Changing Light bulbs at the White House

Last Friday the House passed the Waxman Markey bill on energy and climate change, establishing, among other things a cap and trade system for carbon, although the details and the timing are not as yet such that the true impact of the legislation can be accurately estimated. I say that in part because the bill must be approved in the Senate and then the two versions reconciled, but also because I rather suspect that one the basic legislation gets put in place it will be modified and tweaked until something with a little more teeth finally emerges. Thus while the current step is significant, I don’t really expect that it will be close to what we ultimately have to live with.

But the Senate vote is not here yet, and after trying, with remarks, to help encourage the bill through the House, the President was in the Grand Foyer of the White House, this afternoon, with Secretary of Energy Chu to add a little more encouragement. He noted:

this is a moment where we've been called upon to cast off the old ways of doing business, and act boldly to reclaim America's future. Nowhere is this more important than in building a new, clean energy economy, ending our dependence on foreign oil, and limiting the dangerous pollutants that threaten our health and the health of our planet.

And that's precisely what we've begun to do. Thanks to broad coalitions ranging from business to labor; investors to entrepreneurs; Democrats and Republicans from coal states and coastal states; and all who are willing to take on this challenge -- we've come together to achieve more in the past few months to create a new, clean energy economy than we have in decades.

But his remarks today were more than just an encouragement to the Senate to get on board after the House action, he also announced an effort by the Department of Energy to increase energy efficiency of appliances. He started with light bulbs, which he noted were more financial rewarding that might at first appear

The first step we're taking sets new efficiency standards on fluorescent and incandescent lighting. Now I know light bulbs may not seem sexy, but this simple action holds enormous promise because 7 percent of all the energy consumed in America is used to light our homes and our businesses. Between 2012 and 2042, these new standards will save consumers up to $4 billion a year, conserve enough electricity to power every home in America for 10 months, reduce emissions equal to the amount produced by 166 million cars each year, and eliminate the need for as many as 14 coal-fired power plants.

The President went on to talk about the need to impliment technologies that will improve the efficiency of buildings -

We're talking about technologies that are available right now or will soon be available -- from lighting to windows, heating to cooling, smart sensors and controls. By adopting these technologies in our homes and businesses, we can make our buildings up to 80 percent more energy efficient -- or with additions like solar panels on the roof or geothermal power from underground, even transform them into zero-energy buildings that actually produce as much energy as they consume.

He ended with a comment that I will also quote, but which (when juxtaposed to apply to the climate change debate) could equally apply to the tactics of his supporters.

But the fact is we're not lacking for ideas and innovation. All we lack are the smart policies and the political will to help us put our ingenuity to work. And when we put aside the posturing and the politics; when we put aside attacks that are based less on evidence than on ideology; then a simple choice emerges.

We can remain the world's leading importer of oil, or we can become the world's leading exporter of clean energy. We can allow climate change to wreak unnatural havoc, or we can create jobs utilizing low-carbon technologies to prevent its worst effects. We can cede the race for the 21st century, or we can embrace the reality that our competitors already have: The nation that leads the world in creating a new clean energy economy will be the nation that leads the 21st century global economy.

I would disagree about the level of ideas and innovation that are really out there. Many of the new ideas get caught in the net of surveys carried out by blogs and newspapers seeking new topics for stories. Thus if the idea is out there and viable then in today’s electronic age odds are that we would be hearing of the potential. (We hear a surprising amount of what is going on from quite a few people thanks to the grace of e-mail etc). From that there really are not that many outside-the-box creative ideas that are that dramatic, and yet likely to succeed in changing the way the world gets energy.

It is easy to say that we have these talents and dedicated engineers, but we don’t have enough of them, and the protocols can slow rather than accelerate developments. Many of the new ideas have been submitted to NSF who must now review them on their merits to select the best. NSF does this with physical panels of folk that meet, and discuss a set of the proposals over a day, generally ranking the proposals with only the top one, historically, being in the ballpark to get funding. Now with all the packages, the numbers of proposals have driven dramatically (into the thousands) and still the panels must meet and evaluate. But the numbers of people not involved in one proposal or another rise to a higher level of the available scientific populace, given the new opportunity, so finding the right reviewers and dividing up the proposals into packages of a reasonable size, is likely to be a huge undertaking, especially with the demand for rapid decisions in order to get the money from the Stimulus out into the community. (So raise your glass to those willing to serve on those panels (I may be one) since it is otherwise a relatively thankless job with little tangible reward). And I am also a little cynical that we will see many truly innovative ideas. I would be delighted to be proved wrong, but when the dust settles I fear that all we will see is more of the same.

To finish on a personal note, we did take delivery of the Fusion Hybrid this afternoon, and are still trying to remember which button operates what. It looks very much on a par with the Camry apart from the TV camera that comes on when you are backing up, and the collision alarm when there is a car/truck in your blind spot. Both have proved their value already. Now if we could just work out how to play music . . . . .

Power from Space

Just recently the California utility company PG&E announced a program to beam energy from space, where it would be collected and beamed back to Earth. The program has a target of 200 MW of power by 2016.

The project is expected to cost around $2 billion, which will mainly go towards the R&D of the base station and launching the satellites. SolarEn CEO Gary Spirnak has complete confidence in the concept and the company’s ability to develop this system. In fact, he projects that they will be able to generate 1.2 to 4.8 gigawatts of power at a price that is comparable to other forms of renewable energy. PG&E is also committed to the idea and has entered into a 15 year contract with SolarEn to produce enough power for 250,000 homes.

This isn’t the only SSP under development now - Japanese Aerospace Exploration Agency (JAXA) is also working on a similar system, but instead of radio waves, they will transmit power via laser beam. Both companies ideas seem a little far-fetched, but if either of them succeed, it could mean huge things for renewable energy generation.

Now this whole idea is not new, back in my archives I have more than a foot of shelf space devoted to reports on the Satellite Power System (SPS) that was developed by NASA and DOE back in 1978. And, for your interest, I thought I would pull out the Concept Development volume and review the system that was planned back in those pioneering days. The initial work required that the concept be fleshed out, and to do this Boeing Aerospace and Rockwell International were under contract to the Marshall Space Flight Center. Out of that work came a whole series of reports that makes up this part of my bookshelf. For simplicity I will just quote from the Concept summary today.

