Folks,
Here’s my latest, about my trip last weekend to some Plan B property up north, including musings on the news that Mexico’s Cantarell field has gone into sharp decline.
It was originally published at Wealth Daily.
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I found a powerful commercial about the potential of solar power.
Download the high-res original here, or watch it below.
–C
Folks,
Here’s my latest, originally published at Energy and Capital and Green Chip Review.
As always, I invite your feedback. What do you think? Is asking Big Oil for $20 bil too much?
–C
By Chris Nelder
January 22, 2007
Last week, by nearly a 100-vote margin, the U.S. House of
Representatives voted to do what OPEC has been unable to do: defend a higher
price for oil.
Although oil’s at a 19-month low, I’m sure that wasn’t precisely the
intent of H.R. 6. The “Clean Energy Act of 2007” could have been more accurately
titled the “Cleaning Up Our Energy Act of 2007,” because it was mainly about
repealing tax credits and royalty exemptions for the oil and gas industries, so
that the money could be squirreled away in a fund, for later spending on
home-grown renewable energy and efficiency.
Big Oil has admitted that it didn’t need most of those tax breaks.
How could they, when they have been racking up record profits—obscene profits,
according to some—for the last few years in a row?
But I don’t think H.R. 6 is quite what they had in mind.
The CBO
estimates that H.R. 6 will generate $6.3 billion in savings from direct spending
over the next ten years. And the Joint Committee on Taxation estimates that over
the same period, it will generate an additional $14 billion in revenues.
That adds up to a $20 billion kitty to be spent on renewable energy!
For those of us who invest in renewable energy, that’s cause for a Slim Pickens
“Yeeeee-hawww!!”
In particular, some of the bill’s provisions will:
Naturally, the
oil companies and their friends have been vocal in their opposition to H.R. 6.
Grover Norquist, the guy who wanted to shrink the federal government until he
could “drown it in the bathtub,” says H.R. 6 will “decrease domestic energy
production and provide a boost for OPEC producers — thereby increasing our
energy dependence.”
Methinks the
lady doth protest too much.
The domestic oil
industry is now earning $78 billion in profits every year. Just one of the big
oil companies, ExxonMobil, earns $40 billion of that. And they would have you
believe that setting aside an aggregate $2 billion a year, or 2.5% of Big Oil’s
profits today, for investments in renewable energy and efficiency is going to
break their backs.
See this? It’s
the world’s smallest violin, playing “Poor, Poor, Pitiful Me.”
If the oil
industry were paying one dollar in taxes, no doubt Norquist would say it was a
buck too much.
The Rest of the
Story
But they do have
a point: the Clean
Energy Act of 2007 probably will slow down the pace of Gulf
of Mexico production somewhat. Without a big federal subsidy (in the
form of royalty-free leases and fat tax credits) that the “free marketers” love
so much, international oil companies might prefer to lift oil from somewhere
else in the world, for now. And that will, in turn, increase imports, to make up
for decreased domestic production. Which will lead to higher crude prices, and
more money into the pockets of foreign producers.
That’s where the free market-lovin’, Alaskan oil-drillin’ crowd would
like to stop the narrative: OPEC and other oil producers win; you pay more at
the pump, and America becomes more “dependent.”
Those Democrats are going to war with Big Oil, and the winners will be the
terrorists, and the loser will be you.
But of course, that’s not the end. That’s maybe the next chapter or
two. Allow me to tell the rest of the story.
If we’re not at the peak of oil production yet, then we soon will be.
Easily within the time scale (10 years) of this bill. The things we’re doing to
mitigate that, like increasing domestic ethanol production, will help, but they
can’t make up for the shortfall in oil production. That means that oil prices
are going higher—much higher—and that’s true no matter how much oil we produce
domestically! Everyone from Matthew Simmons to Goldman Sachs has worried
publicly that we could see spikes to $180/barrel, depending on how the cards
fall.
