Monthly Archives: April 2012

The last sip

By Chris Nelder | April 4, 2012, 5:00 AM PDT


A fever has swept over American energy observers in recent weeks as they compete to write the most optimistic story of impending energy independence. For example, see Clifford Krauss in theNew York Times, Citigroup’s Ed Morse in the Wall Street Journal, and Raymond James’s outlook covered by Angel Gonzalez for Dow Jones, with perhaps the “Bonanza” theme song in the background.

Or if not a fever, then perhaps a mental illness, or heavy doses of good acid. Because as far as the data shows, none of these projections have any basis in reality.

The vogue suggestion is that North American oil production is about to surge and wipe out our 8.7 million barrels per day (mbpd) of oil imports, making us self-sufficient in oil by 2020. Most of this new oil is expected to come from fracked shales like the Bakken Formation in North Dakota, plus new drilling in the Gulf of Mexico and offshore California, an increase in Canadian tar sands production, and a miraculous reversal of the long production decline in Mexico.

Citigroup, under the leadership of Morse, probably holds the current record for the most outlandish projection. It suggests that North America will add the equivalent of 1.4 mbpd of new production every year between now and 2020, including 0.4 mbpd from tight oil. (That projection was then thoroughly debunked by Dave Summers at The Oil Drum.)

What these optimistic scenarios don’t tell you is what they really look like, and what they’ll really do to the U.S. in the long term.

Tight oil

The basis of this new euphoria, as I explained in February, appears to be the 0.6 mbpd or so of “tight oil” production from the Bakken. These wells typically produce a mere 80 to 100 barrels per day on average, to 150 barrels a day at the high end. Using the higher production figure, achieving 0.4 mbpd of new production every year through 2020 would require at least 20,000 new wells nationwide.

To see the effects of such drilling, consider this map of oil and gas wells in the Elm Coulee field of Montana, the first commercially successful portion of the Bakken Formation. Some 7 to 10 active oil wells per square mile dot this field.


Source: ESER

But that’s more representative of a formation with a single pay zone. Some U.S. shales actually overlap each other, so perhaps instead we should visualize the Denver-Julesberg basin, an area we’ve been drilling for roughly a century. The basin contains multiple layers of oil- and gas-bearing rocks, including the Niobrara Shale, which is anticipated to produce 250 thousand barrels per day by 2020. This map shows 20-25 producing wells per square mile near Platteville, Colorado.


Source: ESER

That, then, is the onshore portion of the new energy independence vision: A pincushion, where we draw 60 to 150 barrels per day from each hole. And we’ll have to keep drilling them like mad, because production from those wells drops sharply in the first year then tapers off to negligible levels after 15 years or so, and eventually becomes uneconomical.


Production profile of a typical Bakken well. Source: North Dakota Department of Mineral Resources

How far can tight oil from these shale formations take us? According to the current Energy Information Administration (EIA) survey of U.S. shale gas and shale oil (tight oil),  we have an estimated 24 billion barrels of undeveloped technically recoverable shale oil in the Lower 48. In 2011 the U.S. consumed 6.85 billion barrels of oil. So the big bonzana of shale oil amounts to about 3.5 years of demand.

Outer Continental Shelf

What about our offshore potential? The oil and gas industry has been agitating for greater access to the Outer Continental Shelf (OCS) since onshore oil production began declining in the 1970s. What if we opened all of it to drilling, without any restriction?


Source: U.S. Minerals Management Service [Click for larger version]

The 2011 assessment from the Bureau of Ocean Energy Management (BOEM) gives a mean estimate of 88.6 billion barrels for the entire OCS. (The data in this assessment varies only slightly from the 2006 data shown in the chart above.) Therefore, if we drilled the entire OCS, it might meet 13 years of demand. If the 95 percent probability estimate of 66.35 billion barrels is correct (and the P95 estimates usually are), then it would meet less than 10 years of demand.


After the onshore tight oil in the Lower 48, the offshore oil of the OCS, and the Gulf of Mexico where oil production has modest growth potential, the only remaining serious prospect in America is the Arctic National Wildlife Refuge (ANWR), the target of the most contentious battle for new oil drilling in the last decade. We won’t know how much oil is there until we actually drill it, but according to the current estimate from the U.S. Geological Survey, the federal portions of ANWR might have 4.2 billion barrels under the P95 estimate (0.6 years of demand), or 7.7 billion barrels under the mean estimate (1.1 years of demand).

Oil shale

There is another unexploited resource in America known as oil shale, not to be confused with shale oil (tight oil). Oil shale is a dense, hard rock impregnated with kerogen, an “uncooked” form of hydrocarbon that nature hasn’t yet converted into actual oil. Oil cheerleaders like to talk about the trillion barrels or so of it that exists in America in places like the Green River Formation of Utah, but as yet no one has figured out how to produce it commercially (at a profit). So we may consider our prospects from oil shale to be a big fat zero.

All resources

For a final point of reference, there is the EIA’s 2010 assessment for the entire U.S. Although it uses 2008 data, I believe it is their current overall assessment. It shows 198 billion barrels of technically recoverable resources (not “proved reserves”) for the entire country, excluding areas where drilling is currently prohibited and areas within 50 miles of the Atlantic coast. By this assessment, the U.S. could meet 29 years of demand. Including “undiscovered technically recoverable resources“—like ANWR, OCS and tight oil—we might have enough to last about 41 years in total.

Finally, for reasons I have explained in previous columns, I do not believe that biofuels or tar sands can be significantly scaled up from current levels. The expectations for these fuels in the 2020 independence stories are simply not supported by the data.

The real prospects for U.S. oil production

So if all limits on drilling in the U.S. were removed, and if the estimates of undiscovered, unproved oil are correct, there is enough oil remaining on U.S. soil and in federal waters to meet demand for about 41 years, including 17 years’ worth from ANWR, OCS and tight oil shales.

