Cross posted on Daily Kos
This weekend, I was talking to one of the smartest people I know on energy issues, and I thought he made some great points. Before you read them, keep in mind that they are NOT conventional "wisdom," or what passes for "wisdom" these days. That, of course, does NOT mean the analysis is wrong; to the contrary, I believe it's right on the money.
1. Not that this is a big revelation, but much of what politicians are currently proposing with regard to "lowering gas prices now" - "cracking down on speculation," investigating "price gouging," releasing oil from the SPR, offshore drilling - is nothing more than political pandering, either nonproductive or actually counterproductive to what we should be trying to accomplish.
2. On the role of "speculators," if anything the energy expert I talked to felt that they were HELPING matters by incorporating future fundamentals (e.g., what people expect oil supply and demand to be down the road), pricing oil accordingly, helping to "destroy demand," and hence heading off future shortages. In other words, "speculators" are performing a vital function in the market. Not that they intend to do so, as they are focused overwhelmingly on the (very) short run, but in essence they are doing us all a big favor.
3. With regard to drilling off the U.S. coasts, like almost anyone who knows anything about energy, the energy expert I talked to is certain that this won't make any difference in the short run, probably not in the medium- or long-run either. However, he believes it probably will happen, as public sentiment heavily favors it at this moment (and politicians are nothing if not reactive to what the public wants, whether it's smart or not, especially right before an election).
4. Another good one you often hear is that oil companies could drill on public lands but they're choosing not to do so, probably for nefarious reasons. According to my energy expert friend, that's nonsense. In fact, at $120 per barrel oil, there's WELL MORE than enough incentive for oil companies to drill anywhere and everywhere. If oil companies are not doing so, that means the oil deposits are either very small, extremely hard to get at, or not worth their investment for a combination of reasons. In short, whatever else the oil companies might be, they're not irrational and they're not stupid.
5. There have been numerous investigations of "price gouging" previously, and to date there's no evidence of anything systematic going on in this area. It's a non issue, in other words, but lots of people believe it.
6. Releasing oil from the Strategic Petroleum Reserve (SPR) will do very little, even in the short run. If anything, gimmicks like this send all the wrong signals to consumers, fooling them into thinking that oil prices are really coming down and thereby removing market signals pointing in the direction of reducing consumption. Not smart. Also, the SPR was not created to try and manipulate oil prices, but as a hedge against an oil embargo, war, hurricane, or other catastrophe. The current spike in oil prices has been caused by none of those things.
7. What HAS the current spike in oil prices been caused by? Very simple: constrained supplies and surging world demand, as we've discussed here many times. Yes, it actually IS that simple.
8. The people really getting hurt right now tend to be lower-to-middle income people who live in exurbia. Not only are they getting hit by high energy prices, but their home values have declined, meaning that they're stuck where they are, with their long commutes and everything. In addition, a lot of these people are heavily in debt, which means that they don't have the ability to make the investments in more energy efficient vehicles, appliances, etc. that could save them big money in the long run. Needless to say, this is a major problem, both from a public policy and political perspective.
So, those are my energy expert friends' thoughts - and mine as well. What do you think?
So is it fair for people to accuse Exxon of rigging the market? No. Is it fair for people to want to either end oil subsidies and/or levy a "windfall" tax, either to encourage them to eat some of the growing cost of fuel themselves out of their already-record profit margins or to raise revenue to invest in alternative energy sources? Yeah, I'm still down for that.
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On point #8, he's exactly right. And it's important politically. The decisive factor in Bush's favor four years ago in a lot of battleground states was his support among exurban voters.
Right now, they appear to be taking the money and running. And worse, using it to lobby for more off shore drilling.
A much more intractable problem is our living patterns. Too many people live in exurbia and it is now unsustainable. In addition to higher energy costs, long commutes, and traffic congestion, obesity rates, lack of physical fitness, and health problems can be linked to the sedentary lifestyle in exurbia. People jump in their cars for everything. They don't walk because even grocery stores are all too far away. Their commutes are often so long that they spend a fair amount of time eating out in fast food restaurants because who has time to cook a healthy meal or work out at a gym after a two hour commute in the evening?
Our whole lifestyle is working against us both for conserving energy and for health and fitness. And I don't see how we can change it now. How do we alter human settlement patterns?
That used to be the Democratic "brand identity." Where did it go?
