Sources and costs of energy.

Reason Magazine have published a summary of the various costs, advantages and disadvantages of the various forms of energy. This summary is very educational and shows in stark terms the energy problems we face. It makes it clear where we should putting our capital and our efforts. It also shows that when man attempts to best mother nature, it usually turns out bad. Have a look here.

Technorati Tags: People's Engineering Energy Environment

Jeffrey Immelt on MIT Video

Jeffrey Immelt is the current Chairman of General Electric. His video presentation is at the MIT Energy Conference. This is a very good video and I would encourage anyone to watch it for the unique perspective and insight that Immelt has. Click on the title for the url to the video.

Speaking about the difficulties in the energy field, Immelt noted that "market signals don't fit the time horizons", and I have to agree that is certainly the case. The three-months time frame that the capital markets operate within is not enough time for the energy industry to do anything. And the decades long lead times for satisfying the demand for energy are two areas where this disconnect happens. With such long lead times necessary to achieve anything in oil and gas, the markets always seem at odds.

He also spoke of the "notion that energy is free". This notion that he speaks of is, I think, is the same concept that makes people expect they have the right to energy. I hope that we can continue to experience these rights and entitlements; however, I think that our future holds occasional energy outages and increased costs.

Immelt noted from his personal experience in traveling to India that demand for energy from China and India would not stop growing. In satisfying the needs for energy he states, "This is the time that technology and innovation can have a value". He felt that coal, natural gas and oil were going to be as important as they ever have been. And noted his turbines where operating at 65% efficiency, and indicated that reducing consumption was an area where much innovation and savings would occur.

He finished his presentation with two of what he calls "Immelts".

If you want to do something, you have to do something.

and

You want it bad, you get it bad.

Technorati Tags: Genesys, MIT, Video, Energy, Environment

And so it begins.

Today Total Petroleum announced a decline of 20% of their projected production to 2010. Not their overall production is in decline; only there projected increases are revised downwards from 5% to 4%. This is more telling about the politics in big companies. Rarely would we have seen such a statement that production would be lower then previously reported. If its lower then just do more drilling, or whatever, to increase production to what was reported earlier. For Total to issue such a statement there must be a lack of faith in the company’s ability to increase production that extra 1%.

Now that the IEA and the National Petroleum Council have released their reports it's "OK" for the truth to be told. Total may be the first that I am aware of, but I am certain that there will be many more, and the volume and the pitch will be heard everywhere. Just as in the 1980's when the managers jumped over each other to prove they could cut their budget further then the last guy, the companies will quietly line up and announce one after another the increase in their associated production decreases.

Speaking of cover stories, OPEC can now pipe in and say that they will be experiencing some production declines. With the news of the major producers decline in production becoming yesterday's news, and a financial crisis in the home mortgage market, no one will actually hear OPEC announce the declines. (Possibly as soon as September 11.) And it will be too tempting for them not to make these announcements. After all reporting to their people that production is scaled back and revenues are way up will be easy to sell. Hugo Chaves may actually become that mythic hero he sees himself as.

I have repeated here many times that the constraints on companies are the reason for the associated decline in production. It’s a new time and a new place. We have to do something to affect the performance of these companies. Our choices are the status quo, build the software I speak of here, or if we do not define and support the Joint Operating Committee, as is suggested in this new software development, then we will be relegated to reorganizing to manual systems.

Clearly the status quo is not working. Join me in making this re-organization real. When you have the organizations actively jumping over each other to state the bad news, you know that their options are limited.

Technorati Tags: Genesys, Software, Capabilities, Environment, Interests

China Energy, A Guide for the Perplexed

From The Peterson Institute for International Economics

Written by Daniel H. Rosen, Visiting Fellow, Peterson Institute for International Economics, China Strategic Advisory
and
Trevor Houser, Visiting Fellow, Colin Powell Center for Policy Studies, China Strategic Advisory

This a comprehensive summary of the markets, pricing and use of energy in China. This document provides an insight into many of the anomalies of the Chinese market that provide an understanding about their future demands. I highly recommend downloading this file and keeping it handy for reference in the next few years. Anomalies such as;

• "What's Driving Demand"
  
• Just as the US' energy use is very efficient. "By 2000, Chinese economic activity required two thirds less energy per unit of output than in 1978."
• "Energy consumption grew four times faster than predicted, to over 15 percent of global demand in 2006. (nearly twice as large in absolute terms as forecast in most 2002 estimates.)"
• "Under this scenario (2030), China will account for 20 percent of global energy demand, more than Europe and Japan combined, and easily surpass the US as the largest energy consumer."
• It is assumed that consumption and transport are the big users of energy. "This is not correct. Consumption led energy demand will be the major driver in the future and is already significant in absolute terms, but the main source of today's growth is energy intensive heavy industry."
  
