P61. Pick Points

A few stories of interest to start off the week.

When I wrote about the EIA Energy Conference last week I had promised that I would make a better reference to the views of others who were there. For example, I noted that Reuters had a piece on the final morning session dealing with greenhouse gases and climate change. Robert Rapier has two posts up now, one on Dr Chu’s remarks; and the second on the rest of day 1. Robert went to the session on Transport demand that I missed, and so this is a place to catch up. His take on the Renewable Energy session is also a little different, and so a trip over there would be worthwhile. Gail, at TOD, has so far, only covered the Plenary Session.

Stranded Wind also has a post summarizing the whole Conference at Daily Kos.

Moving on around the world to see what other stories have been gathering headlines, it sometimes seems that one cannot go far without bumping into Gazprom stories. It seems to have troubles on two fronts at the moment. Looking first at its supply, it has (as I noted last Sunday) run into a bit of bother with Turkmenistan. The story got worse as the week continued with a reported gas explosion in a pipeline inside Turkmenistan that was carrying natural gas to Russia. This shut down the feed to Russia.

"Turkmengaz informed Gazprom that on April 9 at 01:32 an explosion occurred at the 487th kilometer of the Davletbat-Daryalik pipeline. Since then, transport of Turkmen gas to Russia has not been carried out," Gazprom said.

"At the present time the Turkmen side is working to rapidly repair the damage.... The damage will not affect the supply of gas to Gazprom's customers," it said in a statement.

This was followed, on Friday, by a story in the LA Times where Turkmenistan blamed Gazprom

Turkmenistan's Foreign Ministry said in a flurry of statements that Russia's Gazprom decided on short notice to reduce the amount of gas it takes from Turkmenistan. Gazprom's export division gave only one day's warning, which wasn't sufficient time for Turkmenistan to reduce its flow into the pipeline network, the ministry said.

The blast, which occurred late Wednesday, "was caused by a gross unilateral violation by Gazpromexport of the norms and rules of the natural gas sales agreement," the statement said. Another statement said Gazprom's actions were "rash and irresponsible" and put lives at risk.

Turkmenistan is now reportedly angry that the Russians are, in contrast, blaming the blast on them. Repairs were scheduled to take 3 days. The story is now being carried in Moscow, where part of the blame is seen to be because of the decision of the Turkmen to seek international bids for a pipeline, instead of giving it to Russia.

There has been a significant drop in demand from Europe. In March Gazprom produced 24% less gas than the same month last year, and is down 18% over the whole quarter. Demand in Russia alone dropped 6.6%. With demand for Russian gas expected to stay depressed by 10% over the next five years. However in the short term, it does report seeing a slight upturn in demand from Europe.

Which brings us to the second side of the story, since Gazprom is now threatening to fine Ukraine for not consuming more gas, and lowering demand below expected levels. With this threat of a lack of customers it seems odd to some that Gazprom is taking the step of buying Eni’s stake in Gazprom Neft (the oil side of the house). At a cost of $4.2 billion it is considered “a strange decision” given the company’s need to cut debt. On the other hand there is now an agreement to ship some of Sakhalin gas to the West Coast of the USA. (Actually to Mexico and then into the US).

In a statement announcing the agreement yesterday, the two companies said liquefied natural gas (LNG) from the newly completed Sakhalin-2 project will be shipped to a regasification facility in Baja California, Mexico. It will then be transported to southern California by pipeline and sold to U. S. consumers by Gazprom's subsidiary in Houston, Gazprom Marketing & Trading USA, Inc.

The first tanker of Sakhalin gas arrived in Japan last Monday, after leaving the island on the 1st April. Japan is expected to take 60% of Sakhalin’s supply (about 7% of Japan’s need) with the remainder being split between South Korea and the USA.

While many eyes on Pakistan are focused on the problems with insurgents and controlling the travel of the Taliban and friends across the border into Afghanistan, it is not as widely known that the country remains in a relatively desperate energy shortage. In one of the latest moves to counter this, the country will go onto daylight saving time on April 15th, in a move that is hoped to save the country 250 MW a day. Given that the country is short around 4,000 MW, this won’t help much. In Islamabad alone the gap was 190 MW last Thursday causing 150 MW of load shedding to be imposed. By Sunday it had increased to a shortfall of 1,200 MW and after having only had load shedding of 4 – 6 hours, the city is now back to blackouts of up to 12 hours as air conditioning demand rises with the hotter weather.

