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That Radical Decoupling of Gas and Oil Prices

Kurt Zenz House, a widely acclaimed research fellow at MIT, has a recent article drawing attention to the "curious oil and natural gas price differential." In the past 20 years, reports House, gas has sold at about two-thirds the price of oil, per unit energy. Since the beginning of this year, however, gas has been selling at around one quarter the price of oil. Of course that ratio fluctuates quite a bit on short time scales but rarely if ever as much as in the last year. "It is nearly impossible," says House, "to explain the current price anomaly between natural gas and oil with historical data. So, what's going on?"

House mentions prominently the discovery last year that the Marcellus Shale formation in the northeast United States has enormous recoverable reserves, using new horizontal drilling techniques. Because of such reassessments in light of new technology, estimated U.S. gas reserves are 40 percent higher than they were a few years ago. What's more, the exercise is being repeated everywhere, with similar results expected. “It’s a breakout play that is going to identify gigantic resources around the world,” energy expert Amy Myers Jaffe of Rice University told the New York Times. Cambridge Energy Research Associates guesses that because of gas shale, world reserves could be 50-160 percent higher than previously thought.

That's not all. As relayed recently in this space, BP has made an enormous oil and  gas discovery in the Gulf of Mexico, and three other top oil companies are reaching agreement on exploitation of Australia's gigantic Gorgon field. One of them, Royal Dutch Shell, announced last week it plans to build a floating liquefied natural gas facility, which it expects to use initially in two newly discovered fields northwest of Australia. Such "stranded" fields around Australia--too far from the coast or too sparse to warrant construction of pipelines to processing facilities on land--could contain as much as 140 trillion cubic feet of gas, according to an Australian government estimate cited in the Wall Street Journal. Much larger than a football or soccer field, Shell's floating LNG facility will be 480 meters long and 75 meters wide, and will weigh 600,000 metric tons. It will have the capacity to produce 3.5 million metric tons of LNG per year.

The most recent authoritative estimate of U.S. natural gas reserves, released last June, came from the Potential Gas Committee, a consortium of academic and industrial experts coordinated by the Colorado School of Mines. The committee boosted its end-2008 estimate of reserves to 1,836 trillion cubic feet—an increase of 45 percent from end-2006, and the largest increase in the 44 years the committee has been operating. When the committee's results were combined with the Department of Energy's "determination" of proven gas reserves (said the committee), the United States has a "total available future supply" of 2,074 trillion cubic feet, a 35 percent increase over the previous such evaluation.

 

 

 

 

U.S. Car Makers Push for Hydrogen Infrastructure

Manufacturers of cars in the United States are leaning on the government to step up support for hydrogen infrastructure, reports the Bloomberg news service. Car makers including GM, Toyota, Honda, Daimler, Hyundai, Kia, Renault, and Nissan have made it known that they expect to be able to manufacture fuel cell cars running on hydrogen at competitive costs by 2015; the first four say their immediate goal is to shave the extra cost of a hydrogen car versus a regular car to $3,600.

Early in this decade, leading U.S. automakers ditched plans to deploy electric cars after the U.S. government threw its enthusiastic support behind the vision of a "hydrogen economy"--one in which motor vehicles would be powered by fuel cells--which turned out to be much too optimistic. This year Energy Secretary Chu slashed funding for development of fuel cel cars, to some dismay, which prompted Congress to restore funds. Germany's official goal is to have 1,000 hydrogen fueling stations in place by 2015, and in Japan 13 oil and gas companies have joined forces to develop a hydrogen fueling infrastructure.

Siemens Natural Gas Plant Sets New Efficiency Record

Siemens announced this week that it has completed testing of a combined-cycle, natural gas generating plant near Ingolstadt, in Bavaria. Rated at 340 MW in gas-only mode, the test run was so successful, the plant now is expected to achieve a rated output of 370 MW, running in that limited way. When the second steam turbine is connected, the plant will have a capacity of 570 MW and an efficiency of 60 percent--two percentage points higher than the most efficient gas combined cycle plant currently operating.

A decade or two ago, such efficiencies in a thermal power plant would have been considered unthinkable and unachievable. They help explain why, on balance, natural gas is still the technology of choice for electricity generation almost everywhere in the world. That is to say, if enough gas is expected to be available in the long run at acceptable prices, there's really no better way of making electricity.