But at what rate could we produce it?

We can’t know the production rates of OCS and ANWR until we produce them, but as I explained last month, exploiting those resources would be a long-term effort: probably 10 years to bring the first oil online, and 15 years or more to reach maximum output around 2 to 3 mbpd. By that time, it would be hardly noticeable as it compensated for the loss of oil production in the U.S. and elsewhere due to the depletion of mature fields.

Suppose we forget about all these niggling realities for a moment and just take the Citigroup projection at face value. Let’s assume that U.S. petroleum production climbs from 5.8 mbpd in 2011 to 10.2 mbpd by 2020 as they forecast. Let’s further assume that all limits on drilling are removed. What does this increased rate of production do to the lifespan of our resources?

It cuts it nearly in half.

At today’s production rate, we would exhaust all of the proved, inferred, and undiscovered oil in the U.S. in 133 years. But if we ramp up to Citigroup’s 10.2 mbpd rate and hold it there, we’d exhaust it in 76 years. Leaving out undiscovered resources, we would exhaust U.S. oil in 39 years at the current production rate, or in 22 years at the “energy independence” rate.

What “energy independence” really means

So now we know what the “energy independence” strategy really means.

If we take the status quo path, maintaining imports and overall production at current levels, but do not drill ANWR or OCS and do not increase tight oil production, we might have about 40 years to prepare for the day when U.S. oil production goes kaput. (Actually, it would be a gradually declining production rate over a longer time, but let’s not overcomplicate the math here.) If we maintain imports and overall production at current levels but gradually drill everything, and the remaining prospects lived up to expectations, we might have 133 years before the oil dried up.

Alternatively, if we take the “energy independence” path and turn all of America into a pincushion, open all the wilderness, accept all the risks of freshwater contamination from fracking and saltwater contamination from offshore spills, and improbably raise oil production to meet all of ouroil demand, we might have 76 years of output left. If we drill everything and raise production to meet all of our liquid fuels demand (which is currently met by natural gas liquids and biofuels in addition to oil), we might have 41 years. And if we try to drill everything and meet all of our needs domestically, but the undiscovered oil turns out not to be there, or not to be commercially viable, then we could drain the dregs in just 22 years.

As veteran petroleum geologist Dr. Colin Campbell says of peak oil, “As any beer drinker knows, the glass starts full and ends empty and the faster you drink it the quicker it’s gone.”

All the talk of incipient energy independence is a mere pacifier and a distraction. It’s a way of avoiding the fact that at some point we must take action and prepare for the day when the oil is finally gone. Yet we know that it will take many decades to transition most of our infrastructure to electricity, and that if that electricity isn’t generated by renewables, it will be powered primarily by coal and natural gas. . . until they too run out.

The fact is, 40 years probably isn’t enough time to make that transition. As I discussed last November, we really needed to begin it 40 years ago. We will probably wind up drilling everything anyway because we’ll need the oil to rebuild our infrastructure, having started on the transition so late. But maximizing our production now to satisfy a short-term political need, or to temporarily plug a structural trade and budget deficit, would be stupid and counter-productive and foreshorten our already too-short window for transition.

Our remaining prospects aren’t a fresh full pint of beer, and drilling them is no solution to peak oil. If we were to achieve the energy independence production rate we might feel better for a decade or so, but it would come at the price of decades more of greatly diminished domestic production later on—at the very time when global oil exports are declining fastest and becoming intolerably expensive.

So that’s your real choice, America. You can slug down that last swallow and go home early, or you can linger awhile, sip it slowly, and stick around ’til closing time.

Photo by Chris Nelder

The cost of new oil supply

By Chris Nelder | April 18, 2012, 5:00 AM PDT


Numerous factors affect oil prices, like supply and demand, geopolitical unrest, natural disasters, monetary policy, and speculation, as I detailed in February.

But there is another factor exerting a continuous upward pressure on prices: the substitution of unconventional resources for conventional crude.

When conventional oil hit its production plateau around 72 – 74 million barrels per day at the end of 2004, but demand kept growing, we turned to various unconventional liquid fuels to make up the difference, such as natural gas liquids, biofuels, and most recently, “tight oil” from shales like the Bakken Formation in the U.S.clip_image004

Source: Gail Tverberg, Our Finite World

The above chart, from an excellent new post by Gail Tverberg summarizing new international production data from the EIA, shows our increasing reliance on unconventional liquids. The supply of crude (plus condensates) flattened out, while natural gas plant liquids (NGPLs) grew substantially, and “other liquids” (mostly ethanol) became significant contributors to supply. The “processing gain” wedge really should be ignored, as it simply represents an increase in volume that results from refining heavy crude oil into lighter fuels; it’s not actually additional fuel.

The advent of tight oil in the U.S. has been hailed as the beginning of our incipient energy independence, although I have found no basis for such optimism in the data.  In fact, this is the third or fourth time we have been treated to such cornucopian stories. A few years ago it was biofuels that would save us from peak oil, and before that it was natural gas liquids, deepwater oil, heavy oil, tar sands and coal-to-liquids. One need look back no farther than 2005 to find plenty of pollyannish projections in reports from the EIA and IEA, and in op-eds in the Wall Street Journal. None of those projections panned out.

The argument was that high oil prices would make these previously-uneconomic resources viable, and to a limited extent that has been true. What we didn’t know then, however, was the pain tolerance limit of consumers. In 2008 we found that limit as we approached $120 a barrel for oil and $4 a gallon for gasoline. Prices are once again beginning to kill demand in the U.S., but under a slightly lower ceiling, because the economy isn’t nearly as strong as it was in the first half of 2008. Now the ceiling is closer to $100 a barrel.

