Tech Talk - without Cellulosic Ethanol where will transportation fuel come from?

There are some ominous signs that we are beginning to reach a point where it is less economic to look for and develop new supplies of oil, as costs rise, return on investment becomes less certain, and alternate opportunities exist for the funds that promise a better return with a lower initial investment. The problem, of course, that this generates is that as existing fields decline, so the fields that remain are likely to be smaller and more difficult (and thus expensive) to develop. To meet the need, therefore, exploration investment needs to increase, rather than decline, since the need is to find an increasing number of the smaller fields. Without those searches, then future supply will increasingly be unable to meet the growth in demand.

Further, given the time that is required to find new fields, develop them and then connect into a distribution network that carries the oil to refineries and the customer, without the knowledge of what is going to be needed, the crisis of under supply will approach not only more rapidly but also with less flexibility in being able to remediate the shortages when they start developing.

A large part of the problem lies in the way that oil is used. With much of it being refined into transportation fuels – in the USA some 70% - there is little in the short run that can be used to replace it.

Figure 1. Percentage uses of petroleum products in different sectors of the USA (Institute for Energy Research )

Since we are unlikely to see much change in power sources for vehicles in the next couple of years, as the oil shortage begins to bite there is insufficient flexibility in the system to offer an immediate alternative that will be viable. While corn ethanol has provided (at some cost) less than a million barrels a day it has reached an apparent plateau of production that is unlikely to change, given the alternate demand for the corn.

Figure 2. Ethanol Production in the United States (EIA) (Note: A billion gallons a year is roughly 65 kbd).

Cellulosic ethanol remains an unfulfilled promise, back in 2010 there was already some concern that it would meet even the initial targets, as time has worn on these seem increasingly out of touch.

Figure 3. Projected needs for cellulosic ethanol to meet projected national needs by 2030. (Bloomberg Biomass Magazine )

More recently Robert Rapier has noted that KiOR, one of the companies that Vinod Khosla founded and then took public as a promised source for this ethanol, is failing to live up to its promises, and may likely soon be bankrupt. It began shipments in 2013 from its Columbus, MS plant but of only nominal quantities of fuel relative to the future need. Shortly thereafter the plant shut down through the first quarter of this year, needing additional funds to improve operational efficiency.

Share prices that started at $15 have now dropped to $0.64, having recently visited $0.59 a share. Investments to make those changes may only come for a limited time, perhaps only through August, from Mr. Khosla. But the company has to pay back the $75 million it borrowed from Mississippi – with the next $1.8 million payment due June 30th, and there don’t appear to be other investors waiting in the wings. The state will get the assets should the company fold.

Sadly this is another exemplary case of a number of firms who promised much in this field, but have so far delivered relatively little, although there are several new plants coming on stream this year. The EPA has suggested that the production target for this year be lowered from 6 billion liters to 64 million liters – a significant cut, and one indicative of the likely difficulties in finding alternate sources to petroleum based products needed for the transportation industry when oil becomes less available.

Figure 4. Status of the Cellulosic ethanol production plants planned to be in operation by the end of this year (Nature )

The INEOS plant in Florida began production last July but then shut down and is looking to achieve stable production this year, after upgrading the facility, which will have a capacity of 8 million gallons a year. Not much against the millions of barrels a day that may be needed, but the company has the advantage that it is using local municipal waste and also providing power to the community – which provide other gains to their operations.

The Hirsch Report was published in February 2005. In that report the authors noted that it would likely take up to 20-years of concerted effort to produce an alternate source to petroleum based fuels. We are now nearly ten years through this potential period of grace, and the major candidate to provide that alternate resource is so far being found wanting.

The writing on the wall is increasingly discernable, oil companies are cutting back on exploration investment ensuring that future discoveries will likely be smaller in number as well as in size. This will reduce the amount available, requiring an alternate source. Cellulosic ethanol, which has been held up as one answer to the problem, is falling significantly short of the mark needed to make up for possible conventional shortfalls within the next decade.

The question then becomes – what is the alternative? We could look to making oil from coal, peat and other alternate sources as was done in Germany in World War 2 and in South Africa, where SASOL continues to operate. But planning, permitting, building and operating a facility to convert coal is something that will take at least seven years, and require initiatives to make commitments that are currently lacking.

