Buying Turkmenistan's natural gas

Turkmenistan holds significantly large quantities of natural gas (they hold the world’s fourth largest reserves) and these have, over the years, proved attractive to Russia, China and the West. Until fairly recently, despite some bad relationships from time to time, the natural gas that the country produced made its way towards the West through Russia. With only Russian pipes as the conduit, Turkmen gas was under the real control of those who chose whether to pump the gas, or not.

However, when times were flush for the industry (can this be just over a year ago) and in order to ensure supplies for its customers in the West, Russia agreed to a much more beneficial pricing for the Turkmen gas, and was buying some 50 bcm a year. This was all arranged after the Russian Presidency changed hands, and was one of the first items on the new President’s agenda.

Since then things have not really gone well for the relationship as a whole. Turkmenistan has agreed to send natural gas to China, providing it with a second customer, while the price of natural gas has fallen with the recession in demand, around the world. That pipeline is now expected to be in place by the end of next year, and I saw pipelines being laid in China on my recent visit, as they extend the network. The pipeline is expected to carry some 40 bcm (more than Russia will buy this year).


Turkmenistan has also agreed to supply Iran with 14 bcm of natural gas with a new pipeline to carry gas down into Iran being planned for the near future.

Gazprom profits, meanwhile have dropped 62%, as the demand from Europe has dropped dramatically – with Gazprom market share falling to 16%. There was an “accident” to a pipeline between Russia and Turkmenistan, and since then no gas has flowed through the pipelines.

So, in this day of solar car racing (I hear that the route for the new competition has now been agreed), it is perhaps appropriate that the Russians and Turkmen are hoping to improve their relations with an off-road race that has Gazprom and Turkmengas as the main sponsors, of what is known as the Silk Way Rally. President Medvedev will stop by again on Sept 13th intending to renew the deals.

The need for Gazprom to sweeten relationships with Turkmenistan has much to do with the face of the gas pipelines planned to flow into Southern Europe from further East. There are two competing options, the Nabucco pipeline that the Western nations favor, and the South Stream that is being pushed by Gazprom and friends.

Gazprom, working with Italy's ENI , has so far received backing from Bulgaria, Serbia, Italy, Greece and Hungary for the pipeline that would carry gas from Central Asia under the Black Sea to Europe by 2015. Austria and Slovenia are close to signing up to the deal, Gazprom said.

Among those happy to purchase from Gazprom is the UK, that now gets some 16% of what it needs from Russia.

To provide some of these gas needs for Europe (which collectively has been getting about 25% of its gas from Gazprom) Gazprom is building a collector pipeline known as the Caspian Gas pipeline that will carry gas from Turkmenistan and Kazakhstan to the tune of some 20 bcm a year. There was a meeting of officials from Azerbaijan, Kazakhstan, Russia, and Turkmenistan in Aktau, Kazakhstan' today to discuss the project. Iran was somewhat upset about not being invited.

Gazprom has also opened a new pipeline into Lithuania and beyond to Kaliningrad. It will be known as Red Junction, and carry 2.5 bcm per year. First shipments are due in December. Thus it has the customers, and can profit well from the transport of gas through its pipelines.

But with Gazprom happy to promise new and existing customers a secure supply, there have to be some concerns over how much can come from Turkmenistan

Turkmenistan has two options. It can refuse to agree to lower gas prices to Russia. How long can it hold out without gas revenue from Russia? It may use part of the Chinese credits to tide itself over until gas flows to China in 2010. The other option is to agree to lower gas prices to Russia for a short period. At present Russia does not need Turkmen gas to supply the European market. However if EU economies recover in 2010 or 2011 it will need Turkmen gas. Europe faces the risk that Gazprom will not be able to deliver the necessary gas. That would mean high prices for the available gas. Hence the Chinese deal is good news for Turkmenistan. It is bad news for Russia but also the EU.

If we can't get oil from Mexico . . . .?

The news from Mexico just continues to get worse with bad news from all three of their biggest oil fields, even as our perennial cornucopian talks of “a Mexican surprise.” As Gregor noted recently (h/t ft energysource) at the beginning of the year Cantarell was producing 862,000 bd and at the end of July this was down to 588,000 bd. The graph plotting decline continues to show a linear decent at the rate of 35,000 bd per month or roughly 100,000 bd every three months – giving it just 17-months at that rate (ending right at the end of next year) until there is nothing left. Somewhere in there the drop is likely to stabilize, but suddenly and soon the questions as to where the replacement hundreds of thousands of barrels are going to come from is going to stop being an almost academic exercise.

