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Peak Oil Notes - Oct 30

Mid week update including:
- Oil rebounds a little
- The World Energy Outlook

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Solutions & sustainability - Oct. 30

Progettazione per zone e settori in ambiente urbano
Creating a Post-Peak Future Worth Living Into
Horticultural Consciousness: Hemenway interview #2

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Peak oil, prices & supplies - Oct 30

UK will face peak oil crisis within five years, report warns
UK companies urge steps to head off global ‘oil crunch’
ASPO VII - first day
Oil’s stunning retreat: How long can it last?
Heinberg: Go develop yourself

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The oil crunch: Securing the UK’s energy future

Declining availability of oil will hit the UK earlier than generally expected, with potentially devastating implications for the UK economy, according to a report from a UK industry taskforce. “We sought two opinions on oil-supply risk, one from an oil-industry expert known as a leading advocate of the early-peak scenario [Chris Skrebowski], and the second from Royal Dutch Shell, who we expected might advocate a more sanguine prognosis.” (Excerpts)

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German group: "Peak oil is now"

The current developments on the global oil markets confirm the core message of the study presented by the experts of the Energy Watch Group, a comprehensive analysis of empirical data regarding worldwide oil production. A temporary drop in prices changes nothing: The hope that the ostensible speculation bubble will burst is futile. It is highly probable that worldwide oil production has already reached its apex and will continue to fall back. “Peak Oil” is now. (Excerpts)

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Nine percent

The Financial Times has leaked the results of the International Energy Agency’s long-awaited study of the depletion profiles of the world’s 400 largest oilfields, indicating that, “Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent.”

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Two peak oil reports: IEA and UK taskforce

Financial Times leaks IEA report
Watchdog (IEA) warns on declining oilfield output
IEA denies oil output falling at faster rate
Jeremy Leggett on UK report
Falling oil production ‘is greater threat to Britain than terrorism’
Taskforce: Oil production predicted to decline within 5 years
Leggett interview on oil report

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Cutting Through the Coskata Cellulosic Ethanol Hype

I have a strong distaste for companies or individuals who overpromise and underdeliver. Changing World Technologies (CWT) and their thermal depolymerization (TDP) technology is probably the poster child for companies that promised lots and delivered little. The hype was that they had the “technological savvy” to “turn 600 million tons of turkey guts and other waste into 4 billion barrels of light Texas crude each year.” Further, they were going to “make oil for $8 to $12 a barrel.” (See TDP: The Next Big Thing).

Of course as time went by, the hype unraveled. But not before the hype resulted in CWT getting earmarks for building their plant (money that went down the drain as documented here) as well as a tax credit inserted by Missouri Congressman Roy Blunt to specifically benefit CWT. That money came out of the pockets of American taxpayers, and could have been better utilized. But it was hijacked by CWT and their overpromises.

These are the sorts of implications that cause me to be very skeptical of companies that make seemingly far-fetched claims. I don’t want technologies receiving legal and tax benefits because of hollow boasts. This is also the reason I have been critical in my assessments of some of the cellulosic ethanol claims made by ethanol evangelists like Vinod Khosla. [break]

Earlier this year a company called Coskata caught my attention after GM made a much-publicized investment. Coskata claims that their process “brings the first practical cellulosic opportunity to the market” and that they “will produce ethanol for under US $1.00 a gallon anywhere in the world.” That is just the sort of hype we heard from CWT, and therefore was something that I was interested in investigating.

So I took a look at some of their published numbers, compared their costs per barrel of their pilot plant to several other technologies, and wrote a flippant article - Coskata: Dead Man Walking.

The article unleashed an unanticipated firestorm. Journalists started contacting me. The government contacted me. Investors contacted me. And Wes Bolsen, CMO & Vice President of Coskata contacted me. The first three all wanted to know whether Coskata was the real deal, because I seemed to be the first to conclude that the emperor had no clothes. Wes Bolsen contacted me to state emphatically that they were for real. And he reiterated that during a one-hour phone call in which I was able to quiz him about the process.