In Karachi the daily shortfall of 350 MW is coming with 8-10 hours of unannounced blackouts. (Hat tip to Energy Shortage). The Prime Minister still believes that load shedding can be ended this year. Part of the problem in Karachi, apparently, is that the power company has been taken over by a Saudi company who then sold it, but the new owners have yet to take possession. None of the problems have apparently been tackled.

And just to return to Russia for a moment, I had always remembered that before things got unpleasant in Iraq, Russia had been on its way to getting a sizeable chunk of the energy in that country. Turns out that they are now back

A Russian consortium including oil group Lukoil signed a $3.7 billion deal to develop Iraq's West Qurna oil field in 1996, when Saddam Hussein was in power.

"The goal has been set to restore the contracts concluded between Russian and Iraqi companies before the war," Energy Minister Sergei Shmatko told Reuters, adding that a working group on the issue would convene in the near future. . . . .
Saddam's government tore up the Lukoil deal in 2002, months before the invasion, saying the Russian company had done no work at West Qurna since signing it and had failed to fulfil its contractual obligations.

JP Morgan said in March last year that, according to Russian estimates, production at the field was expected to peak at 700,000 barrels per day, and reserves could total between 4.5 billion and 7.3 billion barrels.

2009 Energy Conference - Second Morning

This post is the fifth in a series that covers the material presented at the EIA Energy Conference in Washington this past week. In the earlier posts I covered first the Plenary Session; then the session on Natural Gas ; the growing demand for liquids; and the session on Renewable fuels. Following the Plenary Session (and my count of attendees was wrong there, since late in the Conference they reported 1,700 registrants) the Conference split into concurrent sessions. So, since I am but one, there is no report on the sessions that include The Future for Transport Demand; Electric Power Infrastructure; Financial Markets; Energy Data needs and Investing in Oil and Natural Gas – Opportunities and Barriers. For those all I can offer is that the EIA did say that they would post the presentations at some future time, and I believe that Robert Rapier is going to add his summary, and he attended a couple of the sessions I did not. (Gail of “Gail the Actuary” and The Oil Drum was also there and may also post her recollections).

I am going to combine the report on the last two sessions, “Energy and the Media” and “Greenhouse Gas Emissions – what’s next,” in part because I had to duck out of the former for an hour to take care of some “day job” business. (Though I attended to help advise our campus on where I think the Energy Research field is moving, and have already made a couple of recommendations since my return).


The Media session was chaired by John Anderson of Resources for the Future with Steven Mufson of the Washington Post; Eric Pooley of Harvard, who earlier was managing editor of Fortune; Robert Rapier of R-Squared Energy Blog ; and Barbara Hagenbaugh of USA Today.

The session began with John Anderson pointing out that the rise and fall of $4 oil and $147 crude was a big story, and asking if we (as in the media) got it right. Steve Mufson was the first to respond, noting that the coverage was so-so. The price rise occurred in part because it reflected the cost of the marginal barrels that spelled the difference between demand and supply, but when the recession came, suddenly there were lots of marginal barrels out there. He recognized that Peak Oil is out there (perhaps 10, perhaps 50 years) Speculation in oil price is difficult and while the futures market controls price it tends to magnify the trend, but cannot control it.

Eric Pooley felt that we need more transparency and disclosure of numbers. (Robert will be the first to tell you that there is tremendous transparency in the US oil industry, since at one time he helped collect and supply the agencies with the data that they (such as EIA) regularly report). Eric noted that we learned that while $3 gasoline did not affect consumption, once it got over $4 there was a clear impact and fall-off in demand. He has learned to be wary of making his own forecasts, and even more wary of those put out by others.

Robert Rapier noted that he bases his predictions on a close watch over oil stocks, and in the past has been able to predict unusual events by noting when inventory levels fell outside average values for significant periods. While this is easier to do just for the United States, it is possible to get some indication of global volumes.

Barbara Hagenbaugh noted that while they (her paper) cover oil and gas “ad nauseam” they find it difficult to find new angles to the story, and she prefers to find information from those that have “skin in the game.” But then it is hard to determine how some opinions are formed by the investments that those speaking have in the game.

In the following more general discussion it was noted that the reaction to oil price increase seemed to be triggered by the price reaching between $4 and $4.20, when driving habits suddenly changed.

One of the problem that the media has is that those appointed to the Energy beat are not necessarily trained by background in the subject. It might, therefore, be useful if someone like the EIA (hint) could provide training workshops to provide some background for newbies. Quite often, when reporters don’t understand the back story, it is possible that they may get it wrong. For example, with cap and trade there are a number of nuances that many reporters may not know to look for). This is becoming increasingly true as news organizations trim their staffs and lose some of their expertise at the same time as reporters are required to cover more subjects.