The peak and decline of Cantarell – where Mexico once got most of its oil.

But they aren’t the only ones in trouble. Consider U.S. imports from Mexico over the same period. That decline also looks pretty linear, with a projected intersection with zero in 2017, depending on where you draw the line.

Imports From Mexico (EIA)

Mexico itself is not likely to be able to come up with much of an answer.

The President just changed the head of Petroleos Mexicanos (Pemex) as the revenues that the state gets from sale of its oil (making up nearly 40% of the federal budget) dropped 30% in the first half of the year. Current Mexican Government predictions that overall Mexican production will stabilize at 2.5 mbd over next year don’t reflect the collapse of Cantarell, and also fail to recognize that the promised increases in production from other fields are not reaching the goals set. It is only a few days since the production at Chicontepec was “evaluated” after falling some 12,000 bd short of target. This field is still in development, with ultimate production targeted at 550,000 to 700,000 bd by 2017, but as it is already 16% behind the mark that does not augur well for that future.

As Euan Mearns pointed out the fields at Ku-Maloob-Zaap (KMZ) which lie adjacent to Cantarell are being produced in the same way as Cantarell, and thus production has recently risen dramatically.

Ku Maloob Zaap (KMZ) adjacent to Cantarell in the Gulf of Campeche is the largest source of new production growth. It recently overtook Cantarell as Mexico’s biggest producer, with record output of 814,000 b/d in April. The KMZ complex produced 740,000 b/d of crude in 2008, up from 550,700 b/d in 2007. Production has doubled in the last 3 years with a nitrogen reinjection program similar to one at Cantarell. Pemex expects KMZ production to peak at 820,000 b/d before declining to 810,000 b/d next year.

Read that last sentence again! Now the oil in KMZ is proving to be much heavier than that from Cantarell and so may not decline at quite the same rate, but given the very rapid increase in production, and that the peak is already here, this does not bode well for sustaining Mexican production using that region for any great period into the future. Rather it might increase the already precipitate drop in total production levels going into 2011.

Mexican exports of heavy crude (that from Cantarell and KMZ) had fallen, by July to 1.06 mbd from 1.22 mbd in January. Pemex had domestic sales of 1.8 mbd in July which is up some 45,000 bd from January, largely due to increases in sales of motor gasoline. The country imports some 550,000 bd of refined products.

If we go back to the Export Land Model, if internal demand continues to grow, and if Chicontepec proves to consistently fail to produce the needed production by as much as 20% or more (assuming that they are now working the best prospects first) and if we start to see the decline in KMZ next year . . . . . .

And to quote an “expert” on the subject:

Michael C. Lynch, president, Strategic Energy & Economic Research Inc., differs from the generally pessimistic consensus on Mexico. “I think Mexico will probably surprise many,” he said.

Lynch said, “[Pemex’s] first need has been capital; the government has a long tendency to starve them of money, and only recently has this been reversed. Mexican drilling activity is twice what it was a couple of years ago, and they have a lot of medium-sized fields that could make a serious contribution. (The decline in rigs rates has helped them, but the peso decline offset that somewhat). Deregulation and outside investment would certainly help, but capital is the main thing.”

Perhaps somebody could explain to Michael that when one uses the word “surprise” it generally means you’re going to hear good news – none of this is!

Natural Gas versus Coal - perhaps the UK experience revisited?

Back when North Sea oil and gas were discovered the British Coal Industry was a powerhouse in the land. Coal gas was used for domestic cooking, with the fuel generated by large gas works that dotted the landscape. Skip forward a little, and there was a massive campaign to convert the burners that had used coal gas over to a smaller size that allowed them to burn the natural gas becoming available from the North Sea. And with oil and natural gas coming ashore in increasing quantities the British coal industry rapidly faded from its peak to a fainter shadow of energy production, and coal gas became a historical item.

