Folks,

In this week’s Energy and Capital article, I review some recent events in California’s quest for renewable energy and the fight against global warming.

In many ways, the rest of the country tends to follow California’s example, so this should be instructive to like-minded individuals everywhere.

–C

All Busy on the Western Front

2007-05-25

By Chris Nelder

This week I bring you an update from the front lines of the fight against global warming.

The front lines of California, my home, which I’m proud to say has often set the standard for the rest of the country when it comes to cleaner air and renewable energy.

She beckons from her beaches, like a lighthouse pointed toward land instead of the sea, saying "This way, this way!"

We now have the most aggressive RPS (renewable portfolio standard) in the country. If we were a country of our own, we would rank third in the world for solar energy. We currently have the nation’s biggest solar incentive program, the $3.2 billion "Million Solar Roofs" program.

And, as I have reported previously, we’re taking the fight to the EPA and the Bush administration to let us set our own, higher standards for air quality, and regulate CO2 emissions.

Related articles on EPA and RPS: · EPA Refuses and Loses, but Business Chooses · Climb Aboard the RPS Express

But getting here hasn’t been easy. And it’s still a muddled struggle.

In 2002, California established its RPS, which requires an annual increase in renewable generation by the utilities equivalent to at least 1% of sales, to achieve 20% by 2017.

Then the California Public Utilities Commission moved the goal up to 20% by 2010, which the legislature made into law.

Then that was modified as of January 1, 2007, by another bill that set the maximum RPS goal at 20% . . . and also prohibited the CPUC from setting a higher standard! (And boy wouldn’t I like to know exactly how that one got slipped in there.)

Now we have a new bill that raises the requirement to 33% by 2020, consistent with Governor Schwarzenegger’s stated goal.

That would also meet the requirements of the California Global Warming Solutions Act of 2006, which seeks to roll back the state’s greenhouse gas emissions to 1990 levels by 2020.

But wait, there’s more! Not only do you get the RPS standard, but now there is yet another bill in the works. It seeks to remove some of the obstacles to developing renewable energy that have been unintended consequences of all the previous legislative maneuvering!

Because–surprise, surprise–it is now proving difficult to satisfy all the rules and still meet the goals.

And don’t even get me started on how the CPUC and the legislature have managed to almost completely ruin the residential solar market for existing homes here with the new set of rules and programs that went into place this year. Some solar contractors who have been at it for decades don’t even want to be in the business anymore, it’s gotten so heinously complex to navigate the intricacies of the various incentive programs and paperwork requirements. Trust me–it’s out of control.

But I digress. Let’s look at the bright side.

Since our RPS standards were established, the state’s investor-owned utilities have signed contracts to buy between 2,935 and 4,433 megawatts (MW) of renewable energy capacity (depending on build-out options). That’s between 9% and14% of all electricity used in the state!

In their latest meeting, the CPUC was to approve some 20-year power purchase agreements (PPAs) between Southern California Edison and the Caithness Corporation for 204 megawatts of generation from geothermal sources and nearly 70 megawatts from wind.

(Incidentally, they were also to consider whether they could, and should, lift the suspension of the "direct access" purchasing rules of the deregulated energy market. Those are the rules that led to the California electricity crisis of 2001, when we got Enroned. Could be a good thing if they do it right . . . or it could be the same old crisis all over again if they don’t.)

Maybe that’s why the geothermal sector has really been taking off lately–they’ve got to get that clean energy from somewhere, and there’s a vast resource of it right next door in Nevada that’s ripe for development and attracting some big money.

As I mentioned in Monday’s article, the new United Technologies (UTX) geothermal generators being deployed by Raser Technologies (RZ), along with the latter’s exciting new Symetron electromagnetic motor system, could usher in a new era of plug-in hybrid vehicles charged by clean, green geothermal power.

Well, just two days later, Raser announced that it had won the Frost & Sullivan 2007 Product Innovation of the Year Award in the Industrial and Commercial Motors and Drive Category for the Symetron system.

I hope you caught that one, because Raser shot up 27% over the next day and a half!

But that’s not the only hot geothermal play. Consider a small geothermal company that’s been in the Green Chip Stocks portfolio since August 2006.

That stock shot up 94% just in the last nine weeks!

You can find out more about it here .

And yesterday Ormat Technologies (ORA:NYSE) announced a new 30 MW geothermal PPA with Nevada Power Company. The deal will help the utility’s parent company, Sierra Pacific Resources (SRP), meet its RPS of 12% by 2009.

Like the UTC units, this project will use a state-of-the-art Organic Rankine Cycle air-cooled binary or combined steam/binary power plant, which re-injects 100% of all geothermal fluid produced while consuming no water or chemicals. And it runs all the time-24-7. How cool is that?

I can only surmise that investors have read the writing on the wall: California is now required by law to increase its renewable generation.

But it can only build out solar and wind so fast.

And we’re shooting down plans for liquefied natural gas (LNG) import facilities almost as fast as the proposals come in (more on that in a moment).