Barney Day said Bubba is going to pick this president. He is right. This is the issue. Y'all need to focus on the inherent inefficiency of central station power plants and the internal combustion engine. Drive toward smaller, more efficient power plants located in NOVA (where the power demand is) and CAFE standards for cars. If you drive a petroleum-powered vehicle, you lose 90% of the energy between the tank and the wheels. You are part of the problem.
Fix that. Solve the problem. Just don't castigate good people who are hurting and, unintentionally, tell the blogosphere that they are idiots.
Meanwhile, we need energy to power the PCs we are blogging on and the servers that feed them. Where you gonna get that?
Give Kaine, Obama, Webb, M Warner, J Warner, Drake and the General Assembly credit -- they at least understand this is a complex issue that needs to be looked at in complex ways.
As far as power plants go, if we want green power to power our state, it is not as simple as locating a power plant in NoVA. We can certainly locate a nuclear facility here (assuming Homeland Security was okay with that). But wind power, geothermal, hydro, tidal, and solar are specific to certain areas of the country. That power has to come to us via transmission. Even if we have wind turbines off VA's coast, we'll still need transmission. Even if every building in NoVA has PV solar panels, we'll still need some baseload generation and that will have to be transmitted from somewhere (unless we have a nuclear plant here). If you want more info on electricity issues, I encourage you to read some of floodguy's posts and comments.
CAFE standards are a relic of past era at this point. Today we need to be enacting legislation to move us to electric powered vehicles. If we want to talk about an equivalent standard, we need to think about BTUs per mile (or calories per km if you like the metric system).
Also, urban areas are trying to utilize more mass transit. We need the voters in smaller communities and rural areas to support these initiatives too. We need state funds to support initiatives to get people out of their cars. But as long as Republicans who represent these districts are not interested in helping, then we are kind of stuck. And all of that can be solved with people coming together from across the state to achieve a goal that benefits us all.
That is why smaller, more dispersed electric generation has to be part of the mix. If a big chunk of the power generated by windmills is lost in transmission, then twice as many windmills must be constructed to serve the people that don't live near them. Isn't that inherently wasteful?
NOVA doesn't want nukes, NOVA doesn't want coal. NOVA is not near wind-prone areas and NOVA's neighborhood covenants won't allow solar. Where is the baseload electricity to serve your NOVA going to come from?
I think you have transmission loss quoted too high. Don't you mean ~7%? If you really mean 70%, where do you get that from?
Our base load is going to come from existing plants (primarily coal) until we can transition away from them. That's going to take time while renewable base load comes online to replace it. Then we'll have transmission to get it from where ever it comes from to here and the Northeast. We just need the political will to do that.
The overhead transmission lines you speak of to deliver generation overland across large regions, are conductors with increased aluminum. Traditional steel reinforced conductors have less aluminum so the capacity to transmit is less. Aluminum is very weak and steel is needed to keep it from breakage. With less capacity traditional conductors reach their thermal limit quicker, when the grid is fully loaded during peak periods. The heat causes the steel reinforcement to expand then sag. Sagging conductors which touch tree limbs cause failure. This is exactly what caused the Northeast Blackout of 2003.
Higher capacity aluminum conductors, have a composite material which has the same strength (supposedly) of steel but use less space. Conductors of certain voltage have fixed diameters, and a 500kv-sized conductor could have an increased aluminum ratio to deliver as much as 3x the traditional capacity as current transmission conductors. Smaller diameter distribution cables may only increase capacity by 100%. The composite material also has a higher thermal rating, so there is less sag. The composite material is as light as steel, but since there is less of it and more aluminum (which is lighter), less tower structures are required. Traditional conductors can be very long and are more flexible and are easier to join. Higher capacity aluminum conductors are not as flexible, are shorter in length, require more connections, and therefore, cost more to install.
And, similar to an interstate highway emptying into an urban area, which requires alot of money, land and bridges, ramps and gabbion curve structures etc., higher capacity conductors require similar infrastructure to "power-up" and "slowdown" (balance) the power flow to the existing grid it connects - no differently then how exit ramps are intended to speed up and slow down vehicles needing to merge into traffic. Higher capacity conductors + the infrastructure = big money.
Many utilities have purchased some kinds of higher capacity conductor in small segments and smaller voltage applicable to distribution, not transmission. They appear to be, sorta like a demonstration for the utility to study w/i their power system in real-time. Consequently, major (long or widespread) installations by North American utilities haven't occurred yet compared to other continents. I wouldn't say this as though, because they are not "green". As congested our grid is, it is nowhere as congested and unreliable is it is in China, the Middle East or in South and Latin America. As time goes by, however, this will change. Increased upgrades and grid expansion are coming due to recent FERC mandated increased reliability standards.