What else is there? Bear in mind that solar and wind energy production largely goes to address the electricity market – which is largely separate from that of the transportation fuels. Thus their development will largely not impact the problem, since electric cars cannot be produced in the quantities that will likely be needed in the time that remains. Bedazzled by the promise of cellulosic ethanol we have failed to properly pursue the alternatives that now look as though they will prove to be needed.

Time is running short, but awareness of the problem is as yet, even less evident. Basking in the transient benefits of increased domestic production, even as turmoil has cut global oil production by an estimated 2.3 mbd, production that won't soon return, there is less inclination to face the issue than there has been in previous Administrations, even though it is now becoming possible that it will be this Administration that first sees the impact.

OGPSS - The weather, corn, ethanol and oil production

News of the future was, in my youth, something that one found by crossing the palm of a lady in a dark tent with a piece or two of silver (or the modern equivalent) at one of the fairs that came to town. Such opportunities still exist, with all the caveats that existed back then likely still being in force. However projecting the future, whether of the weather, the likely corn crop this year in the United States, or the production of crude oil by the nations of the world has become a much bigger business with copious tables, graphs and theories replacing the rather worn pack of cards or crystal ball of my youthful experience.

Our part of the world underwent a drought last year severe enough to kill several trees in our yard, for example, as well as hurting the corn crop. This year, corn plantings have been severely impacted by the heavy rains and cold weather, so that decisions on crop plantings have become more complicated and delayed, with follow-on impacts on the ultimate yield in a number of Mid-Western states. Corn yield apparently falls at an average rate of 2.3 bushels per acre per day of delay in Northern Wisconsin. These changing conditions make it difficult to assess how much ethanol, for example, will be available to meet demand, although the latest EIA TWIP holds out some optimism for this year.

The impact of the drought on corn prices, and the consequent fall in ethanol production, as production costs rose, are directly visible from their plot of the two over the last year.


Figure 1. A comparison of corn prices and ethanol production in the USA (EIA TWIP )

However, with the weather impacts still being assessed it is already being concluded that the US corn crop is unlikely to reach the record level of close to 14.6 billion bushels that were earlier projected. It still, however, has the potential to reach around 12.3 billion bushels, which would satisfy the just under 5 billion bushel need for ethanol, as well as other demands of the market. By May 12th only 28% of this year's expected crop had been planted, in contrast with a normal year where 65% would be in the ground. Thus even the relatively short-term projections of the EIA could yet be in trouble for this year.

Moving to the slightly longer-term the nations that form OPEC must try and estimate global demand for their products, and the amount that other non-OPEC nations will produce, so that they can balance supply and demand at such a level that will sustain prices at a level they are comfortable with. Their estimates come out as Monthly Oil Market Reports and in the latest (May) version they continue to expect global demand to increase by 0.8 mbd over 2013, but are beginning to hedge that bet, as the global economy continues to appear anemic, with Russian and Asian economies slowing. Yet by the fourth quarter of the year they anticipate that global demand will reach 90.9 mbd.


Figure 2. Global oil demand by region (OPEC MOMR)

OPEC anticipates that, with the major increase coming from the Americas, that non-OPEC oil production will increase by just under 1 mbd to reach an a level of 54.41 mbd in the fourth quarter of the year. The majority of that growth (some 0.59 mbd) will come from the United States, with the Permian, Bakken and Eagle Ford being cited as the anticipated source of these gains. OPEC, having looked at current rig counts, project that these numbers may be revised upwards over the course of the year. And yet it is worth noting this:

On a quarterly basis, US oil supply is seen to average 10.62 mb/d, 10.67 mb/d, 10.62 mb/d and 10.61 mb/d respectively.

The sustained gain in North American production comes about because:

On a quarterly basis, Canada’s production is anticipated to average 4.02mb/d, 3.97 mb/d, 4.02 mb/d and 4.12 mb/d respectively.

Russia is expected to continue to lead in oil production over the course of the year, although it is not longer expected to increase production above current levels.

On a quarterly basis, Russian oil supply is seen to average 10.45 mb/d, 10.43 mb/d, 10.43 mb/d and 10.43 mb/d respectively.

