The Week in Energy – September 1, 2007

As I mentioned in the previous post, I plan to start posting on a more infrequent basis. Every 5-10 days, I will post some short excerpts/links to energy stories I found interesting, odd, or comical. I will keep my own comments to a minimum. And while I plan to leave the comments section open, I don’t plan to spend time there as it is too easy to get sucked into endless debate.

Anyway, I was targeting this weekend for this essay, but I have slowly chipped away at it each morning this week, and I think there is enough there to post. Let me know whether you find this format useful. I am open to changing, as long as I can keep my time investment low as previously discussed.

Spreading Coal-to-Liquids Myths

General Motors: Ethanol Mythbusting by Spreading Ethanol Myths

Texas Surpasses California’s Installed Wind Power

The Children of the Corn are Getting Upset

TWIP: Lowest Ever Gasoline Inventories

Spreading Coal-to-Liquids Myths

The first entry comes from Malcolm Berko, who apparently writes a financial column out of Boca Raton. In answering a question from a reader, Mr. Berko helps to further confuse the public about energy issues as he paints coal-to-liquids (CTL) as the solution to our dependence on oil:

Taking Stock: Something not natural about synthetic oil firm

Some excerpts:

Dear Mr. Berko: Please tell me about Sasol, which is a synthetic oil and gas producer in South Africa.



Dear J.W.:

Since the oil crisis of 1973, many people are astonished that Congress and the White House have done nothing to ameliorate the problem. However, there is a super solution called “coal hydrogenation,” developed by Standard Oil of New Jersey (now Exxon Mobil Corp.) in 1930. It’s a simple process, and the resulting fuels cost much less than the fuels produced by Big Oil. In fact, those fuels are not an atomic particle less efficient than the same product produced from a barrel of oil.

But Exxon, Shell and the other Big Oils have billions of dollars of vested interests in oil properties, infrastructure equipment, etc., and “hydrogenation” would give Big Oil lethal gas pains. So to protect their interests, the oils covertly purchased influence from Congress (which is easy) to keep “coal hydrogenation” as far from the U.S. as possible.

Recently, a Congressional representative whose vote is not for sale told me that “active support for coal hydrogenation could cause me personal and political damage. Those oil companies are seriously nasty.”

In 1934, about 85 percent of Germany’s oil was imported, and the German Reich needed oil independence to fuel its factories and war machinery. The Nazis’ solution was a process developed in the U.S. by Standard Oil of New Jersey. It is called “coal hydrogenation, ” and because Germany had immense coal deposits, its supply of fuel and lubricants was almost unlimited. Between 1934 and 1942, Standard Oil financed and guided Germany’s hydrogenation process, producing the synthetic fuels that powered Germany’s formidable war machines across Europe, Africa and Russia. Undeniably, without the hydrogenation process, Germany could not have commenced World War II.

Back then, Standard Oil of New Jersey had enough congressmen on its private payroll to do anything it wanted to do. As a result, the actions of its officers and its board of directors nearly caused the Allies to lose World War II while their avarice and venality cost thousands of American lives. It is clearly documented that in the hubris of their success, Standard Oil made substantial contributions to German SS chief Heinrich Himmler ‘s personal fund and as late as 1944, was an active member of Himmlers “Circle of Friends.” So don’t for a nanosecond believe that gas prices at today’s pump are due to the high cost of a barrel of oil.

I won’t deconstruct the response, but I would like to ask Mr. Berko a couple of questions. Given that a number of countries other than the U.S. (Russia, China, India, Australia, and Germany) have larger coal reserves than South Africa, do you think it’s possible that there is a reason other than the “Big Oil boogeyman” that CTL hasn’t taken off? Can you think of a reason why South Africa might have (historically) had an added incentive to produce liquid fuels from a CTL process? Finally, given that Germany had developed a coal-to-liquids industry, and has large coal reserves, why do you suppose they abandoned their efforts after the war, instead of maintaining the industry?

