Alone Again

I just put my family on a plane back to the U.S., leaving me alone in Europe (again) for a little while. The reason they are headed back is because of my new job. I will be moving shortly to the Netherlands, and my wife and I wanted the kids to be able to finish out the school year back in the familiar surroundings of Montana.

But, the point of this post is that I will now spend more time writing over the next few months. I have several ideas stacked up, but would like to know if there are specific stories/issues that readers would like to see addressed. If so, please make suggestions in the comments. Here is what I will be working on:

Coal-based ethanol

Refinery economics

Ethanol economics

A review of Robert Bryce’s new book – Gusher of Lies

A review of Robert Zubrin’s ideas

The intellectual dishonesty of Oil Watchdog

48 thoughts on “Alone Again”

  1. Given that this is a presidential election year, I would like to see some coverage of the energy and environmental views of the candidates. Who has the most credible views in this area? Who is the most delusional?

  2. I would like to read about your opinion of what a future energy system that is not fossil fuel dependent should look like. What do you think about wind, wave, nuclear, etc?

  3. If you are going to review Zurbin, also cover the ideas presented at setamericafree.org, since he is being prominently featured there.

  5. Robert, it would be interesting to see your take on nuclear power — since it seems to be the only currently-feasible, very large scale, global energy source to replace fossil fuels.

    There are a range of sub-topics worthy of investigation — the performance of newer power plant designs; the long-term resources for fuel; the utilization of dreaded “nuclear waste” as fuel; the scope for using nuclear power to “mine” or manufacture hydrocarbons as transport fuels; the industrial infrastructure required to expand nuclear energy.

  6. I always appreciate your debunking of popular oil industry myths. The role of tax subsidies with respect to exploration incentives is one of these myths I’d like to see aired on a frequently visited site like this. I’m building up a collection of “debunked myths” and am thinking about a website as a reference source.

    Another good topic would be the use – and abuse – of the futures market. How much influence do you think speculation plays on the price of crude oil? Different ways to quantify it, and whether it needs a regulatory fix.

    Another might be the rising influence of countries like Qatar and the global LNG market, and what a possible “Gas OPEC” might mean for the future of the US gas industry and/or the energy industry in general.

    I’m not sure what’s to be done about Oilwatchdog, On the one hand they’re a source of counterproductive misinformation, but on the other I think their bias is so obvious and outrageous, and their essays so amateurish, that few people of influence take them seriously. But if you want to have a go at them, perhaps aiming for a wider audience than just this blog, I’d love to see it! 🙂 By the way, they have removed some of my recent posts, and blocked access so I can no longer post there. Pity, that was a nice little hobby!

  7. Kind of a bad time to talk about subsides or incentives?

    “The world’s largest publically listed company, the oil giant Exxon Mobil, has reported $40.6bn (£20.4bn) net profits during 2007, a record for a US company.“

    To be clear, I don’t begrudge them their profits. Not all. More power to them.

    It’s just that when we think of subsidizing or incentivizing anyone, I wouldn’t think we’d think of the countries most profitable.

    This is especially true when we verge on a debt crisis. This crisis spans American society from the bottom to the top. Individuals, local governments states, and the federal government have gone on a spend now worry later spree.

    When incentives are borrowed that only makes things (very) much worse.

    So it seems like we have two choices, we can all slowly shift to savings, and away from debt, or we can keep going at all levels … and rely on the Fed to release money and inflate us out of this mess.

    As a low debt guy (won’t say how low) like Robert, I hope that inflation course is not taken.

  10. Odograph,

    I wasn’t suggesting that more subsidies are needed -as you say, that’s a non-starter. What I’d liked to see discussed is the role of current subsidies: why they exist and what they were designed to achieve.

  11. Well, maintaining subsidies is a little like maintaining a credit card balance … it would be interesting to hear the argument that now, with oil companies the most profitable, they are not ready to be get off the “public plastic.”

  12. Note that the argument might be different if there was a “treasury” in the true sense of the word. It’s strange but I see around the net this sense that people still think there is … that their tax dollars go someplace to wait for a good idea and then be spent.

    The treasury is empty, in its place likes a stack of loan papers.