The new floor

The new floor for oil prices is being set increasingly by the production cost of these unconventional liquids. A few decades ago, we could produce conventional oil profitably in the U.S. for under $15 a barrel. But those days are long gone for the U.S., and for most of the world (except a few old fields in places like Saudi Arabia). As every major oil company has admitted in the past few years, the age of easy and cheap oil has ended.

As the cheap oil from old mature fields is depleted, and we replace it with expensive new oil from unconventional sources, it forces the overall price of oil up. This is because oil prices are set at the margin, as are the prices of most commodities. The most expensive new barrel essentially sets the price for the lot.

Research by veteran petroleum economist Chris Skrebowski, along with analysts Steven Kopits and Robert Hirsch, details the new costs: $40 – $80 a barrel for a new barrel of production capacity in some OPEC countries; $70 – $90 a barrel for the Canadian tar sands and heavy oil from Venezuela’s Orinoco belt; and $70 – $80 a barrel for deepwater oil. Various sources suggest that a price of at least $80 is needed to sustain U.S. tight oil production.

Those are just the production costs, however. In order to pacify its population during the Arab Spring and pay for significant new infrastructure projects, Saudi Arabia has made enormous financial commitments in the past several years. The kingdom really needs $90 – $100 a barrel now to balance its budget. Other major exporters like Venezuela and Russia have similar budget-driven incentives to keep prices high.

Globally, Skrebowki estimates that it costs $80 – $110 to bring a new barrel of production capacity online. Research from IEA and others shows that the more marginal liquids like Arctic oil, gas-to-liquids, coal-to-liquids, and biofuels are toward the top end of that range.

My own research suggests that $85 is really the comfortable global minimum. That’s the price now needed to break even in the Canadian tar sands, and it also seems to be roughly the level at which banks and major exploration companies are willing to commit the billions of dollars it takes to develop new projects.

Production costs soaring

Indeed, production costs have been soaring since we began relying heavily on unconventional fuels. This is the direct result of rising prices for essential inputs like steel and diesel fuel (whose cost inflation is directly tied to the rising cost of the underlying fuels like hard coal and oil), of which ever-greater amounts are needed to drill and complete a new well. Adding another mile of high-specification steel pipe to a deepwater well, or another thousand feet of drilling and well casing for a deeper tight oil well, adds significant costs.

Globally, the cost of drilling a new oil well has gone parabolic:


Source: EIA

The cost of adding a new barrel of reserves — drilling to prove that the oil is there and economically recoverable, before actually producing it — has also jumped sharply:


Source: EIA

(It’s unfortunate that EIA doesn’t have more recent data than 2008 for this analysis, because the sharp downturn at the end of this chart owed mostly to the economic crash in the latter half of that year. Analogous recent data from the oil patch suggests that the curves in the above chart should have resumed their previous, pre-crash trajectory by now.)

As production costs push ever closer to the retail price ceiling, profit margins fall. Consider Canada as an example. Oil production there will likely turn a mere 5 to 8 percent annual return on equity for the next several years, according to analysis by ARC Financial. Under $60 a barrel, they note, “the industry is broadly unprofitable” and would not be able to attract reinvestment. Similarly, University of Alberta energy economist Andrew Leach noted this week that the average operating profit margin of Canadian-owned oil and gas assets is now 7.7 percent, while foreign-owned assets offer only a 5.5 percent margin. A far cry from the heady, ultra-profitable years of 2003 – 2005.

So while the press, ever-anxious to assign blame for high oil prices, highlights the enormous profits that oil companies are making, the fact is that much of those profits owe to producing oil from wells drilled in a much cheaper era and selling it in the new high-priced era.

This will not remain the case for many more years.

The 2014 – 2015 tipping point

Unconventional oil is currently just 3 percent of global supply. The IEA projects that it will make up 6.5 percent of supply by 2020, and 10 percent by 2035. As it gradually replaces cheap oil conventional oil, its real production costs will continue to push oil prices up. Eventually, those costs will cross with the pain tolerance limit of consumers.

Skrebowski sees rising costs outrunning the ability of economies to adapt to higher oil prices by 2014, producing an “economically determined peak” in oil production. After that point, prices will remain economically destructive, and render sustained economic growth impossible. At the same time, it will make new oil production harder to finance.

This matches well with numerous analyses of oil supply that project a major tipping point around 2014 – 2015. At that point, as I have reminded readers repeatedly, we will likely begin down the back of Hubbert’s Curve and see net losses in global oil supply every year.

“Unless and until adaptive responses are large and fast enough to constrain the upward trend of oil prices, the primary adaptive response will be periodic economic crashes of a magnitude that depresses oil consumption and oil prices,” Skrebowski concludes. “These have the effect of shifting consumption from incumbent consumers — the advanced economies — to the new consumers in the developing economies.”

As I detailed last month (”Oil demand shift: Asia takes over“) that is precisely what has been happening since 2005. The world’s emerging markets are buying their first cars and their first trucking fleets, and those vehicles have much better fuel economy than ours. They will be able to pay a price for oil that we cannot tolerate. From 2015 on into the future, fuel will become increasingly unaffordable for U.S. drivers.

So by all means, we should celebrate the ability of high oil prices and truly miraculous technology to bring us oil from under two miles of water and another five miles of rock in the Gulf of Mexico; from previously inaccessible deposits in the Arctic; and from low-grade resources like tar sands and tight oil shales. That technology will mean that we won’t literally run out of oil in the coming decades as depletion takes its toll. But we should not imagine that it will bring us energy independence or bring back the good ol’ days of $2 gasoline. What it will bring, eventually, is oil for Asia as the U.S. and Europe are forced to park their cars for good.

Photo: “Offshore Eiffel,” artwork by Greg Evans.

Why a low carbon price is really dumb economics

By Giles Parkinsonon 18 April 2012

The hounds are at it again. The country’s biggest business groups, vested interests, the Opposition and mainstream business commentators are all calling for complementary green schemes to be dumped.