Another concern with reporting relates to the need for balance. As Robert put it, in writing about the world being round, how much space should be given to the Flat-Earth Society. This becomes a problem with the inexperienced reporter, who often may not know what the right questions are, or how unlikely some positions are. (And of course sometimes those prove to be right in the long term). The only safe passage is usually to know who you are talking to and how reliable they are. Yet reporters look for conflict and report it, even though some advocate that it would be better to report just the consensus of opinion. But then one should also fact check “the influential outlier,” and display a healthy skepticism on claims for popular items (such as ethanol).

(I slipped out just as they reached an agreement that society really did not understand the concept of scale in appreciating the changes that were likely to come in the future in regard to Energy Supply. The gargantuan size of our appetite for fuel is a “grey political story.”)

I returned to the political session of the week, in that the panelists represented in Joe Aldy, special assistant to the president for energy and the environment, the White House; in Greg Dotson, the Majority side of the House Committee on Energy and Commerce, and in Andrea Spring the Minority side ; while Joe Goffman provided some insight into the Senate view, from the Senate Committee on Environment and Public Works).

The meeting was chaired by Howard Gruenspecht the Acting Administrator of the EIA, who reminded the audience that the EIA job was to gather data, not to make policy, though from gathering data it could provide analyses of that data for Congress, and through reports to the American people. He gave examples to show that the stated preferences that folk proclaim do not necessarily match their revealed preferences, when they have the opportunity to fulfil their stated preference.

Joe Aldy began by quoting Mark Twain “everybody talks about the weather, but nobody does anything about it.” Noting that now Energy and Climate have become part of the great challenge for the country, that also now includes the Economic Challenge. Green activities can lead to jobs, and provide resilience against price shocks. He noted that the Stimulus package included funding for clean energy including everything from batteries to wind to transmission lines, to increasing energy efficiency.) He (the President) hopes to implement a cap and trade scheme by 2012, auctioning the allowances, and directing the revenues to vulnerable businesses and individuals. It will be designed so as not to provide an opportunity for windfall profits.

Greg Dotson explained that because Chairman Waxman had seen so much success with the cap and trade legislation contained in the Clean Air Act, which had survived without challenge for 19 years, he planned on using that model for cap and trade on carbon dioxide. However it took 10 years for the Clean Air Act, and he feels that we don’t have that time luxury this time around. This time they are also working with USCAP and feels that this is a useful collaboration. He noted that the coal industry has plans to spend a trillion dollars on new plant, but without more direction does not know how best to plan to spend that money. In the Waxman-Markey bill, Congressman Markey was largely responsible for the renewable energy components of the bill. In the debate over the price of allowances there was a concern for the cost of CCS, with mechanisms needed to ensure that it was deployed a prices below $50 - $60 per carbon ton. He forsees that the United States needs to get ahead in this research, so that it can export the technology it develops. He noted that 28% of GHG come from vehicles, but leaves that regulation to the states, though there could be some change in standards for energy efficiency.

With USCAP encouraging a 3% reduction by 2012 and a 20% goal for 2020, they plan on having a generous offset program, with a 5:4 turn-in ratio. Authority will be vested in the EPA, and they hope to have the legislation reported out of committee by Memorial Day.

Andrea Spring spoke for the Minority on the committee, casting some doubt on the anthropogenic origins of global warming, and concerns over the cost of cap and trade which the economy may be too weak to afford. She did not feel that cap and trade would have the votes in the Senate, though it would in the House, and suggested that the job cost may exceed its benefits. It would, however, create a commodity (allowances) that would allow traders something to profit by. Conditions differ between Michigan and California, and allowance allocation should recognize this. She brought up the problem of transmission lines and that the Fourth Circuit has given the states control, which may raise some problems down the road for renewable energy farms.

Recognizing the need for more research, she spoke up for nuclear power, and fuel reprocessing and the need for low carbon electricity. Yet without more data there is the risk of setting baselines in the wrong place – the UK has given an example of the problems that can arise with reliability and reality as it relates to concerns over nuclear power. (There will soon be a block of time where the UK lacks enough energy supply and the capability of meeting needs).

From the Senate side, there is a need for controls to be based on science, with cap and trade using allowances to help follow policy objectives, but given the needs to reduce GHG there is not that much difference between likely Senate legislation and that proposed by Congressmen Waxman and Markey. The debate in the Senate will more likely take place on the floor of the Senate, rather than in committee.

One of the comments was that, because of the need to get 60 votes, the process of getting those votes would define the policy that resulted. (As an example the use of carbon dioxide to enhance oil recovery might be persuasive to some members from oil-producing states).