  13. Discussion of the highest-and-best-use of energy resources as Argonne is attempting to do in the below link.

    http://www.greencarcongress.com/2007/12/argonne-assesse.html

    Fpr example, the maximal utility from the following competing options:

    V2G SMART-PHEV
    Natural gas as fuel
    Coal to gas
    GTL/CTL

    Load following/balancing technologies would be interesting. Still wondering how well those overnight wind-powered warehouse chillers work out.

  14. I see a subsidy as an incentive for the industry to make a marginal investment it would not otherwise make. For example, a company might choose not to drill a 10 mmbl subsalt prospect in 8,500 ft of water because of marginal economics. But if a government, wishing to encourage additional supply, subsidizes projects in waters deeper than 8,000 ft in the form of reduced royalties or tax credits, then that might be enough to make the project go forward. The subsidy is not a freebie handout, as the public might perceive, but an incentive to increase supply.

    So, not being so up to speed on such things, I thought it would be interesting for RR to expound upon.

  15. But if a government, wishing to encourage additional supply, subsidizes projects in waters deeper than 8,000 ft in the form of reduced royalties or tax credits, then that might be enough to make the project go forward.

    Good point, Armchair!

    It is interesting the way that certain groups in society have deliberately confused the language — rather as George Orwell predicted.

    “Subsidy” is a fascinating case in point. If politicians levy high taxes, and then return a small portion of those taxes to the taxpayer with strings attached, does that return of taxes paid constitute a “subsidy”?

    The use of the single term “subsidy” certainly confuses lots of people interested in alternative energy, where some energy sources have real subsidies (taxing Peter to pay Paul) while other energy sources only get tax rebates. Both called “subsidies”.

  16. Right, a subsidy should be an incentive with beneficial long term impact. Subsidy of housing in the form of tax deductible mortgage interest payments probably helped spur the economy way back when, but now it’s become an expensive and untouchable part of the federal budget whose main impact is to increase housing prices.

    But a subsidy like the 8000 ft water example 1) marginally increases supply thereby marginally lowering prices, 2) produces income for the company which finds its way to new projects, jobs, and dividend payments to the public benefit, and 3) generates revenue for the government that it otherwise wouldn’t have had. A win-win-win situation.

    Of course, ambitious politicians and professional dilettantes of the Oilwatchdog variety will just see it as a tax break for Big Oil.

  17. ==the utilization of dreaded “nuclear waste” as fuel==
    Some deep reads on this subject.
    In general, if you ain’t got “Fast Breeder Reactors”, then it’s actually rather counter-productive.
    And so far those don’t even exist yet.
    greyfalcon.net/nuclearwasteland
    http://www.fissilematerials.org/ipfm/site_down/ipfmresearchreport03.pdf

    ==the scope for using nuclear power to “mine” or manufacture hydrocarbons as transport fuels==
    That would require 2.5x our current electricity production just in nuclear to power that one project.
    greyfalcon.net/h2car

    ==nuclear power — since it seems to be the only currently-feasible, very large scale, global energy source to replace fossil fuels.==
    By global, do you mean that it would be easy to implement it globally?
    Even though we’d go to war at the drop of a hat over it?
    greyfalcon.net/yellowcake
    greyfalcon.net/iraqvsenergy.png

    And I’m not quite sure where the “only very large scale” comes from.
    greyfalcon.net/nuke.png
    greyfalcon.net/greenenergy.png
    Although, I guess you could say all renewables besides tidal/wave are powered in some way by Nuclear energy.
    (i.e. The Nuclear fusion reaction in the Sun, or the Geothermal decay of radioisotopes for the earth’s crust)
    But both aren’t “Nuclear Fission.”, and they also don’t play any huge negative role in serious geopolitics.

  19. Heh, I wonder if thats actually “Fossil-Ethanol created from coal syngas” or “Bio-Ethanol produced using coal electricity”

    The later is pretty well known to be worse than gasoline regardless which study you use.
    greyfalcon.net/svlglca.png
    greyfalcon.net/ethanol4

    Now if it’s the former, it makes one wonder why you wouldn’t make a liquid with better logistics/performance than ethanol.

  20. I see a subsidy as an incentive for the industry to make a marginal investment it would not otherwise make.

    That’s exactly right, and I have argued this before. The only reason to subsidize the oil industry is if the government wants them to do something that their economics wouldn’t normally prompt them to do.

    For instance, let’s say that the government thought it was a good idea that Big Oil made massive investments into biodiesel infrastructure. How to get them to do that? The same way you get anyone else to do it if the economics aren’t there: Offer subsidies. If the economics are there, you don’t do it.