Think of transmission like roadways. Higher capacity transmission is like raising the speed limit on a particular type of road. Let's say you have 100,000 carswhich need to travel from point A to B on a 2-lane country road with a posted speed limit of 35mph. It would take lets just say 3 hours to have all 100,000 cars reach point B. Raise the speed limit and those cars will get there in 1.5 hours. The only difference is conductors transmit electricity nearly instantaneously.
With a higher speed limit, however, one couldn't also add more cars, say another 100,000 (more generation resources), because that will destroy the country road. In transmission that would be similar to overloading the line above its rated thermal capacity. Too much heat creates sag in the tension lines and this is exactly what started the Northeast Blackout of 2003.
The option to resolve this would be to build another country road (add another similar transmission line) or expand the existing road (add a 2nd line of transmission in the existing right-of-way or widen it.) Or, if it was warranted, you could build a roadway more suited for a greater number of cars like an interstate highway. In transmission that would be like adding a higher voltage transmission line. Or you could simply relocate the people who drive the 100,000 extra cars to point B, but I'll address how that translate to the grid later in this post.
A transcontinental super-transmission grid, which I now think is what you are alluding to instead, is similar to what AEP is proposing: a broader grid of its 765v overhead transmission technology. But that has negatives, aside from the fact it would be very costly, etc. There are grid inefficiencies and it would basically commit a substantial amount of other utilities' capital to a macro-grid for a very long time. In 150 years something like AEP's proposal may be fully constructed eventually, but in our lifetime, I believe most of industry is interested in and committed to a balance. But that's not to say some parts of what AEP is proposing or something similar, will not be constructed w/i the next 30 years or so. Today, AEP has already started the process for a 765v line from southern WVa to MD/PA.
The higher capacity and HTS transmission will always be expensive and remain limited in application, growing b/n where generation is located and where the heavier loads centers exist. The interface b/n is where the congestion lies. These types of grid improvement address this, where new right-of-way or expansion is not possible or feasible. This type of problem (transmission congestion) cost utilities allot of money which is ultimately passed down to customers and decreases grid reliability & increases thermal failures which lead to blackouts. In 2003, as the blackout tripped from grid to grid, it was an AEP's 765v segment running north thru central Ohio which stopped the cascading failures from moving farther west. That presented regulators with a significant and obvious realization that the existing transmission via the macro-grid, was not only inadequate, but would require a constant commitment of capital and grid expansion.
Today w/i the general area of this blackout, 6 new extra-high voltage transmission lines are now proposed to resolve existing transmission inadequacies, meet expected growth, and while satisfying newly raise reliability standards mandated by FERC.
The balanced part of the equation comes from the development of what is more of a micro-grid concept of power distribution. A micro-grid intends to facilitate reliable alternative resources w/i load centers (higher concentration of electric demand) and ease the burden of transmitting power from far away places. This is the equivalent of relocating the people who drive the 100,000 extra cars to point B.
A more intelligent grid, digitally managing power flows, requires no new right-of-way, cost less compared to macro-grid expansion, and would be quicker to implement. This concept provide ways to manage problems the macro-grid cannot. With it comes the opportunity to introduce new resources gained through conservation w/o the inconvenience customers once experienced in the 70's. The inconveniences of good old-style conservation, stifled its support for which is evident today. This also leads to the possibility for end-users to generate their own electricity and supply the grid with the resources they don't use. This decreases the reliance on generation through transmission.
This new type of grid could optimize intermittent renewable resources, making them more available in places where they are less efficient. This in turn should make renewable's electricity in these places, more valuable with a smartgrid than without. If this is possible, it would widen renewables' participation in the power markets, because of their increased profitability.
If I have explained this well, you can see that within our lifetime, the reality points less to big renewable power fields in the midwest, supplying the east and west coasts. Someday perhaps, but in the near or mid-term, especially for the east coast, we seem to be more reliant on the smart grid to pave the way for huge possible gains thru EEC and co-generation, before eventually leading towards the mass expansion of the few smaller offshore power field - a combination of wind turbines, ocean wave generators, tidal and geothermal turbines. Midwest wind will especially be in high demand in the industrial neighboring states, such as Ohio and Illinois, who are very coal dependent as you already know.