Since half of California’s electricity comes from natural gas, there’s a real squeeze play going on here.

And the winner could be geothermal . . . little ol’ geothermal, the wallflower of renewable energy, hardly noticed, yet able to generate the cleanest and greenest power around on one tenth of the footprint of solar, a virtually untapped resource literally below our feet.

Now let’s return to the ongoing saga over the proposed new LNG import facilities off the coast.

Things have not been going well for them. A week ago, Governor Schwarzenegger concurred with the previous decision by the State Lands Commission and California Coastal Commission and vetoed plans by BHP Billiton to build an $800 million LNG storage facility and processing plant off the coast of Malibu.

That plant that would’ve sported three giant, 16-story high, 73-million gallon storage tanks, sticking up like three giant space teats out on the ocean, spoiling the view for about 50 miles’ worth of prime Southern California beach from Malibu to Oxnard.

And what was the Governator’s reason?

"[A]ny LNG import facility must meet the strict environmental standards California demands to continue to improve our air quality, protect our coast and preserve our marine environment. The Cabrillo Port LNG project, as designed, fails to meet that test."

No doubt one of his primary concerns was the emissions of the plant, which would have been a step backward from his commitment to reduce the greenhouse gas and air pollutants of California.

"If approved, this LNG project would have emitted up to 200 tons of smog-producing pollutants into the compromised air basins of Ventura and Los Angeles Counties and up to 25 million tons of new life-cycle greenhouse gas emissions each year," said Susan Jordan, director of the California Coastal Protection Network, the nonprofit leading the opposition to LNG.

I’ll take geothermal energy’s zero smog and zero pollutants over that, any day.

Apparently, savvy investors agree.

Until next time,

–Chris

Check out this article on the impending demise of the Hummer, by the ever-opinionated and unapologetic hardcore leftist, Mark Morford of the San Francisco Chronicle. It’s a fun read and might even signal a turning of the American sentiment toward their precious cars.

Rejoice, The Hummer Is Dead

Folks,

In this week’s article for Energy and Capital, I share some exciting findings from a geothermal conference I went to a few weeks ago. This is very cool technology and it’s as clean and green as it can be. Check it out.

–C

The Future: Steam-Powered Cars

2007-05-21

By Chris Nelder

Two weeks ago, at an energy conference in San Francisco, I glimpsed a powerful and optimistic vision of the future of energy and transportation.

A vision of . . . well, of steam-powered cars.

The conference was the West Coast Geothermal Development and Finance Workshop. And the vision was offered by Brent Cook, the CEO of Raser Technologies, Inc. (RZ).

Follow me . . .

Imagine a future where we drive around in plug-in hybrid electric cars, sipping tiny amounts of liquid fuel, and mostly running on batteries that power next-generation, high-efficiency electric motors.

Imagine that all of the grid power they run on is generated and consumed without any emissions of any kind. In fact, without any detrimental effects on the environment whatsoever, and without using any fuel.

Imagine that it was all done using clean, green, renewable energy right here at home, and didn’t send a dime overseas.

Wells to Wheels

That is Raser’s vision, and they’re making it a reality with their "wells to wheels" approach to the problems of oil depletion, oil dependency, and global warming.

One side of their business focuses on the components that will power the cars. Their Symetron electromagnetic motor system, designed for use in hybrid cars, got the Frost & Sullivan 2006 Technology Innovation of the Year Award.

The Symetron system is an AC induction motor that can function as both the alternator and the starter. It’s only four inches long, a lightweight 66 pounds, and can deliver 64 horsepower with 170 lb/ft torque to start the car moving. That’s a lot of punch in a small package!

When functioning as a generator, it delivers a whopping 20 kW of power, enough to recharge the car’s lithium-ion batteries and still run all the accessories.

That makes it what the Frost & Sullivan analysts called a "disruptive technology," something that can really change the paradigm . . . in this case, of transportation.

The increased power, lower cost per kilowatt, high torque and high reliability of the Symetron motor can help make plug-in hybrids an economical reality for millions.

No wonder Raser has been hard at work getting their system ready for mass production and striking partnerships with key players to manufacture it.

The other side of their business generates the power to run those cars most of the time, from the cleanest and greenest of energy sources (and my personal favorite): geothermal power.

Power harvested as heat, oftentimes steam, from a hole in the ground.

Using a variety of licensed technologies and advanced "binary cycle" generator units made by United Technologies (UTC), Raser is in hot pursuit of the geothermal potential of the West.

Their goal is to build geothermal generating capacity at the rate of 100 MW/year for the next three years. That’s equivalent to about 4% of the entire current U.S. geothermal generating capacity, every year, just by one company.

Now that’s ambitious!

Hot Property

They’ve been buying up leases left and right for the last few years, and now hold leases on 34,000 acres in Utah and additional acreage in Nevada.

Like other renewables, geothermal energy systems require no fuel inputs, per se. They just borrow a little heat and move it elsewhere.

Even better–and this is the part that really gets me fired up–they can potentially use waste heat from other industrial processes as their heat source.