Rescind the renewable energy target, can the Clean Energy Finance Corp, and – while you’re at it – dump the carbon price too, or at least cut it to $10 where it’s small enough to be inoffensive.
As usual, these arguments are only ever justified if you either don’t believe in climate change, or, like Bill Gates, you believe that the only way to solve the problem will be through some sort of geoengineering – like sticking giant vacuum cleaners in the sky or deploying massive sun shields above the Earth.
The push for a low carbon price is counter-productive – and short-termism at its worst. It will almost certainly lead to greater costs in coming years. As numerous economists – from Stern to Garnaut and the IEA’s Fatih Birol, and now the RBA’s Jillian Broadbent point out – the greater the effort now, the cheaper the task of abatement will be in the long term. But that message is a hard sell in the world of the political sound-bites and tabloid headlines.
Europe, the world’s carbon pricing guinea pig, is now finding this out at its own cost. The plunge in its carbon price to near record lows is discouraging investment in lower carbon technologies, and locking in more new capital in higher-emitting investments. Ultimately, that will make it costlier to unravel and meet more ambitious reduction targets that will be inevitable.
Deutsche Bank’s European energy and carbon analyst Mark Lewis noted that this week that the biggest beneficiary of Europe’s failure to adopt the necessary policy and regulatory measures to boost their flailing carbon price (which is near record lows because of the EU’s economic decline and because its abatement targets will be easily met) is the gas industry. This was because the lack of long-term price certainty meant that the enormous capital outlays required for the transition to a low-carbon future were not being met.
“The most likely default outcome will be an EU-wide dash for gas over the second half of this decade,” he wrote. He said this had implications for the EU’s long- term emissions trajectory, its security of supply, and the efficiency of EU power markets. “In other words, there will likely be an over-reliance on gas for new generation capacity, and a need for costly complementary measures in any member state wanting to incentivise low-carbon generation.” He pointed to the UK’s Carbon Price Support Rate, which was introduced by the UK government to provide a carbon price floor in the energy sector to try to wean the industry away from fossil fuels.
Australian industry groups should read that note carefully. It’s all very well to argue that a carbon price means complementary measures are not needed, but as Garnaut and others have pointed out, that is only valid when the carbon price is robust and reflects the science and the long-term policy objectives. And the Australian carbon price is a long way short of that.
Lewis says that without substantial reform, the EU carbon price will remain essentially meaningless as a signal for new low-carbon investments. His view was supported by analysts from Bloomberg New Energy Finance, who said in a separate note this week that having low carbon prices now will most likely increase the future cost of abatement.
“The cheap cost of carbon is not only locking in emissions from increased short-term coal-burn, but also threatening a long-term technology lock-in, whereby the market invests in more carbon-intensive technologies than they would if the carbon price had been higher,” it said.
“If the cap continues to decline at its current rate to 2050, then the EU will require a much cleaner technology mix and the asset investments that appear rational with today’s low carbon prices may look badly mistaken in the future.”
This applies similarly to Australia, unless you believe that the climate change issue and abatement policies will magically disappear. Stunningly, this seems to be the case with the fundamental base of the Opposition, the Business Council of Australia, the Australian Chamber of Commerce and Industry, the Australian Greenhouse Network. And others are happy to play along – the Australian government’s penchant for buying out redundant capacity and offering huge compensation measures for high emitting infrastructure – is simply too irresistible.

Electric vehicles cleaner than gasoline, anywhere

By David Worthington | April 16, 2012,


Scientists have analyzed how emissions generated from charging electric vehicles compare to gasoline-powered vehicles in the United States. The conclusion: even coal-fueled electricity is a cleaner alternative.

The report, “State of Charge: Electric Vehicles’ Global Warming Emissions and Fuel Cost Savings Across the United States,” was published today by the Union of Concerned Scientists (UCS). It breaks down how regional differences in how electricity is made affect reducing global warming emissions and fuel savings. A key finding was that an EV would be a greener choice than most conventional automobiles even in areas where power plants are dependent upon fossil fuels. The worst case was emissions equivalent to a 33-MPG compact car.

USC uncovered that nearly half of Americans live in the most ideal regions where grid conditions make EVs even more efficient than even gasoline hybrids. EVs in those areas have lower global warming emissions than a 50-MPG hybrid.

“This report shows drivers should feel confident that owning an electric vehicle is a good choice for reducing global warming pollution, cutting fuel costs, and slashing oil consumption,” said Don Anair, the report’s author and senior engineer for UCS’s Clean Vehicles Program.

UCS was founded in in 1969 by a group of scientists and students at the Massachusetts Institute of Technology to promote the use of science for public interest. It is strongly opposed to any political interference in scientific research.

Dr. James McCarthy, a biological oceanography professor at Harvard University, is currentchairperson of UCS. The group has supported a moratorium on new coal power plants, and advocates for the development of new technologies to combat climate change.



Ten things you should know about the CEFC

By Giles Parkinson on 17 April 2012

The long-awaited “experts review” into the proposed $10 billion Clean Energy Finance Corporation has been delivered to – and accepted by – the federal government.

The CEFC is seen as one of the most critical elements of the Clean Energy Future package by large parts of the clean energy industry, particularly those trying to introduce new technologies.