Back then the goal was to generate a system that could be fielded by 2000, then more than 20 years in the future. The ideas built on an original concept that Peter Glaser had suggested in an article in Science, back in 1968. At the time they concluded that microwaving the energy back to Earth would be more efficient than using lasers to transmit the power.
The following target guidelines and assumptions were built into those plans:

The system would be operational in 2000.
At that time the system would add two 5 GW satellite systems a year to ultimately reach a total of 300 GW..
The ground receiving antennas (rectennas) are sized to receive a 5 GW feed.
The satellites would be placed in geosynchronous orbit.
The systems would operate at a frequency of 2.45 GHz.
The intensity of the microwave signal is not to exceed 23 mW/sq. cm at the center and 1 mW/sq. cm at the edge of the rectenna.
System life is 30 years.
Needed (but unavailable technology) would be needed by 1990 to get the system up in time.
All materials will come from the Earth, and there will be no launch failures.
Costs will be derived in 1997 dollars.
The arrays on the satellite will be built on a graphite composite, and two options were considered, a straight single crystal silicon PV array nd a gallium-aluminum- arsenide solar cell with a concentration ratio of 2. An efficiency of 7% for the conversion efficiency of the array was assumed. Thus to get a 5 GW output the solar panels must be large enough to capture some 70 GW of solar power.
The gallium arsenide option would result in a solar blanket area of 26.52 sq km a reflector area of 53 sq km and a total platform area of 55 sq. km. With a single silicon crystal concept gives a platform size of 54 sq km, roughly equivalent.
A microwave antenna some 1 km in diameter will be used to transmit the power back to Earth.
It is assumed that a satellite could be constructed every 6-months, and depending on type this would require a space-borne construction crew that would be in the range of 555 to 715 individuals.
The cells are assumed to heat in the sun, and this improves efficiency so that at 125 deg C the cells are assumed to reach 18.2% efficiency. The gallium cell design was anticipated to cost some $71 a square meter.
The single crystal silicon would use a 50 micron sheet of solar cells, with a borosilicate glass cover. The efficiency is assumed to be 17% though it will require some monitoring and laser annealing. Costs for this alternative were calculated at $35 a sq. m. Small thrusters are to be mounted on the array to allow it to move away from approaching space debris.
The power collected from the array will be transmitted to the microwave transmission station with the transmitting system broken down into 7220 sub-arrays, each 10 m on a side. The sub-arrays are phased to give a coherent beam focused on the center of the rectenna.
In sizing the system, it was recognized that it would need to be a modified design to accommodate a maximum heat build up in the array, and a maximum rate (23 mW/sq cm) at which power could be concentrated through the ionosphere. (Heating the ionosphere above this level could cause signal interference and efficiency loss).
To convert the DC-RF power some 101,552 tubes would be needed. The power beam would operate in the 2400 to 2500 MHz frequency band
It was recognized in the report that there would be some RFI effects due to re-scattering of the radiation. The rectenna would have an area of 78.5 sq km. be open faced, to allow air passage, and will need a set of rectifying diodes to convert the energy back into phased electrical power. Some 7% of the energy is assumed to be lost due to heat. The microwave system efficiency is assumed to be 63%.

The reduced cost of the single crystal silicon array is made up in the greater mass that would be required for that option (51 million kg, as opposed to 34 million kg for the gallium arsenide option.

Because of the location of the satellites in Geosynchronous orbit (GEO) the material for the construction would be lifted first to Low Earth Orbit (LEO) and then moved to GEO. The lift out of the gravity well would require a vehicle, anticipated to weigh 11,000 tons with a payload to LEO of 424 tons. Given the number of workers required to build a station, special transportation vehicles would need to be built, and each would have a carrying capacity of 75 people to get them into LEO. To move out to GEO a special transit vehicle would be needed, and the one designed would carry up to 160 passengers at a time.
The cargo would be carried out to GEO using special carriers powered electrically using ioon bombardment thrusters, with cryogenic argon as the propellant. (So that the round trip to GEO would take around 180 days. For personnel a faster vehicle would shorten the trip to a few hours )

The logistics of the support operation are also described. Bear in mind that each array will need 10^11 solar cells, 10^5 klystrons, and 10^10 dipoles. The system would need about a million tons of hydrocarbon propellants to move between locations. For 2 5 GW stations the vehicles would need 375 surface to LEO launches (225 with the gallium arsenide)

Just for set-up alone it is anticipated that it would take 6 months to build the LEO base, after the vehicles become available. 3 months would then be needed to built the first transfer vehicle, and another 3 months for the next two. It would take a year to build and configure the entire fleet needed. It is expected to take 9 months to build the GEO base., thus it would only be 2 years after the start that work could begin on the first SPS station. Once built it would require some 5 to 20 people would be required per SPS for maintenance.

There are many more details in the reports, but this will give you some sense of scale of the original project. It will be interesting to see how the current plan compares with this older one.

If you claim to be scientific, then be so

When I was taught basic science and engineering it was understood that if you proposed a hypothesis, or theory, and ran an experiment where the results went against the theory, then the theory was wrong. It is a precept I have used all my professional life to help lead a technology from being some lab curiosity to the point where it is a multi-billion dollar industry, with still more potential applications poised to move it into a second generation of growth. We did this by getting some ideas, and then running experiments to see if they worked, and then, when the results showed the original idea wrong, modifying our ideas, and then trying another experiment.

Under the modern penchant for description it is a process that is being referred to as the “scientific method,” albeit to us it was just a logical way of making progress. To make progress one must constantly be willing to look at the data, and re-analyze the underlying concept you have been applying as more data becomes available. Sounds logical doesn’t it. And yet that is not what one has seen, or is likely to see in the future, when folk discuss the drivers for what may, or may not be, the warming of our planet.

Back 20 years ago Dr Hansen of the Goddard Institute for Space Studies (GISS) gave testimony before Congress that suggested, given the increasing levels of carbon dioxide in the atmosphere, that the world temperature would continue to rise, as this gas forced retention of a greater percentage of the solar radiation that the Earth was receiving. Spring forward a decade and that warming is no longer occurring. Proponents of the idea have gone from touting each year as being hotter than the last, to muttering that the last 10 years have been the hottest on record (while failing to mention how short that record really is) and with global temperatures falling even that “ten-year” ploy is likely soon to be no longer accurate. But does that cause the world to pause and consider that, perhaps, the global warming theory is wrong. Not at all, suddenly scientific thinking on the subject is closed. That step, and the unwillingness of the AGW proponents to engage in open rational debate, with all relevant data available for public scrutiny, should begin to get you worried.

Just this last week there are reports of an EPA official suggesting that perhaps the EPA should consider what has happened in the last three years, not just the information available from before that time. And, in the mode of the Administration practice, he was of course quietly told to shut up and get on board with the plan. How easily we slip from outrage when this was suggested to be done to Dr Hansen, to accepting when it is done, and apparently got away with by the current EPA Administration.

The argument that is made at the “Real Climate” types of website is that all these issues have been raised and answered before, and that therefore, inter alia, no new information, except that supporting their arguments will be tolerated. And yet there is no scientific rebuttal given, no “here is the graph that proves you wrong!” No instead there are the ad hominem attacks that the proponent of this new question is not a “climate scientist.” The Wegman report noted how small the group of climate scientists are that seem to control the literature, and how incestuously they have interacted in writing papers and conducting research. Heaven forbid, apparently that anyone with an ounce of scientific training be able to look at a graph and determine whether it is rising or falling. We are however, literate and can read graphs that show among other things that Alaskan glaciers are advancing, but discussion of that is improper apparently without the right qualification.

But even with the right qualification, if your ideas on global warming are incorrect, then regardless of qualification and the knowledge that you have, your presence is unwelcome in the company of your peers. So it appears is the case of an expert on polar bears.