In discussing the differences between cap and trade and a carbon tax, the success of the Clean Air Act was cited again, in contrast with the lack of simplicity likely to result from giving the legislation to the Internal Revenue Service. The feeling is that it will require the equivalent of a cost of $50 - $60 a ton for carbon, before industry will get serious about implementing CCS. Though developing the technology is a goal of this Administration, and they are already funding work to identify suitable geological horizons for use.

There was much more debate, with audience questioning, on the relative merits of cap and trade as against a straight carbon tax, but it seems to be a done deal that it will be cap and trade that flies, the only question then becoming when.

There was an interesting comment from Joe Aldy right at the end (and I will try and comment more on this on Saturday, given that it is a Saturday theme). He was talking about the statement that in regard to Global Warming , “the science is settled”, and seemed to suggest that the bar for settling the science was to raise sufficient concerns that GHG might raise the global temperature, that investing in counter measures was a justifiable insurance. He felt that the current level of science had provided enough information to make it prudent to take action, but not to say that the science of global warming from anthropogenic activity was fully scientifically settled.

This concludes my notes on the Conference. Obviously in the interests of time and space they are condensed and many points may be minimized beyond the level that others think they deserve. In which case please feel free to comment accordingly. In time the presentations should be released, and I will try and let you know when that occurs. I will also provide a short personal view of the proceedings and my opinions in a separate post.
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2009 Energy Conference - Renewable fuels

The renewable energies panel was moderated by Michael Schaal of EIA, and again took the form of a panel sitting around a table chatting. The panel each gave a short presentation and that took up most of the time before a short discussion.

Andy Arden of the National Renewable Energy Lab spoke mainly about the production path for ethanol, since the future supply of gasoline is likely to be flat, and ethanol provides therefore the only path to growth. He anticipates that with a 7% growth in use each year, the contribution from this fuel will grow from 2% to 15% of the total. A considerable part of the ultimate expansion in supply is to come from cellulosic ethanol, and the assumption, since companies are now constructing pilot and production plants, is that the techno-economic analyses are now coming up favorable. This is needed given that the target for that milestone is 2012, for it to be cost competitive, and that by 2022 the yield needs to be 21 billion gallons. The enabling bill has set specific targets for production after 2012, and all that is needed (ALL ??) is for the process to become cost effective.

The problem with that goal now is likely to be a lack of available credit, given the financial condition.

In the division of tasks for the National Labs, NREL deals with the thermo and chemical treatment of the biomass, INL and ORNL are responsible for the biomass production (including such examples as poplar). There is a concern however over logistics and an understanding of the issues of both quality and quantity. Because of scale issues in the economics of these plants a 5-mile gathering radius is too small, but as one goes to a larger harvesting radius then the costs of the harvesting, transport and storage also begin to factor into the equation (see the story from Dubuque). The resulting ethanol has to live within a price spread that makes it viable, which is thought to be around $2.50 as an equivalent price to gasoline).


Unfortunately the long-term numbers are not inspiring for ethanol, it is the current “biofuel du jour” mainly because it only “requires only one miracle to work” while some of the alternatives require several. And so there is a need to look beyond ethanol, to those technologies that, usually based on bacteria, will generate other fuels generally through aqueous phase reforming. One that I had not heard much of before was dark algae, which is a form of algae grown in the dark, that feed on sugar. Companies to watch in these areas are Virent, but the challenge will always be in the provision of an adequate feedstock at an acceptable price.

Matthew Hardwick of the Renewable Fuels Association lists 26 cellulosic programs, but things arre changing, since now credit is hard to come by and this is a capital intensive industry. He felt that the EPA models that consider ethanol were too low when it came to judging it against a carbon production standard, and felt that it was less of a polluter than it was painted to be. But there are other constraints, such as water and land use, that are only now becoming evident as plans to scale up production start to be put in place. And in developing the market forward, there is a blend wall that comes into play at 10% of the fuel market. This will hurt the ability to meet the target goals since they require that ethanol surplant gasoline at levels above 10% of the blend. The hope, therefore, is that EPA will change the mix max to 15% with the target of using an E50 by 2015. However once the mix gets to 12% engines will need to be changed to effectively use the new blend.

Denise Bode (who is the voice on the video at the American Clean Skies website, though is now with American Wind Energy) talked about the benefits of the coming growth in Wind Energy. Though did recognize that there are some concerns about transmission to get it where it needs to be.