Even dried up oil and gas wells can be energy sources.

This is because the United Technologies geothermal generators have the unique ability to harvest some usable heat from relatively low temperature heat sources–as low as 165 degrees, depending on the site. This temperature range was unusable for the geothermal generators of the past, which needed a heat source of at least 500 degrees.

These generators are basically overgrown refrigerators running in reverse. "The organic Rankine cycle-based power system is an advanced binary cycle system that is driven by a simple evaporation process and is entirely enclosed, which means it produces no emissions," according to their press release.

Essentially, they take about 30-40 degrees from the hot side (such as a hot hole in the ground) and dissipate it to the cool side (using an air-cooled heat exchanger on the surface), turning a turbine as they do so.

The turbine spins as the refrigerant fluid (something like Freon) cycles through the system and is heated and cooled. It’s the temperature differential between the two sides that makes the system work.

So even if you have to dissipate the heat with an air cooled system in the hot desert sun, as long as the temperature of the heat source is at least 140 degrees hotter, you’re good to go.

And at night, when it’s cold outside but still toasty underground, these babies really sing . . . pumping out their best power precisely when solar panels are nonfunctional.

Put one of these units next to another industrial operation–say, a smelter or a paper mill–where you’ve got a lot of waste heat being generated, and dissipate it to, for example, a shallow, cold underground aquifer, and you’re basically harvesting free energy. You’re making use of otherwise wasted BTUs while incurring no harm to the environment.

Now that’s a hot technology. And I think it’s very, very cool.

Steamed Greens

Raser announced its Q1 financial results last Tuesday, showing good revenue growth but widening losses due to stock grants and other expenses for professional services. In other words, your typical development-stage growing pains.

They also recently announced that they are buying 135 of United Technologies’ 225 kW units and partnering with them to build their next 30 MW project.

And the next plant they build after that is going to be much, much bigger, using 1 MW generators.

Looking at their future, I see a great business. It’s as clean and green as it can be. Here are a few of the benefits:

• Advanced geothermal generators have no emissions.
• They’re tiny. These UTC PureCycle units generate 225 kW of power in an 11′ x 17′ footprint . . . about one tenth the footprint of solar PV for the same power output.
• They have minimal aesthetic impact. Units that harvest heat from hot underground water sources and reinject it back into the ground are so low-pro you might hardly even notice them. Just some low pipes sticking out of the ground in the desert somewhere. Not so much as a puff of steam coming out of them.
• They use no fuel because they provide their own power.
• And they run at 95% to 99% uptime, making them perfect for "base load" utility generation, or power generation that’s on all the time. That’s the kind of generation that is normally provided by coal-fired and nuclear plants, because they’re so hard to start up and shut down.

Not only that, the growth potential of the geothermal industry is enormous.

A report Raser released back in March showed that just one of their leased properties in Nevada could potentially support 300 to 500 megawatts of power generation . . . again, in a relatively tiny footprint.

Of course, Raser isn’t the only company in the game, nor the only suitor for the Earth’s virtually inexhaustible supply of heat energy underground.

Two weeks ago, Merrill Lynch announced that it had made a $35 million investment in Vulcan Power Co., a private company and one of the largest geothermal property holders in the U.S.

"We believe that an investment in Vulcan is critical to accelerate development of geothermal resources that benefit the environment," said Rob Jones, the head of the Merrill global energy and power group.

But that’s just the first round. In total, Vulcan intends to raise $150 million to develop some 900 MW worth of geothermal energy from its portfolio.

They haven’t even broken ground, and they’ve already got buyers for the power. The company has announced 20-year power purchase agreements with Nevada Power Co., Pacific Gas & Electric Co. and Southern California Edison Co.

We’ll be probing the depths of the geothermal space–hopefully with fewer overwrought metaphors–in much greater detail in the coming months, so stay tuned.

Until then,

--Chris

PS Jeff Siegel has been following this trend closely for his Green Chip Stocks subscribers. He’s keeping his eye on one little-known company that has already tapped into this hot alternative power resource. To read his most recent report and learn more about this profit opportunity, please click here .

Folks,

In this week’s article for Energy and Capital, I try to explain, once and for all, that gas prices aren’t high because of gouging by Big Oil, and why boycotts don’t help bring prices down. If you’ve ever received one of those email chain letters that told you not to buy gas on a certain day or from a certain company (like the one that went around again this week), then please forward this article to whomever sent it to you. It’s high time people started to understand the way this system really works.

–C

There’s a Hole in the Bucket

2007-05-18

By Chris Nelder

That does it. Time to set this record straight.

If I get one more email petition asking me not to buy gasoline on some day or another, or from one company or another, I’m gonna scream.

Some consumers actually decided not to buy gasoline yesterday, because an email chain letter suggested that if enough of them stayed away from the pumps on May 15, it would bring prices down.

Get a grip, people.

Such tactics could never reduce the price of gasoline. And that chain letter has been going around since 1999.