But one of the world’s leading experts on polar bears has been told to stay away from this week’s meeting, specifically because his views on global warming do not accord with the views of the rest of the group.

Dr Mitchell Taylor has been researching into the status and management of polar bears in Canada and around the Arctic Circle for 30 years, as both an academic and a government employee. More than once since 2006 he has made headlines by insisting that polar bear numbers, far from decreasing, are much higher than they were 30 years ago. Of the 19 different bear populations, almost all are increasing or at optimum levels, only two have for local reasons modestly declined.

Dr Taylor agrees that the Arctic has been warming in the past 30 years. But he ascribes this not to rising levels of CO2 – as is dictated by the computer models of the UN’s Intergovernmental Panel on Climate Change and believed by his PBSG colleagues – but to currents bringing warm water into the Arctic from the Pacific and the effect of winds blowing in from the Bering Sea.

I begin to become quite concerned that we are starting to see the deliberate suppression of scientific views and information, a deliberate withholding of information from the public on the realities of climate change, as opposed to what those now in power want us to believe, regardless of fact. There is a denial of the latest information, and a distortion of the record, such that folk don’t have to face the reality that the original hypothesis, that increased carbon dioxide levels produce accelerating global warming, is wrong.

We have just seen the Waxman:Markey bill pass the House with the prospect of a myriad regulations that will likely, despite the claims of the legislation, likely reduce employment in the county. Why, because as the regulation forces renewable energy sources not just to supply an increased demand for energy but to displace existing energy sources then we lay off those now working to supply that energy. Once a wind turbine is erected it does not take a climate scientist to realize that the number of folks employed from that point in feeding that power into the grid is close to zero. Contrast that with the miners who mined the coal, the railway workers who transported it, and the power station employees that ran the plant that converted it into electricity, all of whom now get laid off. Common sense tells you that this is a job reduction program, but then who said this whole effort was about logic and rational discussion?

Geothermal Energy and Earthquakes

Geothermal Energy is one of those sources that is, within normal scales, sustainable, and it is currently being drawn upon, so that relative costs and techniques don’t have to be invented for it to become a viable program. It can, however, be considered to be useful at two different levels, there is the small-scale facility, often referred to as ground source heat pumps and then there are the full-scale power plant types of operation.

We had considered putting a ground-source system into our own home, and I wrote about that, and other family reviews of the technology back in my Oil Drum days. Arising out of that discussion, and comments, it appears that the current cost of systems remain up around the $20,000 to $30,000 dollar mark, which is considerably too expensive for folks such as myself, relative to the energy and cost return that we would achieve from such an investment. However the comments on that article are informative and well worth a visit.
Ground source heat systems (Source)

It is the larger scale operations that I want to write about today. It is a system that is growing, but in the process is stirring more public controversy. Here much larger and longer pipes are drilled down into rock that is much hotter than normal, and the resulting steam/hot water is extracted back out of the ground and used both to generate electricity and for district heating. These are the systems, such as can be found at The Geysers in California, where Calpine runs 15 power plants that generate some 725 megawatts of electricity.

The Geysers meets the typical power needs of Sonoma, Lake, and Mendocino counties, as well a portion of the power needs of Marin and Napa counties. In fact, The Geysers satisfies nearly 60 percent of the average electricity demand in the North Coast region from the Golden Gate Bridge to the Oregon border. The Geysers is one of the most reliable energy sources in California delivering extremely high availability and on-line performance and accounts for one-fourth of the green power produced in California.

There are, however, different ways in which the heat can be extracted from the ground, depending on the nature of the rock which is being used as a reservoir. In the first, and simplest case the rock is already fractured and contains water, under pressure, that can be tapped by the wells that reach down into the rock. The water is refreshed, either from the surrounding volumes, or by reinjection of the spent fluids from the power plant, after the heat energy has been extracted.

How the Geysers get power

Such a system is, for example, being developed in Switzerland. But whenever fluids move and are injected, or removed from highly-pressurized systems then problems, such as earthquakes can result, and this is what generates the considerable public concern particularly when such earthquakes happen in areas that are already prone to earthquakes.

But this is part of the problem, in that the places where the hot rock comes closest to the surface lie along the boundaries of the plates that comprise the shell of the Earth. And these places already see earthquakes – whether in Japan, Iceland or Switzerland. So if one is going to drill into this rock, and then crack the rock between two wells, to provide a path for fluid to flow and gain heat, then you will affect the rock structure to the point that the change in stresses around the operation can trigger small earthquakes.
LASL plans for fracturing between wells to extract heat from geothermal wells

As the fractures grow to generate networks this weakens the rock, and the fluid lubricates the planes along which the rock can slip, so that rock which was already approaching the stress levels at which the rock would move and generate an earthquake now can, and so it does.
Concept for geothermal heating in Switzerland where they plan on using natural rock fractures

Now in almost all cases the stresses would have continued to build until an earthquake finally occurred. And at that point the energy released by the quake would be greater than that released by the geothermal operation (since the stress levels would be higher at that time, and the failure would be more violent). But it is hard to get that concept over to the public.

Basically they see that the geothermal well was drilled, and an earthquake resulted. That it ameliorated a worsening potential earthquake is something that is not easily recognized, especially since the smaller quake can still cause damage (as it has done).

The problem, and the public relations aspect is a significant part of this, is something that needs to be addressed forthwith, since at the moment the Department of Energy is gearing up for a significant investment in geothermal power including new Enhanced Geothermal Systems (EGS).

Before EGS could be implemented, scientists would need to calm concerns about insufficient technology and the possibility of earthquakes at EGS sites. The allotted $30 million would also have to increase in later years to reach the $1 billion the panel report calls for overall. Still, many scientists view the project as our best baseline energy option.

“We’re no longer limited by just discovering the Icelands of the world,” says Jefferson Tester, a professor of chemical engineering at MIT who chaired the EGS panel. The report estimates that by 2050, EGS could be implemented to a capacity of 100,000 new megawatts of power – more electricity capacity than all of the nuclear power plants in the United States combined.

At present the problem that relates earthquakes and geothermal energy extraction is known, and recognized

a major quake requires a several-kilometer-long fault, argues Ernest Majer, a seismologist at the Lawrence Berkeley National Laboratory. Engineers know not to put EGS sites near large or dangerous faults, and the small cracks created by the system itself are not dangerous. “We can’t make faults as big as Mother Nature does … and there has never been a damaging geothermal earthquake anywhere in the world,” he adds.

At Geysers in California, there are about 3,000 earthquakes per month, according to Majer. The largest, however, reached only 4.6 magnitude – big enough to be noticeable, but not dangerous.

Majer is enthusiastic about how education and community involvement can help to allay earthquake fears. The quakes at EGS plants can be controlled and monitored for safety, and better research will help scientists and engineers understand how to make EGS plants even safer, he says.

Explaining the issues to the public may, however, be another story.
(For the record I am working with Dr Majer on a program that could be funded under the EGS program).

The Natural Gas Report for the week

Yesterday I was not all that cheerful about the omens foretelling the future of gasoline and crude in the near term. So today it is time to see what the latest in Natural Gas news is telling us, courtesy initially of the EIA.