The experience taught me a few things. First, as I reach a larger audience that I did a couple of years ago, I have to be more careful about what I write and what I say. When someone at the Department of Energy, or some deep-pocketed investor is paying close attention to what I write, I should never be flippant. If I am going to state that a company is over-hyping their technology, I need to make sure that I have done a very thorough analysis. As I said in a follow-up essay, sometimes the dead man was falsely convicted.

My initial intent was to write just one short essay on Coskata, but there was so much fallout that I ended up spending an entire week following up. In my follow-up essays I did peel several layers of the onion (I got a much more detailed view of what they are doing), but I still don’t think they can deliver on their promise of ethanol for less than $1/gallon. Why? In a nutshell, they are using two pieces of technology that are unproven in the service they have proposed. The technology has only been demonstrated at a small lab scale, and even then it was not all coupled together. On that basis they have made their claims of $1/gallon ethanol.

So what is the source of my skepticism around Coskata’s claims? Let’s look at two areas that I think are potential problem areas. I want to first look at their claims around the energy usage of the process, and then I want to look at the logistics to get a feel for the amount of biomass required to run a 100 million gallon a year plant. I am not going to offer up solutions to potential problems simply because I would require quite a bit more information to do so. But what I can do is flag various areas that a prospective investor/partner should investigate.

Energy Usage

The ethanol they produce is very dilute; only 3.5% or so according to Wes. This should take huge amounts of energy to purify. Coskata claims they have addressed the energy problem by using membrane technology. The claim is that it takes half the energy of distillation. This is somewhat hard to believe, as I would expect ethanol plants across the country to rush to adopt the technology. I am also unaware of any membrane separation technology that does a good job of concentrating up such dilute solutions of ethanol. The ones I know about may concentrate from 70% up to 90%. If you are starting at 3.5%, you are way outside of what these systems are normally designe for. And the technology isn’t brand new. Here is a 2001 article talking up the benefits: Pervaporation comes to age.

Yet there have been numerous ethanol plants built since 2001. Why aren’t they being built with membrane separation technology? Without going in and checking their claims, I can’t say for a fact whether that claim of lower energy usage is valid. But there are question marks all around it. (Note: I don’t dispute the technology, because I know that it works. But TDP also worked; just not as well as advertized. I would just make sure - if I were about to invest in Coskata - that I had a very close look at their claims around this area.)

Coskata also claims that they get “up to 7.7 times more energy than what is used in making the ethanol.” In my conversation with Wes, I had asked if this was from Michael Wang. He said yes, which then put that claim into context for me. Michael Wang has created a model that has been widely misused. The number above - 7.7 - will refer not to the energy that is used in the process but rather to the overall fossil energy used. This is the same way Brazilian sugarcane can claim an 8/1 energy return, despite the energy intensive process step of separating ethanol from water. This is a valid metric as long as the context is clear. But the context isn’t usually made clear. (This is the same metric that has caused some to suggest that it is more energy efficient to produce ethanol than to produce gasoline).

Here is an illustration of the potential problems with this metric. Let’s take an extreme example, as I think they are useful in illustrating concepts. Let’s say that I have one million BTUs of biomass. But let’s say I have a conversion process that is terribly inefficient. I use that biomass in an inefficient process to produce a trifling amount of liquid fuel: 100 BTUs. In the process, 999,900 BTUs - 99.99% of what we started with - are lost in the process because they are used to drive the process.

But let’s say I have to input a small amount of fossil fuels; say in the form of electricity to run a pump. If I used 13 BTUs of fossil fuel to produce the 100 BTUs, then the energy return based on Wang’s metric is 100/13, or 7.7. So, I could claim to have a high energy return despite the fact that almost all of the available BTUs are wasted. This is the ‘opportunity cost‘ of those BTUs. Had we used the starting biomass to produce electricity, for instance, we would have had far more BTUs at the end of the process.

Now I am not suggesting that Coskata loses most of their BTUs in the process of making their ethanol. But without a real energy accounting - which the 7.7 number is not - it is difficult to determine whether this process makes better use of the available BTUs than a competing process. A proper energy accounting should take into account the overall BTUs consumed in the process, and not just the fossil fuel usage.