• "The number of passenger vehicles on the roads has doubled since 2002 to more than 25 million, with over 5 million new cars sold in 2006 alone."
• "While the vehicle fleet in China is still less than 20 percent as large as the United States, the gap is narrowing. Based on experience elsewhere, car sales in China are set to grow faster than GDP until income levels reach about $20,000 per capita." (Currently $2,000 / year.)
  
• "For a considerable period therefore we foresee consumption growth as additive to investment, rather than substituting for it."
• "And with several more decades to go before China reaches the urbanization level of Latin America, this secular driver is here to stay awhile."

• "China's Energy Supply Systems"
  
• "As a result, until the mid 1990's was not only able to produce enough energy to fuel its own development, but had enough for export."
• "A number of small bureaucrats try to plan supply while markets are determining more and more of the demand."
• "China's relatively meager proven reserves suggest that annual oil output is near peaking at the current 3.7 million barrels per day."
• "China will not be able to meet its medium term gas needs through LNG alone. A number of potential pipelines from Russia and Central Asia are under discussion, but both the economics and politics of these projects are challenging."
• "With limited reserves and relatively flat domestic production, China now relies on international markets for nearly half of the oil it consumes."
• "For the purposes of our discussion here, the point we wish to emphasize is that the domestic resource endowment and industry structure create a market incentive for Chinese oil companies to expand their upstream portfolios overseas."

• "Global Impacts"
• "China's energy markets and policies, as they exist today, are failing to reliably supply the country's explosive demand growth or adequately address its environmental consequences."
• "Blackouts resulting from poor planning and management in the domestic power sector send ripples through international oil markets."
• If these costs (environmental) right themselves in the years ahead, some heavy industry will no longer be viable in China and global metals and chemicals markets could be shaken up once again as excess Chinese capacity is subtracted."
• "Going from one of Asia's largest energy suppliers to one of the world's largest energy importers in little more than a decade, China is a major force at the margin in global oil, gas and coal trade flows."

• "Conclusion and Policy Recommendations"
• The authors draw four principle conclusion from our study of China's energy situation.
  
• The main energy challenge for China today is the shifting industrial structure of its economy, not factory inefficiency, new air-conditioners or more automobiles. These issues are systemic in nature and thus only China can effectively correct them.
  
• We do not expect China to adequately fix the root causes of its structural over allocation into energy intensive industry in the next decade.
  
• Structural adjustment is necessary but not sufficient to address China's energy issues.
  
• Regardless of how successful Beijing or others are in altering the country's energy trajectory, in 20 years China will likely be the world's largest energy consumer and polluter.
  

"A point of context should be kept in mind when contemplating these recommendations: China is an 800 pound gorilla on the world energy stage that cannot be ignored; but there is a 1,600 pound gorilla in this room too - the United States. Instead of treating that fact defensively, US policymakers might see it as an opportunity. The changes needed on China's behalf seem impossibly ambitious as unilateral adjustments, especially since China feels entitled to follow an industrial path that many OECD nations have trod. Even if progressive Chinese leaders recognize a self enlightened interest in unilateral reform, there exists a natural tendency to focus more on a rival getting off easier than they should than one's own best interest. The necessity for the United States to improve the sustainability of its own energy profile may be by far the most powerful lever it has for impelling change elsewhere: The opportunity for a grand bargain in energy and environment exists to give policymakers in both China and the United States political cover for painful choices."

I think that the energy industry needs to recognize the 800 pound gorilla in the room. I am a staunch believer that the energy challenges we face require the reorganization of the industry to meet these new global realities. China is in direct competition to our way of life. Are we to let the hierarchy whittle away the time that we do have?

Technorati Tags: Genesys, Environment, Energy, China

McKinsey on the Environment

McKinsey consulting have prepared an economic summary of the relative costs and opportunities to address the "Global Warming" issue. This study is a global look at the situation and what the different methods will have in terms of success and costs of each method to the overall economy.

Two things I notice in the article is the size of the problem from the point of view of China's and the rest of the third worlds production of CO2. It is difficult to understand how there could be any progress made without those countries actively participating in CO2 reductions. In the Kyoto protocol China and the third world countries are now in compliance, and will be well into the future, without any changes. As these economies expand they may make the "Global Warming Crisis" into a real issue.

