TCS Daily


Houston, Do We Have a Problem?

By Max Schulz - February 8, 2006 12:00 AM

HOUSTON -- If we really are addicted to oil, as President Bush famously charged last week in his State of the Union address, then it stands to reason that the 25th CERAWeek meetings now underway in Houston ought to have the feel of an open-air drug market.

CERAWeek is the brainchild of Dan Yergin, Chairman of Cambridge Energy Research Associates and author of a Pulitzer Prize winning history of the global oil industry. This annual affair brings together top brass from all over the oil industry, from Big Oil bigshots at ExxonMobil and Royal Dutch Shell to OPEC's national oil companies to small private players and wildcatters. It also brings in representatives from Wall Street, international banking, chemical companies and manufacturers, the information technology industry, academia, and Silicon Valley venture capital circles.

It's a pretty seedy group of pushers and junkies, to use terms out of the president's new lexicon. These people represent "the problem" Bush decried in the State of the Union.

You would think given the international attention lavished on Bush's oil addiction crack that it would be a chief topic of conversation at such a confab. Strangely, however, it's not. What is interesting is the degree to which most speakers and other CERAWeek attendees seem to regard the president's energy pronouncements last week as trivial.

Is this the delusion of addicts who, as the Sierra Club's Carl Pope would argue, don't want to acknowledge they have a problem? Perhaps. More likely, it is a telling and grounded commentary by those with financial stakes worth many billions of dollars in the world's energy future.

One theme emerging from the first day of the conference is that the future is a whole lot more positive than the peak-oil faddists and eco-alarmists -- or for that matter, President Bush -- would have us believe.

Even Saudi Oil Minister Ali al-Naimi, who has a vested interest in promoting the idea of world oil supply scarcity, acknowledged in his remarks that the planet contains plenty of conventional oil reserves left to be used. This statement is all the more surprising given the consensus that 21st century global economic growth will significantly boost overall demand for oil.

Energy experts here are stressing that issues of global supply are of much less concern than issues of infrastructure and capital investment -- deliverability, not availability, as al-Naimi put it.

Worries about the world running out of oil seem overwrought when one factors in the emergence of new technologies to recover resources that were inaccessible a generation ago. ExxonMobil executive Stuart McGill pointed out that technology is changing the definitions we use to describe energy markets. Revolutionary engineering advances like six-mile horizontal directional drilling have turned previously unconventional oil reserves in Russia's Sakhalin region into eminently conventional ones. The same goes for ultra-deepwater drilling in the Gulf of Mexico. Oil rich tar sands in Alberta, Canada -- where a barrel of oil can be recovered for less than $20 (depending on the price of natural gas) -- underscore Yergin's point about "the widening definition of oil."

There is a somewhat related flipside to the notion we aren't running out of oil, which is that there isn't much in the way of practical alternatives to fossil fuels on the horizon.

Renewable energies like wind and solar power generate a fraction of one percent of total U.S. energy, and this despite decades of massive government subsidies. Proponents of these technologies vow they will make tremendous strides in coming years. This is certainly possible, but they start from such a low baseline that if use doubles or even triples in the next two decades, they still will not crack the one percent barrier.

All of this points to the massive size and scope of the energy industry and of global energy challenges. The world consumes 80 million barrels of oil a day, with the U.S. using a quarter of that. In the future we'll need a lot more. Policymakers and politicians who want to displace a substantial amount of that oil use are going to have to come up with something better than switchgrass, corn, or wood chips.

Try nuclear energy. As my colleague Peter Huber pointed out in Friday's Wall Street Journal, an expansion of nuclear power could displace the natural gas used in conventional electricity generation. That gas, in turn, could be applied to heavy trucks, delivery vehicles, and buses displacing perhaps as much as 1.5 billion of the seven billion barrels the U.S. consumes annually.

That is a substantial savings. It's also realistic, economical, and doable. What it will require is a willingness to confront the hard facts about energy, and the political courage to resist the temptation to pander with rhetoric worthy of Carrie Nation or Billy Sunday.

Max Schulz is a Senior Fellow at the Manhattan Institute for Policy Research. He can be reached at mschulz@manhattan-institute.org.

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11 Comments

Don't look now, but...
Huge solar energy plant planned for Nevada
MSNBC.com, February 8, 2006

...Las Vegas-based Powered by Renewables Corp. and SunEdison of Baltimore said Monday they plan to build an 18-megawatt photovoltaic plant by the end of the year in Clark County, with plans to double capacity and supply enough energy to power 36,000 homes.

...The facility could cost $115 million, and would be larger than a 10-megawatt photovoltaic system in Germany, currently the largest solar plant of its kind in the world, the companies said.

The companies intend to sell power to a military installation in Clark County.

..Construction is scheduled to start in July with some power being produced by the end of the year and the remainder by mid-2007, Carlson said.

http://msnbc.msn.com/id/11238226/

funny
The project would have to increase in size by two to three orders of magnitude to reach the level of drop in the bucket.

I also notice that they plan on selling to the govt, not on the private market.

Down on the farm
And did you also notice, that it's the first of its kind in the U.S., but not the last? You can't stop technological advacements...

SolCool Hybrid Solar Air Conditioning Debuts At The 2006 World Ag Expo

..."The SolCool can dramatically improve labor and livestock productivity in many Ag situations", stated Sean Loranzano, President of AEC Solar in Tehachapi, CA. "We'll have show incentives", he added.

