In case you missed it, there were several stories this week – and of particular note coming from OPEC – that suggested that much higher oil prices may be on the way:
Oil Price May Go Up to $250, Warn Experts
Crude prices continue to baffle analysts and pundits. With the $100-era a well established fact in our daily life, there is now a growing chatter within the energy fraternity that $200 a barrel may not be a far fetched idea altogether. Is another global oil shock now gathering pace?
With limited additional supplies, alternative fuel still some decades away and demand far from collapsing, Deutsche Bank is pointing to a “huge risk” that oil prices would continue to rise in the near to mid-term.
“There is a huge risk that the oil price simply continues to escalate until it gets to some level (possibly $250) when demand finally collapses because ordinary people can no longer afford to burn as much energy as they are burning now,” Adam Sieminski, Deutsche Bank’s chief energy economist, wrote in a report last Friday.
This is why I am still an oil company investor. I am invested in ConocoPhillips directly, and some others via mutual funds (including Brazil’s Petrobras). I have seen various analyses that suggest the oil companies are no longer good investments because they aren’t replacing their reserves. I disagree. As long as oil prices are rising faster than reserves are depleting, they will continue to reap increasing profits (until the government steps in – which I think they will do). This will also give them the cash to get into other energy businesses that look attractive. Who knows, the future may see Shell (for example) as the leading solar power firm in the world.
OPEC is suggesting that even $200 oil won’t cause them to boost production by much. I think you can read the writing on the wall there and know that they simply don’t have the production available. While production from OPEC has been rising – and Saudi’s production is back up to just over 9.2 million bpd (per the article), OPEC just doesn’t have the spare capacity they did a few years ago.
OPEC is suggesting that even $200 oil won’t cause them to boost production by much.
No price will cause them to boost production. OPEC produced 30m bpd in the ’70s and the produce 30m today. Investing in production is simply not part of their vocabulary. For the most part, they simply don’t think like capitalists nor do they follow free market principles. That’s why it’s folly for consumer nations to think free markets are the answer.
Supplier nations set oil policy based on strategic concerns. We won’t get anywhere until we do the same.
Robert,
Not that this is a blog about investing, but since you put that blip in there…
It was not exactly what I wanted to do for a living either, but when my wife wanted to go to grad school, I kicked my hobby into gear. In 2002, it was fairly easy to discern that refiners were WAY undervalued, something that, it was also easy to see, it would change if oil went high. Now, IMHO, it is easy to see that the value of a lot of things that are oil derivatives, which is almost everything, will also go up.
Not that I am a gold bug, but I can’t see metals, of almost all kinds going up…even more than they have. To me, its the same as the case for nuclear: who thinks that finding, mining, and refining uranium, is going to get cheaper and easier now that oil is expensive, and the dollar is in the ditch. I believe the same could be said of copper, silver, etc..
The strange thing, is how badly the american public, in general, seems to be able to decide what is an asset, and what is a liability. I have always felt humbly average…until I sit down with my friends and find out what they spend money on!
This was posted in the WSJ Today:
William Tucker in The Weekly Standard, May 2, 2008:
Wind, hydro, and all the “alternate” sources of energy have been dubbed “green” because they are supposedly clean, renewable, and sustainable. In fact, what being “green” really means is that they all require vast amounts of land.
In a 2007 paper – well on its way to becoming a classic – Jesse Ausubel, director of the program for the human environment at Rockefeller University, calculated the amount of wood it would take to run one standard 1,000-megawatt electrical plant, the kind that can power a city the size of Cincinnati. Feeding the furnace year-round would require a forest of one thousand square miles. We have 600 such coal plants around the country now – to burn wood instead would require a forest the size of Alaska.
Glen Canyon Dam, which can produce 1,000 megawatts of electricity, is backed up by a reservoir 250 miles square (Lake Powell, in Arizona and Utah). That’s why we stopped building dams in the 1960s – because they were drowning scenic canyons and displacing populations.
Those 30-story windmills produce 1.5 megawatts apiece – about 1/750th the power of a conventional generating station. Getting 1,000 megawatts would require a wind farm 75 miles square.