And this brings us back around to OPEC as they try and balance their production against the gap between global demand and non-OPEC supply. As has been the case for a while, OPEC produced two separate tables showing production, as reported by secondary sources, as well as those directly reported by the countries themselves.


Figure 3. OPEC member production as reported by secondary sources (OPEC MOMR)


Figure 4. OPEC member production as reported directly (OPEC MOMR)

It would appear, with Manifa coming on line, that Saudi Arabia is increasing production again, while Venezuela and Iran would have you believe they are producing more than they are, and Iraq, which is now producing above 3 mbd, is directly reporting less (though that could be because some of that production is coming from the north, and there are some communication problems between there and Baghdad).

As long as OPEC has available reserves it can continue this balance to keep enough oil available at an acceptable price to allow the world economy to continue at its present pace. And with that ongoing adjustment available, their projections for this year of a relatively stable price would seem fairly founded, absent some major change in one of the larger producing states.

Iraq overtook Iran as the second largest producer in OPEC last year (according to secondary sources) and expects that with production from Majnoon, it will increase production capability by upwards of 200 kbd by the end of the year. Ultimately the goal is to achieve a target production of 1.8 mbd. However, as overall production levels increase, Iraq may join with the Kingdom in controlling production to maintain price.

Yet even with those abilities OPEC is becoming cautious over predicting that their estimate of the demand:supply balance numbers for this year will be accurate over that time interval.

With these uncertainties in even short-term projections of future production whether it be corn, ethanol or crude it is perhaps wise to continue a somewhat cynical view of projections over a longer time period. Although the bounding bar of a decline in existing field production continues to exist and will continue to require an offset in increased production from new wells to offset. Perhaps that lady in the tent of my youth may prove as prescient as some of the more optimistic forecasts that we continue to see.

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?)

Predicting and investing in the energy future

When Congress passes laws, and politicians put the full resolution of a problem into the “out years”, i.e. those in the future, there is a tendency to see this as a way of providing an “answer” while giving time for the answer to be developed to the scale needed. It also allows the subject to be considered covered, so that other problems can rise to the top of the list. There is an inherent assumption that industry will meet the obligations that are defined in the legislation, and that the needed tools will be invented in time to be useful. So it may well be with the supplies of future renewable energy, those that will be needed to power the country forward at defined points in the future. Any problems associated with the various technologies, whether cellulosic ethanol, solar or wind are assumed to have been resolved by the time that the supply will be required.

There are several dangerous assumptions that are made in developing such policies, and assuming that they will provide for the national need (whether American, European or wherever) when called upon. Considering just a couple, the first of these is that we have the time to evolve the technologies at the scale required, the second is that the funds and knowledge will be available to resolve any existing technical problems in generating viable supplies at the required level. By stating or implying that these things will happen, the public concern is meant to be relieved, and the problem resolved. To meet the growing global need there is an increasing assumption that the answers will come from renewable sources. This is the sector expected to have the fastest growth in supply (the EIA is anticipating an 11% contribution by 2030, with 5.9 mbd of ethanol and biodiesel by that time). (The EIA anticipate that, through 2030 only Libya and Ecuador of the OPEC nations will see a fall in oil production, most will increase with Saudi Arabia producing 12 mbd). So let’s look at these assumptions to see why we might be in trouble.

The first is the time that will be needed to resolve the problem. And to resolve this problem (and the others) someone has to be working on it. Yet, with the decline in the economy, the amount of investment in energy producing plant both conventional (as in oilwells) and in renewable systems is dropping. The IEA has expressed concern over the levels in investment in the oil industry, with projects being postponed or cancelled.

Fatih Birol, The IEA's advisor to 28 industrialized countries, said in an interview he expected oil and gas upstream investment to fall 21%, or about US$100-billion ($113.8-billion), in 2009 from 2008 due to the global recession.

At the same time investment in renewable energy is dropping more rapidly, while existing companies are going bankrupt in the face of the current economy.

Spending on renewable energy, such as wind power, is falling even more rapidly than on oil and gas. The IEA expects renewables investment to slide 38% this year compared to last, Mr. Birol said.

Now that story ends with the usual caveat

Not all agree with the IEA. The agency warned in 2007 of a supply crunch around 2012, a view that some analysts said was actually contributing to higher prices by putting a "fear premium" in the market.