Logistics

David Henson, President of Choren USA (another company involved in biomass gasification), once commented to me “You know, most people just don’t understand that biomass isn’t very energy dense.” David was absolutely correct, but what does that mean? The lower the energy density of a substance, the closer it needs to be to the factory. Imagine hauling potatoes from New York to California in order to convert them into ethanol, and you get the picture. You would certainly burn more fuel transporting the potatoes than you could make from processing them into ethanol.

I believe this issue of low biomass density, which I have referred to as the logistics problem of cellulosic ethanol, is a killer for cellulosic ethanol. In fact, I recently calculated that to keep a medium-sized cellulosic ethanol plant running would consume the biomass equivalent of almost 900,000 mature Douglas firs every single year.

However, the Coskata process is not a cellulosic ethanol process. Gasification processes have distinct differences from cellulosic processes (I explained why here). The consequence is that a gasification process can have a higher yield because it converts lignin and hemicellulose in addition to cellulose. In Coskata’s case, they promise 100 gallons (+) per ton. How much biomass then to run a 100 million gallon per year facility? A million tons per year. How much biomass is this? If we return to the Douglas fir example, it is the biomass equivalent of around 1.2 million mature Douglas firs per year.

That’s still hard to wrap my head around, but I can put that in context from my current job. In our wood acetylation plant in the Netherlands, our nameplate capacity is 30,000 cubic meters of wood per year. A cubic meter weighs half a metric ton, so we run 15,000 metric tons per year through our plant (about 17,000 short tons). Coskata proposes to process about 60 times as much biomass through their 100 million gallon per year facility. That is the sort of logistical challenge that boggles my mind, when I try to scale up our process by a factor of 60. Further, that biomass has to be finely processed so it can be pushed through their gasifier (which can be very finicky if the biomass quality varies).

To put in the context of rail cars, the coal cars lined up outside of a coal-fired power plant are a familiar site. According to this, each car carries about 100 tons of coal. For a million tons of coal a year, you would have to have 1 million/(100 tons per car) = 10,000 cars per year coming into and leaving the plant. That’s more than a car an hour, 24 hours a day, 365 days a year. And of course coal is quite a bit denser than biomass, so more cars would be required in the case of biomass.

I won’t say that’s impossible, but it is going to be a significant challenge. All I can say is Coskata better have hired some very good logistical experts. They are going to need them.

The Bottom Line

So what’s the bottom line? Let’s say you are an investor with a billion dollars burning a hole in your pocket. You need to know if Coskata is for real. Here is my free advice.

The plasma gasification piece and the membrane separation piece both need a very good technical vetting from someone who has signed a secrecy agreement and has access to the experimental data. A technology that works in the lab is one thing. But as you start to scale up, little problems turn into big problems (as was the case with TDP).

You need to know to what extent the gasifier works in conditions close to what Coskata is proposing. These plasma gasifiers are finicky, and normally used for waste disposal. Has the gasifier been tested extensively with a variable substrate like biomass? For how long? What were the results? What were the key challenges? How accurately were the energy inputs measured? In fact, I would probably want to park myself in their labs for a few days, and spend a lot of time talking to technicians. I would want to know - outside of the tours - what’s really going on.

Second, I would really focus in on the logistics issue. I would want some serious details on how they are proposing to handle the logistics. How is the biomass going to come into the plant? Has a calculation been done on how far away something can be transported before it becomes break even on the energy? If it is waste biomass already coming into a point source, then it isn’t as big an issue. But then I would ask if there is any location in the U.S. that is handling a million tons of waste biomass at a point source (which the gasification plant would be). I would want to see actual examples of someone handling this much biomass.