So the more domestic oil that we don’t sell today, when it’s cheap,
will be worth much more in the future. And it will be even more vital to our
national security than it is today, when we can call tankersfull to us, at will,
for mere cash. Ten years after the peak—say, 2017—exports, no matter how vital,
may come to be of secondary importance to just keeping one’s own lights on for
some oil producers (like all of the producers in the U.K.
As we move into the future, oil and gas prices will rise, and
carbon-based fuels will be disfavored, be it by agreement or mandate or a market
mechanism like carbon credits. Meanwhile, the cost of renewable energy and
efficiency improvements will decline. Those two trend lines meet somewhere in
the near future. The far future has a new paradigm, one that is based on clean,
green fuels. Countries known for their long-term strategic planning horizons,
such as Sweden and China,
are already preferring the clean, green path.
The sooner we make the necessary investment to begin that transition,
the easier and cheaper it will be. Modern materials, like carbon fiber and
highly refined silicon and specialized plastics, which are essential to building
out a renewable energy infrastructure, are a whole lot cheaper and easier to get
right now than they will be in ten or twenty years.
Domestic production from renewables offers long-term security, and
keeps more of that precious, miraculous oil around for the future, when we may
desperately need it for much more valuable things (like making plastics) than
just burning it in a 10% efficient engine. Drilling our oil today only offers
security of supply for the short term.
We don’t yet know the difficulties of tomorrow, but on the current
trajectory, it’s not looking pretty. The simple fact that we are about thirty
years late in getting serious about renewable energy and conservation should be
reason enough to ask Big Oil to help pay for the transition. Who better to make
the investment in tomorrow’s energy than today’s energy companies?
In a perfect world, with perfect markets, we would have started
choosing domestic renewables over foreign oil long, long ago. If our markets had
good feedback mechanisms for the real costs of oil, and the extraction of
something nonrenewable had an appropriate cost, and our carbon emissions weren’t
“externalized” but actually paid for by somebody, and a hundred other things,
instead of being twisted like corkscrews, the Invisible Hand would have already
put its big Invisible Finger on renewables.
How many trillions of dollars have we spent to have our military
protect our oil supplies in foreign lands? How many people died for it? Nobody
counts it. But we spent it, and they died, all to get us right here where we are
today: waist deep in the Big Muddy without a paddle, if you will. (Cue The Fugs’
“Wide, Wide, River.”)
The IEA says the world will spend $20 trillion in new investment in
oil and gas over the next 25 years, just to keep supplies up with demand.
Wouldn’t you rather spend that money to get you out of the blood-and-oil game
altogether?
So, we’re really talking about 1/1000th of the investment
that humanity is prepared to make in oil and gas over the next 25 years, no
questions asked, after which we would be even deeper in the Big Muddy.
This isn’t a war on Big Oil. We’re just starting to play catch-up
with reality.
Folks,
Today I had the privilege of appearing as a guest on The Real Story with Aaron Task, a daily podcast from TheStreet.com. We talked about alternative energy stocks.
You can listen to it here: Bulls Feel the Pinch.
He also covered my stock picks in his article today, Gurus: Top Alternative Energy Stocks.
For those who are interested in alternative energy investing, you might also want to check out the recommendations in Aaron’s article yesterday, Coming Week: Alternative Ideas. .
–C
Folks,
Here’s a recent article I wrote for Wealth Daily about the explosive growth I expect this year in ethanol production, and why it’s a good sector to invest in.
–C
2007-01-17
By Chris Nelder
Alcohol—It’s not just for drinking anymore.
Those who watched the ethanol charts in 2006 might have thought they were looking at a drawing of the Eiffel Tower, so sharp and fast was its rise and fall. So before we get into the real story about why ethanol is probably going to be 2007’s hottest sector, let’s look at what went wrong.
I believe the biggest reason was simply speculation. A big tide of “hot money” flowed in and then flowed out of the ethanol group. President Bush admitted to our nation’s addiction to oil, oil prices shot up, and a mandatory phase-out of MTBE started to take effect, all bullish indicators that came within a few months of each other during the spring. Momentum begot momentum, and the whole group rose precipitously.
