are the potential chemical reactions if excess hydrogen accumulates in the atmosphere? The answer to this question is presently the subject of scientific debate.

Hydrogen as a Fuel.

We have to remember that hydrogen is not a source of energy. It is merely a carrier of energy. Hydrogen is a manufactured product. Your article glosses over and ignores a key fact about the production of hydrogen.

It's energy intensive.

Using existing and proven technology, it takes substantially more energy to make, compress, liquefy, store and distribute hydrogen than we can expect to get from hydrogen. If electricity is used to make hydrogen by electrolysis, and the hydrogen thus produced is used in an automobile fuel cell, at least 45 percent of the original energy used to manufacture the hydrogen will be wasted by the time it is consumed in a fuel cell using best available technology. The net energy efficiency of a vehicle which burns hydrogen as a fuel is substantially worse.

Where will we get this energy?

Biomass

Your article ignores the facts. Biomass collection, transportation, processing and distribution yields little net energy and assumes the use of gasoline or diesel fuel. As the reality of oil depletion becomes a factor in public policy, the direct use of available oil resources for energy consumption will take precedence over their indirect use to produce another form of energy. The use of biomass for hydrogen production is problematic because it is not, on a net energy basis, a self sustaining process nor is there enough arable land on this planet to grow the crops that would be necessary to support a biomass solution to the emerging energy crisis.

Policy Issues

Public policy will eventually work to discourage the production of hydrogen from oil, coal, solar, hydro, nuclear, or wind resources because in every case, it is more efficient to use the available energy for electricity or motor fuel than to waste it for the production of hydrogen. All of the experimental production and distribution options mentioned in your article assume the availability of cheap energy, usually in the form of oil or natural gas. As time passes, that assumption will prove increasingly false. A more realistic assessment of production costs using available resources would have shown substantially higher consumer prices than those quoted in your article.

So let us review the our facts.

There are safety and environmental questions that need to be resolved before we embrace the hydrogen economy.

In order for hydrogen to become an attractive carrier of energy, we must develop a far less energy intensive manufacturing process.

No one has developed a reliable, practical and affordable fuel cell and unless someone has been able to change the laws of physics, burning hydrogen as a motor fuel is improvident.

Should We Give Up?

No. Although there is evidence that proposed automotive hybrid technology will be almost as efficient and environmentally friendly as a fleet of hydrogen vehicles, we face an era of dwindling oil supplies. So the hybrid option only gives us a 15 to 25 year solution. The welfare of our children and our grandchildren depends on our ability to develop a practical alternative fuel for both mobile and stationary applications.

Since oil and natural gas depletion are a reality that will impact our economy and our culture over the next 25 years, energy production and consumption has become a critical issue for every BusinessWeek reader. However, before BusinessWeek publishes another article on hydrogen as a fuel, I would encourage your editors to do their homework. A good place to start is a report on The Hydrogen Economy by the National Academies Press. The project detailed in this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. This report addressed the problem of how hydrogen might be manufactured, distributed, stored, and dispensed for light-duty vehicles in the transportation sector. To quote from this excellent report "There are major hurdles on the path to achieving the vision of the hydrogen economy; the path will not be simple or straightforward. Many of the committee’s observations generalize across the entire hydrogen economy: the hydrogen system must be cost-competitive, it must be safe and appealing to the consumer, and it would preferably offer advantages from the perspectives of energy security and CO₂ emissions. Specifically for the transportation sector, dramatic progress in the development of fuel cells, storage devices, and distribution systems is especially critical. Widespread success is not certain."

The analysis is reasonably optimistic: "at a future, mature stage of development, hydrogen (H₂) can be produced and used in fuel cell vehicles at reasonable cost." However, "The challenge, with today’s industrial hydrogen as well as tomorrow’s hydrogen, is the high cost of distributing H₂ to dispersed locations. … The committee believes that the required (manufacturing) cost reductions can be achieved only by targeted fundamental and exploratory research on hydrogen production by photo biological, photochemical, and thin-film solar processes."