Finally, I would go over their $400 million capital estimate with a fine-toothed comb. I would ask for an example of any technology that has been piloted in the lab, and then had an accurate capital estimate done at a scale of tens of thousands of times larger than the lab scale. As I have said before, you have different problems at a pilot scale than you had at the lab scale, and the problems become even bigger at commercial scale. The capital estimate is already $400 million for a 100 million gallon per year plant - $61,000 per daily barrel. That puts it at a disadvantage to GTL or corn ethanol. Why wouldn’t I expect that capital estimate to climb as they gain piloting experience? Why would I expect them to stick with biomass, when the logistics of gasifying (partially oxidizing) natural gas are trivial when contrasted with biomass logistics?

Conclusion

To conclude, let me state for the record that I want Coskata, and for that matter Choren, LS9, Range Fuels, Virent, Nanosolar - to be successful (defined as “produce energy in a sustainable manner”). The world needs solutions to our energy problems, and I applaud these companies for their efforts. I want my kids to grow up in a world with abundant energy. But I never let what I want cloud my judgment when I am trying to determine what is true. So, I still believe in scrutinizing their claims very closely, and stating for the record whether I believe their claims to be credible.

ASPO VII - first day

The VII International Conference on Oil and Gas Depletion was the first in many ways: the first after the death of Ali Samsam Bakhtiari; the first after record oil prices; and the first after serious economic difficulties hitting the OECD. Right from the beginning there was a feeling in the air that circumstances had changed and a new era had arrived.

[break]

Crossposted at the European Tribune.

For the background of each speaker please visit the conference’s website.

This year’s conference took place in the cosmopolitan city of Barcelona in Catalonia, The city itself is a living example of the arrangements in urban planning we might have to undertake to answer Peak Oil. Throughout the days spent there I felt quite comfortable, in a place worth living and caring for, even if expensive in some aspects (well, public bicycles are free for half an hour).

The typical “ruler and triangle” Barcelona neighbourhood. The blue P sign marks places were a public bicycle can be picked up or left.

The conference took place at the city’s World Trade Centre, by sea side, in a well equipped theatre that even provided simultaneous translation, allowing for addresses in Catalan, Castellan and the obvious English. Just outside the hall there was a suitable location for the usual sideline discussions during coffee breaks, complete with a display of posters and brochures.

Ali Bakhtiari

The first day started with the usual opening ceremony, this time hosted by the Catalan minister of Innovation, University and Enterprise. Then followed Kyell Alleklett with a welcoming address. He remembered Ali Bakhtiari, and how important he was for the start up of ASPO, and the risk he took in associating with the organization. He stressed that the concept of Peak Oil is yet not well understood by all and told us about his bet with BP’s Tony Hayward, that world oil production in 2018 will be below today’s rate. Going on with his address on “Peak Oil and Economic Growth in Africa”, Kyell pointed that without Oil, a country cannot have political strength. Production is growing in sub-Saharan Africa, and will reach a peak over 7 Mb/d, but the West and China are taking that resource away. He concluded that we should be helping Africa use that Oil and not stealing it away.

Carlos de Castro, from the University of Valladolid, presented an approach to modelling the future of the world’s energy and economy using systems dynamics. He pointed out that both geologists and economists are looking at the problem considering a restricted set of variables, thus having a limited view. All the main variables considered by these two groups must be taken into account as well as the feedbacks among them. Two different scenarios were laid out. In the first (the optimistic one), the world would enter a long plateau in energy supply after which coal, fusion and a few other new sources would put growth back on track. Carlos stressed that such period of energy use stagnation coinciding with strong population growth is unprecedented. He went on to the second scenario where an additional linear feedback was included from GDP to alternative energy; in such case world energy usage enters an irreversible decline.

Following was Salvador Pueyo from the Catalan Institute for Climate Sciences who presented an “Epidemic” model of Oil Depletion. He recalled how the logistic is based on Verhulst’s model of population growth, for which the Plague of the XVII century is a classical example. He made the equivalence of the biologic SIR framework to oil production: the Susceptible population being Oil in the ground; the Infected, oil in production; and the Removed, old oil fields. He quoted TOD several times, where a discussion about the correctness of this approach has remained for more than three years, specifically this post by Khebab. He then applied the Linearisation method (which corresponds to the assumption that the growth rate increases linearly) to several regions, avoiding an assessment of the world.