Such considerations prompted me to wonder, in a recent blog, why the U.S. natural gas industry feels called upon to run big ads telling readers how good gas is. Since that post provoked some ire and aroused some misunderstandings, please permit this humble blogger to clarify a few points:

--though I have written critically about nuclear technology and the nuclear industry for 35 years, I am not anti-nuclear; in fact, I have argued elsewhere that nuclear energy will be essential in any concerted U.S. effort to sharply cut greenhouse gas emissions

--however, there are numerous well-known safety issues associated with nuclear energy, including the danger of explosions in nuclear reactors: during the Three Mile Island partial melt-down, there was acute concern about the possibility of a hydrogen explosion; the Chernobyl reactor blew up as the result of a runaway self-escalating nuclear chain reaction; in fast breeder reactors, full-fledged nuclear explosions can occur; and steam explosions are possible in any standard water-cooled, water-moderated reactor

--in the case of the catastrophic Chernobyl accident, a great deal of radiation did of course escape; the first evidence we had of the accident in the West was the detection of atmospheric radiation in Sweden

--while it's most improbable that any terrorist group would be able to extract plutonium from highly radioactive spent reactor fuel, if the fuel is reprocessed and the recovered plutonium is transported, the plutonium could be stolen and used to make an atomic bomb

--the estimate of the number of Americans who die annually from exposure to coal power plant pollution--30,000---is discussed extensively and documented in the third chapter of my book, Kicking the Carbon Habit: The Case for Renewable and Nuclear Energy

--my post is a critique of the way climate policy is formulated in the United States and, to a great extent, Europe as well, not of any particular person or party

 

Gas Ads Revisited

David Brooks of The New York Times appears to be a moderate Republican of conservative bent. This blogger's personal politics are somewhat different, but he and I are in agreement on the virtues of a carbon tax without special deals for special interests.

In a column this Tuesday, Brooks conjures a modern-day Jeremy Bentham--that is to say, a utilitarian with a taste for social engineering--and a contemporary David Hume, a philosophical skeptic. Brooks's Bentham would attack global warming by gathering "the smartest people in the country and he'd figure out how to expand wind, biomass, solar, and geothermal sources to reduce CO2 emissions." Etc. Brooks's Hume  would say, "I don't know how to generate clean energy, and I don't know how technology will advance in the next 20 years. Why don't we just raise the price on carbon and let everybody else figure out how to innovate our way toward a solution?"

"The people on Mr. Hume's side believe," continues Brooks, "that government should actively tilt the playing field to promote social goods and set off decentralized networks of reform, but they don't think government knows enough to intimately organize dynamic innovation."

This is exactly what I think too. As for the alleged factual errors or misrepresentations in my previous post about natural gas ads, they are addressed separately.

It's a Big Grid, and Somebody Has to Furnish It

Nearly fifteen years ago, shortly after joining IEEE Spectrum magazine to cover power and energy, I attended a briefing sponsored by Schweitzer Engineering, the pioneer in substation automation. At that time Schweitzer was not yet a household word, and the digital revolution was in its infancy as far as electrical transmission and distribution systems were concerned. So it made eminent sense for Schweitzer to bring people together to show how  every device in an electrical substation could now be replaced by state-of-the-art microprocessor-based equipment. Yet when I turned to my neighbors, two relatively young engineers from New York's Con Edison, one remarked: "The electro-mechanical switches and relays that we installed in the 1920s are still working flawlessly. Why would we replace them?"

What a difference 4.5 billion dollars make. That's the amount of money the U.S. stimulus bill allocates for direct smart-grid grant-making, to support endeavors such as replacing electromechanical relays with microprocessor-based equipment. The U.S. Department of Energy reportedly has received 570 applications from utilities and energy companies for grants totaling $14.6 billion, about triple the available funds. The way DOE winnows those grants will have a big impact on the direction grid enhancement takes, and so energy officials will have to sharpen their thinking about just what the smart grid means.