Furthermore, the authors of this report envision a 50 year conversion cycle from petroleum to hydrogen. That's much too long. We need to focus our resources on a solution that can be researched, designed, tested, manufactured, distributed, and implemented before 2020.

The impending energy crisis will have a profound impact on our economy, our culture and our environment. It will be the subject of intense debate and acerbic oratory in the 2008 election cycle. It is clear our political leaders do not understand how to organize, manage and fund a successful energy program.

Although the concept of a "hydrogen economy" is very appealing, it may never be a reality.

These facts give media such as BusinessWeek a very special responsibility. If we want our government and business leaders to make good decisions, then BusinessWeek has an obligation to provide them with well researched journalism that has been carefully reviewed by knowledgeable editors.

Do you accept the challenge?

TCE
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12 Criteria for Evaluating Our Energy Options

2006-03-18T08:24:00.000-08:00

Introduction

Are we running out of oil? No. Are we running out of affordable oil? Probably. We are certainly running out of the cheap oil that has powered the world economy since the 1950s. Those of us who are willing to face reality have begun to search in earnest for alternative energy solutions.

There appears to be an unlimited number of technologies that could come to our rescue. But are they all viable? No. The search for alternative energy resources is a road full of technology potholes and politically motivated wrong turns. We have to make informed choices. Can we do it?

Maybe.

However, before we start to make comparisons – one energy technology versus another – we need a frame of reference that will give us critical perspective. Let's start with the basics.

First of all, we need to remember there are two basic energy applications.

We need high energy content mobile fuels for our vehicles, ships and airplanes.
And we need bulk quantities of stationary fuels to generate heat and electricity.

Our existing consumption has largely relied on oil for mobile applications; and coal, natural gas, nuclear or water power for stationary applications.

A second point we need to remember is that any energy resource –oil, coal, wind, biomass or whatever, is an element of a complex supply chain. Think of energy as a system from production through consumption. All of the elements of the system are interrelated and interdependent. For example, the oil supply chain begins with the negotiation of exploration or drilling rights with the property owner (these days – usually a national government), then comes the actual exploration, oil production, transportation of crude oil to a refinery, refining operations, oil refinery product distribution, and finally- consumption by user application. Break this chain at any point – and consumption stops. In 2005, two hurricanes in the Gulf of Mexico interrupted exploration, decimated production, destroyed parts of the transportation infrastructure, shut down several refineries, restricted distribution, and almost caused consumption shortages. There is plenty of oil in Iraq, but the exploration, production, and transportation links of the supply chain keep breaking. There is a lot more oil in Saudi Arabia and the former Soviet Union, but geopolitical impediments restrict exploration, production, transportation, and refining. The point is: every link in the supply chain is important. Even the act of consumption must be carefully evaluated in proposing an energy solution. This is one reason why, for example, the proposed use of hydrogen as a mobile fuel is so difficult to implement. We currently do not have an economical vehicle fuel cell that can be used to consume hydrogen.

A third point to consider is that all energy solutions include some level of risk. Production plant construction cost overruns, a miscalculation of operating and maintenance costs, technology snafus, changes in market demand, unanticipated regulatory actions, environmental impacts, and the availability of capital must all be considered when proposing an energy solution – particularly when implementing an untested alternative energy technology.

And lastly. No proposed energy solution is useful unless it will be economically and structurally viable without government support. No subsidies. No special regulations to encourage production or consumption. Yes, I know. If government preferences, subsidies, military action, and so on were added to the real cost of oil, we would pay at least twice as much as we do for gasoline, diesel, and heating oil fuels. But in the long run, such preferences and subsidies are economically unsustainable. Energy technologies are viable only if they are able to provide us with a solution that can stand on its own under the political, economic, or environmental constraints that lie in our future.

Evaluating Our Energy Options

Unfortunately, not all alternative energy technologies are equal. All of the proposed alternative energy solutions have risks and drawbacks. So how do we evaluate them? By accessing their performance against known evaluation criteria. Here, in no particular order and without making any judgment as to outcome, are some of the items that must be considered.