It will certainly be one of the political hot potatoes going into the next election. The federal Government says it intends to introduce legislation into the Budget sittings of parliament which begin in May.
Here are some highlights from review by the team led by Reserve Bank board member Jillian Broadbent, and supported by funds manager David Paradice and former banker Ian Moore.
1. Australia is behind the rest of the world
One of the key points made by the CEFC panel is that Australia is a “late starter” in the transformation to a low-carbon economy, thanks to its reliance on low-cost fossil fuels.    The challenge for Australia is further complicated by the complex nature of its electricity markets, the cost of renewable energy and the preference among investing institutions for listed assets, and because they prefer to provide loans over shorter time frames.              But, the CEFC panel said, cutting emissions will reduce Australia’s exposure to global energy prices, and earlier action will reduce the cost and disruption to the economy. Climate Change Minister Greg Combet said failure to act would allow other countries to gain a competitive advantage and leave Australia exposed to trade penalties. Broadbent said: “No action in this area leaves us very vulnerable to the future.”
2. There are many barriers to clean energy in Australia
The CEFC panel noted that the Australian energy market was highly concentrated, was  focused around centralised power generation and meeting peak demand, and that the structure of the national grid inhibited distributed generation. “The long lead times and substantial level of capital already invested in fossil fuel energy make the process of change incremental rather than transformational,” it noted. In particular, it noted the power of the vertically integrated utilities, who had “significant market power” over (power purchase agreements), which together with limited liquidity in the renewable energy certificate and energy hedging markets, have been challenging for new clean energy projects. This echoes the concerns of government departments and the Greens, who have referred the matter to the ACCC. Other barriers were financial, including the reluctance of banks to support new technologies, the short-term nature of their loans, and the cost of the loans, mostly due to risk. Most institutions in Australia preferred equity investments in regulated assets, only a few had been attracted to the clean energy sector. The GFC had worsened the situation.
3. Other countries do this and it works well
The panel noted that major economies such as the US, China, Brazil, Germany and the UK had a similar mechanism to the CEFC. The UK has a £3 billion Green Investment Bank, Germany’s KfW provides banks with liquidity for clean energy loans and will commit €100 billion over the next five years, China has already allocated $30 billion in credit to the top five solar manufacturers alone, Brazil is providing $1.8 billion in financing to help deploy wind farms, and the US Department of Energy is deploying around $35 billion in loan guarantees, and nearly all – notwithstanding the high-profile failures of Solyndra and some others – have performed well.
4. It is possible some of the CEFC projects will fail
Broadbent says it is impossible to guarantee that an investment will not fail – in any sector. “There is never an expectation that some projects will fail,” she says. “But as a financier – some things don’t turn out the way you plan.” However, she notes that the CEFC is different to the US DoE program and will operate at arm’s length to the government. Also, as a co-investor, it will be sharing risk with other financiers and investors.
5. Which technologies will they target?
The Greens insisted that on defined targets for “renewables” and a separate stream for low-emission technologies. The CEFC has proposed a subtle change, and wants instead “goals” that suggest a minimum 50 per cent for the renewables stream, which will include “hybrid technologies” (which might include solar boosters for gas, coal or diesel plants) and “enabling” technologies (such as grid extensions).  The CEFC recommends up to 50 per cent of the funds are applied to “low-emissions technologies,” which it defines as less than 50 per cent of the current emissions intensity of the Australian grid – or around 0.416t/CO2e per MWh. This, therefore, could include trigeneration and cogeneration, fuel cells, energy efficiency and demand management. CCS and nuclear are excluded. It suggests that its energy efficiency mandates be married with those of the Low Carbon Trust, and suggests that organisation could be either absorbed into the CEFC or serve as an agent, and it also says it could play a role in community renewable energy projects.
6. What criteria will they use?
The CEFC proposes to use a “case-by-case” approach to investments, rather than a sector-by-sector approach – and the investment must be developed beyond the R&D stage and have the capacity to repay capital. It says its “commercial filter” will not be as stringent as the private sector equivalent, as the CEFC has a public policy purpose and “values any positive externalities” being generated. Its investment will have different  risk/return requirements. “For a given return, the CEFC may take on higher risk and, for a given level of risk, due to positive externalities, may accept a lower financial return,” it says. The CEFC will seek a return comparable to the return on long-term government bonds and ultimately be financially self-sufficient. It says its tools will include providing funds, changing the allocation of risk among participants, lengthening the available duration of loans, and offering an appropriate concessional cost of fund. The CEFC says its offer will be the “least generous” required to enable a project to proceed.
7. How the CEFC fits in with the Renewable Energy Target
One of the biggest issues about the actions of the CEFC was its potential to “distort” the market, not just for the coal and gas generators, but also for “established” renewable technologies such as wind energy. The CEFC panel says excluding the projects it supports from the RET would significantly reduce the scope of its investments, and says projects it supports should qualify for renewable energy certificates, but has left the question of whether the RET be expanded – as some have suggested, and the Greens and environmental groups propose – to take account of these “additional” investments to the Climate Change Authority. The fossil fuel industry, and large emitters, want the RET dropped altogether, or reduced in scope.
8. The CEFC will favour loans over equity
The CEFC will likely be particularly cautious in its early stages.  It says that the majority of the CEFC’s early investments will be in the forms of loans and not equity. “In that period, the CEFC will be building a track record of investing and developing its internal risk management framework,” it notes. Read here, absolutely no failures. It says it see limited application for loan guarantees.
9. How much they will invest and when
Broadbent says that while $2 billion a year will come into the CEFC from 2013/14, it will not necessarily be disbursed at the same rate. There is, in fact, no timetable for expenditure. Broadbent says that in theory the $10 billion that the CEFC will deploy could unlock more than 5 times as much private capital – or more than $50 billion in private investment. It could be greater if more funds were invested as equity rather than debt.
10. Broadbent and her team have done an excellent job
This is a very skillful document, nuanced by the expert panel’s understanding of the investment industry and its recognition that a path to a low-carbon economy needs to be found at lowest cost, notwithstanding the political and industrial rhetoric. Broadbent has been careful not to pick winners, or to be too prescriptive with investment choices or mechanisms, and the panel have recognised the significance and the potential for new technologies to transform Australia’s energy system and ensure it remains competitive with other countries. Now, however, just watch the Opposition attack it, along with the usual suspects among the established energy generators and emitters. The key themes of this report – investment for long-term gains over short term costs, the “external” benefits which are overlooked by banks and statutory authorities, and the issue of future competitiveness – will no doubt be lost in the shouting.