Coal gas is formed by the partial combustion of coal, natural gas (NG), on the other hand, occurs as a hazard in most coal mines. As the coal is mined the pressure comes off the coal, or it is fragmented, and the natural gas can escape. Once it reaches a certain concentration in the air it becomes explosive, and a heat source (a metal pick rubbing on sandstone for example) can ignite it, causing ignition of the gas, with a consequent disaster as those in the mine vicinity can be killed. Thus there are many precautions (which I will describe at another time) to stop that ignition, or to stop the flame from spreading very far.

But the natural gas can also be collected, and if it is collected in a purer form than that diluted by the ventilation currents of the working mine, it becomes a valuable resource, which the British miners now use to help power the mining process itself.

Sixteen generators are installed across 5 deep mine sites. These embedded generating sets are fuelled exclusively on mines gas. Some of the electricity generated is used at UK COAL sites representing a substantial energy cost saving.

However this harmonious use of the fuel projects a different attitude than that which existed as the National Coal Board died. And now that same struggle may be gearing up for a rematch in the United States, as the growing surplus of natural gas leads industry leaders to press Congress about forcing coal’s replacement with NG as part of the new Clean Energy Initiative. So far it hasn’t worked.

For all its pronouncements that gas could be used to replace aging, inefficient coal-fired power plants — and reduce greenhouse gas emissions in the process — lawmakers from coal-producing states appear committed to keeping coal as the nation’s primary producer of power.

However the folks at Chesapeake are now starting to face off against those of Peabody to try and influence the Senate version of Waxman-Markey. And the debate brings renewable energies into the picture, not necessarily to NG’s advantage. (Which is a little odd given that NG plants are generally considered the back-up power when the wind don’t blow or the sun don’t shine).

“By allowing free emission allowances to maintain coal production from existing coal plants, while providing mandates that there be more wind and solar, you squeeze gas out in the middle,” said William F. Whitsitt, an executive vice president at Devon Energy, a major natural gas producer.

This is not really something that it easily fixed in the marketplace, since the return on investment needed for the construction of a major power plant requires that there be a sustained market for the power produced, and concurrently a reliable cost-effective source of the fuel that will be required to generate the electricity for a significant portion of the plant lifetime.

Now the U.S. currently has a glut of natural gas. As a result futures have fallen to $2.508 per million Btu (give or take equal to 1 kcf). This has to start hurting some of the producers since, inter alia, Chesapeake has noted that it is costing them around $4.44 million to drill new wells in the Marcellus, a field in which they anticipate being the biggest player. The company is still very positive about that development – but notice the long-term price they are expecting to justify that optimism:

Based on drilling results by Chesapeake and others in the industry, the company has recently increased its targeted average EUR in the Marcellus from 3.75 bcfe per well to 4.2 bcfe per well. Assuming flat NYMEX natural gas prices of $7.00 per kcf (compared to a recent 10-year NYMEX strip price of approximately $7.02 per kcf), the company’s estimated pre-tax rate of return from a 4.2 bcfe horizontal Marcellus well drilled for $4.5 million is approximately 71% excluding the benefit of drilling carries and more than 1,000% including the benefit of drilling carries.

Back in March Chesapeake was reducing its production from the Haynesville shale however, back then they were also predicting that the drop in drilling activity would produce results before the end of the year.

During March 2009, most Mid-Continent natural gas prices at major interstate pipeline delivery points will average around $2.70 per thousand cubic feet, a price at which most natural gas production is unprofitable. We believe low wellhead prices combined with constrained capital availability will likely cause U.S. drilling activity to decline well beyond the 40% drop already seen since August 2008. As a result, U.S. natural gas production will begin to dramatically decline before the end of 2009 and consequently natural gas markets will regain better supply/demand balance by the end of 2009, if not sooner.

Given the continued excess in the marketplace, it would be nice if the NG industry could find a reliable market of greater size in power generation. They have already managed to corner around 25% of that market – but as yet have not managed to convince folk, such as the manager of our local power plant (which is already constructed to burn natural gas, but which blanked off the nozzles) to switch back.

Perhaps he, like so many others, realizes that as soon as the glut goes away, and the short-lived nature of the gas shale wells being what it is, that will likely happen within the year, then the price will go back up, and it will become less economic than the current coal contract.

Hence the desire of the natural gas companies to get a little more assistance from Congress in the struggle for the future.

It depends on how well they sell, and how well the coal companies manage to resist. All tied up with the debate about climate change, which seems to be less certain with recent publications (in New Scientist among other places) suggesting that the globe may cool for a while before reheating, this could be an interesting debate. And perhaps one with less certain an outcome than the British experience.