  21. There are a couple of subjects I’d like to see covered a bit more. One would be what exactly are all these subsidies/tax breaks that people seem to want to take away from “Big Oil”? And secondly, I’d like to see some discussion of all these new variations of biomass gasification methods to make thinks like ethanol. I still wonder why they don’t just take that biomass and turn it into FT diesel since it seems like that process is relatively well understood now.

  24. The public debt this morning stands at $9.2 trillion dollars.

    Put another way, that is the highest fraction of GDP since the end of World War II.

    … and yet we have this dangerous sense that the only way our government should influence energy policy is through incentive.

    Why don’t we consider tax? Or regulation?

    … because we as a nation are like the worst sort of credit card shoppers. “If they take the card is must still have money.”

  25. Can’t you see the fantasy in this? That chickens will never come home to roost?

    Can you really give subsidy and incentive, as deficit spending, forever?

    K’ talks about returning taxes. Again, we are far beyond that. There is no surplus sitting at the treasury.

    Every dollar you are talking about is borrowed with (we used to think) the implied promise that it will be paid later.

    Who do you think is going to pay it?

  26. “But if a government, wishing to encourage additional supply, subsidizes projects in waters deeper than 8,000 ft in the form of reduced royalties or tax credits, then that might be enough to make the project go forward.“

    Is it really our national interest to get increased supply even when it is non-economic?

    The economists have a saying … “taking water from one side of the pool and pouring it in the other.”

    That deep water oil would cost us more if a (free market) company went out and got it. To disguise this we tax all of ourselves and lower the price.

    We still pay (in theory if the budget was balanced), it is water from the same pool. It is just more hidden.

    … that’s my second worry about subsidy and incentive, that it just hides things.

  27. RR wrote:
    The only reason to subsidize the oil industry is if the government wants them to do something that their economics wouldn’t normally prompt them to do

    Indeed! But what are “normal” economics?

    As you are undoubtedly very well aware, Robert, taxes (in the broadest sense) are usually by far the largest cost element in oilfield project economics. There are many projects sitting on the shelves which would be economic if the tax burden were lower. One example is Alaskan North Slope gas — where taxes & regulations are a major barrier to bringing tens of TCFs of gas to market.

    The tax code started out as a way to raise necessary revenues for government operations. Now politicians use it as a backdoor way to entice/force outcomes they desire but don’t want to pay for openly. This has become counter-productive.

  28. ==As you are undoubtedly very well aware, Robert, taxes (in the broadest sense) are usually by far the largest cost element in oilfield project economics.==

    Yes, but is that really a tax?

    Thats more like a fee for using public land.

    (And a very weak one at that)

    _

    Additionally, I need to find a good source for it. But I’ve heard that the depreciation of oil wells is rather weird.

    In that they get to claim the original value of the total quantity of the oil in their depreciation schedule.

    Effectively they get to claim 5x the value of the oil itself in tax write-offs, according to the IRS.

    (Then again, this is only something I’ve heard. I need to verify it.)

  29. greyflcn wrote, re nuclear power:
    And I’m not quite sure where the “only very large scale” comes from.

    From the facts in evidence.

    We have to look at energy supplies globally, including the humanitarian obligation to expand greatly energy supplies to the billions of human beings who are doing without.

    Today, close to 90% of global energy comes from fossil fuels — most of us agree that that is not sustainable over the long term, due to the finite nature of fossil fuels.

    Most of the rest of today’s global energy comes from hydro-power & nuclear. Today’s fads (biofuels, wind, wave, solar, etc are lost in the rounding).

    Expansion opportunities for hydro-power are limited by the realities of geography. With today’s technology, that leaves nuclear fission as the only demonstrated large-scale reliable energy source for which we have the technology & the resources for massive expansion.

    Solar & fusion have great long-term potential for large scale energy supplies. But that is looking a hundred years or more down the road. Nuclear fission is the only practical very large scale energy source for the coming decades. And we are wasting time.

  31. ==Solar has great long-term potential for large scale energy supplies. But that is looking a hundred years or more down the road.==

    First off, it would take till nearly 2020 before we get any nuclear power plants up and running.
    Thats a long time.

    Second off, why do you think solar can’t work? Specificially Solar Thermal with Storage.