Solving the next energy crisis, a million houses at a time !!!!!

By C.C. Sullivan| April 5, 2012.Did you know that U.S. energy security is as easy as weatherstripping your house?  And the same practice applies to The Bellarine !!!!!!
Our houses last about a hundred years. Taos Pueblo has lasted a bit longer. (Webecoist)
It’s time to update how we think about national energy issues. And better architecture is the key.
I learned so this week at the BEST3 conference, a tidy affair that draws a few hundred architects interested in better building walls and roofs. Held in Atlanta, the conference also brought attendees — including yours truly — to the fabulous High Museum for roast pork, beers and a peek at Picasso.

The BEST3 Conference on building enclosures, held in Atlanta this week.
Sitting in Richard Meier’s serene lecture hall, we heard remarkable insights from keynoter R. Christopher Mathis, an Asheville, North Carolina-based consultant on building performance.
Architects make power plants disappear
With the zeal and conviction of a revival camp preacher, Mathis proves a few audacious claims, including this one: “A 30% improvement in U.S. building efficiency would reduce energy bills by $75 billion in 15 years and eliminate the need for 80 new nuclear power plants over the next 20 years.”
Eighty power plants? Yes. “And 30% is easy,” he adds.

Chris Mathis can solve the next energy crisis — and create jobs in the process. Photo from BEST3 by Adam Sullivan
Our appetite for electricity is huge, and it’s not getting any smaller. About 68% of the generating capacity is coal and natural gas, and Mathis describes the 7,000-feet-long trains, filled with nothing but Wyoming coal, that take three days to arrive at a power plant in the Southeast. The mile-and-a-half of coal cars are all tipped and unloaded in about an hour, and all the coal is burned — in just eight hours.
Nationally, about half of all our electricity is gobbled up by buildings and houses. That’s twice as much as industry, and almost twice as much as the transportation sector.
New windows = 300 coal power plants!
Mathis has a few solutions up his sleeve, and the implications are astounding.
It’s pure math. For example, we’ve got about 120 million homes with about a billion old windows, most of which are old single-pane and double-pane versions that don’t even meet today’s minimum codes.
“And window solar gain is the single largest contributor to home cooling loads,” says Mathis. In 1973, less than half of our new homes had air-conditioning; today an astounding 91% of new dwellings have AC. Mainly thanks to the “crappy windows” we use.

More of this? … (courtesy EIA)
The solution?
Replacing windows only in existing homes — not with the best windows, but the minimum code-compliant products — would cut AC by at least a ton, saving a total of at least 60 million kilowatts. That’s the equivalent of about 300 coal-fired power plants. The ones that use a mile-and-a-half long train delivery of dirty coal, three times a day.

… or more of this? (Courtesy Superior Remodeling, New Prague, Minn.)
Mathis has many more ideas like this, all of which save energy for as long as our houses stand — “about a hundred years” is his mantra — while creating jobs and goosing the economy. He emphasizes that existing houses and buildings should be the biggest focus. “They are 99% of our problem,” he says. “The big gorilla in the corner.”
Millions of little power plants?
In Mathis’s home state of North Carolina, a utility proposed a new, $17 billion nuclear power plant. Mathis showed up at the public hearings and showed how $5,000 worth of energy-efficiency upgrades to each of the state’s 4 million homes would save twice as much power as the new nukes would generate.
“Our existing homes and commercial buildings are essentially millions of little ‘power plants’ we have already built but we haven’t turned on,” Mathis quips.
But the nukes plant would employ about 500 people, argue its backers. Mathis says, so what? North Carolina would create hundreds of thousands of jobs installing insulation, air sealing, replacing windows, sealing leaky ducts, and the like.
Energy angels in Atlanta
Mathis is an important national resource, and North Carolinians are lucky to have him.
Here’s a quick shout-out to some of the other backers and organizers of BEST3: The event is organized by NIBS and the Building Enclosure Councils, an offshoot of the AIA, but it’s really the result individual champions like Wagdy Anis, FAIA, and David Altenhofen, AIA, as well as the folks who organized the BEST 3 program.
The sponsors this year for the biennial meeting included a gaggle of companies that would benefit handsomely if Mathis’s vision of a more energy-efficient future were to come to fruition. Among the backers were Sto Corp. (a client of mine) as well as Soprema, Inc., Georgia-Pacific Gypsum, VaproShield Inc., DuPont / TYVEK and Atlas Roofing Corporation, among others.
Think about it: Would you rather have nice new windows with keep your house comfy, or a nice new power plant you can look at out of your crappy old windows

EV’s – silent no more.

Audi e-sound adds an engine roar to silent EVs           By Charlie Osborne | April 6, 2012,

Electricity-powered vehicles (also known as EVs) are attempting to break in to the consumer and business market. The infrastructure in many towns is not yet ready to accommodate the charging needs of these types of vehicle, but another concern that may inhibit its attractiveness to consumers is the silent nature of the EV.
Not quite in the way as a friend put it: ‘A man likes to hear the roar of his engine’, but rather, pedestrian safety is an issue. Unless you have your MP3 player plugged in at full volume, if a car is coming toward you, there is a window in which you can get out of the way.
With a silent EV, however, there is no warning. Sight must be relied upon, and for those that are distracted or have visual impairments, EVs are more dangerous than standard cars — where you can at least hear the splutter or rev of an engine.
Audi has given this problem its consideration, and is now developing a synthetic engine roar so the company’s e-Tron vehicles can be heard by unwary pedestrians.
Audi engineer Rudolf Halbmeir is responsible for the construction of the replica motor sound design. The sound, which will be fitted to all Audi EVs, is not monotonous. Instead, the sound is generated by the millisecond using information gleaned from the car’s movements– including vehicle speed, load and motor speed. The e-Tron then uses a 40-watt loudspeaker attached to the undercarriage to play the electronic sound.
One of the speaker specialists on the project, Axel Brombach, said of the design:

“Out of the building and to the street. A red Audi R8 e-tron pulls up around the corner, purring gently. But when Rudolf Halbmeir taps the gas pedal, the purr turns into a cultivated growl.
Though not unlike an elegant V8, it is especially pure and nuanced, and is shrouded in bright and innovative overtones. The Audi R8 e-tron certainly sounds like a sports car, but also one-of-a-kind and very futuristic.”