One instance claimed that if all 72 million MySpace users participated in the "gas-out," it would bring the oil companies to their knees by depriving them, at $30/tankful, of $2 billion in revenue that day. (Huh, I only wish I could fill up my tank for $30!)

Eeeyeah . . .

Before I get into this flawed math, allow me to cite yet another nursery rhyme . . . after all, everything we needed to know we learned in kindergarten, right?

Sing along, now:

There’s a hole in the bucket,

Dear Liza, dear Liza

There’s a hole in the bucket,

Dear Liza, there’s a hole.

Then fix it, dear Henry,

Dear Henry, dear Henry

Then fix it, dear Henry,

Dear Henry, fix it.

With what shall I fix it,

Dear Liza, dear Liza?

With what shall I fix it,

Dear Liza, with what?

OK, that’s enough.

If you remember the song, it goes on for many more verses, until Liza finally has to tell Henry to use the bucket to go get the water that he needs to wet the stone, to sharpen the axe, to cut the straw that he will need to fix the hole in the bucket.

Which brings us back to "D’oh!"

Those who supported the boycott were on the right track in believing that gasoline prices are a function of supply and demand.

Where they went wrong is the scale, and the logic.

Refusing to buy gas on one day, or from one retailer, is about as effective as waving a hanky in front of a charging bull.

It is true that 72 million times $30 is indeed over $2 billion. (Never mind that a majority of those 72 million MySpace users probably aren’t of driving age anyway, or that 72 million is just 30% of the number of drivers out there. Those who forward email chain letters probably don’t get out their pencils and check the math very often, so we’ll give them a break on that point.)

But the U.S. consumes 384 million gallons of gasoline every day. That’s 1.3 gallons for every man, woman, and child in the country, every day, or 1.6 gallons for every licensed driver, every day!

How effective could any boycott be . . . even a widely-supported one?

But never mind that either. The real fault in the argument is much simpler.

Those people didn’t avoid buying any gas at all. All they did was buy it on a different day!

Duh-HUH!

Demand is demand. Shifting it from one day to another accomplishes nothing.

Actually, a sudden drop-off in business like that is likely to hurt the gasoline station operators the most, and they’re the ones making the least profit along the entire supply chain, just a few pennies a gallon.

Indeed, on the futures market, which is where the prices of crude oil and gasoline are actually set, gasoline prices have actually gone up since the boycott.

Why?

Because the U.S. consumes 21 million barrels of oil a day, every day.

There’s a big, fat hole in the bucket.

And that’s the main reason–not Big Oil’s profiteering–that gasoline is now at an all-time nominal high, at $3.10 per gallon.

(Shoot, that ain’t nothin’ anyway. Out here in California, the average hit $3.45!)

Let’s trace these prices back to their source, and the reasons why they’re high should make themselves clear.

First, demand is high, and has been on a relentless upward trend for years. Here’s a chart of monthly consumption of gasoline since January 2000:

That annual sawtooth pattern is trending continuously upward, at the rate of about 1% to 1.5% annually, right along with economic growth.

Along with high demand, we have falling supply. Gasoline inventories declined for 12 consecutive weeks between February and April, in the sharpest such decline since the EIA started tracking the data. The drop was 34 million barrels, or 15%.

And why were gasoline inventories low? Because refiners have been running at around 85-90% capacity this year, and haven’t been able to keep up with demand for finished petroleum products.

Well then, why have the refineries been unable to keep up?

The answer is complicated. But it boils down to a couple of key factors.

First, the U.S. refinery system never really recovered from "Katrita." According to a senior EIA oil analyst, 800,000 barrels a day of US refining capacity is still offline, which translates into about 400,000 barrels of lost gasoline production each day, or nearly 3 million barrels a week.

Second, we’ve been running our refineries full-tilt for several years now, and that’s not how you’re supposed to run them. They need seasonal maintenance. After all, we’re basically talking about machines made of metal that have to run at high temperatures and pressures.

We’ve been overdriving them because we haven’t been able to build new refinery capacity to keep up with demand. We have added some capacity over the last decade or so by expanding existing refineries, but we haven’t built a new refinery in this country in over 30 years.

And what happens when you overdrive a hot, pressurized machine?

Things break. Metal gets fatigued, seals get worn. You wind up with explosions and fires and failures and shutdowns.

And that’s the final reason why the refineries haven’t been able to keep up. Because that deferred maintenance finally came home to roost, and several incidents knocked a couple of refineries offline for a while.

And that’s also why my favorite hedge against rising gasoline prices is going long on the domestic heavy sour crude refiners, particularly Valero (VLO) and Tesoro (TSO). They’ve both had spectacular runs already, but their days aren’t over yet, not even close. They’re in the catbird seat. Invest a little in them and your gains can balance out your losses at the pump.

So here we are, caught between the rock of refinery capacity and the hard place of demand.

We all want to drive off somewhere and have a nice vacation over Memorial Day weekend, right?

But that signals the beginning of the summer driving season. We’re supposed to have a nice store of gasoline put up and ready to burn by this time of the year.