But the reporter fails to grasp a point I have made before, that while it is easy to delay projects, it is much more difficult to accelerate them. The millions of barrels of oil that will no longer be available when needed within the next five years, mean that the need for an alternative supply, the role the renewables are meant to fill, will come earlier than anticipated, and at a level higher than now projected. It is a concern that is also now being voiced by some of the Ministers of the G-8.

Italy, which currently holds the G8 presidency, expressed concern about the possibility of another soaring period of oil prices when the world economy comes out of the crisis.
"When the crisis is over, the risk of insufficient energy supply exists, and as a result high and unstable prices," Italy's economic development ministry said ahead of the meeting.

Now part of the second problem is tied up with the first as cited above with the second quote from Fatih Birol, but a more significant part relates to the nature of the problems in establishing the new renewable plants, and, particularly for the replacement fuels, in making their operation profitable in the short term. Companies that invested in corn ethanol production have seen prices fall and several have become bankrupt, with Pacific Ethanol being the latest. And investors in cellulosic ethanol have also lost some confidence( despite the President’s confidence in the (as yet unproven) technology.

"My administration is committed to moving as quickly as possible to commercialize an array of emerging cellulosic technologies so that tomorrow's biofuels will be produced from sustainable biomass feedstocks and waste materials rather than corn,"

Shrinking an industry when it needs to be growing is not something that has an immediate impact, given the recession, but it makes it that much more problematic to be able to meet future targets. I accept that 2030 is a relatively distant time (the 20-years that will be needed according to the Hirsch report) but unfortunately by picking that interval there is an inherent implication that problems won’t arise before then. And that is where I expect that the greatest error in these assumptions is being made.

There is no longer enough investment in the resources that will be required to provide an adequate supply for the next five years, let alone 20, and while the results of that lack may well bring future funding it will be too late to avert significant negative impact. By focusing only on that long term, we may be missing the intervening hard times. I thus expect that the EIA prediction that oil will not get back to $110 per barrel until 2015, and to $130 by 2030 to be not only unrealistic, but dangerously complacent.
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Carbon Credits - or Farming in North Dakota

Courtesy of Anthony Watts I am posting this story from his Web Page (Watts Up With That) today, since it relates to the ongoing Carbon Credit discussion.

Simply put the National Farmers Union Carbon Credit Program sells the “credit” that farmers in, say North Dakota, create when they carry out various different farming practices that don’t generate as much carbon dioxide. For example if you practice “no-till” farming of corn and soybeans, then you don’t, obviously, use a tractor to till and thus don’t generate as much carbon dioxide. (By leaving the untilled soil and remaining material in the soil undisturbed so that it does not emit carbon dioxide, and methane and additional carbon dioxide are not emitted - coincidentally it is usually good farming practice since it reduces soil erosion and helps hold nutrients in the soil). Thus, for example, as Bloomberg points out, a farmer who does not till 800 acres can save 470 tons of carbon (dioxide). This then becomes a credit that can be sold, and is apparently currently worth about $3,000 a year.

Thus a site that generates a large quantity of carbon can buy these “offsets” from the farmers saving carbon, and set that against their own production. The North Dakota Farmers Union of some 3,900 members, apparently shared some $9 million last year, up from $2.6 million in 2007. However, if the farmers are doing this already, and for other reasons, that does not stop them selling the credit and taking the money. Except that Anthony gives the story of one farmer that has changed his mind. It is reproduced with his permission.




I have changed my mind about participating in the carbon credit program. And have resolved to give the money I received to St Jude’s Children’s Hospital.

Here is why.

Recently I sat in the fire hall with a few dozen farmers. We had been invited to hear how we can get paid for carbon credits.
The speaker explained how their satellites can measure the carbon in our land individually and how much money we could get. Then asked for questions.

I asked “what is the source of this money”?

The presenter said it comes from big companies that pollute.

I asked “where do they get this money”? He had no answer.

So I answered for him, asking, “won’t it come from everyone who pays their power bill”? He then agreed and said “that could be”.

I then said isn’t this about the theory of man made global warming? he said “we are not going to talk about that”. Here they are on the prairie soliciting land for carbon credits tempting us with free money.