This artificial and somewhat futuristic sound is loud enough to be heard by nearby pedestrians and cyclists. It may not be great for noise pollution, but it does mean the issue of silent car safety can now be addressed.
For more information, view the video  (Language: German).

The Bellarine: Home of renewable power

A toast to renewable power:

it’s making the sustainable cocktail          April 5, 2012

A Spanish winery (image credi: Wikipedia)
A Spanish winery (image credit: Wikipedia Commons)
Futurists forecast that clean drinking water, energy, and even fish will become scarce as human population climbs. Renewable power is ensuring that at least one staple of human existence remains plentiful: alcohol.
A vineyard in Spain is just the latest example of wine and spirits producers turning to clean energy to control operational costs. Scots are using tidal power to blend whiskey, and many beer brewers are recovering wasted energy.
Forbes’ Christopher Coats published an article today about how Spain’s Matarromera Group took advantage of government solar subsidies to produce more energy than it uses. Scottish distiller Diageo has been using tidal power to provide electricity for eight of its facilities.
Beer brewers are leveraging once wasted byproducts and reclaiming wasted heat:

  • Vermont’s Magic Hat Brewing Co. has installed a system (more properly known as a Biphase Orbicular Biodigester) to extract leftover barley, hops, wastewater and yeast into an anaerobic methane digester that produces natural gas.
  • Anheuser-Busch is capturing heat that’s generated during the brewing process to de-ice its loading dock during foul weather.
  • Coors’ sells its ethanol byproducts to refineries throughout Colorado.
  • Some European breweries dry biomass for burning, to provide energy and heat that will brew more beer.

Sea bass might one day be off the menu, but Bellarine mussels paired with Bellarine wine and beer will still be enjoyed well into the future and best of all, with power supplied from locally produced renewable energy.

The Cost of blunting Peak Oil | By Mark Halper | April 3, 2012.


The notion of “peak oil” says that the world’s rate of oil production will hit a permanent decline, if it hasn’t already. It’s one compelling reason why we’re supposed to pursue alternative fuel sources, especially for transportation, where oil rules.

But as the latest Time Magazine notes (subscription may be necessary, although you get a few free trial issues), we’re so addicted to the stuff that we are paying a huge premium both financially and environmentally to extract it from harder to reach places often using unconventional drilling techniques.


Petrobras’ presalt oil requires drilling through 2 km of water, 1 km of post-salt rock, and 2 km of salt before getting to a 2-km thick layer of pre-salt rock. That’s 3 miles to the top of the oil containing layer, which is about 1.25 miles thick.

By tapping new sources, we would add to dwindling global reserves, and delay peak oil. As you can see below in figures from the Time story, our quest for “extreme oil” could add considerably to the oil at our disposal, especially when you add them to what the CIA World Factbook says are the two largest proven national reserves – Saudi Arabia’s 262 billion barrels, and Venezuela’s 211 billion barrels (some rankings put Canada at number two). The “extreme” search includes:

-Tight Oil. Oil extracted from shale in states including North Dakota, Montana and Texas using the same controversial “fracking” techniques that are allegedly polluting drinking water and triggering earthquakes in the shale gas business.  Global reserves estimated at 300 billion barrels.

-Oil Sands, aka Tar Sands. Oil extracted from sticky bitumen, itself extracted from the plains of Alberta, Canada, often from open-pit mines that leave toxic tailings. Oil sand production itself requires a lot of carbon-emitting energy to provide industrial heat – as SmartPlanet has noted,small “modular” nuclear reactors could help reduce the carbon footprint. Global reserves estimated at 169 billion “recoverable” barrels.

Arctic Offshore Oil. What some people would call an environmental downward spiral. As fossil-fuel based global warming melts Arctic ice, it becomes easier for oil companies to drill in the Arctic region, providing more fossil fuels for consumers and industry to burn and emit more CO2 to feed more global warming. Any oil spill – think iceberg meeting tanker – would be much harder to clean up than the Horizon disaster in the Gulf of Mexico.  Global reserves estimated at 90 billion barrels.

Presalt Deepwater Oil. As the Donovan song says, “way down below the ocean.” Presalt oil requires drilling through nearly 2 miles of water and “post-salt” rock and then through over a mile of salt, off the coast of Brazil, where state oil company Petrobras thinks it has a bonanza. The project goes deeper than the Horizon. “A blowout would be incredibly difficult to control,” Time notes.  Reserves estimated at 50 billion to 100 billion barrels.

-Oil Shale. This is different from “tight oil” and “oil sands”, and thus far has been too costly to implement. Shale contains a solid bituminous material called kerogen, which companies would mine and then heat in order to separate the oil from the rock.  In the U.S. oil shale occurs in Wyoming, Colorado and Utah, and from Michigan and Ohio south to Tennessee.  Global reserves estimated at 800 billion barrels (which is 3 times Saudi Arabia’s proven 262 billion barrels).

All new sources would continue to feed our addiction to polluting and CO2-spewing oil.


A Petrobras presalt rig off the coast of Brazil.

And they’re not cheap. According to Time, “the new supplies are for the most part more expensive than traditional oil from places like the Middle East, sometimes significantly so.”  In ascending order, it ranks the per barrel cost of production at $45 to $65 for presalt deepwater; $50 for tight oil; $50 to $75 for oil sands, and at over $100 for both arctic offshore and oil shale.