The Drilling Rig part of creating an oilwell

Well there are several ways to go after talking about the pressures that develop at the bottom of oilwells. But before going on to talk about completing the well, let me first just cover some basic terms and parts that go into getting the bit to actually turn and drill the well. In other words, today I want to talk about the oil derrick and what happens on the rig floor. Trying to update this, I discover that the term “derrick” has an interesting past.

The term derrick comes from Thomas Derrick, a hangman who invented a type of gallows using a movable beam and pulley system during the Elizabethan era. During his lifetime, Derrick executed over 3,000 people, many of them with his modified gallows device, and the supporting framework for his gallows came to be known as a derrick.

Well the ones that we are dealing with have to be a bit taller than that. The reason comes from the connection that we have to make from the rig floor down to the bit at the bottom of the hole. Because we are continually pushing the bit deeper into the ground we need to use something that we can keep extending. (From this it also follows that the top guy on the rig got to be known as the tool pusher). At the same time this connecting device has to be able to allow the mud to get down to the jet nozzles on the bit. The logical way of doing this is to have a tube or pipe, into which the drilling bit can be threaded on the lower end. (Which gives rise to the expression oilfield tubulars). Now, by attaching the mud pumps to the upper end of the pipe, we can also get the mud down into the bit. There is usually a special piece of pipe that fits between the bit itself and the main sections of the pipe, and this is called the drill collar. These normally have a thicker wall than normal pipe so that they can add more weight to push the bit into the rock. (see below).

Drill pipe comes in various sizes, depending on the hole that is being drilled, but for the sake of an example we might use a pipe that is 5.5 inches diameter on the outside and 3.25 inches wide on the inside. This would weigh around 14 lb a foot, and is normally used in 30 ft lengths. This length is a standard, and the pipe will have a threaded connection welded to each end, known as the tool joint. One is male and one is female, so that additional lengths of pipe may be threaded into the original piece to extend the overall length as the hole gets deeper.

Normal male pipe ends (taped over to protect the threads)

To handle these lengths of pipe, and to have them already in place and vertical before we need them, we need a handling system that can lift the pipes into place, and this tall initial support structure is called the mast. Typical modern masts may be around 140 ft tall, with the space between the legs around 12 ft. So to follow through the parts I’ll make a simple version of a mast, and then as I explain what the parts are, I can add them to the model.

Basic Mast

I mention the length because there are several things that control the rate of penetration (ROP) of the bit, and one is the thrust that is applied to push the bit into the rock. This comes from the weight of the pipe that is connected to the bit, and thus is known as the weight on bit. However, if you do the arithmetic, 14 x 30 = 420 lb. per length of drill pipe. So if we have one length of pipe we are pushing the bit into the ground with 420 lbs of weight. Add another length and we are up to 840 lb. And so it continues, except that there is, for each bit and rock, a bit weight that will cause that bit to drill at its best ROP Typically this might be around 15 - 20,000 lb depending on hole size and rock type. But we get that weight from the pipe with only 36 lengths, or a total of around 1,000 ft of drill pipe. But increasingly we might be drilling a well that is much more than 7,000 ft deep. (It is actually a bit shorter, since for the first few hundred feet the additional weight of the drill collars is needed to keep the thrust up).

To keep the bit weight at the best level to give the fastest ROP, the driller will carry the rest of the weight of the pipe through the derrick and will adjust the weight on bit by controlling the amount of lift through a block and tackle arrangement to a traveling block on the top of the drill pipe. So to the model we will add a platform at the top, (or crown) of the derrick which will have a pulley on it to feed cable down to the travelling block.

Crown block at top of mast (OSHA )

The cable that connects the traveling block to this second crown block at the top makes a number of loops between the two blocks and in this way the cable can carry up to a million pounds or more of weight.

Schematic of the two blocks at the top of the mast

From the crown block the cable feeds back down to the reel on the rig floor where it is stored. The reel and the motors that drive it are known as the drawworks, and the driller controls the reel rotation and thus the weight carried through the cable to the derrick, to control the amount of thrust on the bit.

The hoist and motor of the Drawworks (Schlumberger)

There are two other things, however, that have to be controlled. Firstly the bit has to turn, and so there must be a way of allowing the pipe to rotate. This is done by adding a swivel below the traveling block. The swivel also allows a connection to the mud system and mud can be pumped into the pipe, without the mud line having to turn.