    It’s reliable, cost competative, virtually no exotic building materials, no siting delay issues, and it’s geopolitically safe to give to every nation of the world.
    (Not to mention it provides both baseload and peaking)

    Also, is uses about 1/13th the process water as Nuclear.

  32. it would take till nearly 2020 before we get any nuclear power plants up and running

    Only reason is might take 12 years to get a nuclear power plant up & running is regulatory delays. Politicians could fix that problem overnight, if they wanted. Look at the history of the Trans-Alaska Pipeline System, which was hung up in litigation for years — until the Oil Shock hit.

    Interesting side note — nuclear power plants in the US have had an inverse learning curve. The first plant took 5 years to bring on line, the last took 25 years. (Of course, thanks to Teddie Kennedy, one could probably make an analogous statement about offshore wind factories).

    …Solar Thermal with Storage. It’s reliable, cost competative, virtually no exotic building materials, no siting delay issues …

    And currently imaginary. If it really were cost competitive (without subsidies), we would see those plants going up around the world. Instead, we see the Chinese building coal-powered plants and nuclear plants.

    Look, we would all love to see a world where every human being had access to plentiful energy from sources that are cheap, non-intrusive, ever-lasting. Pretending that such technology exists today is silly. We have to play the cards we have in our hand.

  33. ==If it really were cost competitive (without subsidies), we would see those plants going up around the world. Instead, we see the Chinese building coal-powered plants and nuclear plants.==

    Heh, well we both know that the China price for Coal and the US price for Coal are completely seperate.

    Coal can be clean, or coal can be cheap. But it can’t be both.

    http://greyfalcon.net/costlycoal

    http://news.bbc.co.uk/sport2/hi/front_page/6934955.stm

    __________

    Second, Nuclear is a lot cheaper when you don’t really care about hazard insurance, waste or decomissioning costs. Which is possible when you have a country which cares more about growth than anything else.

  34. Odograph,

    While there are tradeoffs in just about every decision, I don’t see this deep water example of subsidy necessarily as a cost. Let’s look at it incrementally.

    Case A, no subsidy. Nothing is done, oil companies invest elsewhere. Marginal tax revenues to the IRS come from some other investment. The deep water play remains unexplored.

    Case B, subsidy. Alternative investment in Case A is still attractive (otherwise they wouldn’t have made it), but now so is the deep water play. Deep water activity increases industry wide. Result is new discoveries, new reserves, more jobs, pressure on oil prices, and new revenues for the government in the form of income taxes, bonus bids, and royalties. Every barrel produced domestically means one less barrel imported, meaning marginal reduction of the trade imbalance and downward pressure on interest rates. Many of the other alternative investments will also be made anyway, unless the companies are cash or manpower constrained.

    Would A have been a better path? Perhaps. It’s not an easy answer, but my intuition says B would be the wiser policy choice. Assuming you want more oil. If, as a policy decision, you decide you’d prefer to incentivize alternate forms of energy instead, or do nothing, then that’s OK too, but that’s another topic entirely!

  35. I think we can see a clear win for long term and clean energy sources like hydro.

    Something like Hoover Dam was financed by debt but is still producing fairly environmental power ~80 years later. How long can they keep it running, a couple centuries?

    On the other hand, now long term is the debt carried for deep water, and how long do they produce?

    The saddest thing would be if we ended carrying the debt longer than the field produced. Or if it would have become economic with new technology and/or higher oil prices in a few years anyway.

    (IMO subsidized programs tend to be done ‘too soon.’)

  36. BTW, there is solid economics behind the idea that if you must fund government (do firemen work for free?) you should do it by taxing “externalities.” Catch up with the things that free market does not solve on its own.

    Now if you can reduce government, and the need for funding, you will have my thanks, and I’ll support all kinds of tax cuts.

    … short of that though it becomes a question of responsibility.

  37. I hope your family don’t mind you spending more time with your blog 🙂

    You seem to be a good numbers guy who also knows the energy industry (rather than a “the market will solve things and I don’t need to bother thinking about details” kinda guy). It’d be very interesting for me to see back-of-the-envelope calculations for the kind of amounts of energy available globally (ie, if we pretend we don’t need food, how much corn/cellulosic energy/global person/day is possible? If there are various assumptions about food levels needed, how much is possible? If it also has to be sustainable, how much is possible? I’m afraid I still don’t have a good feel for the orders of magnitude of energy that are even theoretically available, which is always a good start when thinking about problems.