For the record, the Energy Information Administration has estimated capital costs for CTL at $60,000 per daily barrel of production. This is around triple the cost of a conventional refinery, or an ethanol plant. Oil companies have looked at CTL numerous times, and have not pursued it on the basis of high costs. After all, don’t you think they would rather buy coal and turn it into diesel if you could really do so at a comparable cost? Their raw material supply would be much more secure.

General Motors: Ethanol Mythbusting by Spreading Ethanol Myths

General Motors has apparently decided that the best way to fight ethanol myths is to repeat some of the more common ones:

E85 “Mythbusting”

Certainly nobody can question their sources. After all, the Renewable Fuels Association, USDA, and National Corn Grower’s Association wouldn’t steer you wrong. I won’t go through the entire list, but they did hit some of my favorites:

Here are a few of myths out there on E85, and truth provided by experts.

Current research prepared by Argonne National Laboratory (a U.S. Department of Energy Laboratory), indicates a 34% gain in the overall energy input/output equation for the corn-to-ethanol process. That is, if 100 BTUs of energy is used to plant corn, harvest the crop, transport it, etc., 138 BTUs of energy is available in the fuel ethanol.

Of course we know that’s false. According to the USDA’s own numbers (the same source as that Argonne number), spending 100 BTUs of energy into ethanol production results in 106 BTUs of ethanol, and about 20 BTUs of animal feed.

It is worth noting that in fact, gasoline has a negative net energy of .87, meaning it takes 13 percent more energy to produce than it delivers.

I read a keen observation by someone recently on this account: How could an energy sink have transformed the globe in the 20th century?

Studies, including two by the DOE and USDA, have proven we can produce 60-90 billion gallons, on an energy equivalent basis, and potentially offset fossil fuel use by 30% or more by 2030.

The studies proved it, did they? Thank goodness. Just curious, though. How much has our fossil fuel consumption dropped over the past 5 years, as ethanol has exponentially ramped up?

The relatively small increases in food prices in 2007 have been attributed to increased energy costs (oil cost). (source: USDA and National Corn Grower’s Association (NCGA))

And rest assured that it has nothing to do with the ethanol-fueled doubling of corn prices in the past couple of years. Just ask the National Corn Grower’s Association.

It’s good to know that the future of GM is in such capable hands.

(Thanks to Gary Dikkers for sending that link).

Texas Surpasses California’s Installed Wind Power

Texas, long associated with oil and gas, is now the wind capital of the United States:

Texas blows past California in energy

Aug. 25–Recent Texas developments suggest that California’s lead in one alternative-energy area may be gone with the wind — the wind turbine, that is.

Last year, for the first time ever, an industry association reported that Texas surpassed California as the country’s No. 1 generator of wind energy. Not only did the Lone Star State blow past the Golden State again in this year’s report, but Texas regulators in July voted to designate eight zones for production of about 20,000 megawatts of wind energy.

The development is a bit of a twist given that California, with its Million Solar Roofs plan and other programs, is a national leader in conservation efforts, whereas Texas has long been associated with old-school energy sources, such as oil and natural gas.

Texas’ lead is increasing. In 2005, Texas led California by 47 megawatts in installed wind energy, and in 2006, it led by 407 megawatts, according to the annual U.S. wind power rankings of the American Wind Energy Association.

One megawatt is enough electricity to power 750 California homes during peak demand. The association reported that Texas had a capacity of 2,768 megawatts as of Dec. 31. California had a capacity of 2,361 megawatts.

“Texas is wowing everyone with those numbers,” said Christine Real de Azua, a spokeswoman for the association.

Wind power is growing at an incredible pace. You can see a map showing a state-by-state comparison of installed wind power here:

Wind Power America

The growth in installed capacity is also shown. Interestingly, Iowa is in 3rd place behind Texas and California. Now if they can only use that wind power to distill off ethanol…..

The Children of the Corn are Getting Upset

Of course I say that with great affection, as we always raised a fair amount of corn, and I have spent many a summer’s day shucking corn. But some corn growers don’t think ethanol is getting a fair shake:

Rolling Stone Gathers Dross

So much of the article is blah, blah, blah – we have heard all this before and there is no way to argue with these people because they believe what they want to believe.