Travelling block showing the swivel and mud line connection (OSHA )

This is done through a rotary table that sits on the rig floor and a special piece of pipe (some 43 ft long), known as the Kelly, that is connected between the swivel which sits right under the traveling block, and the first length of drill pipe . The pipe is square or hexagonal and will slide through the turntable as the hole gets deeper. At the same time the shape allows the turntable to grip it and turn it, and the attached drill string that connects below it to the drilling bit at the bottom of the hole. There is a motor, generally under the rig, that drives the turntable.

Drive through the turntable and Kelly drive to the Kelly, and the underlying drill pipe (OSHA)

Some more modern rigs can have an electric motor at the top of the mast, attached to the bottom of the traveling block, which drives the pipe without the need for the Kelly and rotary table.

Top drive that can be used in small mast applications (Tesco)

Bear in mind that after the drill bit has penetrated 30 ft (the length of a single length or joint of drill pipe) then drilling must stop. The Kelly is disconnected from the top joint, and raised while a new joint is swung in up the catwalk (from where spare joints are stored on the rig) and connected, at the bottom end to the existing string, and at the top end to the Kelly.

The drill is then ready to go forward again. While I am not up on current performance, I was once taught that a good crew cannot make more than 7 connections, or drill more than 200 ft of hole an hour. (There is another way of adding pipe that can allow a faster ROP but we’ll get to that another time). Now also remember that if the bit needs to be changed because it wore out, or because it can't drill in the rock that it has not started to go through, then the entire string above the bit has to be removed, one joint at a time, until the bit reaches the surface. Then it is replaced, and the joint in turn have to be replaced, again one-at-a-time, until the bit hits bottom again. Now hauling the string out of the hole goes a little faster than drilling, but you can see that this process, known as tripping, can take more than a day. Which can be quite expensive, especially since, while you are tripping you are not making hole, and that is what the rig is being rented to do.

When tripping the well, the drill pipe has to be held in place with slips, which are a wedge shaped tool that fits around the top of the pipe and grips it, while the connections are made or unmade.

Slips prepared to slip around the drill pipe (Schlumberger )

Well this is a bit of a hard subject to cover in less than 50 minutes, and without 60 pictures, so if there are things that are not clear, or if some of my numbers aren't quite up to date please comment or ask.

Puzzling Graphical Comparisons raise questions of veracity

“Dire Predictions” by Michael Mann and Lee Kump, sets out to provide an illustrated guide to the findings of the IPCC. It is a relatively simple volume, full of the promised pictures, small graphs to illustrate points and condensed comments on the different aspects of the climate change debate. In short it is the sort of text that might be provided to a class in the United States to help them understand the prevailing arguments about climate change.

It has some nice initial illustrations of the way in which climate is generated that are easy to follow and which are therefore initially persuasive. But my eye was caught, from the beginning by the different graphs that are scattered throughout the chapters. I was a bit surprised by the first graph, since it didn’t quite look like the graph of the temperature plots given by NOAA, so after looking at the two separately:
From page 20 of the text

Global temperatures from 1880 to 2008 from NCDC

You can see quite a difference in the curves around 1940 – the actual peak back then has disappeared from Dr. Mann’s graph and if I superimpose them you can see how a fluctuating temperature record has been smoothed. (The heavy black line comes from the Mann and Kump curve)



The difference is more than subtle – the peak and stable or declining temperatures between 1940 and 1970 have been magically eliminated. But wait, those of you who have read the book respond – he puts a more detailed temperature plot on page 36.
Here it is:

Mann and Kump – Figure on page 36 – Trends in Global Average Surface Temperature.

But if you look at this figure – relative to the official plot you can see that while the official temperature is “debatably” flat in the official record, here the plot is steadily increasing from 1950.

Skipping forward through the book, let me pick out one more graph that caught my attention – the regional trends shown on Figure 71. Here is the Mann version:
Regional Continental Temperature Trends (after Mann and Kump) Blue are the temperatures taking into account natural trends only, pink includes both human and natural factors). Red is what they say happened.

But this is the official temperature record for North America from NASA.