In a January cover story for Scientific American, three leading solar researchers proposed meeting our electrical needs in 2050 by covering southwestern desert with solar collectors. The amount of land required would be 34,000 square miles, about one-quarter of New Mexico.
We were getting a little less than 34,000 square miles for solar, I guess it depends on what assumptions you make on future demand for electricity.
KingofKaty, since some of those WSJ numbers are wrong, I wouldn’t trust any of them.
The 500-850 MW Stirling dish solar project being built in Victorville, CA for Southern California Edison is to generate 1780 GWh/yr on 1800 ha. (SDG&E is building another 300-900 MW farm with the same dishes elsewhere.) The 3451 TWh in 2006 would therefore take 13,474 mi^2.
Let’s go out to 2050. The U.S. population is 420M. Let’s pray that the Federal government has made efficiency the number one priority and U.S. per-capita electricity has reached the level in California, New York, Japan, Germany, UK, etc. California was 7,032 kWh per capita per year in 2005. So that is 2,953 TWh (yes it went down, despite the population increase, because of efficiency). Applying the land area number above gives 11,531 mi^2.
(As I pointed out yesterday, 11,531 square miles of the US desert southwest is a lot easier to defend than the 169,234 sq.mi. of Iraq.)
Of course, to the above, I would add in 4,973 mi^2 to fuel 2050 U.S. passenger vehicles. (Or more likely, 4,476 mi^2 to fuel 90% of the miles of U.S. passenger vehicles, since there will presumably still be some liquid fuel in use even in 2050.)
KingofKaty, also remember that wind farm land is dual use. Approximately 2-5% of the land is unavailable by te turbines for farming, grazing, etc. If you run the numbers for wind, you get something about 8 times the area of solar if you count all the land, but about 0.4x of the area of solar if you count only the 5%.
Since a mix of wind and solar and other technologies are likely in 2050, the land area is somewhere between 0.4 and 1.0 of the solar area I calculated, depending on the mix.
Of course, solar and wind efficiency will probably increase between now and 2050 as well, which will further reduce the land area.
just like home prices can never go down and the dow jones is a sure thing to push 36000……….
So King,
Are you in favor of mandating solar collectors on every new rooftop? Maybe new business buildings?
BTW, did you notice that after a very good April, the Prius (up 54%, best of all in the Top 15) is #11 on the best sellers list? Soon to break into the Top 10 at the expense of the Dodge Ram (down 29%)?
Haven’t seen numbers for the Tundra, but it’s not on the Top 15…
Earl – not a fair comparison. With a Stirling engine I could get 100 mpg. The engine might cost $100k. I think the main point of the article is more on biofuels requiring lots of land. My employer is actually doing some wind projects now. You can use wind sites for grazing and some farming, but there are limits to what you can do with it.
I think we are on our way towards more alternatives if Gov’t doesn’t get in and screw it up.
Optimist – No, I don’t like mandates. A better approach is to somehow wrap energy efficiency into your home mortgage. Improvements are usually undervalued (if at all) in mortgage appraisals.
I’ve noticed that the Prius is selling well. But so are all small cars and trucks.
In fact, I am headed home a bit early today to test drive 1/2 of my “KingofKaty” hybrid. I’m also investing in a Scan Gauge II
I think we are on our way towards more alternatives if Gov’t doesn’t get in and screw it up.
Amen to that.
Looking at the Hillary McCain federal tax proposal, I’m not too hopeful.
At least Obama is being honest with America about this one. Ironically, it may cost him the nomination. How pathetic is that?
I’ve noticed that the Prius is selling well. But so are all small cars and trucks.
True. But only the Prius is up by more than 50%. That could change quickly, of course. But I am surprised by how much better the Prius has been doing than the Tundra, since we last looked at their numbers.
RR:
I think we are seeing demand destruction already, and this trend will only grow the longer oil stays above $70 a barrel.
Can OPEC can maintain oil prices as demand decreases every year? Big question.
I think not. I would feel sure if supply was not controlled by thug states, but it is. Right now, the higher the oil price goes, the less immediate need oil thug states feel to boost output. It is a negative feedback cycle, or a backward bending supply curve. If I was paid $700 an hour, I might start working less, not more, hours every year.
But sooner or later, this price cracks. Probably when producers can only make more money by pumping more.
With demand falling, that may happen in 2009.