Bryan Hannegan of EPRI spoke more from the point of view of the utilities, and noted that renewables still have a long way to go to ramp up to the levels of scale of production that are needed. He quoted a fiure of $27 a ton for carbon credit (allowance) that comes in in 2015, as being part of the models that they use for prediction. In their models gas prices float in the $4.95 to $7.95 range. But in looking at a goal of 35% of the national energy coming from renewables by 2050, there are some things that still must happen. Bear in mind that for that much penetration the renewable source must replace some of the existing legacy systems that are well established, and paid for. Without that there is not enough market for the growth.

He sees wind being the initial market penetration, penetrating even into the Tennessee Valley where there isn’t much wind, and a lot of competition. He had some land use and water concerns over biomass, though this will also be a big player by 2050. From the generation stations there will then be the need for transmission and linkage into the coming smart grids and those also are questions not yet answered. The EPRI position is spelled out in a report available on the EPRI website. He noted that just using natural gas as a fall back when the wind does not blow will put too high a demand on dedicated gas turbines, and that just relying on the grid being big enough so that the wind will be blowing somewhere might be a little optimistic. In the end he felt that to meet the carbon goals the country will need to do more than just rely on the renewables.

It was further noted in the discussion that less than half of the country could name a renewable fuel. And we need to avoid complacency over energy supply when business returns to normal.

2009 Energy Conference - Meeting the growing demand for liquids

The third session of the conference dealt with either electrical power generation or transportation fluids. In reality that meant, for the second topic, that the topic was crude oil. Moderated by Glen Sweetnam the panel included Eduardo Gonzalez-Pier of PEMEX, DavidKnapp of the Energy Intelligence Group and Fareed Mohamedi of PFC Energy.

The panel moved around the world looking at the prospects for increasing production from the major producers of oil, dividing them into those whose production can be anticipated to increase, and those who are known to be declining in production. The list of those increasing included the USA, Saudi Arabia, Brazil, Canada, Algeria, Nigeria Iraq and Kuwait. For those who are wondering if time has moved backwards, or question whether the world has changed enough that this site is no longer dealing with a real concern – the anticipated increase in production in the United States is relatively small and transient. It is coming from the increase in production that is being achieved by the rigs in the deep water of the Gulf, and is sadly not going to take us back to the days when the country produced more than anyone else. The panel also looked at the change in the nature of production since IOCs were replaced in the scale of greatest production by NOCs. The panel did not seem to feel that this would, in itself, make much difference since, in the end, as oil fields decline the NOCs would have to engage with the IOCs in order to acquire the technology (see closing story at the end of the post) that would allow them to enhance recovery from their remaining reserve.


I started out in the other panel (which was talking about transmission lines) and did not come into the room until they were talking about Mexican production. I did not initially know the background of the speaker, (it was Eduardo) who, shortly after I arrived, commented that Pemex expected to stabilize production at existing levels for the next several years. He and the other two speakers talked about the increase in production from KMZ that would offset the Cantarell decline, and that there would be the longer term production from Chicontepec that would continue this stable production for the next few years. Somehow my concentration wandered after this, and so my reporting on this session (that occurred just after a brisk walk and lunch) may be a little less that all that was said.

The panel opinion on Venezuela was not promising (pessimistic was the word used) with significant questions on sustainability, although there is the hope that the majors would be reinvited back with renegotiations to bring production back to a more reasonable level. (Taken with the discussion on Mexico this also encouraged me to enter a dream-like state).
They generally viewed Brazil, and Petrobras, as a success. Nigeria was described as a failed state, though there were some attempts to distinguish the success of some of the production from the troubles that were occurring because of the insurrection in the country. Looking at Algeria the debate focused on the natural gas business and there was some debate on the hydrocarbon law in that country.

Libya is a different case. Having grown accustomed to a lack of external funds and lower levels of income, the country is quite able to weather the current cut back in oil prices and the Government has enough revenue at the moment and thus is not under pressure to export more. Because of a lack of investment over the past decades, the opportunities to increase production, particularly through secondary and tertiary recovery is considered gigantic, and thus the overall view of Libyan production has to be optimistic. (It is interesting to note that China is reported to be going after the Canadian interests in Libya).

Looking at the countries of the Middle East, Iraq and Kuwait can be expected to remain relatively stable in production, though with some potential for increase. However, as with a countries in the region, the questionability of the reserve values quoted keeps coming up. (In a later question the panel felt no compunction in accepting Saudi figures for their reserves and had no concern that the values had not changed over the years. They did recognize, however, that in contrast to other countries in the Middle East they counted proved and probable in reserves, not just proved). Kuwait is “muddling through.” The damage done to the Burgan field by the Iraqi army in their retreat after the first Gulf War did more damage to the field than was at first realized. Instead of this being a field that produced under its own pressure, pressure now has to be supplied to the field to get the production out, and this has opened a need for new technology that has not yet been realized. Kuwait can, however, live on $20 oil prices.