This year, we don’t. In fact, we’re on track to have the lowest inventories of gasoline ever for Memorial Day.

Gasoline inventories are well below the average range for this time of year, and crude inventories are near the upper end of the average range.

In fact, as oil industry analyst Robert Rapier has observed, "In order to avoid going into the summer driving season below the lower end of the range, we would have to see three consecutive weekly gains that have not been seen this century–fueled by very strong import levels (or record-breaking demand destruction)."

Now, over the last three weeks, refinery utilization has finally started to pick up again, and domestic production has increased by half a million barrels a day.

We’ve made up the remaining shortfall by importing finished gasoline, amounting to more than 1.5 million barrels per day for the week ending May 11. That’s the fifth highest level of imports ever, and the highest since a year ago.

Should refinery utilization and imports continue to increase, gas prices could start to come back down a little.

But in all likelihood, gasoline inventories will remain lower than normal through the summer, and the price will probably remain around $3/gallon.

It should be abundantly clear to anyone that there is an extremely tight balance between supply and demand, and it wouldn’t take much–another refinery outage, a hurricane, a terrorist attack–to push prices straight up again.

So, as the old saw goes, the next time you point the accusatory finger at Big Oil, remember: there are three others pointed back at you.

There’s a hole in the bucket.

Which is why the EIA had to go to the trouble to put this incredibly obvious statement right on their "This Week In Petroleum" web page:

"If prices are high due to supply and demand factors, and consumers cannot directly increase supply, reducing demand is left as the main option for consumers."

How shall we do that, dear Liza, dear Liza?

How about not driving at all one day a week?

Even better: Friday, May 19, is National Ride Your Bike to Work Day. Everybody who participates in that will, in fact, reduce demand and help moderate prices. That’s a whole lot more effective than forwarding some email chain letter. Now that would, in fact, reduce demand and help moderate prices.

And with that, I have to get out the topo maps and figure out where I’m going four-wheeling on my Memorial Day vacation. Might as well, while I still have a truck that can do it and the gas to run it on. Smoke ‘em if ya got ‘em, peoples.

Until next time,

–Chris

Folks,

Here’s a very cool art project I came across, which uses visual art to demonstrate the volumes of stuff that Americans consume every day. It’s pretty stunning!

In the author’s words:

This new series looks at contemporary American culture through the austere lens of statistics. Each image portrays a specific quantity of something: fifteen million sheets of office paper (five minutes of paper use); 106,000 aluminum cans (thirty seconds of can consumption) and so on. My hope is that images representing these quantities might have a different effect than the raw numbers alone, such as we find daily in articles and books. Statistics can feel abstract and anesthetizing, making it difficult to connect with and make meaning of 3.6 million SUV sales in one year, for example, or 2.3 million Americans in prison, or 426,000 cell phones retired every day. This project visually examines these vast and bizarre measures of our society, in large intricately detailed prints assembled from thousands of smaller photographs.

Check it out!

Running the Numbers

An American Self-Portrait

By Chris Jordan

Folks,

This week I prepared a detailed report on the natural gas situation in the U.S. (and elsewhere), for Energy and Capital.

The full report (with lots of charts) is available as a PDF file here: Indigestion Over Gas. Or you can just read the short version below.

The implications are clear to me: We’re going to be seeing significantly higher prices for grid electricity and gas-fired heat.

–C

Unpleasant Surprises for Natural Gas

2007-05-11

By Chris Nelder

Last week was just full of unpleasant surprises for natural gas supply.

I’ve been researching the issues and it looks like we have some serious supply issues on our hands, starting now and growing worse over the next 20 years or more.

I have prepared a detailed free report on it, which you can find here . But here’s the short version.

First, the International Energy Agency (IEA) issued a warning that it’s very concerned about an impending supply gap for natural gas.

This is important because about one quarter of our electricity in the U.S. is generated from natural gas, a share that is expected to increase along with demand.

But I don’t believe that share can be increased. And that spells “higher grid electricity” prices for this country, and an even better outlook for solar and wind generation.

Apparently, receding horizons, massive cost increases, and lack of construction materials and skilled labor have all contributed to delays and cancellations in new power plant construction. It’s just not a friendly environment for investing in new plants.

The IEA emphasized that governments must reduce the risk for potential power plant investors, because the time frames are so long, the price tags are so high, and uncertainty about combating global warming is adding to the investment risk.

As if to reinforce the idea, ExxonMobil, BP and ConocoPhillips told Alaskan lawmakers last week that they didn’t want to help build a proposed natural gas pipeline from Alaska’s North Slope because there are too many demands and not enough return in it.

And an energy broker at Man Financial indicated that British Gas and Powergen were taking a wait-and-see approach to further investment, waiting for clarity on the government’s future energy policy.

Ironically, it seems that uncertainty about the fuel alternatives of the future is causing investment to lag in the fuels of the present.

Futures Rally Under Way

The second surprise of last week was that the June New York natural gas contract revisited the $8/MMbtu level, in a rally apparently driven by hedge fund activity.