  38. I think we can see a clear win for long term and clean energy sources like hydro

    Total agreement, Odo. But we also can clearly see that the global scope for additional hydro-power is limited. Most of the suitable sites in developed countries have already been — well — developed. There is still some scope in the developing world — maybe “Three Gorges” will ring a bell.

    Another aspect is that you & I might call a hydro-electric dam “clean”, but San Francisco is full of the usual types agitating to have the Hetch Hetchy dam demolished (even though it provides the power they use every day). You can be sure that environmentalists & NGOs will find plenty of reasons to whine about any proposed new hydro dams anywhere in the world.

    Practically, there are other problems. Dams don’t last forever; reservoirs fill up with silt. And there is the safety issue — reportedly, about 2 orders of magnitude more people have died since the start of the nuclear age due to dam collapses than due to nuclear accidents.

    It’s the real world. Every possible source of energy has downsides as well as upsides.

  39. There might be specific dams where I’d agree with the trout/salmon lovers … but desert dams are best. There you only have to worry about ruins and cultural losses ;-/

  40. I will be moving shortly to the Netherlands.”

    Robert,

    You will find that you will be able to easily commute to and from work by bicycle. The Dutch have — by and far — the best bicycling infrastructure of any country in the world.

    Back in the day, I biked all over that country.

    Cheers,

    Gary Dikkers

  43. You will find that you will be able to easily commute to and from work by bicycle. The Dutch have — by and far — the best bicycling infrastructure of any country in the world.

    I have gotten an apartment 3 blocks from work, and I will be getting a bike. No car for me while I am there. I totally agree with you that the Netherlands was built for biking.

  44. I’m afraid I still don’t have a good feel for the orders of magnitude of energy that are even theoretically available, which is always a good start when thinking about problems.

    I have done some theoretical calculations along those lines. I wrote the renewable diesel chapter for a book that David Pimentel is editing, and I did this calculation based on use of all arable land in the world, planted in rapeseed. The gross energy production – making very optimistic assumptions on all fronts – was still less than half of worldwide crude oil usage.

    We simply can’t fuel the world on biofuels. There will always be a place for them, but I think solar/wind/nuclear/electric cars has to be the long-term answer.

  45. Oh, and he wants us to go to Mars ASAP too.

    I have corresponded with Zubrin over the Mars thing. We talked about how to produce fuel on Mars using the raw materials available there. I must admit that I also have a thing for Mars, but don’t think we will go there any time soon.

  46. ==I’m afraid I still don’t have a good feel for the orders of magnitude of energy that are even theoretically available.==

    That part’s easy.
    greyfalcon.net/greenenergy.png
    greyfalcon.net/greenenergy
    greyfalcon.net/fossilenergy.png
    greyfalcon.net/fossilenergy

    ==I have corresponded with Zubrin over the Mars thing. We talked about how to produce fuel on Mars using the raw materials available there. I must admit that I also have a thing for Mars, but don’t think we will go there any time soon.==

    Building human colonies on a planet with virtually no access to elemental hydrogen or oxygen.
    What could possibly go wrong with that?

    Now certainly we could take the Steven Hawkings approach that.
    “We’re gonna f*ckup this planet sooner or later, be it global warming, or nuclear holocaust, we better start making a backup”
    http://www.space.com/news/060613_ap_hawking_space.html

    But Zubrin though it seems that he’s given up on even trying to deal with global warming.
    Instead to focus on the purely geopolitical zero-sum game against Saudi Arabia.

  47. It would be interesting to hear your views as to Scotland’s energy future, given your stay there and your position as a “non-native”.

  48. In general, if you ain’t got “Fast Breeder Reactors”, then it’s actually rather counter-productive. And so far those don’t even exist yet.

    Grey, numerous fast reactors have been built, including several commericial plants. (Note: the term “breeder” has fallen from favor since most new designs do not generate fuel to ship out to other plants). Fast reactors are not common today because there’s no need. Even with the recent price spike raw uranium remains dirt cheap, and there’s no real cost imposed for waste disposal. So why bother?

    Anyway, there’s little doubt we can build Fast Reactors and burn up 99% of our nuclear waster. We have no incentive to do this on a large scale today, but we certainly should build a series of prototype fast reactors to work out the engineering. The 1994 cancellation of our Fast Reactor project by Clinton/Kerry/O’Leary was sheer idiocy.

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