I believe that agreeing to take their money means you agree with taxing cattle gas also, because methane is a greenhouse gas 20 times more powerful than carbon. I believe taking this money without considering its source makes us no better than the bankers who lent money to people, knowing they could not pay it back. Collecting their fees then selling the bad loans in bundles to someone else. They did not care where the money came from either.

Let’s be clear.

Carbon is not a new commodity! No new wealth is being created here! Is this the way we want to make a living? Let me ask you, what if their satellites determine that your land has lost carbon? You will get a bill, not a check, right? If you make a tillage pass you will get a bill for emitting carbon, is this not correct?

It is also a fact that this income will, in short order, get built into your land cost. You will keep very little and be left with the burden of another bureaucratic program.

Let’s be honest, we feel compelled to take this money because of the need to be competitive, however we also need to hold true to our values and lead by example that means placing our principals ahead of money.

No good citizen is opposed to using the earth’s resources wisely, however, wisdom means a person who has both intelligence and humility. In my view many of the proponents of man made global warming have the first and lack the second. We are able to exercise our freedom in this country because we have abundant, reliable and affordable power. It is ironic that we sat in front of the flag in that fire hall and considered trading our liberty for money.

I’ll leave you with a quote from Roy Disney:

“Decision making becomes easier when your values are clear to you”

P60. Pick Points

There seems to be a fair bit of chat in the blogs at the moment about the fate of the “cap and trade” legislation that has appeared in the House. It has drawn an editorial comment from the Houston Chronicle, and a column at U.S. News It is beginning to be viewed as only a first step, without likely passage this year. Kevin Drum feels that it is too weak to start with, open to abuse, and unlikely to get any stronger as it progresses through the process. On the other hand Grist is disappointed that it doesn’t deal with agricultural waste, the literal BS, which is specifically exempted. The intent is to have something to take to the Climate Change Meeting in Copenhagen in December, and the Huffington Post thinks it is better as a job creator than in dealing with climate change. At Climate Progress the feeling is that there aren’t enough votes to get it through the Senate. And Democrats from coal states are leary.

Despite the warm words for renewable energy, and the comforting thoughts of the legislature, in the real world companies out there trying to build market share are finding it tough going. Biofuel Energy is one of the latest that has to face this reality after losing $84 million in 2008, and without the needed margins between the prices of corn and ethanol, it is facing bankruptcy. The company produces some 230 million gal/year of ethanol. (15,000 bd). Renew Energy, another ethanol producer, went bankrupt in February. A calculation on relative profit has recently suggested that planting corn would yield $89 per acre, while soybeans would yield $108 per acre. Demand for corn is anticipated to exceed that which can be grown on 80 million acres this year, but the relative costs argue against planting corn after corn (as opposed to soybeans) and thus it is anticipated that less than 80 million acres will be planted. (Which will turn some of the economics around, but not favorably if you are trying to make ethanol).

Oops! The smooth relationship between Turkmenistan and Russia (er, Gazprom) seems to have just sprung a bump.

Ashgabat has expressed interest in participating in the US-supported trans-Caspian pipeline (TCP) project, which would become part of an export route to Europe that evades Russian control. But so far, Turkmen officials have made no firm commitments to the TCP route. The East-West spur is estimated to cost about $1.5 billion to build. The April 3 statement took repeated swipes at Russia, but gave no indication that Turkmen leaders were ready to embrace the US-backed TCP route. In not so subtle terms, the statement accused Russia of trying to bully Turkmenistan on energy-related issues.

It is not Gazprom’s week, since Moody has just lowered their debt rating, and with the slump in demand for natural gas, the company is talking about reducing its investment program. On the other hand it sold $350 million worth of bonds on Friday, and is now selling gas directly to Ukrainian industrial customers. However it is still expected that Turkmenistan will ultimately sign that contract with Russia.

After several months of falling numbers, the number of rigs exploring for oil and natural gas went up by 4 (to 1,043) this week, though it still fell a couple for natural gas (808 for natural gas, 224 for oil). Four wells, including three horizontals have just been completed in Illinois in what is claimed to be an innovative new layout (among other things the horizontals intersect the vertical) but the main plays continue to be in the gas shales. Even though activity in the Barnett shale, for example, has been cut 40% over last year, it still affects some 70,000 jobs, according to a recent report. Development is still going forward with the Marcellus Shale. Normally there would be some increase in demand over the summer, since about 25% of electricity is now fueled by natural gas, but with stocks high and lots of gas currently available, this may not help stop the falling gas price.