But then oil prices softened and confidence in the economy came roaring back as the hurricane threat failed to materialize, geopolitical threats seemed to stabilize (albeit temporarily), inventories rose and damaged infrastructure was rebuilt. So oil fell sharply through the second half of the year and took the ethanol group with it.
Was any of this a reason to stop loving ethanol? Not on your life. It was just a big party where a bunch of traders got drunk on ethanol and then woke up with a hangover. All of the above were short-term factors. On the fundamentals, ethanol is swelling like a grape. Let’s look at the facts.
The Only Major Substitute
As any observer who is up to date on the problem of peak oil knows, the most pressing problem right now isn’t a need for greener electricity, but for liquid fuels. Solar and wind and most other forms of RE make electricity. What we need most urgently is a replacement for liquid fuels, particularly diesel and gasoline.
Biodiesel is a good alternative, and if properly managed it can even be carbon-neutral. But numerous studies have shown that there are few places in the world where biodiesel production can be significantly scaled up without cutting into food supply, and even in those places the potential is minimal—a few percent of the overall need. And this is simply because growing oilseed crops is an energy-intensive business that requires good farmland—just like food crops. This is true for soybeans, corn, rapeseed and all the other typical feedstocks for biodiesel.
That leaves only a couple of liquid fuel alternatives: ethanol, methanol, and various forms of gas-to-liquid technology, which I discussed in last week’s article. Of the alternatives, ethanol is the only real contender that is ready to step up right now and deliver an alternative liquid fuel at production-scale levels that doesn’t depend on oilseed crops. Because it’s the product of fermentation, and not of an oilseed, it can be made from all sorts of waste products—landfill contents, biowaste from agricultural operations, wood chips, basically anything organic—and it can be used as a small (5–10%) portion of the fuel mixture for any gasoline engine without modification, or as a large (85%, or “E-85”) portion in “flex fuel” vehicles. Ethanol is already replacing MTBE to fulfill a federal mandate that took effect last year.
The landscape for 2007 is so bullish for ethanol, at least one analyst has worried aloud that we might have an ethanol oversupply by the end of the year. But I don’t believe that will be the case, as most analysts like him know far less than they should about the realities of global oil supply.
Fifteen-Fold Growth Ahead
The Energy Information Administration’s (EIA) new Annual Energy Outlook 2007 report projects major growth for ethanol, from about 5 billion gallons today to 13.6 billion gallons in 2030. But that’s just for corn. From cellulose, according to DoE, it could be another 47 billion gallons. That’s a 15-fold increase in ethanol production over the next 25 years. Yowsa!
For its part, biodiesel is set for a 16-fold increase, from 25 million gallons in 2005 (a small fraction of one percent of our transportation diesel) to 400 million gallons in 2030.
Quick Reality Check
Now, that’s a growth story any investor can get excited about. But before we get carried away with it and start thinking that this is going to bail us out of the peak oil problem, let’s have a little reality check.
To be clear, I do believe that we will increase our use of biodiesel as enthusiastically as we are doing with ethanol—wherever we can and to whatever extent we can. Every producer will sell every drop it refines, and get a decent price for it, and their shareholders will be happy campers. Biodiesel has as much enthusiasm as ethanol in Congress and in the business world and retail market.
But our best-case projection of 61 billion gallons of ethanol capacity by 2030, is less than half our current U.S. gasoline consumption of about 150 billion gallons annually. Actually, it’s closer to a third when you consider that ethanol has only about 70% of the energy content of gasoline.
Our current production of ethanol, at 5 billion gallons, is only about 3% of our current gasoline consumption. And by the way, it required a full 13% of the U.S corn crop to produce, as 98% of it was made from corn.
Now you see why I call corn our least-desirable feedstock for biofuels. I know—as apparently, not many policymakers do—that the EROI, or energy returned on investment—is so low for most oilseed based crops that in the long run they’re simply not worth using. And this is nowhere as true as it is for corn, the most favored by far of all biodiesel feedstocks. The moral of the story? Just because it doesn’t make sense in the long run doesn’t mean we won’t do it. Same old, same old. Viva Monsanto!