1. Basic Economics. The price of energy supplied to the consumer must be affordable within the constraint of measuring the amount of money spent on energy as a percentage on income. Yes. This means that rich people will spend less of their money – as a percentage of income – on energy than poor people. Rather than bemoaning this fact, however, it will be more constructive to focus our research and development on energy solutions that the poor can afford.

Producer costs must be less than consumer prices. Artificially restricting producer prices may make good politics, but its makes lousy energy policy – as Californians found our earlier in this century. As a system, any energy solution must meet the criteria of economic common sense. It must be viable within the constraints of a nation's economic characteristics. Else it will ultimately fail.

2. EROEI: Energy Returned On Energy Invested. That is to say, the amount of energy we get from a production process must be substantially greater than the energy consumed by that process. Otherwise, each cycle of production will theoretically reduce the energy available for consumption. For example: an EROEI of 1 means that for every unit of energy consumed in the production process, we get 1 unit of energy to use for the next cycle of energy production. But an EROEI of 1:1 doesn't make any sense. There isn't any energy left over to distribute to the consumer. So we need a net gain of energy from each production cycle as follows.
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An EROEI of 1:1 means that for every unit of energy input	we produce 1 unit of energy, hence the ratio is 1:1. The energy we get must all go back into the production cycle to produce more energy.
An EROEI of 1:2 means that for every unit of energy input	We produce 2 units of energy. One unit goes back into the production of more energy, and we have a net gain of 1 unit of energy that can be distributed for consumption.
An EROEI of 1:4 means that for every unit of energy input	We produce 4 units of energy. One unit goes back into the production of more energy, and we have a net gain of 3 units of energy that can be distributed for consumption.

Remember. If the EROEI of any energy resource is less than 1, then doing that activity no longer adds to our energy stockpile.

Furthermore, not all energy thus produced is equal. The energy content of a gallon of diesel fuel is (roughly) 139,000 Btu, the energy derived from a gallon of gasoline is (roughly) 124,000 Btu, and the energy in a gallon of ethanol is (roughly) 80,000 Btu. Can you guess which fuel will give us the best vehicle mileage? If we can get 50,000 Btu from 10 pounds of dry wood, 104,000 Btu from 10 pounds of high quality coal, or 139,000 Btu from 1 gallon of heating oil, which fuel would the consumer prefer to use for heat?

Unfortunately, the average EROEI of world oil production has been declining. I read somewhere that before 1950 the EROEI for oil was more than 100:1. By the 1970s it had dropped to 30:1, and by 2005 the average EROEI on new production had fallen to 10:1. As we go for oil in increasingly difficult environments (deep under the ocean, open pit mining, etc.) the EROEI will decline further. We have to face the facts. Just because there is oil in the ground does not mean it is practical to extract. Every well has its cost in money AND energy. At some point the EROEI for every well will fall to less than 1, making oil from that well an impractical resource for energy. Although we will probably continue to work that well, the oil thus produced will have a greater value as a raw material for manufactured products than as a fuel. It won't go into your gas tank.

The concept of EROEI is usually ignored by politicians, disputed by alternative energy advocates, and distrusted by "Peak Oil" critics. It's not even discussed on the DOE WEB site. But eventually, it will become a topic of great importance. And credibility. Right now, there are no standard definitions of how to determine EROEI values, or what should – or should not – be included in an EROEI calculation. I believe we need a three tier model:

Basic EROEI modeling – which confines itself to energy production versus energy consumption as an energy production process.

Energy Supply Chain EROEI models – which calculate an estimate of energy used to research, develop, explore, produce, transport, distribute, and consume energy through the entire supply chain.

Life Cycle EROI Models – should include co-generation, ancillary product production, waste, and the impact on ecology. Or put another way, everything discussed in this essay (including labor).