With the glut in natural gas, this may not be the best of times to note that Sakhalin finally shipped the first LNG cargo, bound for Tokyo on April 1, and (marking the change from Shell management) they toasted in vodka, not wine. The LNG market is revising some opinions about Shtokman and Norway would like to be considered as a place to build the tankers.

P54. Pick Points

So here it is the weekend, and I would usually be putting up Saturday Pick Points, and the Saturday post, with Sunday’s Tech Talk in the wings. However, since I am still wandering around Europe (tonight I am in London, but leave early in the morning for Dumfries and Burns Country) I am, instead going to take a quick peak around and do sort of an abbreviated Pick Points, looking at some half-a-dozen or so stories that are worth a quick look.

Getting around as I do involves a fair bit of travel by plane, and I’ve noticed that the planes seem to be getting smaller, and thus fuller, as the economy spins away. Of course the increased traffic might be because some travelers, can’t have a new jet of their own, though I doubt it. China is now providing its suppliers with increasing quantities of jet fuel, perhaps suggesting that while the rest of the world is cutting back , they continue to grow. Cutting back is almost the universal cry, and certainly the restaurant business has to be hurting. And I have eaten in a number of places recently where I was one of only few customers. Of course sometimes it is because, when I go to places like the Fem Sma Hus in Stockholm I show up at American dinner times not European (most of my meal I was alone in the cellar, but just before I left it became crowded). This lack of demand hurts chef employment, in NYC the restaurant trade lost more than 10,000 employees in the three months over the end of the year, nationally the drop has been more than 100,000. And with reduced waitstaff, in more popular places this can catch management out when there is an evening surge in demand. Which may “earn” you a free glass of wine as it did for me tonight in London. Sadly, however, sales of alcohol often pick up in troubled times, as they are now in Russia, while the harsher economic environment means that the smaller firms are pushed out of the trade.

Robert Rapier has noted that this is a good time to pick up alcohol – though he is talking of the ethanol variety in his most recent column at R-Squared Energy Blog: Valero Now in the Ethanol Business. As he notes VeraSun, the nations second largest ethanol manufacturer, filed for Chapter 11 at the end of October. The corporate assets are now on the block, and Valero Energy stand to pick up the seven ethanol refineries, at a quarter of the construction costs. Other ethanol companies have already filed for bankruptcy protection, and it appears Aventine may soon be in similar straits. Yet even as these sales start, the scale of the volume that ethanol will contribute, relative to the coming need is small, and while it provides, as Robert notes, an easy way to pick up a fuel that is being mandated as part of future supply, for small change to the oil companies, it is not going to be more than a contributory part to the answer. Yet, at the moment, despite that mandate, farmers are planting a greater fraction of the crop in soy beans this year, anticipating a bust in corn prices (which prophecy might be self-defeating). On the other hand if the import tariffs are reduced, as some in the Senate suggest, we may be able to import all we need. (But wasn’t there this slogan about freeing ourselves from imported fuel dependency?) Even the Wall Street Journal has weighed in against ethanol, though that also gives me the chance to make a small technical note. Unless I am doing something stupidly wrong (not unlikely) American Kindles can’t yet pick up magazines and papers in Europe (neither Sweden nor the UK). So much for my plan to save weight in my carry-on baggage by just loading the papers to it – Rabbits! Though I guess they may have other bigger troubles.

Solar panel advocates can no doubt breathe a sigh (though they said it was rather a shout) as the final Space Station panels were successfully installed. The station now has enough power to allow double the crew. Down on Earth the Administration is making its first Federal loan guarantee for alternative energy. The guarantee is for $535 million and will help construct a PV facility that can generate panels to produce up to 500 MW per year. The panels are designed for use on rooftops. The world’s solar PV installations are stated to have reached a combined total of almost 6 GW by the end of last year with Europe getting 82% of the business to date. (The ranking by country is Spain, Germany, USA, Korea, Italy and Japan). Sales are thus on a positive upward trend, with DuPont estimating a trebling of sales by 2012. First Solar have also just announced that they have now produced 1 GW of their solar modules, so with manufacture gearing up, all we need now is the market growth.