Still, the growth anticipated in the biofuel sector is nothing short of huge.
It’s a Corn-Likker Hoedown
Let’s run down just a sampling of the recent announcements about ethanol projects:
But that’s just a small sample of what’s in the works. This is an absolutely massive growth opportunity. The bottom line is clear: ethanol is finally going to have its day, big time, and starting this year.
Folks,
This one is considerably off the beaten path for GRL, but I wanted to share the story. My ambivalence about publishing it was resolved today when I came across, quite accidentally, two other stories about the Salton Sea. So here is my little story, replete with information freely plagiarized from Wikipedia and elsewhere.
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Reposted from Wealth Daily:
by Chris Nelder
At the beginning of a new year, the urge to look back and review the one gone by, and consider what the new one will bring, is irresistible. In my review of 2006, one theme emerged, and that is transition.
Politically, it was a year where the Bush administration’s rhetoric about terrorism, and its unwavering commitment to staying the course in Iraq, began to sound tired and out of touch. We started the year with few voices of opposition being heard, but we ended it with a mid-term election rout, and the Democrats back in control of Congress. It was a year when the excesses and corruption of some of the most powerful and wealthy people in America finally came to judgment. Being one of those Californians who got bent over by Enron in 2001, I still feel cheated that “Kenny Boy” Lay died before doing a day of time for his crimes, but at least he and his cronies were brought to justice. From Abramoff to Delay to Foley to all the rest of the rotten bunch, we swept at least some of the corruption from Congress.
It was a year when we began to explore the complex relationships between global warming, major weather events, and fossil fuels. There was the release of An Inconvenient Truth, Al Gore’s superb movie about global warming. We started the year where a substantial portion of Americans still thought there was a real scientific debate about whether global warming was a real problem at all, and where journalists still persisted in trying to portray “balance” when all of the data are really on one side. But we ended the year with millions of people having seen the data for themselves, and having seen the unmistakable trends now under way across the entire earth. We still have deniers, but we have a whole lot fewer of the deliberately confused.
The quality and quantity of data about climate change also improved radically in 2006. We had a sharp increase in the number of studies, and many more results were reported by the press. NASA reported in September that the earth’s temperature is the highest it’s been for a million years. We saw whole populations of whales moving north due to the warming oceans. We watched 750,000 square kilometers of formerly permanent Arctic sea ice melt. We watched huge portions of the Antarctic ice shelves calve into the water. And we learned that the reason we didn’t get a big hurricane season may have been that we had so many dust storms (due to drought) in Africa.
On the energy front, the peak of global oil production started coming into view. All the data aren’t in yet, so it’s too early to say. But the data we do have indicates that the global supply of oil rose less than 0.2% (after consecutive years of 2% gains), while the global demand for oil increased unabated by another 1%. All of the supply increase came from non-OPEC suppliers, mainly in Russia and Africa. But on the whole, the areas that have been expected to make up the shortfall—the Caspian, West Africa, Brazil, and the Canadian oil sands—are not growing quickly enough to make up the shortfall.
It’s possible that 2006 was the global production peak, but it may have been more due to changing consumption patterns than to supply changes. We won’t know for another year or more if that was the case, due to the notoriously bad problems of getting data about oil production from most parts of the world. Kenneth Deffeyes, geology Professor Emeritus at Princeton, a devotee of M. King Hubbert’s who has applied his modeling techniques to global production, famously quipped that the global peak was Thanksgiving Day, 2005. Now it appears that 2005 was, in fact, the global peak of conventional oil, and the increases from unconventional oil (polar and ultra-deepwater, oil sands, natural gas liquids and condensates, etc.) haven’t materialized at the speed, or in the quantities, that had been expected.