After a coffee-break came Jean Laherrère and Jean-Luc Wingert showing how the world’s liquids production will evolve in the face of serious economic constrains. Jean showed his familiar comprehensive graphs. First he noted important inconsistencies with publicly available data (especially with BP’s), and then went on to forecast an unconstrained peak liquids by 2015 with 2 Tb for the Conventional Oil ultimate (excluding extra-heavy) and NGPL following the Natural Gas profile. But Jean thinks that a bumpy plateau is more likely than a clear peak, and we may already have entered such a plateau 3 years ago. Then came Jean-Luc to present two scenarios based on Jean’s assessment of reserves and flows, but this time considering economic constrains in light of previous crisis: the 1980s world crisis and Argentinian crisis. In case of a Hard crisis production falls visibly but later rebounds strongly, possibly surpassing the previous maximum; if that’s the case, it is possible that Peak Oil might fade into obscurity for some years. In case the crisis is not so severe (the Soft scenario), production a less pronounced fall is expected, possibly resembling the “bumpy plateau”.

At the end of this talk Jean declared that this was his last address at an ASPO conference. According to him, it is now time for new generations to emerge, and hence his presence accompanied by a younger ASPO member. Jean-Luc is certainly a worthy receiver of such responsibility, but I don’t think Jean will stop drawing graphs.

To finish this first morning came Mariano Marzo to address Gas Supply Security in Spain. This state is the 7th largest importer of Natural Gas in the EU (representing 32% of internal consumption), and the 3rd largest importer of LNG (68% of consumption). Spain is expected to be the fastest growing consumer of Natural Gas in the EU for the next 5 years, with most of this additional demand officially expected to be met with projects in North Africa and the Middle East that do not yet exist (and require many billions of dollars to take shape). But even with those projects, world re-gasification capacity will almost double liquefaction capacity for the next decade, casting serious doubts over such expectations. A shift in priorities is needed in Spain where an Energy revolution will have to take place.

After lunch the first address was by the Hon. Edward Schreyer, who dispensed with the traditional slide presentation. It was a different effect, showing that words can be at least as moving as nicely crafted graphs. Mr Schreyer started by exemplifying: according to the NAFTA agreement, Canada is not obliged to increase its energy supply to the USA, only to maintain the level of supply of the previous three years. Energy supplies to the USA have been growing simply because of Canada’s greed. He went on to explain why the House of Commons has such name. It should be the place where the Common Property and Common Resources should be defended and managed; unfortunately the “infinitude” of the early New World shaped the psychic of the North American people making such task now difficult. The closing remarks where a call to reason of the leadership: the EIA/IEA scenarios that are optimistic to the point of irresponsibility, must now come down to reality; every country not working for harnessing all the renewable energy sources possible is being irresponsible.

I was supposed to close the morning session, but technical difficulties prevented so: I use OpenOffice but the pulpit’s laptop only had Microsoft software; when I loaded my presentation some fonts where not being rendered. Fortunately, Mariano Marzo was kind to change places with me and Chris had brought his laptop so we could set all the text bits to plain Arial. My address didn’t deviate much from the material presented here at TOD. The main update was the inclusion of preliminary assessments for Nigeria and Iraq, which even though optimistic, do not change the overall picture. Due to the fast depleting time available for speakers, I gave the presentation faster than would be advisable, and my English abandoned me a few times. Still I think the message got through: Exports have already peaked and nothing seems capable of changing that picture. For most states of the EU Oil has effectively peaked.

Then came Andrew MacKillop in his unique style. He showed that the OECD countries are the most vulnerable to depletion due to their high Oil and Gas intensity. Up to now, market-driven growth as failed to deliver Renewable Energy alternatives. Andrew claimed this was due to more and more money being spent on buyouts and asset refinancing, casting doubt on the usefulness of these alternatives. He proceeded to present what he called an energy Bretton-Woods agreement, a new international Framework with new institutions, e.g. an International Energy Fund substituting for the International Monetary Fund. He would conclude that the OECD needs NegaWatts, not MegaWatts.