Here in the east, on the non-renewable side, in order for local regions, states and cities to remain economically sustainable, efficiency upgrades on existing power plants, nuclear, coal w/ ccs and gas will without a doubt, remain a significant part of electric utility portfolios through at least 2050.
Line loss, loss in T&D is around 11%. Some of this is unavoidable, more of it is due to old inefficient and outdated T&D equipment, and poorly sited infrastructure.
Problem with wind generation actually is along the lines of its reliability, and that it can't be dispatched at the flip of the switch. It requires backup and land condemnation for new right-of-ways (ROW) for transmission siting.
That's the system we currently rely one, a macrogrid - generation sources far from load centers, connected via extra-high voltage transmission.
A more microgrid, enhanced with a two-way communicating switches and meters, an intelligent power grid, can digitally control the surges and drops in power flows to avoid transmission bottlenecks, thermal overloads, and maintain greater overall reliability. This can be done by dispatching alternative resources w/i the load center itself, through demand response providers, a/c load management, plug-in vehicles, pv solar roofs and general EEC of appliances in all types of buildings. When resources are in short supply, prices rise. When prices rise, a more intelligent power grid will signal home and building appliances to defer usage to off-peak hours (if the end-user agrees to do so). When capacity from intermittent renewables resources wane, and alternative resources can not meet reliability standards, the system can signal dispatchable backup resources namely thru cleaner gas generation.
NOVA may say they don't want nuke or coal, but they DO want electricity. And in Virginia, that definitely means nuke and coal, until the smart grid is implemented gridwise. This implementation will not be a reality until the mid 2020's or even 2030. Until then, if NOVA wants electricity, it really means it wants nuke and coal. And because NOVA has vital economic and national importances, NOVA will get nuke and coal no matter what. Its unavoidable. Capacity thru renewables and EEC will increase, but thru 2030 nothing will change the existing solution.
If certain people think they can talk about economic sustainability in one breath, then talk about no nuke, no coal, no petroleum, no natural gas and 100% renewables now, in another breath, then they are only trying to trick you if that deception can actually deliver a different outcome on Election Day.
(1) Hold any surplus drilling capacity in ready reserve for the really lucrative oil fields, such as those in Kurdistan and in Khuzestan Province, Iran--just in case the Cheney divide-conquer-and-loot strategy turns out to work.
(2) Just defer drilling for now on my millions of acres of leases on U.S. public lands. Why should I drill for $140 a barrel oil this year when I may well be able to drill for $200 or $250 a barrel oil next year or the year after?
(3) Oh, and of course I would hope for an opening up of offshore drilling--not because I would have any intent or expectation to rush out new rigs and flood the market with new offshore oil (for that would be technically impossible in the near term or even medium term), but because the act of opening those fields would immediately cause the per share price of my Big Oil Company to spike upwards as speculators displayed their gratitude by bidding up my company's stock. Love those stock options and executive compensation packages and bonuses.
What's not to like?
2) Short term incentive packages reward executives for their contribution to the bottom line today, not next year. Also, there is no guarantee that prices will be at $200 next year. NYMEX has contracts that go out pretty far, next year included, and prices on those futures contracts are not that different from today's price. If the economy remains soft and demand continues to decline, then oil will not hit $200 a barrel. If the entire world will still growing at a rate around or above 3%, then maybe. But who knows, a weak dollar and lack of interest in US debt and equity markets could continue to drive investors to commodities pushing up prices to astronomical heights. Oil companies plan with conservative estimates to protect their return on investment. And a conservative estimate would not include $250 per barrel oil. So, I doubt they are holding back waiting for even higher prices.
3) Opening up the offshore moratorium areas should not cause investors to bid up oil stocks. Oil companies would first need to possess a lease and then have find details showing how much was there and how much they could produce daily. Because if we don't know what the revenue stream is going to be, why would investors bid up the price of the stock? Opening up wouldn't tell us who gets the leases, who owns what percentage of the development, the things necessary to make an investment decision.
Like other large, well managed companies, they are focused on the return on investment and on not degrading that by adding poor investments to their asset base (at least the majors anyway.) Investment decisions are based on the return they offer. And if a potential investment does not meet a standard of return, then an investment is not made. There are of course strategic interests that override these decisions; but on a tactical basis, this is how it works.
There is no doubt that over the short-term, excessive speculation in energy futures (or any other asset class, for that matter) raises prices without regard to the actual supply/demand balance of the underlying commodity.
Speculation is helping drive up the price of oil not because of the investor's perception of future supply and demand -- many of this hot money knows little about oil markets, I suspect -- but because of the investors' perception that there will be another speculator willing to pay more for his contract.