But once one has gone through these producers, with their limited capacities to increase production, then all the other countries that were considered are in decline. They were, for example, somewhat more pessimistic than I expected about future Russian production. They felt that the inability to develop in a timely fashion some of their Eastern fields was now hurting, though their recent willingness to work again with the majors (for example Shell in their recent production) may denote a change in attitude. There is just not much happening in Central Eastern Siberia, and while they just shipped (April 1) the first LNG cargo from Sakhalin Island, it is a bit of a stretch to see overall production increasing given the declines in some of the mature fields. Although they were reassured that Statoil is going to be working with Shtokman overall they felt that the atmosphere over there was still somewhat poor for investment. Financial pressures may also act as a lever to induce change, but with the example of Gazprom held up before us, there was not a lot of optimism.

China was considered to be an interesting case, since all the news of developments from the west has gone silent, and the thought is that perhaps there are some problems with the geology in those fields, and the group would be surprised if grown was reprised in that area of the country. There was some optimism expressed, however for the chance of improving the natural gas position, particularly perhaps with coal bed methane (CBM).

Looking at Kazakhstan, this may be a country with some potential for the future, but with pipelines taking that future to China and Russia and the country having borrowed a great deal when oil prices were higher, that promise is likely to end up in one of those two countries. There is apparently some problem between the Kazakhs and the Russians.

The volumes of additional gas that have become available through the technologies that are being applied in the Barnett Haynesville and the other US gas shale deposits may also change the reserves in other countries. The panel felt that there should be some production become available in China and in Europe as a result of such fields, but the size of that gain is not yet evident, since no-one has probably yet gone and looked.

The longer term outlook for Saudi Arabia is difficult to tell, since it all depends on the succession to the king, and that is a bit of a worry, but there is so much geopolitical froth in the air, that it is hard to see the actual current situation.

In developments since the paper, and relative to the need to find new technology, I notice that PEMEX is talking of a new technology to get some additional production from Cantarell. In this idea a foam will be injected into the formation and will displace any remaining oil, with the hope of recovering an additional 3 billion barrels from the reservoir. It is a technology being developed at CSM, Stanford, the U of Texas and the University of Houston. While injecting carbon dioxide reduces viscocity and adhesion of the oil, it does not work well in providing a mechanism to move the released to to the well, and the original mechanisms have been weakened due to the water flood. In this technique the foam acts to provide that sweep mechanism.

2009 Energy Conference - Natural Gas discussion

Following the coffee break the meeting broke into two sessions, one that dealt with the future of transport demand, and one on the future of natural gas markets. I went to the one on natural gas markets, since this is the one that deals more with supply. The five main speakers sat around a table and chatted, under the guidance of EIA moderator, Steve Harvey. First they introduced themselves.

Rick Smead of the American Clean Skies Foundation spoke of the benefits of natural gas in keeping the air clean. He noted that the opportunities provided by the production from gas shale give a step change to the supply available and that it is just a case of going out and working out how to get it.

Jim Simpson of BENTEK who provide real time supply data and modeling, noted that it is only practical to model for two years ahead, conditions are changing that quickly. He polled the audience on where the gas price was going and the majority seemed to indicate slightly up. (Perhaps to $6), though he seemed to think that it is more likely that it will stay below or at $4.

Brian Jeffries of the Wyoming Pipeline Authority talked of the conditions (93% of Wyoming’s energy is exported) that led to the creation of the authority.

Christine Tezak had, until the recent debacle, been working for the Stanford Group and brought up some of the problems that might face the growth of the industry. How does the recent concern over the fluids used in fracing the horizontal wells and the Clean Water Act impact their future use, given that some of the water may pick up small amounts of contaminants, such as benzine, when it comes into contact with the rock formation. The question also is that while the Waxman- Markey bill gives a current Congressional position it is not clear which direction the Congress will swing from that base.

John Strom of Haddington Ventures talked a little on bulk energy storage and particularly wind energy with its need to even out the supply load. There is a need to separate the two parts to energy supply, that of the energy availability itself, and that of storage capacity to hold the energy against demand. He noted that there are “lots” of natural gas folk coming into the new Administration and that it is the “working girl” of the current energy supply.