This is the time where, as the Weekly Update noted, temperatures soar with the arrival of summer. With that comes increased power demands and increases in gas usage. However even the EIA is noting that so far the temperatures are more moderate than normal (they use data from NOAA), and this is impacting demand. Equally to the point the oversupply that came from the developments in the gas shales have yet to work their way through the system. Rig counts have dropped to 692 (picking up 7 from last week for the first increase in 29 weeks) from their peak last year of 1,606. Of the rigs in service some 391 are horizontal (counting both oil and natural gas), those most suitable to develop the shales. The result is that more natural gas is still being injected for storage, at a higher rate than normal, and bringing it significantly above the levels of both last year (632 Bcf more) and the 5-year average (482 Bcf more).

The industry also faces the potential for an increase in LNG shipments to the US. this year. Energy Trader, over at Seeking Alpha is currently very pessimistic about the situation, given the potential for LNG to be dumped into the United States as a world surplus develops this year. Prior to the development of the gas shales the world was looking at a situation where US supply would not be able to meet demand, and thus additional LNG capacity looked to be a very promising bet. Given the production from the shales, that bet is looking a lot less valuable and since the investments must still be paid off, deliveries to the US that undercut existing prices (given that shale gas is not that cheap to produce) may make this coming winter more of a buyers market than usual.

At the same time Alberta, with conventional gas deposits, is increasing the incentives to boost drilling for this gas, in the face of the gas shale developments.

The province will charge producers a flat rate of 5 percent during the first year of output from new wells, a government statement said. Drillers will also receive a royalty credit of C$200 ($172.64) for each meter (3.28 feet) of new well depth drilled.

The programs had been set to expire in March 2010, Energy Minister Mel Knight said in the statement. They will be extended to March 2011.

Companies including EnCana Corp., the nation’s biggest gas producer, are shutting wells amid a 70 percent decline in New York gas futures in the last year.

The question now becomes how quickly domestic production from the gas shales will decline, in light of their transient (about 2-year) life and the reduced drilling activity, and how much additional supply from LNG sources abroad will combat that decline. Within that puzzle lies the price that consumers are going to be paying for natural gas in the next couple of years. Opinions differ on what will occur. From the Calgary Herald

There are certainly positive signs that are driving the extreme contango in natural gas prices, when you look at winter contracts that are 50% higher than summer contracts. Commodity investors are looking at the collapse in U.S. rig activity which fell to 700 last week from 1600 last summer. They are betting on recovery in U.S. industrial activity. And they are looking at the disconnect between crude oil and natural gas futures.

However there are also signs that the commodity investors may be too early in their enthusiasm. Spot prices for natural gas (that’s the physical market) are well below the near-month futures prices, indicating that excess supply could continue to keep prices low for the rest of the storage injection season at the end of October. In Canada, spot prices are below C$3.00 per thousand cubic feet or US$1.00 per thousand cubic feet lower than U.S. spot prices.

On the other hand the Wall Street Journal sees the recent activity by Exxon Mobil, in starting three new LNG trains in Qatar, at a time when the world market is not capable of absorbing this increase (some 3 Bcf/day). The result:

So why would anyone ship LNG to the U.S.? In part, it's simple economics. Many projects were sanctioned and financed when lower natural-gas prices prevailed.

In Exxon's case, valuable liquids also produced in its Qatari projects take the market breakeven price of the natural gas itself "towards zero," says Deutsche Bank analyst Paul Sankey. Factoring in processing and shipping costs, that gas can be landed in the U.S. for less than $2 per million British thermal units, reckons Noel Tomnay, head of global gas at Wood Mackenzie. The current Nymex price is about $4.

Competing markets also look oversupplied. Wood Mackenzie estimates annual demand in Asia east of India will rise by 1.3 trillion cubic feet by 2015. New projects targeting the region and close to final investment decision amount to more than two trillion cubic feet of capacity.

In Europe, the prevalence of long-term pipeline contracts limits the size of the market up for grabs. Wood Mackenzie estimates about 4.9 trillion cubic feet of discretionary piped and liquefied natural gas per year will compete for a market half that size over the next three years.

Now Chesapeake has said that they can live with $4 (per kcf) natural gas prices but have shut in some 400 million cubic feet of production a day since April, in an attempt to stabilize prices. So far it is not working, at least to the level hoped (though it may be helping). As the EIA report notes the Henry Hub price has now dropped to $3.80. (And the greatest price drop in the country was at the Questar pipeline in Utah, where the price dropped to $2.50 – down 10%).

We will have to wait to see how this all plays out.

Driving is picking up, but is that good?

Having effectively been away for a couple of weeks, as good a place to start as any, to catch back up with the current state of things, is This Week in Petroleum, which is looking, this week, both at the changing locations of our suppliers of crude, as well as noting the current status of the industry.

The opening review looks both at the change in the relative sources of our crude from 2000 to 2008, and then the more immediate changes over the last quarter as OPEC has acted to tighten supply against reduced demand. I am going to insert two of the relevant graphics here to show the changes. Following that I want to talk about changes in driving habits, not only here but also in China and India, because I begin to suspect that we are going to be significantly under-estimating the increasing demand for crude on the world market that those countries are going to be placing. That will tighten demand against supply, faster than I believe we are currently expecting, with a consequently faster ramp up in prices than DOE is currently projecting.

The first picture shows the changes in the sources of crude over the last 8 years:
Source TWIP EIA 24 June 2009

And the second the changes in imports this year:
Source EAI TWIP 24 June 2009

Currently US inputs to refineries are, while steadily increasing, down around 500,000 bd over the same time last year. And if one smooths both curves by eyeball, its seems that gasoline demand in the US is running only a little down on last year.
Gas demand through 24 June 2009, (Source TWIP.

Now if we wander over to the latest travel info from the FHWA, which is the April Report you can see that there is now an uptick in the curve over last year, and in all regions of the country travel increased, with the national average going up 0.6% (1.4 billion vehicle miles) over the same period (April) last year.
Vehicle miles travelled (Source FHWA)
The curve does not show the full uptick yet, since it is a 12-month rolling average.

So American driving habits are beginning to pick back up. This will lead to some increase in demand, but we need to add a couple of additional caveats that are likely to impact world demand, and which I have posted on before, but will briefly add back here to explain why I think that the world demand:supply situation is going to tighten faster than most believe, and thereafter why prices are going to be back up a lot faster than the Administration (among others) anticipate.

The first is the demonstrated success of the Tata Nano in India. In a country where the demand for cars has been about 1.5 million a year, this is selling at 100,000 a month. Demand for gas won’t be immediately felt since the factories are only geared to selling about that many a year, but you can be sure in a year or so that the burgeoning demand will be met, and the gas demand, from families for which this will be the first car, will also rise accordingly.

Switch over to China. The Chinese Administration is not running dual carriage ways up through river valleys because they look pretty. This is to meet the growing demand for cars, and the pathways along which to drive them. Chinese car sales are booming.