The process has been taking utility mangers outside their comfort zone as well. To be sure, many or most energy companies had internal wish lists for long-term grid improvements, but to be eligible for Federal  money, they have to convince DOE that projects are "shovel-ready" and yet not something they would have done anyway, absent public funding. "It's a sweet spot that's hard to hit," commented Marc Rosson of the Snohomish County Public Utility District in Everett, Washington, speaking recently at a press panel convened by SAP, the German database and software company.

The whole business of writing applications—"essays, not multiple choice!"—was entirely new to many utilities. So it's been a risky business not only for the DOE officials but for the energy companies themselves, observed Wayne R. Longcore, director of enterprise archicture and standards with Consumers Energy, in Jackson, Mich.  Companies seeking funds have had to be careful what they wish for, because once they get money and commit themselves to procurement strategies, they'll be stuck with what they've acquired for 20 or more years.

So what are they wishing for?

Let's just focus for a moment on the consumer's premise. In the smart grid experiment being conducted by xCel Energy and partners in Boulder, Colo., participants log onto the Internet to get a display showing how their home is using energy, hour to hour. It's nice display, but how many people are going to want to go to the trouble, ideally more than once per day, to check the details of their electricity consumption?

The Bluebonnet Electric Cooperative, which serves 85,000 meters in the southeastern area of Texas between Austin and Houston, has a different idea. It has contracted with Control4, a maker of home-area network control and monitoring devices, to provide a compact and semi-portable device that somewhat resembles an iPhone, as Bluebonnet's representative Elizabeth Kana put it in the SAP panel.

Britain's Energy Saving Trust, according to a recent BBC report, has concluded that such user-friendly devices will be crucial to any smart meter rollout. The British government has decreed that all the country's homes are to be equipped with smart meters by 2020, but the energy trust takes the position that the meters will only lead to modified consumer behavior if they are coupled with stand-alone home monitors. The British government agrees in principle, but it remains to be seen whether purchase of such monitors will be subsidized.

Speaking at SAP's grid-week conference in Washington, a representative of Accenture said that one thing they've learned in smart grid experiments, including a collaboration with xCel, is that "you have to make it easy for the consumer," and "you have to have incentives." Xcel hopes with its SmartGridCity to persuade regulators to provide incentives in the form of things like real-time pricing, but is it making things easy enough for the consumer?

Another somewhat disappointing aspect of the demonstration program in Boulder has been the absence of smart appliances. Yet Whirlpool announced in March that by 2015 all its home appliances will be able to talk to the grid, and General Electric soon followed with a similar announcement, notes Consumers Energy's Wayne.

The news that ten residences under construction in Abu Dubai will be equipped with smart appliances capable of chatting with the grid inspired a worried colleague to imagine this conversation:

Grid: Energy prices up.

Refrigerator: OK, raising internal temperature.

Me: Low on ice and expecting guests for dinner. Uh, does this mean I have to go to the store?

Getting communications right will be essential to the smart grid at all levels, from interactive appliances to the highest level of system monitoring and control. So it's no wonder that the really big shots--companies like Intel, IBM, Microsoft, and Cisco—all are getting into the game. Cisco's Chambers was recently quoted as saying that his smart-grid development team has "almost an unlimited budget."

North American High-Speed Train Opportunities

Bombardier Sifang, the Chinese joint venture of the big Canadian maker of high speed trains and commercial aircraft, reportedly will supply 80 of its Zefiro very high speed trains to China's Ministry of Railways. The trains will have a top speed of 380 kilometers per hour, and their development and sale positions Bombardier to challenge the world market leaders in high speed train technology, Alstom and Siemens. Alstom has marketed its famous TGV in Korea and Spain, while Siemens has sold versions of its Velaro--based on the ICE3 super-express trains used in Germany--in China and Spain.

In December, the Siemens Sapsan ("peregrine") will start service on the Moscow-St. Petersburg line in Russia. A similar Siemens train is a candidate for a high-speed corridor that could link San Francisco and Los Angeles. That would be a first for true high speed train technology in the United States, as the Acela train used in the Northeast corridor--a derivative of the TVG--has not performed at full capacity because of trackbed problems. Both Siemens and Alstom have been positioning themselves--and no doubt Bombardier is now getting into line as well--to compete for work on 11 proposed high-speed corridors in the United States.

