We're going to have to go back and think this thing through."
-- Former Enron chief executive Jeffrey Skilling after being convicted on one count each of conspiracy and insider trading, 12 counts of securities fraud, and five counts of making false statements.
I suspect he'll soon have plenty of time on his hands to do just that.
High gas prices in the U.S. have everyone frothing at the mouth over foreign oil dependence. But Europe is in just as big a bind, whether the habit of choice is Russian gas or Middle Eastern oil. In this week's List, FP looks at who's hooked on what, and how some countries are charting a path to energy independence. Are there lessons there for the U.S.? Let's just say we should do not as the Spanish do. The Swedes, on the other hand...
I'd like to return to Fred Pearce’s book When the Rivers Run Dry, reviewed here last month, for another excellent and counterintuitive insight.
Hydroelectric energy is generally thought to be low on greenhouse gas emissions, but Pearce argues that hydro-supporters are missing a critical piece of the puzzle: rotting vegetation. Drifting vegetation gets caught in dam reservoirs and produces massive amounts of methane when it rots. The World Commission on Dams warned:
Green house gases bubble up from every one of the reservoirs in the world where measurements have been made… There is no justification for claiming that hydroelectricity does not contribute significantly to global warming.
How significant? Check this out:
French Guiana has a small population and its industrial emissions are miniscule. But a new dam built in the jungle … produces three times as much greenhouse gas as an equivalent coal-burning power station. As a result, French Guiana’s real per capita emissions of greenhouse gases are three times those of France and even greater than those of the United States.”
At yesterdays’ FP event, Sen. Richard Lugar and Tom Friedman both mentioned several ways in which the US government can embrace alternative energy sources, not only for their impact on oil dependency, but also for their potential marketability in the years ahead. “Since everyone’s going to want these products, someone’s going to invent them, and it might as well be Americans,” the argument goes.
One good step in that direction is the passage by the House this week of a bill designating the “H-Prize.” Similar to the Ansari X Prize, given last year to the developer of the first privately funded rocket program to send a man into space, the H-Prize will provide cash rewards for advances in hydrogen vehicle technology. At $4 million, the grand prize may be a drop in the bucket, but it will still provide incentives for smaller developers and venture capitalists to push forward new technology. The X-prize was won by a small start-up backed by Paul Allen, who may not have been as willing to invest or compete if there wasn’t the prospect of massive publicity at the end of the line. Both Washington and the Big-3 auto makers have been criticized for being slow to capitalize on alternative-fueled cars. Broadening the field to encourage innovation may be the best strategy for pushing forward alternative-fuel technology.
[hat tip: MarginalRevolution]
FYI, a company in New Zealand has made bio-diesel with algae in sewage ponds:
It is believed to be the world's first commercial production of bio-diesel from "wild" algae outside the laboratory - and the company expects to be producing at the rate of at least one million litres of the fuel each year from Blenheim by April.
To date, algae-derived fuel has only been tested under controlled conditions with specially grown algae crops, said spokesman Barrie Leay.
Up now on ForeignPolicy.com we have a great interview with Amy Jaffe on energy. She's one of those rare analysts who's really good at breaking things down for non-experts. And since she's in Houston with the Baker Institute, she actually talks to energy industry executives. All that adds up to valuable insight. Read the whole thing. I found her thought on U.S. offshore drilling to be particularly interesting:
Politicians and the media are all pointing to Brazil as a success story. But Brazil is going to be energy independent not because they have a small but successful ethanol program. They are going to be energy independent because they had a massive offshore drilling program which has more than doubled their oil production from 650,000 barrels a day in 1990 to 1.6 million barrels a day now. So when we consider drilling in the United States, we have to ask ourselves; “What are people afraid of? Why don't they want this drilling?” Brazil has a tourist industry that is focused on beaches too. U.S. reserves we are talking about are so far away from the beach that you wouldn’t be able to see the offshore platforms.