Natural gas prices have been sort of off the radar in the last few months, since most of the U.S. experienced an unusually warm winter this year. No sustained cold temperatures until early February made natural gas consumption lower than normal, inventories rose, and prices dropped.

But as you can see from the below chart, it looks like they’re beginning their upward march once again, and could be on their way to $10.

 

But a lack of investment in gas fields, and high spot prices, are really the least of our troubles.

The big concern is that we’re past Peak Gas in North America, and there is little hope for increasing imports. Here’s why.

A Yawning Gap

Gas production in North America topped out in 2002, and has been declining ever since, at the rate of about 1.7% annually in the U.S.

And this depletion has been relentless, despite a tripling of producing gas wells since 1971. We’re drilling more than ever, production is still declining…and now gas drilling rigs have been making an exodus from Canada.

Current supply and demand forecasts indicate that a serious shortfall in natural gas supply is looming.

Like, to the tune of 11 trillion cubic feet (Tcf) per year by 2025, or about half of our current usage of 22 Tcf/year.

Demand for natural gas is rising steadily along with demand for electricity, but drilling can’t make up for depletion, let alone additional demand.

That makes imports our last resort, right?

Wrong.

Natural gas production is mostly a landlocked business. We only import 19% of the natural gas we use, and 86% of that comes by pipeline from Canada and Mexico…both of which are both past their peaks.

Overseas suppliers provide the remaining imports as liquefied natural gas, or “LNG.” But those imports are inherently limited by a number of factors, including supply, tanker availability, and the lack of liquefaction and regasification terminals, and none of those issues look like they will be resolved any time soon. I explain the manifold reasons for this in the full report.

In short, every year we’re needing more imports, but getting about the same amounts, and paying more for them.

The bottom line: When it comes to natural gas, we’re on our own.

And even though new drilling in the Gulf (and eventually in Alaska) will produce some additional gas, it won’t be nearly enough to change the basic production picture.

That leaves one remaining option: Switching fuels.

Given the constraints on building new coal and nuclear plants, I am convinced that the most likely candidates for filling the electricity supply gap are renewable sources like wind and solar.

“A window of opportunity now exists to push for a cleaner and more efficient generation portfolio that will have significant impact on the energy sector and the environment for the next 40-50 years”, Mr. Mandil said.

A window that is yawning wider every year, as we reach the end of the line for natural gas fired power plants.

A window that opens up on a huge new vista of spinning wind turbines, shining solar panels and even more renewable energy profits–like those we continuously load up on at Green Chip Stocks .

Until next time,

–Chris

Folks,

Here is my latest for Energy and Capital, about the results of a new study for the Pentagon which says that it is “imperative” for the Department of Defense to “fundamentally transform” everything they do, immediately, to deal with our dependence on oil.

Since the DoD is the largest energy consumer in the nation, I think this is a very significant development.

–C

The Next “Greatest Generation”

2007-05-04

By Chris Nelder

That’s it . . . the Pentagon has officially smelled the coffee on peak oil.

They’re not talking efficiency improvements or pilot projects anymore. Oh no.

Now they’re singing a much more plaintive tune:

"We have to wake up. We are at the edge of a precipice and we have one foot over the edge. The only way to avoid going over is to move forward and move forward aggressively with initiatives to develop alternative fuels. Just cutting back won’t work," said Milton R. Copulos, president of the National Defense Council Foundation and an expert on the military’s energy needs.

Wow. That’s pretty straight shootin’ there, Tex.

According to a new study by defense consulting firm LMI, the dwindling availability of oil, plus its rising costs, makes the U.S. military’s operations "unsustainable in the long term."

The report’s emphasis appears to be centered on our dependence on unfriendly oil-producing nations, more than peak oil per se, but the prescription is the same.

They say that it is “imperative” for the Department of Defense to “fundamentally transform” everything they do, immediately. Not just weapons systems, not just base operations, not just the designs of war machines, but everything. Immediately.

For longtime readers of these pages, the alternatives suggested by the report will be familiar, including synthetic fuels (from coal and other sources), biofuels such as ethanol and biodiesel, and solar and wind power. Technologies and stocks that we love and watch closely.

The study, titled "Transforming the Way DoD Looks at Energy," was commissioned by the Pentagon’s Office of Force Transformation and Resources, an office established to help execute former Secretary of Defense Donald Rumsfeld’s ambition of transforming the U.S. military.

That office is a pretty rarified environment, for the military. This isn’t some jarhead operation. They do experimental "skunkworks" projects. They publish policy papers on "highly adaptive, self-synchronizing, dynamically reconfigurable demand and supply networks that anticipate and stimulate actions to enhance capability or mitigate support shortfalls." (Ohhh Kaaay?)

In short, they try to anticipate the challenges of the future.

And they are turning their attention to the security of their oil supply, for good reason.

A Desperate Dependence

For one thing, the sheer scale of the military’s dependence on oil is absolutely immense.

The Department of Defense is the largest single energy consumer in the country.