GM says China now accounts for nearly 25% of its global sales. With no end in sight to the troubles in the U.S. auto market, GM, Ford, and Chrysler likely will become increasingly reliant on China's still largely untapped market, says Yale Zhang, a Shanghai-based analyst for CSM Worldwide, an auto industry group.

"If you want to grow your overall volume, this is where you need to invest," Zhang says.

China is on track to sell 11 million vehicles this year, according to the China Passenger Car Association. That would be up 17% from 2008, and a stunning 20 times the number of vehicles sold in China just a decade ago. Zhang says this year China likely will overtake the USA, where expected sales are around 10 million units, and become the world's biggest car market for the first time.

China's 1.3 billion people "are simply wild about cars," says Michael Dunne, a Shanghai-based managing director of J.D. Power and Associates, an auto industry group. He says the surprising strength of China's auto market has been driven not just by economics, but also by a kind of psychological shift that has come with prosperity.

"There is the thrill of individual mobility, going from point A to point B in their own time, and on their own terms. But it's also an opportunity to declare and project their own success," Dunne says.

They really don’t start taking vacation in China until the end of this month and already the refineries are gearing up for the anticipated demand. And with China seeking to ensure its supply by acquiring others the world market will tighten, and the amount available for the rest of us is going to decline.

It is hard to see how this cannot accelerate the coming crisis in supply, and even more forcefully hand OPEC the keys to the world’s wealth.

Thoughts on the trip to China

The trip to China is now over, and I am left looking back to see what impressions remain the most profound. I will forgo the cultural and geological and rather focus just on the items that relate to energy. But before going into that in more detail I would also like to thank my son, the Engineer. When I arrived at Shanghai Airport I was curious to see which sites I could access, given the controversy over censoring Climate Audit in Canada. So I started to check to see which sites I could access. Both Climate Audit and Real Climate were available. Anthony Watts site (Watts Up with That), Robert Rapier's and mine were not available. (TOD was). And since I had hoped to do what I did, I had to find a way around the problem. Enter the Engineer, who, for the past week has been posting my posts, after I sent them to him. Thanks again, good sir.

To return to Chinese use of energy, there are two levels to the Chinese activity that are both worth noting, and also are likely to have future impact.

The most common thing that I saw was probably a pile of bricks. Historically many of the houses in Qinghai province were made of mud brick, with mud walls being used in construction of the many greenhouses. But it seemed wherever we went, whether down a back street in Beijing, a Muslim or Salar village in Qinghai, or a Tibetan temple there were piles of fired brick, and construction of new buildings (following the shape of the old) but with the stronger brick, was going on almost everywhere. Yes, the big cranes dominating the blocks of apartments and hotels that are being constructed didn’t seem to be moving a lot, and that construction is slowed, but for individual houses it seemed to still be continuing at a steady pace.

The bricks come from largely coal-fired plants (at least in the cases I saw) with many relatively small brickyards working to provide for the demand. The houses may end up being plastered and painted, in Beijing back to basic grey, but are built along ancestral lines, with in Qinghai, the flat roofs that collect the most sun in winter to help keep the buildings warm. Solar water heaters (as opposed to solar oven types of water boiler for meals) were more common in the big cities and down at lower heights on the tops of apartment buildings with not that many on individual dwellings. The change is going to have an impact on rural life, particularly where they can get the nomadic herders and shepherds to adopt to a fixed domicile rather than wandering with the herds.

But it is the other change and construction that I found more spectacular, and will likely have at least as great an impact on the society. We left the Tibetan Plateau and Xining City on the train, and started the descent to the coast by travelling down the valley carrying the Yellow River. After a way, however, we turned into another river valley as we headed to Xi'an and ultimately Shanghai. The rail line had a companion line, and there was a road to bring access to the small villages that were found in the corners of the valleys as we moved down. Before the roads these villages would have been almost isolated, with connections achieved by whoever (and I suspect it would be mainly monks) wandered over the passes. Small isolated rural communities that live on a subsistence level are only romantic and idealistic in novels. Thus a major effort of the Central Government is to provide access to and for these folk. But it is not easy, in that railway lines and highways can’t easily make the bends along the valley that the rivers have cut. So the carriageways have to go through tunnels, or carried on pillars down the heart of the valley, in order to maintain grade.
Railway causeway set across a valley and carrying the second line (photo taken from the first) the river crosses under the line and runs along the left hillside. The train I am on goes into a tunnel as the line curves to that hillside.

The basic requirement for passage seemed to be 2 rail lines and a road, with tunnels being required in many cases to ensure that the curves were sufficiently gradual. While the above show the scale of some of the construction where the valley was wider, it did not get any easier as the valley narrowed (as it did in the top of the first picture).
Further down hill, the valley is much narrower and where all the trucks are both rail lines are in tunnels (one on each side of the river). The narrow roadway initially driven meant that whenever there was a hold-up, before long the line of trucks waiting was over a mile or two. (Very few cars).

To help solve the problem, further down stream the road is being converted to a dual carriageway. This is also a great endeavor, and will require additional tunnels as it moves up the valley, but will make it a lot easier to travel up and down the road.
Construction of a dual carriageway further down the valley, a typical village lies behind the construction. As we went downstream the houses changed from mud brick, to fired brick, to tile faced.

At the moment Qinghai is very popular in the summer, since temperatures at altitude rarely get above 70 with a good many sunny days. (As in many parts of the world they are also seeing record harvests). We were told that all hotels fill with domestic tourists in that time, and even last week we were thought very lucky to have been able to acquire train tickets.

The installation of the dual carriageway suggests that the Chinese Government anticipates that individual vehicles will become much more popular, and so roads must be provided to take the public, by car, where they want to go. In those circumstances, where the specific areas get quite remote quite quickly, it is easier to provide a road, than a rail line.

Providing fuel for those vehicles is going to require a significant volume of imports. Sales of cars in China have surged this year

auto sales have surged after the government offered subsidies to drivers in rural areas and cut retail taxes as part of a wider 4 trillion yuan ($585 billion) economic stimulus plan. The demand jump has caused GM to double its 2009 industrywide growth forecast. Combined with a 37 percent slump in U.S. auto sales because of the recession, the surge has made China the world’s largest auto market so far this year.

“Customers have to book in advance because there’s not enough stock of the bestselling cars,” said Guo Yong, information manager at Beijing Asia Games Village Automobile Exchange, which houses dealerships accounting for about 10 percent of Chinese car sales. “Fourth-quarter sales weren’t that good last year and most carmakers curbed production as they were pessimistic about sales this year.”

The Chinese Government would not be making these investments if they did not see the roads being used, and that is going to require a lot of fuel, which will be their next problem. (And this is not considering the arrival of foreign tourists, for which the country is already well prepared, even though, at present, numbers are down.)

Powering a rural economy

Solar heating of a kettle (30 min to boiling)

One of the concerns of the Qinghai Administration deals with the large number of herders that remain wandering the hills, as their herds migrate across the landscape. Apart from the concerns over over-grazing that the now-larger herd/flock size is starting to impact grassland stability, they are also concerned with the provision of power and easier physical access to the herder dwellings, and he provision of social services.