This sort of activity does not reflect actual supply and demand -- it distorts it by driving supply from the market over the short-term and raising prices.
Over time, speculators will be driven from the market for any number of reasons, and the price of oil will revert to an actual price based on supply and demand. We have already seen this happen over the last several weeks.
I have no idea what that price is.
I'm not persuaded that oil speculation is providing a service to the American economy. The Savings&Loan speculation bubble,the Stock Market bubble, and the Real Estate bubble have shown that the taxpayer ends up paying for these speculative excesses.
The dollar's decline vis a vis other currencies means that OPEC and other oil producing areas of the world - without price increases - would have seen their most valuable commodity, oil, decline greatly in market value.
Solution? Drive the price up. I'm not saying that fact is as important as supply-demand, but it must have played some part.
Oil prices have experiences the "perfect storm." There is no quick answer, huh?
Blaming oil companies or government for artificially raising the price of petroleum seems to be a pretty good sign of paranoid tendencies.
And since that's true, isn't that a recognition that there is a supply-demand imbalance? (yes)
And yes, the government restrictions on supply are an "artificial" restriction on supply. We have oil and gas we have chosen not to introduce into the market. That is the very definition of "artificial." We may or may not have good policy reasons to do so, but if ExxonMobil did it, people would say it's market manipulation.
And if you know so little about oil, how do you know if prime locations are economically or technically feasible?
Many of the places I hear being discussed aren't actually restricted, and they sure as hell aren't prime. They aren't being drilled in because it's not economically/technically feasible -- as in, if one pays even a little bit of attention, one would know. Or, in some cases, they are being drilled in, they're just such poor producers that many people didn't discuss it.
I don't consider myself to know very much, because I know people who actually know things about petroleum (eg, petroleum geologists and engineers); however, I am studying geology, so while I don't know as much as many, I have picked up enough to know more than some.
Of course government or oil companies may artificially restrict supply through various mechanisms; I was merely discussing (not particularly well) the claim that enough probable extremely productive domestic locations were restricted that if they weren't, prices would drop dramatically. I apologize for any lack of clarity in what I said; if you still take issue with what I'm saying, let me know, and I'll see if I can make it clearer, or if I can find out more from those with more knowledge.
The best time to plant a tree was 10 years ago. The second best time is now.
For over 30 years we have not been able to explore off our coast, except in a limited portion of the Gulf of Mexico. Which, by the way, is a policy of willful ignorance, enacted by the current President's father to secure electoral votes in California and Florida (see where that got him).
You are right about economic limitations. Some areas have plenty of reserves but the finding and extraction costs make those reserves not economical to produce at a certain price. On the offshore, that is not so clear. There was a huge find in the Gulf of Mexico about a year ago that would not have been technologically possible or commercially feasible three years ago.
One of those former areas was coalbed methane in Appalachia. The federal government enacted section 29 tax credits about a decade ago to spur exploration and production of "unconventional" gas reservoirs, including shale and coalbed methane. Though those tax credits have expired, the technology developed as a result is now economical enough to allow exploration and production in shale formations like the Barnett and Marcellus, which we didn't even know about 10 years ago. Some people call that a subsidy.
I am sorry if I was a little terse in my reply. I am frustrated because we have ample reserves of energy in this country to bridge us to the new economy. The Stone Age didn't end because we ran out of rocks, and the Oil Age won't end until we find something better. We should and must do so, but the transition costs are extreme and hurt innocent, good people until new technology is commercial.
http://www.iht.com/articles/20...
As far as the drilling on public land is concerned -- yes, big oil will drill when it can make money doing so. It's false though for big oil advocates to suggest that increased drilling on public lands will lower the price of gas below current levels.
If it takes $4 a gallon gas to provide a sufficient incentive for oil companies to drill, then it follows that they won't drill if prices drop below $4.
I wouldn't entirely discount the idea that big oil will necessarily drill in all federal lands where it's profitable to do so at a given price.
They may have a target price that they're looking for; or they may see a greater long-term value in leveraging a potentially more profitable drilling area by holding off on drilling less profitable areas in the short-run (those less profitable areas will be available in the future). So it strikes me that an Enron scenario where there is manipulation of supply to extract regulatory concessions (and other concessions), which might be even greater sources of long-term profitability.
This price pressures angle is entirely speculative, still, given the players, I would be surprised if it wasn't a factor on the margins.