More than half of all the cargo moved by the military is just fuel. And of the material transported on the battlefield? Fuel accounts for about 80 percent. That’s a lot of effort just to move fuel around.

The cost is another major factor. The Air Force alone spends about $5 billion a year on fuel, followed closely by the Navy and Army.

The military’s energy costs have doubled since 9/11. Costs are going up so fast and so high that they’re worried about being able to afford weapons.

And the cost of having the U.S. military protect the oil supplies of the Persian Gulf . . . yes, even protecting the ones who want to blow us up . . . is around $44 billion per year.

That’s just the security cost, folks.

We import about 800 million barrels per year of black gold from the Persian Gulf. Divided into $44 billion, that works out to slightly less than $55 a barrel. When oil is trading on the open market for around $65!

If those protection costs weren’t externalized onto the U.S. military (your tax dollars at work!) but priced into the world market, I reckon that would put oil at around $120 a barrel.

Does anybody still think renewable energy is too expensive compared to oil?

I shouldn’t need to tell you that if a tiny fraction of that money were spent on R&D for clean, renewable energy sources, it would take us a long way toward advancing those technologies and making them economical and scalable.

And indeed, a fraction of it is being spent on those things. As we reported recently, the Air Force is installing the largest solar plant in the country. All four branches of the military have already begun to explore greater efficiency and renewable energy.

And the Department of Defense’s other hand, the Department of Energy, has offered over half a billion dollars in co-investment for biofuel refineries.

But there is another factor that’s probably the most worrisome of all. Rumsfeld’s push to reduce the military’s footprint by closing far-flung bases and transforming it into a network of small, agile task forces has had an unfortunate consequence: everything now has to travel greater and greater distances.

Which means a growing, not declining, thirst for liquid fuels.

"The U.S. military will have to be even more energy intense, locate in more regions of the world, employ new technologies, and manage a more complex logistics system," according to the report. "Simply put, more miles will be traveled, both by combat units and the supply units that sustain them, which will result in increased energy consumption."

Combined with nonstop advances in war machines, this trend has led to a sixteen-fold increase in the amount of fuel consumed per soldier per day since WWII.

And according to the report, the trend has been sharpening: In 2006, the fuel intensity per solider was double that of the previous year!

No wonder the report pulled no punches in its recommendations. This is a serious and urgent situation.

The authors admit that the changes won’t be easy, and would "challenge some of the department’s most deeply held assumptions, interests, and processes."

But the U.S. military has no choice but to learn to love being green.

A few weeks ago, the Pentagon’s message was echoed by President Reagan’s national security adviser, Robert McFarlane, who is one among the growing ranks of security "green hawks." He is deeply concerned about the eventuality of a successful attack on Saudi oil facilities–such as the one foiled by Saudi security just last week.

One such attack could triple the cost of a barrel of oil overnight, he warned.

Like us, McFarlane believes that renewable energy technologies such as cellulosic ethanol and solar energy could offset a substantial amount of oil consumption in a relatively short period of time.

"The solution is within our reach. We have to get busy," he admonished.

The Next Greatest Generation?

Sixty-odd years ago, America responded to Hilter’s threat with an unprecedented mobilization of manufacturing muscle and good ol’ American ingenuity, creating a powerful war machine in short order and winning the war. Those young men and women earned their reputation as the "Greatest Generation."

Now American business has another great security challenge at its feet: Can they find a way forward for the lumbering U.S. war machine?

Can we be the next "Greatest Generation" by greening not just our military, but our entire infrastructure?

The similarity of WWII to the present-day twin challenges of energy supplies and global warming has also apparently occurred to Prince Charles, who said this week: "We can do it, just think what they did in the last war. Things that seemed impossible were achieved almost overnight."

Our ability to exploit advanced and alternative energy technologies, and to do more with less, is what will make it or break it now for the Land of the Free.

The very security of our country depends on it.

Until next time,

Chris

Folks,

Here’s something interesting: an hour-long debate between Steve Forbes and Boone Pickens about peak oil, from the April 24 Milken Institute Global Conference. (For more on this notable event, see “Observations on a Hotel Full of Billionaires”.)

Those are two of the richest guys in the world, so their opinions bear some weight. As longtime readers of GRL know, I’m squarely in Boone’s camp…although I think he has an overly optimistic view of the future of natural gas, given that North American production is past the peak, there is a lot of resistance to siting new LNG import facilities, and the global peak of gas should be right around 2011.

Watch the interview here or download the transcript here.

–C

Ahh, it’s about time I posted some humor here eh?

Minty Clean Air Act

–C

This is interesting - a new online reality game designed to simulate the impending oil crisis. See the article below and give it a whirl.

Source: http://www.dailydemocrat.com/news/ci_5727769

A world without oil, in a game

A San Jose designer is trying to solve a crisis
before it can happen.

By RANDY MYERS/MediaNews staff

Article Created: 04/22/2007 09:09:44 AM
PDT

In a matter of days, gas prices will skyrocket, a dwindling food supply will
rot, and the oil crisis will literally stop Americans in their tracks.