Incidentally, Renewable Fuels Association president Bob Dinneen did take the time and effort to respond to the Stone article with a letter to the editor, which was subsequently lambasted by the article’s author. In the middle of it all is a blogger by the name of Robert Rapier – a UK oil-industry engineer and contributor to “The Oil Drum” blog – whom Rolling Stone author Jeff Goodell used as a source for many of his claims about ethanol. Dinneen challenged the “energy blogger’s” figures and in turn has been challenged to a debate by Mr. Rapier. To my knowledge, Mr. Dinneen has yet to take up the offer, but I think he should – somebody should. We can’t sit back and be weenies and keep taking this lying down.

Indeed. Don’t be weenies.

TWIP: Lowest Ever Gasoline Inventories

Recall throughout the spring when I was warning about plunging gasoline inventories, which ultimately drove gasoline prices to record highs? Well, we never quite recovered, and the scenario I described in this post back in June:

If we have no disruptions from hurricanes, imports stay strong, and we have no major refinery outages, we are likely to slowly climb out of this hole. But recent history suggests that we are likely to see more draws over the summer, exacerbating an already tight inventory picture.

is now upon us. From This Week in Petroleum for the week ending August 29, 2007:

As the chart below indicates, not only is the absolute level of inventories low (see Figure 4 in the Weekly Petroleum Status Report), but in terms of days of supply, it is the lowest ever recorded (the days of supply data goes back to March 1991), reaching just 20 days. This is even fewer days than seen following the hurricanes in 2005. While the absolute level of total gasoline inventories has been slightly lower a few times in recent years, when the level of demand is taken into account, it has not been this low before.

Lowest gasoline inventories on record. Gasoline inventories were not this low following Hurricane Katrina, and yet we have had an uneventful summer. It is very possible that we will not dig ourselves out of this hole for a long time. In the short term, an upturn in gasoline prices is inevitable.

17 thoughts on “The Week in Energy – September 1, 2007”

  1. This works great for me — more proof that brevity is the font of wit.

    As the trial lawyers say, if you want to win, don’t tell them everything that happened; tell them enough so they figure it out for themselves. Much more effective.

  2. I think that oil prices are high enough right now to make CTL very profitable.

    Look at Sasol’s recent annual report – their CTL operations have 30% operating margins!

    I saw a report somewhere (sorry no link) that shows a sensitivity analysis for CTL to oil prices. If my memory serves me correctly, there aren’t much profits below $50 oil.

    Glad to have you back Robert. You can be the “lone voice of reason” at times.

  3. Energy Information Administration has estimated capital costs for CTL at $60,000 per daily barrel of production. This is around triple the cost of a conventional refinery

    But less than oil sands. At $60k/bpd CTL plants would be wildly profitable in places like the Powder River Basin. The issue is environmental. You can’t even permit a new refinery, much less something really dirty like CTL. Then you’ve got CO2…..

    spending 100 BTUs of energy into ethanol production results in 106 BTUs of ethanol, and about 20 BTUs of animal feed.

    Current ethanol plants basically convert natural gas to ethanol while simultaneously converting corn to DDG. The NG-to-ethanol process is 100% efficient but corn-to-DDG only about 33%.

    Will Broin’s new plant or the E3-style approaches change the math?

    I’m not surprised TX moved ahead of CA in wind. Wind is now cost-effective and deployment of any cost-effective energy infrastructure (oil wells, LNG terminals, wind turbines, etc.) moves much faster in TX than CA due to dramatically reduced bureaucracy. I moved from CA to TX a couple years ago and saw this immediately. In fact, I see it in a literal sense as I drive on I-10 each day and watch these specialized trucks haul 50 meter turbine blades and tower sections toward west TX. Pretty amazing.

  4. Our company has spent a bundle on CTL with little to show for it. I can make you a good deal on a slightly used CTL demonstration plant – cheap.

    Sasol/Chevron’s GTL plant in Qatar is having problems. Catalyst fines from the FT reactors are carrying over into the products. We use exotic slurry-bubble reactors (3 phase) to improve yields and reduce reactor size/costs. The catalyst is very expensive and doesn’t hold up well. Scale up is a huge problem. The SasolChevron partnership sorta blows up the theory that Big Oil hates CTL, as does Shell’s Bintulu plant (which blew up on its own), ExxonMobil’s work, and most of the other IOCs CTL programs.