The U.S. stimulus bill provides $13 billion in funding to develop high-speed train programs over five years.

German Solar Subsidies Are Questioned

Frank Asbeck, CEO of Solarworld AG, one of the Germany's top makers of photovoltaics, is suggesting that the country sharply reduce its generous solar subsidies. His proposition is controversial and does not appear to be widely supported among the country's other leading PV manufacturers. But it could have some resonance with Angela Merkel's conservative government, which consolidated its position notably in last week's national election. One immediate effect of that victory is likely to be reconsideration and possibly even the repeal of Germany's nuclear energy phase-out plan--Merkel has long advocated an "exit from the nuclear exit." Another could be a reduction in solar subsidies which free marketeers dislike almost by definition, and which appear now to be helping Chinese PV makers more than German.

Before the election, Germany's parliament decided to shave solar subsidies by 8-10 percent over the next three years. Asbeck has suggested cuts of about 15 percent, to be coupled with stricter quality and environmental requirements for photovoltaics exported to Germany.

 

BYD Owner Is China's Richest Man

Wang Chuanfu, owner of BYD, has gone from being China's 103-richest man to being first, according to a report this week in the Financial Times. BYD, besides being a major world supplier of lithium ion batteries, has got into hybrid-electric car manufacturing in a big way, and has announced its intention of becoming China's and then the world's largest car maker. The company got a big boost a year ago when Warren Buffett's Berkshire Hathaway took a 10 percent stake in the company. (The value of that stake has gone in the meantime from $230 million to $1.7 billion, making it one of Buffett's more successful recent investments.)

The second richest person on the China list is a woman whose family owns the country's leading paper recycling and packing company, prompting comments on the prominence of green technology enterprises among the leading Chinese enterprises. However, the owners of two top solar companies--LDK Solar and Suntech--dropped out of the top ten:  

 

France Unveils Ambitious EV Charging Plan

The French ecology minister, flanked by the CEOs of Renault and Peugeot Citroen, announced plans this week to build the infrastructure needed to support up to 2 million electric and hybrid cars by 2020. A million battery charging points are to be deployed by 2015, in parking lots, private homes, and roadside stations; from 2012 on, all new apartment buildings with parking lots will be required to include charging stations. Some of the 1.5  billion euros allocated to the plan also will go to support R&D on batteries and advanced cars.

The plan, coming hard on the heels of President Sarkozy's carbon tax, is expected to unleash in France a "battle of the electric cars" among the nation's major manufacturers.

 

Iran Nuclear Fallout

About this time six years ago, I happened to find myself in the back of a Washington D.C. taxicab with Robert Einhorn, who had been in charge of nuclear non-proliferation efforts in the Clinton administration. I fished an IAEA report out of my briefcase documenting twenty years of secret Nonproliferation Treaty violations by Iran. Why, I asked Einhorn, had Iran concealed so much activity from the International Atomic Energy Agency, considering that all the activity would have been legal if Iran had just openly declared it?

"Because it's a nuclear weapons program," Einhorn said (with an air of talking to somebody who might be mentally retarded). It was as if he was echoing the famous Clinton campaign mantra, "It's the economy, stupid."

That conversation prompted me to make a trip to Vienna to visit the IEAE and write an investigative feature about Iran's program. One point made in that article: the U.S. government, having flubbed badly on alleged Iraqi weapons of mass destruction, might now err in the opposite direction on Iran. 

Though the Obama administration is taking a very tough line on the secret Iranian facility, there are some signs our concerns may have been valid as far as the U.S. intelligence community is concerned. For several years U.S. intelligence has taken the position that Iran terminated efforts to develop a nuclear warhead design, and has not resumed them. But according to a report this week in The New York Times, Israeli intelligence believes that Iran has resumed with weapon design efforts, and German intelligence believes the Iranians never stopped such work in the first place.

France's foreign minister Bernard Kouchner, a human rights activist whose roots are in the French left, has accused the IEAE of concealing evidence of an Iranian weapons design effort.

A number of years ago, the neoconservative political scientist Robert Kagan wrote a widely noted book in which he postulated that Europeans are from Venus, Americans from Mars. But on the question of Iranian nuclear weaponization, it would appear that Europeans are more from Mars, Americans more from Venus.

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