The other major renewable, wind power, is also gaining market, with a new effort to put turbines into South Africa. The country, as you may remember, has had problems with suppling power, not only for its own needs, but that of its neighbors. The first 30 MW farm is not scheduled until 2011, which won’t help the intervening shortages. It will, however, quadruple capacity. Eskom – the main SA power provider needs a rate increase, but is having trouble getting its act together, and having a power failure at a rally to improve their public posture sure doesn’t help. It is frustrating enough to Botswana, who got most of their power from SA, that they have started seeing pink elephants. (Would I lie to you ?). Of course it’s not just the South Africans that can run into infighting over turf relative to wind power, though the new Interior Secretary promises to get it stopped.

And finally (as the clock kicks over here in London) it is 4 years ago that Kyle Saunders and I first posted our collaborative effort that was, and is, The Oil Drum. I have posted a short history of the site, over there, and repeat the very best wishes that I have for the site. It has filled a valuable need, and that will not diminish in the months and years ahead, and so my wish that the site “Live long, and Prosper.”

More stories can be found at The Energy Bulletin and Drumbeat at The Oil Drum.

P15. Pick Points

Half-a-dozen or so stories of interest.

Further to the post yesterday on Bulgaria and Slovakia’s options to find natural gas, one of the suggestions has been to see if Turkey could let them have some. Slovakia’s problems have also got worse, since a fire in a coal-fired plant has caused a partial shut-down. Russia has said that the problem with the Ukrainian codicil’s to the agreement have been resolved, and they are going to start pumping today , though it will take until late Wednesday for the gas to reach Western Europe. And there is still the matter of the 12 million cu m/day which now it transpires is claimed to be needed to power the pumps that drive the gas through Ukraine, and which Ukraine thinks Gazprom should provide. However, unless there is a prolonged cold spell, it is anticipated that gas prices may drop by as much as 40% this summer. It is suggested that part of the reason this is over so soon is that Gazprom needs the revenue to service its debt, and it wants to get the current good price, before it collapses. Current losses are estimated to be in the $127 - $141 million a day range. (Prices are thought likely to fall from the current $418 per tcm to $180 in the third quarter).

Uganda is facing more rationing of electricity (read load shedding and power outages) as they continue to have problems getting enough fuel for their power stations. Power is very limited, and so they are considering using geothermal energy to help out.

Power shortages in Nepal are now threatening the drinking water supplies. Volumes of water that can be pumped have been cut in half as the power outages limit how long the pumps can run. The company is trying to bring in diesel generators to help solve the problem in the short term. The local rickshaws are electric powered, and no longer can be charged because of the outages, which is causing outrage. So relying on electricity to power cars can also have problems.

Stanford has created a new energy center to look into such problems, starting with $100 million, the center is headed by a petroleum engineer, and funded by successful graduates. Meanwhile the Gulf states are also looking for good investments in green energy and will be hosting a World Future Energy Conference in Abu Dhabi, which will soon have a satellite campus of MIT.

We will need a lot of that research since there are a fair number of questions, already on what the new Aministration is going to be able to do to switch over to sustainable fuels. And the President of Exxon Mobil has expressed doubt, given that there are increasing questions on the ability of biofuels to meet targets, while there isn’t enough manufacturing capacity to build the wind turbines in the numbers needed. POET the “top” ethanol producer has just opened a plant to produce 20,000 gallons a year (that’s 1.3 barrels a day, folks) as a pilot scale demonstration of their first plant capable of producing at a commercial scale that will hopefully be on stream in 2011, given that the mandate is 16 billion gallons a year by 2022, we need that progress. The goal is for about the same amount of corn ethanol, but with today’s futures price being $4.26 and it costing between $0.80 and $1.20 per bushel to run the plant, there’s not a lot of profit in the 2.5 gallons per bushel the average plant produces, when it sells for $1.68 a gallon. However Pursuit Dynamics is working with Iroquois Bio-Energy on a new system that should come on line next month, and which should increase yield by 8-12%., and there is hope that they can increase yield to 3.3 gal/bushel. Not that this will help the Russian farmers who brought in a record harvest, and had to watch their prices fall.

For more energy related news visit the Energy Bulletin or Drumbeats at The Oil Drum.