Tom DeLay, whose default setting is bash mode, offered this thoughtful analysis of our energy predicament on yesterday's This Week (video on the left sidebar):
We are paying the price of Democrat policies. The Democrats have stopped us from developing American oil and American gas in this country. They've stopped us from drilling in Alaska and [off the shores] of Florida and California, the huge reserves of oil shale and natural gas in the west. If President Clinton had signed drilling in ANWR [The Arctic National Wildlife Reserve] back in the nineties we would be enjoying a million [more] barrels a day. And that would have an impact on gas prices.
Stephanopoulos: A relatively small [amount]
DeLay: It's not relatively small. A million barrels per day is pretty significant. It's exactly what we're losing in the Middle East.
Just two points on this matter:
MIT researchers are working on some new technology that could increase the amount of oil recoverable from any given reservoir...and maybe double world oil output. Oil resides in small spaces in porous rock, not in underground "pools," so usually about two thirds of the oil remains trapped in the rock.
To a certain extent, getting more oil out of existing fields is a question of economics. Oil, which resides underground in porous rock, can be forced out by injecting water, steam, or carbon dioxide, but these methods bring added costs that limit their use. If oil prices stay consistently high, these methods will be employed more than they are now, Sears says.
But significantly increasing oil recovery will require new technologies. At the top of the list are better oil field imaging techniques, says Nafi Toksöz, an EAPS professor at MIT. Improved imaging can help oil companies find and tap areas in an oil field that have become surrounded by water, and so cut off from oil wells, he says. It can also improve the effectiveness of existing methods such as using water or steam to extract oil.
|World Oil Supply and Demand|
|Million barrels per day|
What's wrong with supply, you ask? Jessica Holzer Forbes provides good answers. This is an important observation about the oil majors' investment in new fields and technology to enhance recovery rates from existing fields:
The industry protests that it has poured $106 billion into new production already this year. But though that may sound like a lot, it isn't even enough to replace the depletion of current oil fields as well as cover the wear and tear on equipment and machinery.
Read the whole piece. OK, one more excerpt that explains why oil companies aren't investing more:
"My guess is virtually 90% of the oil industry is assuming that $70 oil is not going to last more than a few years," according to Adam Sieminski, the chief energy economist at Deutsche Bank. He guesses that most oil companies are projecting crude will fetch $40 a barrel plus inflation over the long-term.
On that score, the oil companies appear to be virtually alone. Wall Street continues churning out predictions of $100 oil. Hedge fund managers are pouring millions into oil futures. And peak oil theorists, who argue that humans have produced nearly half the oil that there is to produce, and that therefore prices will shoot up enough to bring economic growth to a halt, are enjoying their heyday.
As I go about trying to fully understand the energy predicament we're in, I make a point of checking in regularly with The Energy Blog authored by James Fraser, an engineer with experience in the world of energy. Yesterday he posted his program to mitigate oil consumption (pdf). His main points:
Sunday's Meet the Press was funny. Everyone was struggling to make sense, and I left the show thinking only Daniel Yergin and Jim Cramer were not being disingenuous in some way. The money exchange:
MR. RUSSERT: Mr. Secretary, if, if demand is up but supply is down, why are the profits so high?
MR. BODMAN: For that reason.
MR. RUSSERT: No, think about that.
MR. BODMAN: You know?
MR. RUSSERT: Play it out.
MR. BODMAN: Demand is up.
MR. RUSSERT: Correct.
MR. BODMAN: Right?
MR. RUSSERT: Right.
MR. BODMAN: So you’ve got more demand, you’re going to force price up.
You’ve got, you’ve got limited supply, and you’re going to have...
MR. RUSSERT: But that’s a decision by the oil companies.
Russert either forgot the supply/demand curve slopes, or meant to ask why supply wasn't rising to meet demand. I'll assume the latter. I think the answer is fairly straightforward.
The American firms that everyone is lashing out at produce about 10 percent of the oil supply, as Yergin said. If they wanted to collude they'd have to collude with the state-run oil companies of the world. That's proabably not the issue here. A quick scan of the headline news is a big part of it: Iraq, Iran, Sudan, Nigeria, Chad, etc. That's a lot of political risk a market dominated by governments.