Driving out to see the Liujia Gorge hydro-electric scheme and nature park (of which more anon) we passed through a street that illustrated one of the first steps in helping that had been achieved. Outside virtually every residence on the sunny side of the street (and about four on the other) there was a solar cooker of the type shown at the top of the page. These are extremely popular even where there is electricity (which is not that expensive) but are even more popular with the herders, since this gives them a source of hot water and power for cooking, without needing access to electricity.

The second step in giving folk power as been the introduction of the solar water heaters. The designs are quite simple, a drum, and thin collector pipes, and they are currently being sold, at a price of around 6,000 – 7,000 yuan (6.7 to the dollar). This is in contrast with electric powered heaters that go in at around 1,000 yuan, but that have a power bill. Despite the differential we saw a fair few installed, though to be honest I think I would be stretching it to say we saw 5% of the homes in the villages we drove through using them.

Solar water heater (cost around $1,000 installed)

But if the herder mentality is to change there are other changes that must also be made, the first being affordable, simple and power independent houses. (Along the lines of the solar house competition on the Mall, though cheaper and less complex, and without the utility and car provisions. ) With stability in population there might be a possibility of using a grid, but the return would not justify the investment.

Most power in the state comes from hydro, they also supply five adjacent provinces, and the size of some it truly impressive. We did a tour around the nature park surrounding the Liujia Gorge hydro-electric plant, rising from 2,000 m at the crest of the dam, up to 3,000 m looking down on the lake as we were driven through the Kanbula nature park (by minibus and golf cart, and then back to minibus and boat).

The Liujia Gorge dam and lake.

One additional sign of change, as we drove through the villages was the rapidly changing construction plan, going from mud brick to baked brick, with house after house being rebuilt with the more resistant baked brick. The bricks are it seems, being baked using coal as the power source, but that cost is small relative to the benefit of the new (to them) material.

This is still a land where farming is a major occupation, with couples out every day tending “their patch” and making sure it is properly watered and weeded. This gives a different mentality and cost structure over that which we commonly currently consider when asked for an opinion.

I am taking the train tomorrow to Shanghai, and then flying back, so there will be a couple of days before posting returns.

And a special thanks to The Engineer, about whom and why next week.

Heating houses and tents

Room in a Tu community

The Tu have a significant minority status in China, and in Xining City there is a community, which has at least three culture centers. These show off the way of life of the Tu, and this is a typical room within their gated community. The platform contains a small wood stove, and a conduit that carries hot gases through the bed of the bed, before exhausting it. As a result the ceramic box is quite warm, and the family can thus sit here and eat, and drink, and if they collapse – we’ll they’re on a bed to start with. The amount of wood required to keep the fire going and heat the ceramic is relatively small, and as I mentioned we saw Pollarded trees, and sheep stretching up to eat new leaves and branches. We sat in here for lunch, around the table, and I was initiated into the ceremony of the three cups. (I also can confirm that ear of yak is quite a pleasant delicacy). The design from the bed came from North East China where the Tu originated. They also had a small still going which produced the ethanol for the ceremony.

The construction illustrates how much benefit can come from an intelligence of need.

In contrast, Tibetan tents, which are of a heavy and dark construction so that they can soak up as much heat from the sun as possible, have a central wall, with a small fire built into it. This is usually fed by dried dung, of which there is a pile usually outside. Outside the cities this is quite a common dwelling for the herders (and workers on the pipeline) though the tents were made of different materials and colors (white being the dominant other).

Central heating structure for a Tibetan tent.

A road trip through incredible geology

Dry mountains tower over trees in the Yellow River valley.

Up on the hills overlooking the site where China did much of its early development of its nuclear arsenal, and with cooling towers set firmly in the valley, the herders still collect the dung from their yak herds, and stack it to dry in piles, or in rows along a convenient wall. Perhaps a trite example, but China is a much more complex, and diverse society than most folk realize. The wave of prosperity is still surging in this part of the country, but outside the cities there are some harsh realities. Drive up the Yellow river and the thin band of green beside the river is dwarfed by the dry mountains on either side. Drought is an ever present concern, and just across from a fertile field by the lake are rolling sand dunes.

The mountains themselves present a serious challenge to economic growth in the province (and in Tibet which is right next door). With their height dominating the landscape, historically there has been considerable isolation of individual communities. It is true of rural economies everywhere, but there is an aggressive program to change this, and a network of roads is being driven over and through those mountains. But with the terrain being so mountainous much of the construction requires much more concrete than a normal road, and tunnels also have large construction costs.

New road construction, the blue is the kickoff point for a tunnel going into the mountain at the back, where the road currently switchbacks its way up to over 3,000 m.

The gain in access will open up an opportunity for business and travel that is now much less present. What that means for the local economies is, of course, another story. The government seems aware of the problem, which has complex nuances in a multi-cultural society.

Already restaurants that used to be purely local are attracting a tourist trade (and when more guests show up, a quick call to a local farmer can bring in extra supplies of yoghurt for desert, in panniers on his bicycle and served within an hour of arrival – delicious). Given their remote locale they can probably hold off the chains for a fair while, and serve only local produce. (Including yak, lamb and fish from the Yellow river). Vegetables come from both the fields and greenhouses, still in operation in mid-June.

Power seems freely available, though the Concert last night shut down power to one of the local hotels, where some of the performers were staying. Yet up and over the mountains, paralleling the road, is a new gas pipeline – I still have to work out where it comes from and where it is going.

Two of the folk at dinner tonight had been caught in the big earthquake last year in China, and described the harrowing experience of trying to find loved ones in the chaos that originally ensued.

Yak herd grazing on the hills

We drove to the banks of the Yellow River (stopping for a Tibetan Welcome at the river) and had to cross a range to get into the valley with the river. We passed, on the way, a new gas pipeline going in and I’ll have to check when I get back to see which one it is.

The ground is covered, when we start, with a thin layer of grass, over which the herds of yak and sheep are grazing, under the eyes of the shepherds. The land is very steep and in the road cuts you can see the underlying granite, with the thin soil on top, and then the grass layer. I was travelling with Chris Nebe, the film director, and he commented that this was one of the big issues between the Chinese and the farmers in Tibet, since the growth of the herds was overgrazing the pasture. To protect it, the government had cut-off access to some of the pasture to allow it to regenerate and this was causing some considerable turmoil.

As wee passed over into the next valley we suddenly saw the difference that rain makes in this part of the world, since the amount became sparse, and the hills barren rock and soil. The villages huddled along the side of the river that ran through, in and along side the green belt that allows them to grow food. There is a lot of use of greenhouses, and this provides the excellent melon of the region.

Coming to the town where the Concert for Water and Life (the 2009 Qinghai International Musical Journey on Water and Life) is being held, the little cars that I saw at the monastery became ubiquitous. They are three-wheelers and perhaps the Chinese equivalent of the Tata Nano, selling, so the folks in the car thought, for about 5-10,000 yen (at about 6.75 to the dollar).
The local Muslim population put salt in their tea, and hot milk, it takes a bit of getting used to.

The town on the edge of the hills.