I think the American popular sentiment — that we should be energy independent — is in fact justified. This is twice now in just 30 years that producers, either through plan or plain idiocy, have managed to increase oil prices 10-fold or so, with terrible consequence for the world’s poor, and tough times for America’s working class. First go ’round was 1980, this is second time.
I hope we can make this the last time.
Those 30-story windmills produce 1.5 megawatts apiece – about 1/750th the power of a conventional generating station. Getting 1,000 megawatts would require a wind farm 75 miles square.
Way off. I don’t have 1.5 MW numbers handy, but 2.5 MW turbines cover half a km2. 400 such turbines thus cover 200 km2 vs. the author’s 14,562 km2. He’s off by a factor of 72! If you include capacity factor as you should, he’s only off by about 30x.
King, why do you think you’d get 100 mpg with Stirling? They’re no more efficient than gasoline engines. That said, I think Dish-Stirling is a dead-end. If you’re going to spend $50k or more on motors and mirrors to focus 100 kW of solar energy into a small area, you’re better off with 40% efficient triple-junction cells from SpectroLab at the focal point than a 30% efficient Stirling engine.
KingofKaty said, “Earl – not a fair comparison.“
I am not even sure what comparison you are talking about. I was complaining the numbers were wrong, and not making a comparison. What is your specific complaint?
You proceeded to talk about 100 MPG and cost. I didn’t see that as the topic, but let me rebut that. Our 2002 Toyota RAV4-EV cost $42,000 MSRP. The EPA rates it at 302 Wh / mi. The RAV4-EV is a SUV, the boxy, inefficient form factor so popular in the US. Toyota made only 1,500 or so of the EV version. Higher volumes would have lowered costs. They sold or leased every unit they produced, and that was only in the state of California. Had there been more production, and 50-state availability, there would have been a lot more sales.
KingofKaty said, “I think the main point of the article is more on biofuels requiring lots of land.” I agree biofuels require a lot of land. Photosynthesis is generally less than 1% efficient, whereas large solar efficiencies are about 30%. That means there’s a big land area difference between biofuels and solar. However, my point again as that the numbers in the article for wind and solar were wrong.
KingofKaty said, “My employer is actually doing some wind projects now. You can use wind sites for grazing and some farming, but there are limits to what you can do with it.” That’s not a very specific complaint. The AWEA says only 5% of the land is not available. Do you have other data to cite?
KingofKaty said, “I think we are on our way towards more alternatives if Gov’t doesn’t get in and screw it up.” IMO, without government action there is zero chance of solving our emissions problem. Even if from now on every power plant we built were zero emissions, the existing plants are sufficient to ruin the climate. We are adding 2 ppm per year right now, which means the existing infrastructure is sufficient to breach 450 ppm in 34 years. We need policies that close coal plants to have any chance of solving this problem.
I have nothing of value to add to this conversation, but did anyone notice that:
Mad Max Rockatansky is a lot like
Robert J. Rohatensky ?
Last of the V8 Interceptors (youtube video)
Robert,
I am interested in your opinion on biomass (or coal) plus nuclear to make a liquid fuel.
I mentioned this in your fuel from air post a few days ago. Then yesterday I happened to be looking at the March/April 2008 Technology Review magazine. There was a letter from Charles Forsberg, with Oak Ridge National Laboratory. He stated that we need to supplement biomass to fuel with additional energy inthe form of heat, hydrogen, and electricity to get the most out of the biomass.
Here are a couple of his ideas
Meeting US Liquid Transport Fuel Needs with a Nuclear Hydrogen Biomass System
Changing Biomass, Fossil, and Nuclear Fuel Cycles for Sustainability
What do you think about this?
dennis moore, I know you were looking for Robert’s opinion, but I’ll offer mine after looking through the Forsberg papers you noted. They read somewhat like the old adage, if all you have is a hammer, everything looks like a nail. In other words, Forsberg seems to be searching for uses of nuclear reactors. There is nothing wrong with that; it is probably one of the charters of Oak Ridge. However, they should be read in that context.
In way of disclosure, I am neither anti-nuclear or pro-nuclear myself, but so far, nuclear has seemed much less desirable to me than renewable technologies. LFTR is a nuclear technology that might change my mind someday.