$2.94 in Manassas, Virginia. $3.79 in Needles, California. $2.99 in Omaha, Nebraska. It's all about the price of gas -- now and in November. That's because there's an inverse relationship (scroll down) between the price of gas and politicians' approval ratings. The OPEC embargo in 1973 sank Nixon's approval rating from the mid-30s to below 30%. The oil shock in the spring of 1979 cost Jimmy Carter 12 points in a matter of weeks. As gas prices rose in October of 1990, George H.W. Bush's approval rating went from 74% to 53%.
The Bush-Bolten-Rove strategy: act outraged. The Dean-Pelosi-Reid strategy ... um, is there one? Note to Dems: Read NYT op-ed first, LA Times piece second, then call Daniel Yergin and arrange private briefing.
Otherwise, Jay Cost's prediction in the Wall Street Journal today could become reality.
Rummy and Condi have the courtesy to pop in for a visit.
Bigger news is that Armed Services Chairman John Warner is deciding whether to call a hearing on Rumsfeld and his disgruntled retirees. Yesterday, retired Marine Corps Lt. Gen. (and FP author) Paul Van Riper became the eighth retired general to call for Rummy's resignation.
If I was the president, I would have relieved him three years ago."
And ... flash ... in radical, creative move to help save his presidency, Bush hires a guy from dad's administration!
I get more jealous of this...
Brazilian President Luiz Inacio Lula da Silva declared his country self-sufficient in oil during start-up of the P-50 floating production, storage, and offloading vessel in Albacora Leste oil field in the Campos basin, 120 km off Rio de Janeiro state.
The 180,000 b/d FPSO's inauguration will allow Brazil to reach an average production level of 1.91 million b/d later this year, slightly above that of the country's oil consumption, said Sergio Gabrielli, president of Petroleo Brasileiro SA (Petrobras).
...Each time I see this:
|3. Saudi Arabia|
The Nigeria links this morning were meant to underscore the possibility that turmoil in Nigeria could send oil prices soaring. The post prompted a very welcome email from my friend Elisha Sulai, a former Foreign Policy researcher from Nigeria, who is now a grad student in London. He offers these insights:
Yesterday I attended an event on Nigeria at the Royal Institute of International Affairs. What I heard from the "experts" was clearly in line with what you've blogged on. The debate on the proposed constitutional amendment to let Obasanjo run again will start after Easter. For the amendment to pass it needs two-thirds of the Senate, two-thirds of the House of Reps and 24 of 36 states. The question now is: what if the Senate and the House approve and 24 states refuse? Will the "third termers" back down?
Saudi Jeans, one of the Kingdom's finest blogs, reflects on a set of guidelines set by the official Saudi bloggers community: "The first one reads: 'The blog must not insult Islam at any level, and therefore it must not call to liberalism and secularism.' It seems like OCSAB believe liberalism equals secularism, and therefore it is against Islam. Well, I don't think that being a liberal contradicts with being a Muslim. I'm a liberal, and I'm damn proud of it. In the same time, I try to be a devoted Muslim, and I don't feel any contradictions between the two."
Speaking of Saudi, John Robb explains why we can expect more effective attacks on the country's vital oil infrastructure:"If the Saudi open source war proceeds according to form, it will inevitably move towards the disruption of coupled systems that support the oil system."
It doesn't have the same ring as "addicted to oil," but it's true. As energy industry insider Michael Economides argues on ForeignPolicy.com, America consumes a lot of natural gas and we're growing increasingly dependent on foreign sources of it. And when the gas market gets global enough, he says, we'll see a natural gas cartel. (As if OPEC weren't enough to deal with).
I checked out what our own Energy Information Administration had to say about it, and it confirms (pdf): "With U.S. natural gas production declining, imports of natural gas rise to meet increasing domestic consumption."
Unlike the market for oil, which is truly global, today natural gas is mostly regional because it's difficult to transport. But it's becoming more global as more countries build the infrastructure they need to export and import liquified natural gas (LNG). The BP map to the left shows the major gas trade movements of 2005 (click to enlarge). In the coming years, many more pipelines and LNG routes will be added to this map. Which means a supply disruption in say, Russia, Qatar, or Iran will drive up the cost of gas worldwide -- just like with oil today.
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