    While we are mythbusting and talking about the UK. I wonder how Robert and the family are getting around? Train? Might want to reconsider:

    Cars are Greener than Trains

    It is amusing if just to hear 1970’s pop music. I like the style. Maybe we could do a similar presentation on EROI for corn ethanol. What would we use for ethanol background music?

    “Tequila”? “Whiskey River” by Willie Nelson maybe? Any other suggestions?

  5. I may have a winner, “Corn Fed” by Shannon Brown, a country music artist. Here are some of the lyrics:

    Rooster crows, six a.m.;
    John Deere pulling that plow again.
    Spit on your face, hands in the dirt,
    Ain’t nothin’ better on God’s great earth.

    You never hear me apologise,
    For growin’ up strong, growin’ up right.
    Livin’ life by the Golden Rule.
    Say: “Yes, Ma’am,” “Thank You.”
    Green fields for miles an’ miles,
    Ain’t nothin’ but country on the radio dial.
    I thank the good Lord I was born an’ bred;
    Well, I thank the good Lord I was born an’ bred,
    Corn fed.
    Corn fed.
    Corn fed.
    Corn fed.

  6. Gah, I always cringe at CTL, because it’s just not a good answer.

    How is CTL->Liquid Transportation->Combustion Engine ever going to exceed IGCC (or even an old-school coal plant)->AC grid-> Battery->Electric motor in terms of efficiency? It’s simply ridiculous.

  7. Robert,

    This is by far the best energy blog on the web. Thank you for all your hard work. Your life and your family, however, are more important.

    There’s no reason for you to comment on the comments. You aren’t going to change many minds, and there are plenty of smart folks posting here anyway.

  8. I do hope your lightened schedule does not preclude you from any potential debate with the Weenies.

    I am a renewable energy student and some of my (fairly deep green) classmates roll their eyes when I constantly use RR and TOD as references but they are always compelling. Keep up the good work!

  9. Robert-

    Speaking of gasoline inventories (and gasoline demand), the FTC has done a service to Americans be releasing the report of their investigation into price gouging:

    We’d do well in this country (especially with respect to energy policy) to remember that not all circumstances we view as negative are a result of conspiracy.

    Good to have you back, the new format is excellent.


  10. “spending 100 BTUs of energy into ethanol production results in 106 BTUs of ethanol, and about 20 BTUs of animal feed.”

    This reminds me of something I’ve often wondered about. Ethanol proponents say their waste product can be used as animal feed, and put its energy content in the plus column. But the domestic animals aren’t there at the ethanol plant, so that feed has to be transported, and that takes energy. The leftovers have to be hauled away either for disposal or for feeding cattle. If not, the ethanol plant would soon be piled high. Does that energy come into the calculations?

  11. Texas and California lead with wind energy in amount produced. I quickly calculated the numbers per capita.

    State, MW/pop (mil)
    Wyoming, 565.5
    Iowa, 348.9
    N. Dakota, 281.1
    New Mexico, 257.7
    Minnesota, 174.8
    Oklahoma, 167.7
    Montana, 159.2
    Kansas, 132.6
    Washington, 130.1
    Texas, 126.9
    Oregon, 120.6
    California, 65.7

  12. Then I looked at wind energy production relative to the area

    State, MW/1000 sq mi
    Iowa, 18.5
    California, 15.2
    Washington, 15.2
    Minnesota, 11.3
    Texas, 11.3
    Oklahoma, 8.7
    New York, 8.3
    Hawaii, 6.5
    Oregon, 4.6
    Kansas, 4.4

  13. However looking at a wind energy resouce maps shows why this is much more complicated.

    I am impressed with any state that makes the top 10 (total, per capita, or per area) And I like to see the states that are doing more with a limited wind resource. Such as California and New York. And I would love to see Texas leap to 20,000 MW

    No post on wind energy would be complete without pointing out the excellent wind resouce off of Martha’s Vineyard MA.

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