Gregor.us
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Tue, December 15, 2009 2:08:03 AM
(This Person is a clear thinker!)
Gregor.us
Choosing An Energy Deficit
Posted: 14 Dec 2009 11:00 PM PST
blue planetEnergy analyst and author Richard Heinberg published a sobering piece on energy transition and climate change last week, and he hits upon a theme that I’ve been addressing in my recent work on coal. Titled, Trying to Save the World, Heinberg writes about the energy deficit one would be choosing to enter, as part of carbon reduction:
Reducing carbon emissions essentially means using less coal, oil, and gas (since carbon capture and sequestration is arguably unrealistic on any substantial scale, other than by reforestation and regenerative agricultural practices). Since “clean” sources of energy probably can’t be scaled up to replace fossil fuels entirely, this means the world will have less energy to go around. (It will no doubt soon have less to go around in any case, because fossil fuels are non-renewable and depleting, and we’ve probably already passed the peak of world oil production—but don’t get me started on that.)
Historically, there has been a very close correlation between energy consumption growth and economic growth, so with less energy available it may not be possible to continue growing the global economy in customary ways. Almost nobody in the climate community wants to talk about that, because the very suggestion that strong, effective climate policies will have a significant economic cost makes such policies far less palatable to folks on Main Street, and certainly to politicians.
Yes, precisely. I have warned in my presentation Coal World that unless we start using oil to build Alternative Energy infrastructure, the world will continue on its pathway of energy impoverishment (as the cost of all energy inputs continues to rise) and we will soon enough reach a point where transition to Alternative Energy infrastructure becomes prohibitive. The result would be a world turning back to the cheapest energy it can find–and that is coal. If economies and political bodies seems either reluctant or clueless now about using oil to build out new power generation, then 150.00 dollar oil will not function as the inducement that many presume.
The harsh reality is that, whether one chooses an accelerated energy transition to Alternative Energy either because of climate change, or peak oil, it will mean that economies and countries will have to make a discretionary choice now, in order to be successful in the future. The scale of the problem is that large. And the choice would be to use less energy now, or use more expensive energy now, in order to conduct a 25 year energy transition. Historically, people are just not inclined naturally to take short term pain. Groups of people are especially ill-equipped to make such grand decisions.
We can think of funding energy transition, therefore, as being analogous to funding one’s retirement. However, in addition to saving or devoting capital, economies would have to save or devote energy as well to the cause. Simply put, to any trajectory of future oil consumption used in the normal course of the global economy, we would have to add in a new, enormous consumer of oil: the energy transition infrastructure buildout. And that would place extra price pressure on oil, and thus lead as back to the political and economic intractability problem. Adding further pressure to the challenge is that in any energy transition to Alternative Energy one is choosing to give up either cheaper or higher power-density sources of energy to then latch on to more expensive sources of power generation. Again, not a pathway normally chosen by short-term, profit-maximizing economies.
I actually argue that wind and solar power generation offer tremendous returns–but more on the back end of their lifespans. They are perfectly opposite to coal, therefore, in their full-cycle economics–especially when taking into account all obvious externalities. Coal is cheap and ready to go in the short-term, but long-term exacts high costs in terms of health and infrastructure maintenance. Solar, on the other hand, requires large up front capital and promises to pay off only later with wonderfully accretive low(er) maintenance costs. Our challenge remains one of human psychology, and our disabling bias for the present. More generally, I wish that those who deign to offer up rosy prospects for energy transition and discretionary carbon reduction evidenced the same mastery of oil, coal, and energy history as revealed in the collected works of Richard Heinberg.
-Gregor
Further Reading: My Working Model: Oil to Solar.
Exxon Faces Reality
Posted: 14 Dec 2009 11:34 AM PST
Rockefeller John DExxon is like the government. It’s constitutionally unable to face reality. This has been the case for some years now, and has been reflected in their refusal to accept that spending billions annually would not result in any appreciable growth in their oil reserves. I’ve been snickering for years at XOM’s stuck-in-time approach. Here’s a snippet of a post of mine from a year ago, Advice to Major XOM.
Like sands through the hourglass, so are the days of ExxonMobil. Each year brings a new promise to grow production and build reserves “the old fashioned way.” They spend 20 billion. They spend 40 billion. The CEO is interviewed, and gives his patient outlook on the price of oil. (has no idea). Cash builds up on the balance sheet. The company is praised, for not being aggressive. The company is criticized, for not being aggressive. More cash builds up on the balance sheet. Investor groups become alarmed, at an apparent lack of strategy. Production stays flat, year after year. Reserve replacement flattens.
When Rex Tillerson was made CEO of ExxonMobil a few years ago he was asked for his outlook on the price of oil. Rex stated that was not his job, and that frankly he didn’t care. Now, that’s probably the kind of attitude that caused the Rockefeller heirs to probe the board, for a new strategy. While misunderstood as a push for investment in Alternative Energy, the Rockefeller group was correctly identifying the fact that Exxon was led by an intellectually incurious CEO, and that the company was sleepwalking its way into a paradigm shift in energy supply. Spending 20 billion a year just to keep production and reserves flat does, indeed, indicate a state of denial.
Whether Exxon’s corporate culture of denial has changed or not is unclear. However, Exxon today has purchased for itself one of the best run Natural Gas producers in the United States, with its all stock deal for XTO. (they should have paid cash and de-hoarded some of their dollars). XTO, Run by Bob Simpson, has assembled a fine collection of shale NG properties and conventional oil production in the continental US over the past five years, and is quite the prize. One wonders if XOM will have to compete a bit further, however, before the deal is actually closed.
A more poignant and broader question however is as follows: does Exxon see a shift coming, finally, to energy policy in the US that would favor natural gas? Given XOM’s devotion to doing things the old-fashioned way, I say maybe. But unlikely. I doubt very much Exxon would make a deal that would depend on the whims of future policy decisions, out of Washington. No, Exxon makes deals based on the hard-bitten truths and laws that oilmen of old would live by. So while I can’t give them credit for having any vision, they do know history. And that’s what you get with Exxon, visionless management–but safe, disciplined management.
Perhaps this is an apt moment to post the most recently updated chart of Non-OPEC crude oil production. Because that’s the real reason for today’s deal. Developing new oil production here in the West, except on a small scale, is tough. Exxon is too big to add reserves therefore on the oil side through development. Indeed, in recent years, Exxon has not been able to boost its annual reserve replacement ratio above 100% via oil. So instead, it obtains reserves of BTU’s another way, via natural gas. Needless to say, but this puts a finer point on how all the global majors will add to reserves in the years ahead: through more acquisitions of North American NG.
Graph Non-OPEC Supply 2001-2009
-Gregor
Photo: John D. Rockefeller
Further Reading:
Rockefeller’s descendants tell Exxon to face the reality of climate change, The Independent UK.
Exxon, The Chase for Reserves and the Sands |
