Answering Questions – Part I

Back in Aberdeen after some very interesting meetings in London, some of which I hope to be able to discuss in the not too distant future. I started working my way through the list of questions while I was in London and had some spare time. Some of the questions really warrant a stand-alone post.

Instead of posting one very long blog, I am going to break this up into at least 2 parts. I have been working my way through the questions in the order they were posted. Click on each answer link below the question and it will take you to the answer in the essay.

The Questions

Tad asked: Where do you see the oil industry in 20 years? Answer

Fat Man asked: You said you were going to cut back on blogging in order to spend more time with your family. You seem to be a blogging as much, or more, as you were before that promise. Are you doing what you said you would, or are you shorting your family? Answer

Anonymous asked: Oil production has been flattish over the last couple years, and consumption is up in many places (with China receiving the most attention in this regard). Is there a source that I can access that shows who has been getting by with less oil? Answer

Anonymous asked: What’s your favourite Aberdeen pub? I’ll be making a stop there in November and always appreciate a local tip. Answer

Anonymous asked: Would ethanol make more sense if it was simply burned at the production facility to make electricity vs trying to build infrastructure to transport it? Or is the EROI still to low even in that case? Answer

Rice Farmer asked: …can ethanol be produced by powering the farm machinery and trucks on ethanol and still come out ahead? I think not. So it seems to me that ultimately, the large-scale biofuel industry will collapse and that biofuels will just be produced locally and on a small scale for local needs. Powering the current huge fleet of cars and trucks on biofuels is just a pipe dream.

So what’s your take? Answer

Anonymous asked: Then would the EROI of using biomass for electrical generation actually work out to be favorable from an realistic economic standpoint (i.e., not completely propped-up by subsidies)? Or is it still a big enough sink as far as energy consumed per unit created that it would still be unfeasible to use for energy production? Answer

scp222 asked: Refining margins are quite low now after been about $30 a while back. What do you think the future holds for crack spreads and the refining business in general? Answer

The Answers


I think the oil industry is going to evolve quite a bit over the next 20 years. There will still be a lot of oil in 20 years. I don’t believe supplies can possibly meet the demand growth projections I have seen, which of course means continued high prices.

I see a fairly high probability that the U.S. government will pass punitive measures as the public continues to be outraged at the cash flowing out of their pockets into oil company coffers. It won’t matter. I have yet to see a punitive measure that I truly believe will result in lower prices for consumers.

Now, while there will be oil in 20 years, I don’t think there will be enough oil. So, oil companies are going to be tuned to developments in alternative energy. A number are already involved in these areas. Even the pure oil companies like ExxonMobil will find themselves moving into this space. And because of continued high oil prices, they will find themselves with the cash to get into any field that looks promising.

The apparent widespread perception that oil companies will sit around twiddling their thumbs while alternative energy companies put them out of business is ludicrous. I have said before that if they wanted, the oil industry could own the ethanol industry. The entire ethanol production of the U.S. only amounts to the output of 1 mid-sized oil refinery. So, why don’t they own the ethanol industry? Because they see that their capital is better employed elsewhere at the moment. But if that changes – or if a significant breakthrough occurs in butanol, for instance – the oil companies have the infrastructure and the expertise to capitalize.

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You are correct that I am blogging about as much as I did before. However, I realized that it wasn’t the blogging that was taking time away from the family. I write very fast. I can knock out an essay very quickly, and I usually do it when I am up early before everyone else. But it’s all of the peripheral stuff that was taking up so much time: Answering e-mails (this was consuming over an hour every day), getting involved in debates (another hour), answering questions in the comments section, etc. I have cut those things out.

I have taken my e-mail address offline (although a number of people still have it, and others still find me), and this has cut down the time required to handle e-mail by 90%. While I still have essays put up at The Oil Drum, I haven’t commented there since August. I rarely comment here anymore (and this post was an attempt to catch and address a lot of comments at once.

Now, do I ever short my family as a result of the blog? Sure, sometimes I have to tell my kids to wait just a bit as a finish something up. But do I come home from work and spend the rest of the evening doing correspondence? No. I think I have found a reasonable compromise, and one that my family is pretty happy with.

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Benjamin Cole provided some information on this. You can’t find information on all countries, and therefore there is much reliance on anecdotal information. A comment that I remember someone once making was “I am tired of hearing stories like, A lightbulb went out in Bangladesh, therefore Peak Oil.” I agree with this sentiment completely. We can’t rely on anecdotal accounts that there is a fuel shortage here or there. There have always been fuel shortages.