A trip to Ta'er

Walking around the great Stupa at the entry to Ta’er Lamasery.

Xining city is growing rapidly, with many changes and it looks prosperous, with the inhabitants appearing comfortable, if I can say so without sounding patronizing. The parks were fill, in the morning, with folk singing, exercising, and playing games. Ta’er (or Kumbum), one of the two largest Tibetan Monasteries outside Tibet, itself, is located some 25 km from Xining City, and we drove out, for a morning visit.

Driving there, the rocks of the surrounding hills are soft and weathered and have been carved into terraces that are heavily planted. The main crop was canola, which I thought it might be used as a fuel. But it is actually used to produce the vegetable oil, which is marketed as a food item into the Middle East. Local power, given the rivers and lakes, and altitude, is hydro-electric. They are already concerned about the quantities of water available, although this past year has seen a bumper harvest. There are many greenhouses, and they have obviously been here a while (the local building material is a clay brick that weathers).

The monastery is being refurbished (by the government) and given its size, this is a significant undertaking. There were many shrines, and where these are covered in yak butter (ghee) then visitors will attach money. They also buy the yak candles for the altars. (Note that contrary to what I had read, these do not smell and help preserve the paintings on the walls, since there is no soot from the flame). There were large numbers of offerings, including a lot of wine and butter, but we also saw rice being donated, and silk scarves.

One of the religious practices involves kneeling, then flattening oneself on the ground (on a pad) as one slides ones hands forward and overhead, sliding them on pads that rest on the wood. The faithful do this genuflection 100,000 times a year, and the wood is replaced every three or four years. Transport around the monastery is by small cabs, wide enough for a driver in front, but which held (in one case) a rather large monk and two others. The monastery currently holds some 700 monks, though at one time it had as many as 3,600. It is a teaching school for the faith. One of the temples is topped with a gold coating weighing in at some 35 kg, and I think the guide said that was the smaller of the two.

A monastery cab

Meeting business people at lunch and later, (I am here as a guest of the Governor of Qinghai Province) they seemed entrepreneurial and looking for opportunities to develop new industries. The community, with skyscrapers still building, is growing and there are many statues in the parks and new construction illustrating their current prosperity.
And in the afternoon we visited the Tibetan Medical Museum and I can now claim to have walked the full length of the great Thangka on the upper floor. It is some 600 m long (I think) and depicts, among other things, the history of the Tibetan people. (Yes it shows the transition from monkeys). It was up-to-date enough that I did spot an electronic calculator at one point.

Xining City

8 am Xining City, China (view from the door of my hotel)

Here in Xining City in Qinghai Province on the Western edge of China we are up on the Eastern Edge of the Tibetan Plateau. Here are the lakes that are the headwaters of the Yangtse and the Yellow Rivers (of which more anon). We are about 2,200 m (7,000 ft) above sea level, and are on the Ancient Silk Route. We have arrived. The weather is cool and sunny.

On foot and tricycle in Beijing

Cable powered bus in Beijing
If you look closely along the side of the bus, you will see the rope that the driver has just pulled to reconnect the power connectors back to the overhead wires. Apparently it is unsightly to have the wires present around Tiananmen Square and so they have to disconnect as they traverse around the Imperial Palace.

Walking the neighborhood this morning I noticed a lot of new construction (very much in the mode of the old with brick and typical tile roofs) but it was all grey. So I asked, and this is the authentic original color. And I thought about it, and perhaps someone ought to cough gently in the direction of the Secretary of Energy and note that not all the world has California’s climate. When it gets cold in winter (and it does here and in a number of other places) having a while house is not as warming as an alternate color (such as grey). These are the houses and compounds off the main drag, when you go down the alley ways between the shops, and discover the small walled compounds which were and are a feature of old Beijing.

We had a tour of those parts, along the lake and near the Bell and Drum Towers, with transport by tricycle rickshaw. It was the best way to see that part of town, though it was full of bars, going around at 3:30 pm meant that there was little business yet, though it is much more active later. In preparation they were putting plush sofas out on the sidewalk.
And then it was time to head back to the Airport, much less hassle now as we are travelling within China, and as the journey began to catch up with me I had to be woken to be driven through the dark to my new hotel. Of which more in the morning.

Morning in Beijing

7 am Just off Tiananmen Square, Beijing
By 6 am the buses are running in the streets, but the bicycle traffic does not pick up until about 7 am. Of course this is a Saturday and so it is not the normal business traffic. I stayed just of Tiananmen Square, and am just about to go for a quick walk around the neighborhood, before this afternoon, we go back to the airport.

Welcome to Shanghai

6 pm local time Shanghai Airport
And this is where the best laid schemes of mice and men gang aglee. The airport, while allowing me e-mail access, and to a number of other sites (vide the discussion at Climate Alert the other day could get both it and Real Climate, but not Anthony Watt’s page or Robert Rapier’s for that matter) did not let me access this page.
So I am trying to get around that, but having now reached the hotel, so far without success.
Coming in to Shanghai we discovered how seriously they are taking the flu epidemic. First the plane crew came around and scanned us all for temperatures, and then a pair of folk in Hazmat clothing, masked, goggled and all, came in and did a second survey down each aisle. If there was any question from the first reading (from a scan of your temple) the second member of the team physically took your temperature with a digital thermometer.
So we were in the airport for about four hours, time for a cup of coffee and a piece of tiramisu, and then on into the night. (which reminds me a beer sounds as though it would be a good idea, and then, more than 24 hours after starting out, time for bed).

Leaving on a Jet Plane

11:30 am Los Angeles Airport
Well this was interesting. I had planned on adding three additional pictures to the post for today. The first was where we first went after leaving St Louis this morning. We travelled on a totally full plane to Los Angeles. We arrived there at 11:30 am local time.

Back when I first flew into this airport the construction in the back with the scaffolding was the symbol of the airport. Now it is hidden by later construction and no longer the landmark. Not that I had much time to do more than grab the picture, as we wandered into the International Departures Terminal, and were in the first of the three lines that took us through the two hours until the airplane departed. The first was to check in, the second was to go through security, and the third to get into the gate. Between them there was no time for a post, and so, alas, I will leave you wonder for just a little longer, where I was going.


As to why there aren’t three pictures – including the next stop – tell you later!!

Parking Lots at 6:30 am

Well we made it as far as St Louis last night. Looking out over the parking lots this morning, they are perhaps just a little over half full, when usually they would be much more. And restaurants have been hit hard by the recession, at least in these parts.
Outside the airport in St Louis

Views from the road

I am setting out on another trip, that will last some ten days, but am taking my laptop and so should be able to continue some sort of commentary as I go. But I also thought I would add the occasional view of where I am, since it may be of interest. To kick the idea off, this is one of the items that I helped with at the Millennium. It sits on our campus and, if you look carefully, you can see that the two back statues came out of the legs of the Arch in the foreground. The figures are just over 3 m high, and the legs are about 70 cm thick. Each leg weighed in around 30 tons before we cut them. (It is granite and we used only water in making the sculptures).