I had to skip Chris Skebrowski’s talk, so I could give a few interviews, but Chris provided a few notes:

Chris Skrebowski is a regular contributor to ASPO conferences. His message is familiar to many and growing every more convincing. A very best case scenario of a global peak is in 2011-12 at around 93 mbpd. This represents a geological potential coupled with the world’s oil companies making investments and working as hard as is plausible. A global depression changes the situation.

Skrebowski presented the following international picture:

• OECD production peaked in 1997 and has now declined by 2.2 million b/d (10.4%)
• Non-Opec, non-FSU production peaked in 2002, has now declined by 771,000 b/d (2.15%)
• North America/Mexico peaked in 1997
• North Sea - UK/Norway/Denmark peaked in 2000 now declined by 1.6 million b/d (25.4%)
• Around 28 significant producers in decline
• About 35% of global production from decliners

Followed by the corporate picture showing how production from the top 5 majors peaked in 2004: Chevron 2002, Shell 2003, Total 2004, BP 2005 and ExxonMobil in 2006.

Dozens of new projects started up over the last few years, bringing 2.5 mbpd of new oil the market in 2005, 3 mbpd in 2006 and over 3 mbpd in 2007. However during this period global flows remained flat. Skrebowski suggested an underlying decline rate of the fields already in production of 4.5% or around 3.7 bmpd. The important point to note is that this figure is three times the demand growth – depletion of supply is the main story in the global demand supply balance, not demand. This amount is also greater than all non-conventionals, and Skrebowski said the decline was increasing at 0.3-0.4 mbpd. per year.

Echoing Luis’ point on exports, the international trade in oil peaks before global production. Looking at where oil is used and therefore where impacts are felt and responses needed, road ransport sticks out. 55% of oil is used in road transport (compared with 25% in other transport, 10% for heat and 10% in non-fuel application). These simple numbers really frame the problem as one of road transport; there is hope in significantly reducing the vehicle miles driven whilst dramatically improving efficiency.

And then came another oildrummer, Ugo Bardi, to talk about the future of Mining. Ugo presented a comprehensive pictorial version of his posts on mining: Earth is a special planet where its geological activity created deposits of ores. By Mining, Man has been able to move ores from highly concentrated deposits to dispersed deposits. We don’t face the risk of running out of minerals, but are facing the prospects of running out of energy to cross the Minearologic Barrier. Worldwide production of many metals is presenting maxima in profiles that seem to follow bell shaped curves. These kinds of curves can be justified assuming that part of the mining process profits are invested to increase production. Ugo ended with an interesting quote: “Energy is the ultimate raw material”.

Closing the final session of the day came Marcel Corderch with an address entitled “The Nuclear Illusion”. He started by showing a set of graphs depicting the growth of Nuclear power in the US: ordering of new reactors stopped in 1973, and after that year no new reactor was commissioned from scratch and completed. The Three Mile Island event had no visible impact on the US Nuclear program: apparently what killed Nuclear in the US was the first Oil Crisis. At the moment no reactor vendor is offering price stability, and hence the difficulties in growing the installations worldwide. Then came some numbers of a hypothetical Nuclear program: a Nuclear reactor has a mean life of 40 years and reaches break-even energy-wise in 7.9 to 14 years of operation (numbers from US academia), resulting in an EROEI around 3:1. If a program is put in place with the build up of 1 new reactor per year during 20 years, break even only arrives after 27 years (up front energy invested compounds). For a larger program with 20 new reactors per year during 20 years (totalling 400), the break even moves back to 32 years.

The day closed with Dick Lawrence summarizing the ASPO-USA conference. TOD covered it with several posts, so I’ll just say that as with this conference, the work provided by TOD is highly regarded.

This was a gloomy day, with most graphs pointing downwards. Jérôme was an especially frustrated man: “Why complicate? Wind works,” he’d say often. In spite of being one of those responsible for the gloomy numbers, I shared that same frustration; a dinner among friends discussing the future was just the perfect finish for a stressful day.

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