The best sources for this kind of information, though, are the BP Statistical Review of World Energy (as Benjamin mentioned), the IEA and the EIA (for more timely information than BP’s stuff). If you look at the two latter options, you will find that the vast majority of the world’s oil usage is covered. This table from the EIA is a good starting point.

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I am not a big pub guy, so I went to my friend Euan Mearns, who also lives in Aberdeen. Here’s what he said:

Depends what your looking for.

West end chique – try Simpsons on Queens Road. (crap beer but nice wine – the house Merlot is excellent)

My favorite of late is “No 10” – Rubislaw terrace – good ales

Popular spots down town are The Prince of Wales and Ma Camerons

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Joules answered this question in the same way I would have: You would burn the biomass directly to produce the electricity. The EROEI is not the problem; capital costs for biomass-to-electricity plants are much higher because it is more difficult to handle the biomass. But long-term, I think this option will be one that we will count on heavily.

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I agree. I believe that if ethanol had to be used to provide energy to grow the corn and produce the ethanol, the whole thing would collapse. Remember, the energy balance is already very marginal. The only reason it is 1.3 or so is because of the credits for DDGS byproduct. On a fuel in versus fuel out basis, it is very close to parity.

I am convinced that we have to learn to get by on a lot less energy, but biofuels will provide a portion of our energy needs. I personally believe that the bulk of the solution must come from electricity. I contend that it is simply not possible for the world to produce enough biofuels to displace our current usage of petroleum. Conservation, greater efficiency, and electricity are going to have to be big parts of the equation.

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I am a fan of biomass gasification to produce electricity. In the long run, I think we really need it. But as I stated above, it isn’t the energy balance that is the problem; capital costs are much too high to enable it to compete with coal or natural gas. If carbon emissions were taxed, it would give the biomass to electricity option a boost.

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With gasoline inventories still so low, I think crack spreads are likely to explode again – certainly by late spring. Right now, with oil as high as it is, and with gasoline inventories where they are, it doesn’t make much sense that gasoline prices are soft. There is a bit of disconnect here, but one that I have seen frequently. This situation should put to rest any notion that refiners are in control of their margins, such that they boost profits by boosting margins. I know this seems to be a very popular notion, especially among those with the Oil Watchdog mentality, but any time I hear someone say it, I immediately know that at least on that topic, they are ignorant of the facts.

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4 thoughts on “Answering Questions – Part I”

  1. Benefuel, Inc., announced on October 10 that it will build the world’s first industrial-scale biodiesel refinery using a solid catalyst that converts low-grade fats and vegetable oils into biodiesel.

    story today in Energy Blog

    RR- is this another real advance in biofuels? Seems so. Along with the E3 plant, does this mean there is yet hope for ethanol?

  2. The product is still biodiesel, which is (in my opinion) doomed in the long-run. But check out the press-release:

    “This is a great leap forward for the entire biodiesel industry, and an exciting development for Indiana’s farmers and transportation companies,” said Rob Tripp, CEO of Benefuel, Inc.

    A great leap forward? No. An improvement over current biodiesel processes? It looks like it. Better than green diesel? No.

  3. I will repeat my previous advice to you. If you tell me things are OK, that is fine. But I wantto make sure you have run the traps.


    Priorities my boy, priorities. Set them and live by them.

    Your first priority should be your health. If that goes, everything else will go with it. Are you eating right? Getting enough sleep? Enough exercise?

    Next is your family. You have been away from them physically and mentally. Are they joining you in Scotland? It will be a tough transition for them, you have to be there for them — literally. And, don’t forget your wife. She will be with you after the kids have gone off on their own. She needs your time and attention.

    Of course your profession and your job need your commitment. Where is your boss? Have you sat down with him for a heart to heart lately? You owe it to yourself and your family.

    Blogging and the internet belong to the category of things like watching television and reading thrillers. If they are taking up too much of your time, something is wrong, and you need to either cut-back or figure out why your energies are being channeled away from your priorities.

    Blogging is best treated like drinking. And moderation, although it is ideal, is almost unknown. Good luck with your resolution, but if you decide that it is too hard to keep — Feel free to quit.

  4. Robert, as a follow up to the biomass gasification question. Do you see anything on the horizon that could reduce the capital costs to make it more economically viable?

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