Geopolitically, 2006 was very much a year of transition for oil suppliers, seeing Russia, Venezuela and Bolivia all make bold moves to gain greater control over their oil and gas production, and renationalize their assets. The majors like Exxon, Shell and BP were forced out of their investments, and the national governments began increasingly to use their supply as a geopolitical weapon. Just as it did in 2005, Russia’s gas brinksmanship nearly left much of eastern and central Europe in the cold, driving a hard bargain at Christmas, and forcing them to pay nearly doubled prices for natural gas.
Europe, in particular, developed a whole new level of sensitivity about their dependence on foreign supplies, causing the EU’s Energy Commissioner to begin work on a new common energy policy for the EU, and to warn publicly that they face a major energy crisis in the next 20 years unless they do something about it, fast.
This looks, for all the world, like the beginning of a new kind of cold war, where the mere threat of withholding supply is enough to affect the balances of power. As of 2006, national oil companies (NOCs) now control over 90% of the world’s remaining oil. The majors, including Exxon, Shell, BP, Chevron, and all the rest, are in control of a mere 10%.
On the demand side, OECD nations declined by at least 1.3%, due in part to slowing economies, a warmer winter, and gains in efficiency. But non-OECD nations, including the overheated economies of China and India, consumed an aggregate 3.5% more oil—1.3 million barrels per day—in 2006 than they did in 2005. China’s crude imports alone surged 10% higher in 2006, and their economic growth is still red-hot.
The crude oil price spike of 2006 was probably the most noticeable phenomenon, starting and ending the year at $61, but going as high as $78 in July. As the price climbed through the spring, public outcry led some Senators to call hearings and question the heads of Big Oil on their pricing and maintenance practices. But, observing what some have called a “mutual suicide pact” between Congress and Detroit, nobody dared invoke the sacred cow of CAFÉ standards. As the price of crude plunged to $55 and gasoline dropped back into the low $2 range, the pressure let up, and we were back to business as usual before election time. Some analysts took the opportunity to declare (on the basis of absolutely nothing other than a lower oil price) that peak oil theory was dead and discredited.
Explanations for the spike, and the drop, varied widely: an increase in the “terror premium” to which the markets eventually became inured; an expectation of damaging hurricanes that never materialized; the loss of infrastructure from Katrina and Rita plus the temporary shutdown of the leaky pipes in the Alaska, most of which was recovered by the end of the year; and a huge tide of hedge fund money that surged in and surged right back out of the energy complex. Theories were legion.
But almost none of them focused on the fundamentals of supply and demand. I maintain that the Street has still not priced in the reality of peak oil, and continues to be swayed primarily by short term factors like weekly inventory reports. Energy traders still behave like a mass of seagulls, chasing each other’s momentum around on the beach. We strive to be more like Jonathan Livingston, and keep a long view of the situation as much as possible.
Here’s what I see, from a loftier vantage point. The fundamental problems of oil supply and demand got worse in 2006. Population growth is still unchecked and undiscussed. The geopolitical balances of the world are even more unstable now than they were a year ago, and major oil exporters enjoy more control than ever. We’re definitively past the peak in conventional production, and entering the uncertain three-to-five year period just before the absolute global peak. Most of the world now recognizes that climate change and fossil fuel use are inextricably connected, and many have begun serious efforts to switch to renewable fuels and increase the efficiency of our fossil fuel uses. And hardly anybody is still pretending that oil isn’t the reason that our armed forces are in the Middle East.
Awareness of the peak oil problem is still dawning, albeit much more slowly than I would like. We started 2006 with President Bush’s admission that we were addicted to oil, but his comment was about dependency on unstable producers, not about global depletion. And by the end of the year, Congress and the White House had talked much, but accomplished little. For its part, most of the press (with a very few notable exceptions, like the Chicago Tribune and the U.K.’s Guardian) continue to seem muddled about the whole issue, easily led astray by the wild promises of economists and oil industry propaganda.
But on the whole, I think 2006 showed some promise that we can get our heads around these problems and start making tracks toward solutions. We have a very long way to go, but it’s a start.
Next week, we’ll take a look at some of the developments that we can look forward to for the coming year.
Until next time…