(I won’t identify speakers in the following discussion). The change from 2005 when 2 hurricanes in the Gulf caused a rapid run up in price, to this past year, when 2 hurricanes and the price of natural gas dropped, indicates the advances that have been made in natural gas supply. This has been brought about with the coming of the natural gas from shale, and the vast reserves that this has now added. The Haynesville alone, now that the technical problems are resolved, has added a great quantity to national supply, and wells there are currently being throttled back to control feed into the network.

Those states in the North East that need the gas, and for whom supply is limited by the size of the pipes feeding it to them, now have the choice, with the Marcellus, of providing some of their own energy, but to do so will likely need to modify some of their regulations and simplify them. The Marcellus apparently runs under the Manhattan aquifer.

The conate water issue (the water found in the rock with the gas) as well as the need to dispose of the water used in the multiple frac jobs that make gas shale practical have not been fully addressed yet in PA and NY, though PA is somewhat more advanced in this regard. Exactly how the availability of LNG will play into this market is not clear, but the potential of oversupply, and the resulting long-term price that is closer to $4 than $6 will control where that NG goes. One supplier noted that a tanker, by the time it clears the Gibraltar passage will have passed 14 terminals where it could have dropped its cargo. Thus if the US price is too low, (considering the $4 transit fee) the tankers will simply divert to where the price is higher.

Alaskan natural gas was thought to be still 10 years away (and ask again in 10 years). With current lower 48 supplies being what they are, that gas is not needed, and may be more profitably be put in LNG tankers and sold to Asia.

It was noted that while drilling overall is down, numbers are still holding up for the Haynesville and some of the other shales. However it should be noted that at present natural gas is only used for about 25% of its potential in the generation of electricity. That percentage can easily be increased, and if it rises to 35%, then all bets on the amount that is available relative to supply will likely be off the table.

For while much of the argument at the moment is over the relative amount of Carbon Dioxide that coal generates relative to NG (about double) the other concerns over SO2 and NOX may also cause movement toward the cleaner gas.

As natural gas is used more and more as a partner with wind in providing the backup service it is needed, since the economics of running transmission lines based only on the 33% availability of wind is somewhat less favorable. The high variability in the wind energy supply from a farm is of some concern (and running a gas turbine only when the supply fails to ensure stable demand will guarantee an extremely short life for the turbine, due to the highly variable load).

There is a growing question as to the availability of transmission lines given future power generator location relative to the market, and with an adequate supply looking to the future (technology keeps solving the problems that face the industry) those issues should perhaps be addressed in more detail. And yet the models only go out two years, and the life of the gas wells in the shale is on the same order of magnitude (something I found folk were a lot cagier about discussing). However the size of the reserve is such that now the independent producers that have developed the product are now seeing the majors start to move into the market as its size has become more evident. They have the capital to stabilize the market and production from the fields. Certainly the size of the reserves that have been identified in the United States has weakened the ability of Russia, Iran and Qatar to form a cartel to control price and production.

Coming out of the meeting a couple of folk commented that if you did not know the business, following the discussion would have been a little difficult, and I think that this held true for most of the papers given at the meeting.

2009 Energy Conference - Plenary Session

There are two sources that many of us who write about Energy go to, with regularity, to see how, statistically, the world is doing on Energy consumption. The EIA is the most consistent and has become an integral part of the knowledge base that I have used, first at TOD, and now here. Thus my attendance at the EIA Energy Conference in Washington, today and tomorrow. The meeting had seats for some 1200 folk and significantly more than half the chairs were filled, with a fair number, so I was told, of those being from the investment side of the house. It has been an interesting meeting so far, the talks with ultimately be posted by EIA, and should be worth watching. Though I have to say, hearing the speaker from Pemex, the Mexican oil company blithely talk about their sustaining levels of production, in the face of the collapse of Canterell, does give an idea as to where some of the world’s unfounded optimism comes from.

There is no doubt that the Administration has changed, from the presence of “the hockey stick” curve in Dr Chu’s Keynote Address through all three of the Plenary Papers, we, as an audience, were left in no doubt that Climate Change and the problems of carbon, are now a major part of the new agenda. If you want a longer version of Dr. Chu’s remarks, they followed quite closely a talk he gave on the Helios Project a couple of years ago, although in somewhat abbreviated form. He did, however, include a comment on Econbrowser’s note that recessions follow oil price peaks and seemed to agree with the basic thesis that James Hamilton presented. He expressed again his concern that with changing climate the water in the Sierra snows is reducing, and that this does not bode well for that State. Usually a two year decline in water is sufficient to lead to water rationing and he is concerned that these will be worse. (Ed. Note – historically Scott Stine has shown that droughts there in the past have lasted decades).