The second item that I noted is the cost, if McKinsey's calculations are correct, is less then the amount of insurance. Calculating the cost of insurance, excluding life insurance, the cost to the economy in 2030 is 3.3% of global GDP. Whereas the costs of climate change abatement totals only 0.6% of Global GDP, or 500 billion euros. If that is the cost, then what is the concern? And this last question needs to be questioned, I think.

You may be able to tell that I am skeptic about the impact of CO2. I need to be convinced that the globe is rising in temperature directly as a result of CO2 production. 500 billion euros is a lot of money to waste. It seems odd to me that the temperature on Mars has also increased lately, however, I don't think there is any human involvement in their atmospheres changes. What I am concerned about is we waste time and energy pursuing the wrong factors. Is there not natural phenomenon that can account for this. I would also suggest if you frame each weather oddity as evidence of global warming each night on every news channel around the world, then the distorted view of the climate change people will only be reinforced. How much of the CO2 is attributable to the spectacular volcanoes we have seen in the last 30 years? Humans don't necessarily cause everything on earth.

Much can also be done about the environment through effective and intelligent programs. In the 1980's we were subject to acid rain that was going to wipe out our forests. Maybe we should go back to creating acid rain so that the forests will be eliminated. The CO2 released by forest fires is very large. Prior to that, the ice age was coming back in the 1960's. I think that McKinsey have done a very good job at attempting to quantify the costs of global warming. Based on the understanding that we have today. And I don't doubt that global warming may be a fad that will abate as the acid rain and ice age did.

Technorati Tags: Genesys, McKinsey, Environment, Science

Conservative environmental policy.

An announcement by the Canadian Federal Government on environmental policy was leaked, with few specifics, on how the country would achieve certain CO2 targets.

There will be more information coming on Thursday at which time I will post an update. I "hope" that the government does not assess industry as it is suspected of doing. The tax, if any, should be assessed on the consumer, not industry. Secondly the majority of the taxes should be focused on bringing the costs of Coal in line with Natural Gas.

The other interesting point was, the reduction in greenhouse gases was proposed at 150 million tonnes. In my previous posting, the one facility had injected 7 million tonnes over four years on a pilot project. Maybe the injection of CO2 as a miscible agent will provide the environmentalists with the means to solve this alleged problem. Therefore I would recommend the Federal government join the Alberta Government and provide incentives for the energy industry to act in this manner.

Technorati Tags: Genesys, Environment, Proposal, Government

CO2 as a solution, not a problem.

In this article,the April 2007 Oil & Gas Network (Print Edition), "What's New in EOR Research" talks about the use of CO2 in Enhanced Oil Recovery schemes in Alberta. Each of the highlighted projects are taking advantage of an Alberta Government's CO2 Projects Royalty Credit Program. The participants include Apache, Devon, Penn West and Anadarko. The schemes use the EOR technology that has been learned by the energy industry over the past 20 years. Using pattern drilling to sweep the reserves to the production wells with a Water Alternating Gas (WAG) injection, sometimes horizontally as well. I found it interesting in the article that the producers could now justify this type of flooding with the higher oil prices. I did not realize CO2 injectants would be more costly then C2+. However the article states that the source of these injectants is primarily from the neighboring gas plants. And that the sources of CO2 would constrain the further development of these pilot projects. Another interesting element is the use of reserves that have been very prolific, yet difficult to find, areas like the Rainbow Lake pinnacle reefs and Nisku formation in Pembina. Another area where it is being tried is the Pembina Cardium Miscible Flood.

The injection of liquefied CO2 is a miscible agent that will also maintain pressure on the oil being driven to the producing wells. In the Weyburn area over 7 million tonnes of CO2 has been injected over the past 4 years. And unlike any other miscible flood where the miscible agents are expected to be recovered, the CO2 will be left in the ground permanently. If the energy industry is able to discern any value from CO2 injection, a given as far as I am concerned, and the Alberta Government continues to provide incentives to the industry to do so, we may have shortfalls in those green house gas supplies. If we used the 7 million tonnes of injectants as a guide how much human production of CO2 is offset?

Using the "Carbon Dioxide Calculator" we can determine that the atypical home heating and other associated demands produce of CO2. Using rather liberal values, and particularly 5 eight hour flights per year, I came up with 935 tonnes per household. Now in the past 4 years, 7 million tonnes of injected CO2 at the Weyburn facility essentially eliminated the annual production of 7,486 homes. If we extend the number of facilities that could use CO2 as a miscible agent, maybe these Kyoto targets are not necessary after all.

Technorati Tags: Genesys, Environment, Engineering, Development