In a dire financial scenario for consumers, the high price that oil companies now get for gasoline (about $8.65 a gallon at my local “petrol” station here in Britain – you have it easy in America!) helps support the high cost of extracting extreme oil.

Of course, ever since Western Pennsylvanians burned wooden oil derricks to keep warm when the world’s first wells ran dry in the 1860s, oil has been characterized by boom and bust. Will the price of oil ever collapse again? Big oil has an incentive to keep it high to fund its Arctic explorations and the like.

The high consumer prices also help fund development of renewables for some oil companies (several are investing in solar, among other areas). Like lunch, there’s no such thing as a free switch to renewables – we all have to pay for it somehow or another.

Demand is also doing its part to keep prices high. The West isn’t exactly kicking its oil habit, andChina is buying way more of it than it ever did. Then there’s the old standby excuse: Middle East tensions. (For more on oil price trends, see the links below to SmartPlanet “Energy Futurist” columns).

Greed, as usual, factors in as well. Sometimes I wonder if Big Oil sees the writing on the wall – sees us stumbling to what could eventually be a non-oil future as we turn to alternatives – and is gouging us as much as possible while supply and demand lasts!

QA: Why nations fail – Daron Acemoglu / economist

By Sarah Korones| April 2, 2012, 11:39 AM PDTclip_image002

The question has puzzled economists for ages: Why do some nations succeed while others fail?

The average Egyptian has an income level of around 12 percent of the average American and can expect to live for ten fewer years—what accounts for such inequality? Many have pointed to differences in culture, geography and even knowledge, but economists Daron Acemogluand James Robinson believe they have the answer: Nations crumble when their political and economic institutions fail.
In their new book, Why Nations Fail, the economists outline their theory of why institutions (which they define as either inclusive or extractive) are the cause of poverty or prosperity and how different parts of the world ended up in such different situations.
I caught up with MIT economist and co-author, Daron Acemoglu, to learn what exactly accounts for the vast differences in global prosperity.
Here is our exchange.
SmartPlanet: How exactly do you differentiate between inclusive and exclusive institutions and why do the two result in such different outcomes?
Daron Acemoglu: At the root of it, it’s actually quite simple. Inclusive institutions are those that have economic institutions that encourage innovation and investment. They provide secure property rights and eliminate significant entry barriers. They create a level playing field so that the majority, or ideally all, of the citizens of a given nation can take part in economic activity.
In contrast, extractive institutions do the opposite. The elite are able to grab things from others or distort allocations and are far from creating a level playing field. A few control political power at the expense of the rest of society. And these institutions are not there by mistake. They are designed, as the name extractive suggests, for the interest of those who have the political power in the society and can do the extracting at the expense of the rest.
SP: Why would these leaders be so resistant to technological change and innovation? Such developments should benefit a nation.
The answer is simple: the decisions are based not on what would be good for their citizens or the nation at large, but for their own bottom line—the ability to line their pockets and make huge fortunes. Dictators all over the world from Mubarak to Mobutu have been able to do this. Innovation is often a threat to their political power. They resist changes that will unleash the economic potential of a nation because those are often associated with processes that destabilize their power base.
SP: In Why Nations Fail, you mention that many experts get it wrong when trying to aid other nations by offering policy advice and foreign aid. Are there things more successful nations can do to help failing ones break the mold?
Yes, I think there are but I think the more important thing is to realize that whatever they can do is going to be very incremental. It’s unrealistic to expect that somebody from the outside can come and give you the magic potion to develop your institutions or oust your dictator and put another inclusive regime in his place. Inclusive institutions need to be grounded on grassroots movements—on people who actually want to support those institutions. That’s difficult to engineer from the outside.
SP: So how can nations free themselves from such institutions?
It’s not an easy thing because you can’t count on the leaders to do it—they’re the ones who have introduced, kept in place and solidified these extractive institutions.
One way it can happen is that a challenge, either internally or externally, will demand changes in the extractive institutions. In the end, if the elites who are sitting atop these institutions decide that they cannot defend them or that defending them is too costly, they start loosening their grip. Democratization emerged in England during the 19th century after repeated, sometimes quite raucous, demands from the disenfranchised were met by the elite with gradual extensions of the franchise.
Q&A: Why nations fail – Daron Acemoglu, economist
nfortunately this sort of gradual path is not always open. As an example: the Arab Spring. Qaddafi or Assad, were so entrenched in their extractive regimes that they took their chances to fight those making demands, to repress them to the extent possible. Change will only come in that case when a conflict results in the victory of those who are trying to oust the regime.
SP: You write that China’s growth isn’t likely to last, despite the country’s inclusive economic institutions. Why is that?
Inclusive economic institutions can’t survive for a long time if they are situated in the context of extractive political institutions that concentrate power in the hands of a small segment of society.
China has managed to achieve significant economic growth because its sort of picked up the low hanging fruit from the world technology frontier, but that sort of growth is not going to last until China goes to the next step, which is harnessing innovation. And that’s not going to be possible unless economic institutions become even more open and the extractive political institutions in China will be a barrier to that.
SP: Do you foresee major problems for the United States as society becomes more and more polarized?
I think that’s the biggest problem for the United States. People are talking rightly about all sorts of problems that economic inequality causes. While those are not to be belittled, the biggest problem it poses is that associated with economic inequality, there has been an increase in political inequality. The political system is not as open to the voices of ordinary Americans as it used to be. It’s much more dominated by the wealthy who are able to talk and have the ear of politicians.
I think there is room for being optimistic about the US but there’s no god-given right of the United States to have inclusive institutions. It has to earn them and if it lets political power shift in a very unequal way, those institutions will start getting weaker.
Image: Why Nations Fail