The Millennium Arch, by Edwina Sandys

10:55 pm I stopped by and took an up-to-date photo, rather than the stock one, and have changed them out. We drove off into a torrential thunderstorm with a tornado warning coming up the road behind us (and Beethoven's Violin on the radio).

The hydrofracing bill, ANWR and offshore drilling

A couple more quick notes for the evening: the bill to move hydrofracing under the Clean Water Act and about which I summarized the hearing last week, was put forward today.

Democratic Representatives Diana DeGette, Maurice Hinchey and Jared Polis offered a bill that would reverse a 2005 measure that excluded hydraulic fracturing from regulation under the Safe Drinking Water Act.

In the Senate, Democrat Bob Casey introduced similar legislation.

While the initial intent, as commented by Congresswoman DeGette at the hearing last week was purportedly just to have the chemicals included in the hydrofrac reported, under the rules of the Safe Drinking Water Act, the impacts on the supply of natural gas, which relies on hydrofracing to release the gas in the gas shales, is also going to be a consequence. The API highlighted an IHS report that concluded that:

additional federal regulations would lower the number of US wells drilled by more than 20% over a five-year period, while cutting natural gas production by about 10% from last year’s levels by 2014.

That does not seem to concern the bill’s authors who seemed to have a much more severe impact in mind.

"It's time to fix an unfortunate chapter in the Bush administration's energy policy and close the 'Halliburton loophole' that has enabled energy companies to pump enormous amounts of toxins, such as benzene and toluene, into the ground that then jeopardize the quality of our drinking water," Hinchey of New York said.

The fact that they are being pumped some 8-10,000 ft down, and are then removed, accounted for and safely disposed of in other wells at depths well below the few hundred feet to the water table is irrelevant to a point of view that seems to want the practice of hydrofracing completely banned. It might be interesting to hear where he expects the heating fuel to come from for his constituents next winter.

Certainly they should not, it seems, expect much help from Alaska, the Senate Energy and Natural Resources Committee has refused permission to use directional drilling to reach oil formations in the Arctic Natural Wildlife Refuge, in a way that would not put drilling rigs into the refuge.

As another part of that action the Committee voted to end the ban on drilling offshore in the Eastern Gulf, something not that popular in Florida. But it will require a state initiative to remove the ban that Florida has imposed.

Offshore Sweden and Finland plans are still moving forward to run the Nord Stream gas pipeline down through the Baltic. But there is a rumor that both the Swedish and Finnish authorities may oppose the project.

All in all, perhaps not a good day for the natural gas industry.

The Tata Nano and Jevons Paradox

A small snippet of news to underline the comments that I have made about the Tata Nano. In a normal year automobile sales in India run about 1.5 million cars. The Tata Nano went on sale in April, and over the last two months sales have averaged 100,000 cars a month. Because production was only set to be that many this year, many customers are going to have to wait until production gets geared up next year before they can expect delivery. (And just to remind you it is taking Ford up to 6-months to deliver our Fusion Hybrid, so the Indians are not alone in having a long wait).

This is an illustration of Jevons Paradox, in that making cars cheaper and simpler and thus more efficient is resulting in more sales of cars, and thus an overall increase in gasoline demand. Interestingly most of the cars sold are not baseline (the $2.050 version) but also include air conditioning and power windows.

Beyond the Storm there will be no calm

Predicting that the next energy crisis is closer than most folk realize is, unfortunately, in some ways the easier part of a look into our future. Because the expectation, fostered by TV movies and our experience from last year, is that should there be another crisis, that it will last only a short time before there is some remedial measure, whether it be a surge in production from Saudi Arabia; withdrawals from the strategic reserve, or some more mythical remedy, somehow, after a short time, the crisis will be resolved.

But the unfortunate reality is that the next time we dance this particular waltz the tune will require a different set of dance steps. Because the solutions that have helped in the recent past to help ameliorate the reduction in traditional supplies of crude have not got the investment, nor have they carried out the development that will allow additional supplies of oil to suddenly spring into being. One of the more obvious examples of this is the increase in supply from the oil sands of Alberta. It was not that long ago that we were looking toward output levels of 3.5 mbd from those deposits, initially by 2015. But just today Standard and Poor’s has lowered the credit rating for companies working in those fields.

“The downturn in oil prices that began in the second half of 2008 brought to the forefront the rapid increase in operating costs that oil-sands producers reported,” Standard & Poor’s said. “At the time we originally rated oil-sands producers, we expected operating costs to be in the teens. We have seen operating costs rise to more than C$30 ($26.75) per barrel on average and rise above C$40 a barrel for some producers in 2008.”

The investments that would be required to bring the production to 3.5 mbd in 2020, the more recent target are not being made. Syncrude has been cutting production, Suncor is merging with PetroCanada as a better place to invest, rather than just in the oil sands. It is this lack of investment, or the curtailment or delay in moving previous investments forward that are now of concern. As the IEA has just noted

Over the last six months many planned large scale upstream oil and gas projects involving around 2 million barrels per day of oil production capacity and 1 billion cubic feet per day of gas supply were cancelled indefinitely, the IEA’s executive director Nobuo Tanaka today told the Asia Oil and Gas Conference in Kuala Lumpur, Malaysia.

A further 35 projects involving 4.2 million barrels per day of oil capacity and 2.3 billion cubic feet per day of gas capacity were delayed by at least 18 months.

His comments were matched by those from the Chief Executive of Shell:

Despite the current economic crisis, he said demand was projected to double by 2050 as the world population grows from 6 billion to 9 billion by that time. He said oil corporations should invest now in technology and develop new sources to reap benefits when the recovery comes.

"The oil and gas industry cannot supply all this additional demand ... this means the next price spike is in the making," he told more than 1,000 delegates at a two-day oil and gas conference here.

Some of the delays have been identified:

Though information is not always available, there has been in 2009 major projects deferment or cancellation in our region such as the Al Zour (615 thousand bpd), Al Shaheen (250 thousand bpd) and Al Jubail (400 thousand bpd) refineries in Kuwait, Qatar and Saudi Arabia respectively and the development of the Manifa (900 thousand bpd) oil field in Saudi Arabia which is said to be deferred by at least 18 months.

The Karan gas field in Saudi Arabia also is said to be delayed for a short while to allow a contract renegotiation.

A similar lack of investment in Russia (which is running at about 9.8 mbd of production significantly above the 8.35 mbd production from Saudi Arabia) is also raising concern

"Unless we invest large sums in the development of new fields in East Siberia, Yamal and the Arctic, in a certain period we will see the prime cost of oil production in Russia hike, which could affect the situation on the global market," Viktor Vekselberg said during discussions on oil prices at the St. Petersburg International Economic Forum.

These investments are not being made, and the time for them to have impact is passing. Thus as we begin to see the crisis develop over the next twelve months, one can also anticipate that the available production will not increase, but rather slide further, so that any growth in the world economy and end to the recession will likely be severely threatened by the increasing price of fuel.

Further, at that point, we may reach a situation where supply begins to fall, despite the higher prices, because of an inability to provide the greater volumes. At which time the lack of willingness to address this crisis will be brought home in a hurry, to those who currently ignore it.