Again I won’t bother superimposing the pictures, but you can see that the trends that are actually occurring don’t quite follow the curves in the book.
Having discovered which there really isn’t much point in continuing reading it, since it takes such liberties with easily verifiable figures, one is wondering what else has been “quietly adjusted” to make the facts more supportive of the argument.

Now it isn’t as though I completely agree with the official figures, given the corrections that have been imposed on the initial raw data, and that, as a result, trends appear that weren’t there before the “tweaking.’ But I do think that this book is taking the trend of “adjusting” the data just a bit too far in the process of making a point. There comes a point where this stops being Science and becomes Propaganda.

More thoughts on manpower and the Mining Industry

Yesterday I wrote about Paul Lang’s talk about the problems that the Mining Industry were having with recruiting new engineers into the business. Well today I was intermittently in the meeting as it continued with the comments of several more senior mining company officials, except only that, with faculty numbers being what they are, I had to leave to teach for part of the day. Nevertheless I did take into my class a valid comment by Bill Kennedy that in your daily life as an engineer you will use some 15% of what you learn in college – you will, however, be expected to know the other 85% (and I gave a personal example).

In the dinner this evening Diana Tickner of Peabody expanded a little more on the topic of the shortage of mining engineers at a time where the industry can anticipate little other than growth over at least the next decade. She noted that with the 129 mining engineers graduated in the US in the last year, and 110 in Australia there has been an inadequate replacement of retiring personnel, and thus starting salaries averaging $75,900 (high value being $84,500) have been needed to attract individuals and that there is sensibly zero unemployment in the US industry, and about 1.5% in Australia. This time around the industry has understood the benefit of retaining its skilled engineers (and the investment in that resource that the companies have made) and thus has not been laying them off in these tougher times, as they have in the past. And those that have left one job, have not found it difficult to find another. Those that now sit in the higher levels of the industry are only too familiar with the layoff strategies of earlier recessions, where holding 5 jobs in 10 years was not unusual, but which did not build company strength or company loyalty. This is one of the first recessions where she has seen this loyalty to engineering employees happen on a broader ranged basis. (Which is a comment – repeated by others – that the coal mining industry continues to see the future as very strong for their business. Essentially there is little else that can realistically replace the fuel on the scale that it is currently being used).


But to get students into industry is a matter of the perception that they have, of what the industry is. And in that regard, as I noted yesterday, the picture that the media paint of the industry, and the cries that are heard for its demise, cannot but impact the talent pool that is attracted to the industry. An earlier speaker today, Leigh Freeman talked, in part, of the contrast between the likely challenges facing, for example a PhD in EE of his acquaintance who spends his time doing research into a relatively small part of his field, and those who go into professions such as Mining, who face much greater challenges and who acquire greater responsibilities faster, and as a consequence are better rewarded. (Until that is you hit the management ceiling at around $180k where you move into a different market category where there become an increasing number of competitive individuals available, since you have largely passed above the threshold where it is technical capability that is most important, into the level where management and social skills are more valuable, and where, as a result there is much greater competition.)

Diana talked of the needs to recruit faculty – academia needs about 10 new faculty a year to fill positions, and yet there is an inadequate supply. Universities do not pay enough, and the rewards are lacking relative to the investment required to get that PhD so that the individual can be available to become a faculty member (see the starting salaries for a BS degree cited above). The industry needs not only new talent, but also new technology. But when the faculty numbers drop and student numbers rise (our freshman class may be the largest it has ever been) there comes less time available for research and innovation and the creativity required to solve the looming problems that come with meeting not only the energy but also the environmental needs that face the world.

Peabody, for example, sees an opportunity to generate biofuel to help retain the airliner fleets as conventional fuel sources deplete, but this will require the inputs and knowledge of a range of engineers. Their availability is becoming less certain.

In this regard I have been fortunate, as a researcher, to have worked in an area that saw the generation and growth of a new technology that is now one of the quiet revolutions that is changing the way that things are done in a number of industries. Yet the attitude of the mining industry to change was always such that it was difficult to get them to invest in such ideas. Others were more willing to provide larger sums of money more readily, so that while much the initial work was aimed at helping the mining industry, for the last 25 years it has been much easier for the research community working in this field to do work in other industries and to help them grow. Part of the lack of support came from the relatively low profits that parts of the industry made, but it has also been because of the conservative nature of the industry as a whole. In the current circumstance, it is hard to see the industry changing their general attitude to research, although with new generations and challenges coming along, perhaps there can be hope that such change will occur.

