Tuesday, February 9, 2010

Peak Oil, the DOE and interesting times ahead

There is a certain sector of public opinion, including the President, that apparently feels that for the sake of taking appropriate precautions, even if the current scientific thinking on climate change is wrong, we should act as though it is right. The problem that there is, however, in the way that the argument has been accepted, is that it has led to demands for dramatic change in the way that the Federal Government is looking at future energy supplies. I was talking with a colleague today who commented on how much the conventional research funding for fossil energy fuel production is being cut. And the problem with that is that you can’t have a baby in a month by making nine women pregnant.

What do I mean by that? Well the production of energy at the level of scale that is needed for the United States (let alone the world) is difficult for many people to grasp. And making a change that will have a significant impact on that supply, in a positive sense, requires an effort that is correspondingly large. Changes do not happen overnight. As the Hirsch Report noted, it will take up to 20 years to find and install a replacement for the falling world production of oil. Yet the technologies that were advocated in that document, written in 2005, were not that revolutionary.
Besides further oil exploration, there are commercial options for increasing world oil supply and for the production of substitute liquid fuels:
1) Improved Oil Recovery (IOR) can marginally increase production from existing reservoirs; one of the largest of the IOR opportunities is Enhanced Oil Recovery (EOR), which can help moderate oil production declines from reservoirs that are past their peak production:
2) Heavy oil / oil sands represents a large resource of lower grade oils, now primarily produced in Canada and Venezuela; those resources are capable of significant production increases;.
3) Coal liquefaction is a well established technique for producing clean substitute fuels from the world’s abundant coal reserves; and finally,
4) Clean substitute fuels can be produced from remotely located natural gas, but exploitation must compete with the world’s growing demand for liquefied natural gas.
However, world-scale contributions from these options will require 10-20 years of accelerated effort.
And they certainly aren’t being given a crash priority for funding from the Department of Energy. The Department, sadly, still seems to feel, complacently, that there is no critical need to be concerned about fossil fuel supplies, and that it is only the need for precautions to guard against producing too much greenhouse gas that drives the path forward with any urgency. There is nothing about taking enough precautions to protect against fuel shortages in the future.

Well, as I noted the other day, Asian and Third World use of coal is rising very rapidly, so that from that point of view I suspect that the Department is riding a crippled nag that is not going to help keep American industry competitive. Robert Rapier posted, the other week, on the costs of producing a million Btu from various sources. These were his numbers:
Powder River Basin Coal - $0.56
Northern Appalachia Coal - $2.08
Natural gas - $5.67
Ethanol subsidy - $5.92
Petroleum - $13.56
Propane - $13.92
#2 Heating Oil - $15.33
Jet fuel - $16.01
Diesel - $16.21
Gasoline - $18.16
Wood pellets - $18.57
Ethanol - $24.74
Electricity - $34.03
The electricity price is the EIA average retail price to customers. He provides both the sources for the quotes, and the energy conversion rates between fuels. (Powder River Coal from Wyoming runs at 8,800 Btu/lb or thinking of it another way a ton of coal produces 17.6 million Btu). You will note how cheap the coal is.

Is it any wonder that the Chinese are trying to negotiate a 20-year supply of coal from Australia to the tune of around $60 billion. The coal will come from the Galilee Basin in Queensland and will run at 30 million tonnes of coal a year for 20 years.
The China First project will be located in the Galilee Basin region near Alpha, west of the town of Emerald, and will include four underground mines, two surface mines, plus associated handling and processing facilities.

It will be linked to a coal terminal on the Queensland coast at Abbot Point by a new 490 kilometre railway line. The company says the project, which is awaiting final approval by the Queensland government, will create 6,000 jobs during construction and 1,500 when operational.
Some of the confusion in the current press is that while there is a letter of intent and a framework agreement, there is not yet a defined price for the coal.

Again, however, to put that in context, China uses coal both for industrial use (steel making) and for electricity generation with about half going to each at the moment. The EIA anticipates that in 2015 it will use 37 quads for electricity production, 30 quads for industry and 3 for other uses, for a grand total of 70 quads. A quad is a thousand trillion, or a million billion Btu’s. Dividing by the 17.6 million Btu’s per ton, means that by 2015 China will be using roughly 4 billion tons of coal a year. (The USA for reference produced 1.46 billion tons in 2008). So the Chinese are going to have a supply (though not that much of their needs) of relatively inexpensive coal. And there is a lot more coal in the Galilee Basin (more than 4.5 billion tons).

Here in the United States one of the current thoughts is to keep investing in ethanol production, which is impacting corn use. For example, of the 11.11 billion bushels total, 5.56 billion bushels go to food, seed and industrial use, 4.3 billion goes to Ethanol; 2 billion bushels to exports; and there are 1.7 billion in year-end stocks. (Note: this table as been corrected, and the source, following the comment below).

The numbers that are being used are measured (coal or corn) in billions. The top producer of corn in the United States last year produced 314 bushels of corn from an acre (the national average last year was 162 bushels/acre so to produce that much ethanol requires a lot of acres. And it has taken a significant amount of time to plan, fund and install the refineries – and in poor economic times some of those have gone bankrupt.

But we are not looking for innovative fossil fuel production, this complacency flies in the face of an increasing number of voices, Richard Branson being one of the latest, who have discovered that we don’t have 20-years. His figure for Peak Oil is five years. That may be optimistic, and may be within the continued term of an Obama Administration. So how are they preparing?

Realistically they aren’t. What they are funding cannot be brought to the level of production that can have any impact on supply within the five or ten year period. And when the crisis comes you can’t find the answer in the short term by just throwing money at it, and getting the fast result (the baby model).

As they say, life is going to get interesting. (Wait a minute, wasn’t that part of some curse or other?)


  1. Nate-
    Your source has the numbers on ethanol wrong. They misread the table and substituted the total domestic consumption ~11 billion for the ethanol number ~4.2 billion. Easy to do as the numbers are right next to each other in the relavent table (wasde-479-12)about 1/3 the way down the following text document:


    Jim Adams

  2. Thanks Jim:
    I have corrected both numbers and source.