3. Labor Efficiency. We keep forgetting. The high energy content of a barrel of oil has allowed us to use less human labor to do energy intensive tasks – like farming. That's going to change. We need to start thinking in terms of the hours of labor it takes to produce a given level of energy.

In Brazil, for example, much has been made of the integrated biomass energy production process where small growers cultivate sugar cane and sweet sorghum, process the crop through a distillery, and feed their cattle the residue. The stillage and cow manure go through distillers, producing enough biogas to power a generator. There is enough electricity to power the distillery, the farm, and nearby homes or shops. But the process is labor intensive. Does this mean we humans will be spending more of our labor to produce energy, thus increasing the cost and decreasing the amount of labor we could be using for other tasks?

In 1850, more than 90 percent of our work was done by human labor and draft animals. By 1950, most of the human labor and virtually all of the draft animal labor had been replaced by other sources of energy. Absent an incredible breakthrough in energy technology, we will soon start to march backward in time to an age when human labor and draft animals will again become an important part of the energy cycle. Need proof? Read what has happened in Cuba since 1990.

4. Process. Engineers, bless their hearts, can make just about anything work in the laboratory. Maybe once. Perhaps several times. But that does not mean the energy production process thus invented is scaleable, repeatable, reliable, or available for mass production, distribution, or consumption. Furthermore, we live in a hydrocarbon environment. Most of the mobile fuel and stationary energy development involves fooling around with the hydrocarbon chain. Sure. We can turn almost anything into energy. But that does not mean it’s a good idea.

So for every alternative energy proposal, we have to evaluate the underlying technology in terms of its functional characteristics. Is it scaleable, repeatable, reliable, and available for mass production, distribution, and consumption? And what percentage of our total energy requirements will be satisfied by this process? We can, for example, make fuel from the hydrocarbons in chicken fat. But will that process solve the energy challenges that lie ahead? Absolutely not.

5. Infrastructure. The best alternative energy solutions will be compatible with (or adaptable to) the existing distribution and consumption infrastructure. We have to consider fuel handling, transportation, safety, security, availability, and reliability. We can not ignore our existing vehicle and power generation technologies. For example, one of the more serious challenges of moving to a hydrogen economy will be the development of safe and reliable methods for fuel transportation, storage, distribution, and consumption. We will need a whole new distribution infrastructure – thousands of hydrogen stations, and millions of people to be trained. That will take time, lots of labor, and buckets of money.

6. Use of conventional fuels. Some alternative energy proposals will ultimately fail because they assume the availability of low cost oil and natural gas. Wrong! If oil and natural gas are in short supply, or only available at a sharply higher price, they have to be removed from the energy equation. For example, with the exception of small scale applications or devices, we can not assume the use of natural gas to power fuel cells. We have to be careful with the calculation of net energy from biomass if the production process uses excessive amounts of diesel and gasoline fuels. Ethanol is not a good idea if it assumes increased consumption of oil or natural gas based herbicides, pesticides, and fertilizers. The list of questionable alternative energy solutions goes on and on. Any alternative technology that assumes the use of conventional fuels is suspect.

7. Benefits. We need to find someway to quantify, qualify and measure the benefits of the proposed alternative energy solution versus potentially more efficient or desirable uses of the resources employed. For example: is the use of natural gas to produce hydrogen a misuse of natural gas? Is the use of natural gas for electric power production more desirable than to save it for heating our homes? Is the use of land for ethanol crop production a good idea if we determine that the land we use will eventually be needed for food production? Is adding ethanol to gasoline a good idea if there is not a net reduction in CO²emissions? The energy solutions we chose can not displace the alternative benefits derived from the resources we consume in the process. Else – on a net basis – we have accomplished nothing.

8. Subsidies. Governments love to hand out subsidies. Spend the taxpayer's money to buy favor. But in the long term, subsidies are not economically sustainable. They bury the real cost of energy, artificially encourage consumption, and increase the cost of government (thereby increasing the risk of financial failure). Energy companies routinely go to politicians with requests for cost sharing, debt interest offsets, payments for production, credit guarantees, direct tax incentives, and utility rate incentives. Unfortunately, subsidies will only continue to be available if government can manage the associated load of increased expense and debt.