The hybrid 120/12 volt SolCool thermostat-controlled air conditioners unique utilization of conventional and chiller technology CONSUMES 75% LESS POWER THAN COMPARABLE CONVENTIONAL UNITS. SolCool is the first air conditioning platform to continue to operate during power failures and to operate optional DC lighting, ceiling fans and additional tonnage splits.

"We have an off-grid kit that will operate the SolCool 100% of the time with one Kilowatt of PV", added Troy Hightower, Manager of the Solar Demonstration Center in Mojave, CA...

http://renewableenergyaccess.com/rea/market/business/viewstory?id=43170

Solar, Wind, Fusion, are great just stop subsidies and let energy consumers decide where to get thei
This whole addiction argument is stupid. If the anti-oil folks are correct the price of oil will rise until consumers find it cheaper to use an alternative source. There is no funding or subsidizing of any kind needed.

Actually the programs Bush wants to enact will only slow the progress of consumers and suppliers refining which processes and methods provide consumers with the energy they want at prices they are willing to pay. It is always sad when government do-gooders like Bush and his ilk decide to get into a business. He should of stayed out of the entergy business completely.

Cosumer subsidized Oil
For decades, conservatives were more than willing to award vast to the oil and coal industry -- most still do:

Federal Financial Interventions and Subsidies in Energy Markets 1999: Energy Transformation and End Use
Energy Information Administration (EIA), 1999

...Federal subsidies for primary energy are estimated to be $4.0 billion in fiscal year 1999, down about $1 billion (1999 dollars) from fiscal year 1992 (Table ES1 and Figure ES1).

http://www.eia.doe.gov/oiaf/servicerpt/subsidy/executive_summary.html

subsidies
It's no surprise that something that is massively subsidized keeps on trucking.

consider the scale
RHamp,

The rule of thumb that I am familiar with is that homes on average consume 1KW/hr. So that 18MW photovoltaic facility would supply 18,000 homes, while the sun is shining. Time averaged output would be more like 6-9MW. At $115M/6-9MW a 1000MW (moderate to large conventional powerplant) would cost$11-16B. Big investment.

If so, then what?
Are you referring to the Oil Industry's subsidies that I reported on in the comment titled, "Cocsumer Subsidized Oil"?

Here comes the sun
Agreed.

One of the factors slowing the transition to solar energy is competition for silicon. Unfortunately, that puts the solar industry in behind the PC Chip industry based on volume purchases.

Ahh -- the Chip industry is ALSO their salvation. For Intel, IBM, et al. are driving the technologies that will be used to make solar tech much more efficient and inexpensive. Likewise, the notebook makers are driving the battery tech which will be used in everything from smart phones to electric vehicles:

What's Raining On Solar's Parade
Business Week, February 6, 2006

The solar power industry has been on a tear, GROWING AT MORE THAN 30% PER YEAR FOR THE LAST SIX YEARS ... So what's the problem? "Global demand is stronger than the existing supply," says Lee Edwards, president and CEO of BP Solar (BP ). His company and others can't buy enough of the ultrapure polysilicon now used in 91% of solar panels...

...For many nations, solar offers a hedge against spikes in prices of fossil fuel ... That's why analysts predict the GROWTH WILL SURGE WHEN THE NEW POLYSILICON PRODUCTION LINES GET GOING. And the boom should continue for at least 10 years. By then, technological improvements, economies of scale, and competition from new entrants such as China may make sun power cost-effective without government help...

http://www.businessweek.com/magazine/content/06_06/b3970108.htm

Alternatives are coming
The greatest use of oil is in transportation. We've got a commitment from the DoE to create a (hydrogen fuel cell) motor vehicle power train by 2010 that is as cheap as a conventional internal combustion engine, lasts as long, provides similar performance and range, and can start in similar weather. What's truly impressive is that one company (Ballard) is publishing its results and providing a technology roadmap that meets or exceeds the DoE goals.

As an aside, current internal combustion engine technology is bounded by the laws of physics. Carnot heat engines (ICE is a subset of these things) can only get so good. fuel cells are not similarly bound.

We've largely solved the problem of hydrogen storage with carbon composite fuel tanks and hydrogen production is rapidly coming down in price. DoE projects being able to crack water for under $3/gge by 2010. That's still not cheap but it's certainly cheap enough that even if the peak oil pessimists are right, civilization won't collapse.

So yes, there are real alternatives coming together that are not highly subsidized pie-in-the-sky. You just have to pay attention.

Dishonest reporting on those subsidy numbers
That 4B includes renewables expenditures at 1B. Oil subsidies were a third of that spread across a much bigger market. The vast majority of the breaks (263M) were income tax breaks. Those are generally done with strings attached. A smaller portion (49M) went to R&D. In fact, the biggest of the fossil fuel subsidies (1.1B) was aimed at the cleanest segment, natural gas. Nuclear energy got relatively modest subsidies (640M) mostly for trying to ameliorate a legally created problem, the government mandate that US nuclear powerplants can't recycle their waste as everybody else's nuclear power plants do.

So those "vast" subsidies to the "oil and coal industry" actually are 25% of the overall 4B subsidy number while the energy derived from oil and coal are a great deal more than 25% of the picture.

I'm not in favor of subsidies in principle but if we're going to have them, can we at least describe them accurately?

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