I do however find the hydrogen portion of Forsberg’s thoughts to be unwarranted. If one has electricity, whether it be from a reactor, wind, or solar, then turning it into hydrogen to store it is simply wasting that electricity. A future efficiency goal for electrolysis is 50kWh/kgH2@6000PSI, which represents 78% efficiency relative to the HHV of H2. The future goal of the FreedomCar research program is a fuel cell that can turn H2 back into electricity at a peak efficiency of 20kWh/kgH2 (60% of the LHV of H2). If both of those goals are achieved (and they are aggressive), and also the lifetime and cost issues with fuel cells are solved, then we still have only achieved an efficiency of 20kWh/kgH2 divided by 50kWh/kgH2 = 40%. Since the electrolysis is likely to be local, to avoid creating a H2 pipeline infrastructure, multiply by 92% for grid efficiency, and you get 37%. This is not encouraging. Since the equivalent path is to deliver the electricity over the grid at 92%, convert it to DC in a charger at 93%, and then charge/discharge batteries at 94%, the equivalent plant-to-motor path is 80%.
Thus, if future goals are achieved, storing electricity as hydrogen will required 2.2 times as many reactors, or 2.2 times as much solar farm square miles, or 2.2 times as much wind farm square miles. It will also cost three times as much per mile to drive on hydrogen as driving directly on the electricity that makes hydrogen.
I hope this helps.
Thanks for the comment Earl.
The efficiency you talk about is comparing H2 fuel cell vehicles to battery electric vehicles. Both of which are in development, with BEVs way ahead.
I’m more interested in biomass to liquid (gasoline, diesel or others) which can power the current fleet of vehicles as well as PHEVs. We will need liquid fuels for a very long time. If at some point if the liquid is not needed, you could convert to producing electricity.
Also, excess hydrogen could go into fertilizer production. This way, a big input for biomass (and food) production could be nuclear powered as opposed to natural gas.
As far as the efficiency of electrolysis goes, I think at large scales, thermal cylces are better for making hydrogen.
I am also interested in using coal as the feedstock here as an intermediate step to a renewable carbon feedstock.
Also, I am not opposed to using some form of renewable energy to supplement biomass to liquid, especially solar thermal.
But to use the hammer nail analogy, we know the problem, we need more energy, that is the nail, and it is huge. Conservation and efficiency will make the nail smaller, but it is still huge. Nuclear is the biggest hammer we have and I would like to see us start swinging it more.
dennis moore said, “I’m more interested in biomass to liquid (gasoline, diesel or others) which can power the current fleet of vehicles as well as PHEVs.” You might be interested in the data I quoted in this forum under “How Corn Ethanol Destroys Rain Forests” from March 2008. Photosynthesis is sub-1% efficient in most cases (algae biodiesel is possible exception, perhaps reaching 2-3%?). Efficiency matters: it would take something like a quarter of the non-Alaska U.S. to produce cellulosic E85 from switchgrass using published crop yields. I can run the calculation for you if you like.
dennis moore said, “comparing H2 fuel cell vehicles to battery electric vehicles. Both of which are in development, with BEVs way ahead.” A quibble: I would call BEVs “off-the-shelf.” My family is driving a 2002 production BEV with 79,000 miles on it. It is the workhorse of our garage. I wouldn’t call that under development.
dennis moore said, “As far as the efficiency of electrolysis goes, I think at large scales, thermal cylces are better for making hydrogen.” Even if you have hydrogen produced in a way that bypasses the production of electricity, the most efficient way to use it is to generate electricity in a stationary fuel cell (e.g. MCFC or SOFC) plus steam turbine at a power plant, ship it across the grid, and charge plug-in batteries. Stationary fuel cells (especially the ones with a combined cycle turbine) are always going to be more efficient than their mobile cousins.
dennis moore said, “I am also interested in using coal as the feedstock here as an intermediate step to a renewable carbon feedstock.” Coal-to-liquids is a bad bad idea, as it generates twice the greenhouse gas emissions per mile as using gasoline. The H to C ratio of coal is something like 0.7, compared to 2.2 for gasoline, compared to 4 for something like natural gas. That’s why CO2 emissions from coal are so high per MJ.
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