He pointed to a number of nations that have shown that the standard of living is not proportional to energy consumption and talked a little on the Human Development Index. But in talking about energy he noted that California had stabilized on energy use per person, at a time where the rest of the country had continued to increase demand, and stressed the benefits that can come from increased energy efficiency in use. We need to call ET back home. (Sorry! His joke about an old science fiction movie) Except that now ET is Energy Technology and if we can bring this green technology back, it is something that can’t be outsourced. The likely biggest impact of ET will be on Construction, though to get the maximum gains houses will have to have sensors integrated, in the same way that cars have microprocessors now.

We need four things to make progress, an investment in R&D; some standards of performance; the development of new technology; and the will to go forward. The investment is available through, among other things, the Stimulus Package, with $8.2 billion, for example, going into weatherization, and $11 billion for the smart grid (though he did not mention D.C. this time around). He anticipates that the R&D tax credit will become permanent, and that wind cost will go down several fold in the next 20 years, as increasing percentages of the energy generated are extracted.

In terms of standards and efficiency he noted that refrigerators had dropped to a third the price, yet use less than 25% of the energy they demanded in the 1970’s.

Again he bragged on the scientists in the National Labs (who it increasingly seems likely will get most of the R&D money) noting that they have 88 Nobel Laureates in their midst and have the potential to be the future Bell Labs of the Nation. And in that regard he detailed a little of the work he was doing at Berkeley in using different chemicals from wood lice etc to turn cellulosic material into ethanol. To indicate that success should be anticipated, he quoted the example of Norman Borlaug, who after being told that the world did not have enough food to provide for 6 billion people created the Green Revolution to ensure that it did.

He was followed by Professor Nordhaus a Yale Economist, who again underlined the key issue - that is the Carbon question. His perception is that the world energy supply can be considered as taps filling a bathtub and that you, as a person consuming oil from one of the drains leading from the bath, did not need to know which spigot was supplying what oil from where. (Which only works – with oil as a fungible product – until there is not enough to go around, but Professor Nordhaus did not get into that aspect of the argument). He showed that oil prices between the nations are closely linked and said that it was a fallacy to anticipate the need for America to have energy independence. We should not need to care who causes what oil to be put into the tub only that it is there and available (either directly or indirectly). We should however be prepared to pay the appropriate price (technological, social and that due to microeconomics).

He felt that our effort should be to ensure a stable, long term price for oil that was reasonably low, bt sustainable. It is more critical to get the carbon policy right, since the current energy policy is incoherent, and then to work on oil prices. By encouraging all countries to supply as much oil as they can (without subsidies) prices will be lowered, and the world economy will prosper.

The final speaker of the Plenary Session was John Rowe of Excelon who again reiterated that this was the time for decisive climate change legislation, citing the Waxman-Markey bill. He would prefer a clean carbon tax, but recognizes the advantage that a cap and trade mandate can bring. He cited the Excelon 2020 program. As a utility that takes money from customers every day he is aware how critically they evaluate changing conditions. He also recognizes that we can only get to 35% renewables in the energy mix, if we retire some of the legacy power generation plants. There will still be a cost every $10 a CO2 ton will raise costs $0.01/kWh and so the cost benefits of different techniques must be evaluated. As natural gas prices have changed, so it becomes more difficult to write policy for the different fuel alternatives. He recommends that the whole issue of carbon credit costs be turned over to the market. Then the costs can be assessed and integrated into business plans, He mentioned in this day and age there is no substitution for having had an education that included physics and economics (Ed. Note I recorded that he did not include geology in the list). At present distributed energy often means natural gas (NG) but in the future this could be solar.

The 2009 EIA Energy Conference

Posting will be a bit sparse today since, as well as teaching my usual class this afternoon, I will be heading up to Washington for the Energy Conference that the EIA are hosting, and that starts tomorrow. The reminder that they sent out to us this morning indicates that we need to get there early since the seating is likely to be relatively sparse in contrast with the numbers that have signed up for the event.

The meeting starts with a welcome from Dr Steven Chu, the Secretary of Energy, and the two other speakers before the first break are William Nordhaus on the Economy, and John Rowe on the Carbon-Constrained world and how it is going to affect Energy issues in the future. Unfortunately in splitting the audience after the break, they are running sessions on natural gas and transport fuels at the same time, so coverage will, by default, be somewhat sparse as the sessions move on.

The current plan, as I did back on TOD, is to post daily summaries in the evenings of the two days, though given that I am travelling back on Wednesday night, I am not yet sure when that will go up.