That's not necessarily a good assumption.

9. Credits. Our government loves to cook the books. Auto makers are being encouraged to continue making gas guzzlers. To offset the obvious loss of fuel efficiency, manufacturers receive flex fuel vehicle credits that can be used to fudge their CAFE numbers (which is one of the reasons I believe CAFE standards are meaningless and should be dumped). Credits are also used to inflate the benefits of certain alternative energy solutions by including the indirect (non energy) co-products in the cost benefit analysis.

Granted, it is difficult to measure the direct benefits of an energy production process, and often the co-generation components are really valuable. For example, a typical Combined Heat and Power (CHP) system reduces the net energy required (100 units) to produce electricity (30 units) and steam or hot water (50 units) than separate heat and power components (which would need about 163 units of energy to do provide the same output).

So we need to pay attention to the way we calculate the benefits of any energy production or conversion process. Credit should only be given for energy efficiency or conservation.

10. Unintended Consequences. If the energy supply chain is really a system, and all of its component parts are interrelated, then we have to follow the impact of each alternative energy proposal through the act of consumption. How will the proposed automotive fuels affect fuel, engine and exhaust system life? Maintenance? Costs? Emissions? Consumer safety? We do not really understand, for example, the environmental consequences of using ethanol as a vehicle fuel. And does the proposed system solve one problem by creating another one? The most glaring example of this is MTBE, the replacement for lead in gasoline that was used to improve air quality, but which – at the same time – was found to be a potential carcinogen that easily leached into our water supply.

11. Waste. Every energy process creates waste. Oil spills, CO², ash, effluent, dead batteries, old equipment, and so on. Fuel cells use some very exotic chemicals. Hydrogen generation from coal means we have to use the coal. Nuclear power has left us with a legacy of radioactive material. We need a way to quantify and qualify the type and amount of waste from each energy resource so that we can make comparisons of the resulting waste disposal challenges.

12. Ecosystem. Burning oil, coal, and to a lesser extent – natural gas – have produced an unpleasant side effect: emissions of carbon, sulfur, and metals. We have recognized that carbon emissions, in the form of CO, CO², and ash, are an air quality environmental problem. Sulfur emissions produce acid rain. Metals can leach into ground water aquifers. Any acceptable mobile or stationary application solution, therefore, must yield a net reduction of these emissions.

Technology may not save us, but we have been making technological progress. That means we need to re-evaluate the environmental assumptions we may have made in the past. For example, since the average size of a biomass plant is relatively small, there are those who claim it will generally produce more CO² per KW than a modern coal plant. On the other hand, new coal boiler designs allow the introduction of biomass into the fuel stream, effectively reducing emissions by up to 20 percent. Ethanol and hydrogen have great pop-culture appeal, but the side effects of production may be undesirable.

But perhaps most important of all, environmentalists have to rethink their positions on the use of natural gas for power generation, the looming use of dung, wood and coal as home heating fuels, and the inevitable construction of nuclear power plants. We have to accept reality. And deal with it in a constructive way.

Conclusion

I'm sorry to say this. But if we are willing to be realistic in our evaluation of the factors listed above, then the benefits of any energy production process that has a Basic EROEI of 3 or less is suspect, and any process that has an EROEI of 2 or less is probably a waste of time and money.

It's time to stop thinking in terms of pop-culture solutions and government subsidies. Energy is a serious business. We need science based solutions that can be retrofitted into our existing energy chain. We must continually seek to increase the efficiency of converting energy into heat and power. And we must somehow get our respective governments to get serious about a program of international energy research and development.

We have – maybe – 10 to 15 years to play with. After that, oil shortages will decimate our lifestyle. Unfortunately, if the best solution does require the development and deployment of a new technology, that process – best case -will take at least 15 to 20 years.

We don't have much time.

TCE