How can you and your loved ones survive a crippling breakdown?

Log in to “World Without Oil,” a free alternate reality game that taps our
collective ingenuity to stop a plausible crisis before it happens. Or at least
prepare a post-Katrina nation to deal better with a disaster.

Sprung from the imagination of San Jose gamemaker Ken Eklund, the 30-day
Internet game begins April 30 at http://www.worldwithoutoil.org.

“Oil’s” creators herald the venture as a first - an alternate reality game
that wrestles with a significant social problem. Another topical game, the
obesity-themed “Fatworld,” is in production.

“This is the alternate reality game that will change reality,” Eklund said.

“People are realizing that (an alternate reality game) is not only a viable
way to teach and entertain people, in many ways it’s better than booklearning.”

Players enter the game by e-mail, phone calls and creating real or imagined
personas on MySpace. What they say will shape the game.

Organizers hope more tech-literate players will blog, make YouTube videos and
post audio clips and photos.

Most difficult for organizers will be harnessing the collective brainpower so
it doesn’t explode into chaos.

To provide cohesion, eight characters will be gamemasters for the virtual
crisis. Players drop in at any time to offer their thoughts about dealing with
issues they might encounter, from soaring prices to trying to commute.

“We’re asking people to come and write the story and that’s mainly because
the subject is too big for any small group of people,” Eklund said.

“The No. 1 challenge is that people’s imagination is so great,” Eklund said.
“We’re going to be running as fast we can to keep up with people. ”

When the game ends, its makers expect the postings will provide insight and
solutions to an oil crisis.

Expect growing demand for games like “Oil,” said Jane McGonigal, a Berkeley
futurist and game designer for the Institute for the Future in Palo Alto.

Beyond its social resonance, “Oil” illustrates what Web 2.0 is all about,
said McGonigal, an “Oil” collaborator. She appeared this week at a Web 2.0
conference in San Francisco. (Web 2.0 is the term used to describe the
internet’s much-debated next stage.)

“Web 2.0 is all about participatory culture,” she said. “Nobody’s just
receiving content, everything is collaborative including content and analysis.”
Web 2.0 draws it together, and so does “Oil.”

“Oil” players visit the website and plunge into a drama orchestrated by the
49-year-old Eklund.

“I was looking for an issue that affected everyone,” he said. Hurricane
Katrina and its devastating aftermath, which produced a surge in gasoline
prices, fueled “Oil.”

“Katrina definitely left me with the impression that in times of crisis you
need to have your own resources,” he said. “You can’t depend on a helicopter
swooping from the sky to save you. You better have a plan you can rely on . . .
Oil just fit the bill because it is the oxygen of our country.”

Focusing on game solutions, might equip Americans to deal with a real crisis,
he said. Eklund expects fresh insights to come from the large group of online
players.

The resulting game community will likely return to the real world to evaluate
and possibly cut consumption, he said. Regardless of outcomes, the game
sidesteps political posturing and fingerpointing. “Oil” was funded through a
Corporation of Public Boardcasting grant.

Educators wanting to keep pace with internet-age students have expressed
interest in using “Oil” in class.

“I can’t tell you how many educators and nonprofit organizers I’ve talked to
see this as the next generation’s type of curriculum,” McGongial said.

The game’s topic and interactive nature sold Jeff Towey at Richmond’s Making
Waves. He plans to have his afterschool students patricpate. He is particularly
intrigued by how reality games can cover academic subjects, from science to
English.

“It’s not straightforward like writing an essay,” he said.

“Oil” isn’t the first game to tackle social issues.

The nascent movement for serious-minded games includes MTV posting at
darfurisdying.com a Darfur game created by college students and the
International Center on Nonviolent Conflict’s “A Force More Powerful,” an
activists’ how-to for non-aggression at http://www.afmpgame.com.

What distinguishes “Oil” is that it is an alternate reality game aimed at
benefitting the public, McGonigal said.

Can it achieve such a lofty goal? A UC-Berkeley professor of practical art
and new media hopes so.

“(Oil dependency) is an extremely serious matter, and I think it’s good to
engage with these questions,” said Greg Niemeyer.

“There’s an aspect to it that is a little hard to translate into a game. Some
of its seriousness might be obscured by the fact that we’re encountering it in a
game.”

“What we need to learn is what are our core social values and how to find a
balance without an abundance of resources? That’s a huge question. If this game
will bring us to that it could be very successful. If it doesn’t it’s too bad.”

Where to play • To check out “World Without Oil,” visit http://www.worldwithoutoil.org. The game begins April 30. • “World Without Oil” is a joint project of PBS’s Independent Lens and its Electric Shadows Web-original programming. To see the company’s other interactive ventures, go to http://www.pbs.org/independentlens/interactive.html. • To learn more about alternate reality gaming, visit the Alternate Reality Gaming Network at http://www.argn.com. • To read what gamers think of the idea, go to http://forums.unfiction.com/forums/viewtopic.php?t=18592.