It will be interesting to watch and see how the industry changes. But it, and the Administration need to more deeply comprehend that you cannot mandate, nor can you legislate technical change. Without a period of investment in the research first, those changes cannot happen, because the answers will not have not been found. And without the presence of a sufficient and knowledgeable faculty it will not be as easy to know where to look for those answers.
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A neglected form of Administrative Insurance for the future

There is an almost rhetorical question that comes up repeatedly when one talks with those demanding strong action to reduce the possible outcomes of the change in climate that are claimed to be due to increases in greenhouse gases. It is that we cannot afford not to take out insurance in case the theoretical prognostications are correct. And the argument is often made that there is little downside to this.

I was at a talk by Paul Lang, who is the Senior Vice –President for Operations of Arch Coal tonight, and he spoke of a definite and clear downside that the general public is certainly not aware of, and very likely fails to even remotely understand the consequences of. It is this.

Some 50% of the electrical energy in this country is produced from coal. In the MidWest this number rises, to 85% in Missouri, as an example. But over 100 coal-fired power stations have been cancelled or postponed because of the general attitude to coal by the current Administration and the political climate engendered by the furor over the possible AGW effects. We, this nation and the world need energy. At the moment, other than ourselves, nations such as Russia, China, India and Africa rely on coal for significant portions of their energy supply. That demand is not going to go away, and in one of the few likely accurate predictions of the Wicks Report they anticipate that coal production will rise from 4 billion tons a year to 7 billion tons a year, in order to meet this demand.

To produce the coal that the world needs, the industry must have engineers. That supply is beginning to vanish. In a typical year at the moment the industry needs about 750 new mining engineers globally. (This is not just for coal, you name the mineral – it came out of the ground and some form of mining was involved in extracting it). But globally there are about 350 students graduating. The work force in the industry is aging (over 60% of those in the industry are getting close to retirement) and then there are those below 35 in age who relatively recently joined the industry. There is a “missing generation” between the two groups, marking the years when there appeared to be no future going to work in the fossil fuel industries.


The public relations exercises that we see today that tout the “Climate Change” message project a strongly negative image of the fossil fuel industries to the general public, discouraging students, both in the United States and abroad, from going after careers in the industries involved. The nation already has had a more general problem in that less than 6.2% of incoming college freshmen in 2007 were anticipating careers in engineering. This has however recently risen with 7.5% of 2008 freshmen expressing an interest in going on to an engineering job, but given the national need, that is still a pathetic percentage.

For the fossil fuel industry the numbers are smaller and with limited demand for places, at a time where other disciplines were flourishing, University Administrations put their resources where the demand was. As a result while there are nominally about 12 accredited schools of mining, there are viably only around 6 that have what might be considered an adequate to good program. Others have below minimal levels of the faculty numbers required to teach an adequate range of courses, let alone also do the research critical to the advancement of the industry.

To maintain an industrial standard of safety that has now been achieved; to keep the production cost levels down and thus meet the prices for the fuel and electricity supplies that society expects, rather than the prices that will stagger and halt future industrial growth, and to keep the nation out of continued recession requires that the industry be staffed by engineers who know what they are talking about.

Projecting an image of a “evil” industry that will be “taxed out of existence” is fine if there is a viable alternative – but what if there isn’t? It would seem that the Administration might want to consider “insurance” in case their ideas don’t turn out to be right. In case the nation really has to fall back on coal for a viable economic future. If all the billions of dollars that are now being spent to study and suggest steps to take to lower global warming have been put in place because of insurance in case the AGW argument is correct (Joe Aldy made that point at the EIA Energy Conference in April.) then it makes sense to take out similar insurance in case the argument is wrong.

Is that likely ? Are we going to see greater investments in technology to produce fossil fuels at a greater rate, so as to meet demand and help sustain the economic recovery? Somehow I suspect that this, more realistic sort of insurance is unlikely to happen. But we shall see.

In the meantime the world still needs more qualified engineers in the fossil fuel extraction industries than those industries can find and hire. Plans will therefore be delayed, needed research will not get done, (the historic record shows that giving money to the National Labs to find answers to fossil energy problems is a highly expensive way of trying to solve the problem.) We are, therefore likely heading into a really serious problem time - isn't that insurance is supposed to help get you through?
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