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By Robert Rapier on Jul 12, 2010 with 29 responses

BP, Exxon, and Peak Lite

My vacation is over, so it’s back to work. I am still working on the followup to the MixAlco story, but there is a lot of material to digest. I am exchanging e-mails with Professor Holtzapple just now, trying to get answers to questions around the energy balance and overall conversion efficiency. As soon as those are resolved, I will publish the story.

One of the things I try to offer readers is an objective, timely analysis of happenings in the world of energy. For example, take the recent stories I wrote on BP. Shortly after the accident in the Gulf of Mexico, I wrote The Wake Up Call on the BP Drilling Disaster in which I predicted huge political fallout and big negative ramifications on the future of offshore oil production. I followed up with The Demise of BP? and suggested that BP would be very hard-pressed to survive this incident with their brand intact. In fact, I closed that essay:

And although BP has long been a source of pride with many Brits, I can only wonder now if in the future we will refer to them as “BP, a subsidiary of ExxonMobil.”

Today there are two stories in the news related to what I wrote about in those earlier essays:

Exxon Declines to Comment on Report It Has Government Approval for BP Bid

Exxon Mobil Corp. declined to comment on reports the company has received government approval to explore a bid for BP Plc.

Exxon’s Alan Jeffers had no comment on the report today in the London-based Times newspaper. Max McGahan, a spokesman for London-based BP, also said he wouldn’t comment.

You heard it here first, readers. :) The other major theme of the BP essays was also covered in the news today:

U.S. Issues Revised Offshore Drilling Ban

The revised moratorium would allow some drilling rigs to resume operating under certain conditions. To qualify, the rig’s owners must prove that they have adequate plans in place to quickly shut down an out-of-control well, that the blowout preventers atop the wells it drills have passed rigorous new tests, and that sufficient cleanup resources are on hand in case of a spill. Industry officials said it would be difficult to meet those conditions quickly and that the restrictions would threaten the jobs of thousands of rig workers.

This is playing out exactly as I thought it would. The BP brand is horribly damaged, and while I believe their assets will continue to produce, most if not all will eventually be under a name other than BP. Second, the political fallout was bound to slow the pace of drilling, which I think ultimately translates into even higher prices for oil as supply struggles to keep up.

Speaking of which, another story came out today that endorsed my views on Peak Lite:

Lloyd’s adds its voice to dire ‘peak oil’ warnings

One of the City’s most respected institutions has warned of “catastrophic consequences” for businesses that fail to prepare for a world of increasing oil scarcity and a lower carbon economy.

The Lloyd’s insurance market and the highly regarded Institute of Strategic Studies (ISS, known as Chatham House) says Britain needs to be ready for “peak oil” and disrupted energy supplies at a time of soaring fuel demand in China and India, constraints on production caused by the BP oil spill and political moves to cut CO2 to halt global warming.

If you recall, I proposed the concept of peak lite because I thought we wouldn’t have to wait around for peak oil before we began to see peak oil symptoms. In a 2007 story, I provided some graphics to illustrate what I felt was happening. I forecast $100 oil, but about a year later than we actually saw it.

But I first wrote about the concept in 2006:

It’s like we are worried about starving to death (Peak Oil) in a few years, but we didn’t consider that the food we are consuming may already be insufficient to sustain us. If population grows faster than food production, people will starve even though food production may be growing. That’s the situation I see with petroleum right now. We don’t have to forecast a supply/demand imbalance. It is here. Strong demand growth in China and India ensures that this problem will not be going away anytime soon, and will probably be the reality right up until production actually does peak.

Lots of organizations have come around to this point of view. The latest appears to be Lloyd’s:

“Even before we reach peak oil,” says the Lloyd’s report, “we could witness an oil supply crunch because of increased Asian demand. Major new investment in energy takes 10-15 years from the initial investment to first production, and to date we have not seen the amount of new projects that would supply the projected increase in demand.”

That’s peak lite in a nutshell. Remember, you heard it here first.

  1. By Walt on July 12, 2010 at 8:44 pm

    Robert Rapier said:

    Lots of organizations have come around to this point of view. The latest appears to be Lloyd’s:

    “Even before we reach peak oil,” says the Lloyd’s report, “we could witness an oil supply crunch because of increased Asian demand. Major new investment in energy takes 10-15 years from the initial investment to first production, and to date we have not seen the amount of new projects that would supply the projected increase in demand.”

    That’s peak lite in a nutshell. Remember, you heard it here first.


     

    The report has been coming from Lloyd’s … and we can expect the latest news on the Carbon Taxes shortly as well.  I sent this to my colleague the morning the report was issued (June 3) anticipating their conclusions.  This has not been new news for those following the peak oil controversy in my view…but I could be wrong.  No surprise here for many.


    Bob,

    See article…good timing.

    http://www.property-casualty.c…..Focus.aspx

    Walt.

     

    Obviously, we all think the easy oil is not so easy to find anymore, but high prices were coming whether they found major discoveries or not.  I am now watching to see how Carbon Taxes will be implemented, and if they will allow “new technology” into the framework for CDM and JI as they rewrite the legislation.  That will tell us if there is an exit strategy to reduce emissions, or just collect tax revenues.  I hope someone can predict that as the World Bank and UN Secretariat discussions continue.

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  2. By Walter Sobchak on July 12, 2010 at 9:00 pm

    U.S. Issues Revised Offshore Drilling Ban

    I assume the Administration decided this was a good idea for political reasons, because it is bound to piss off the Judges now considering the first edition of the ban.

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  3. By PeteS on July 12, 2010 at 9:03 pm

    Whenever peak-lite arrives, don’t expect lithium battery technology to take over, according to Toyota.

    Its new plug-in hybrid in 2012 will have a range of 13 miles, batteries will cost $1200/kWh, and battery cost reductions will depend on major technological breakthroughs, not just economies of scale. Sounds like Toyota doesn’t think PHVs are ready for prime time any time soon.

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  4. By Walt on July 12, 2010 at 10:59 pm

    PeteS said:

    Whenever peak-lite arrives, don’t expect lithium battery technology to take over, according to Toyota.

    Its new plug-in hybrid in 2012 will have a range of 13 miles, batteries will cost $1200/kWh, and battery cost reductions will depend on major technological breakthroughs, not just economies of scale. Sounds like Toyota doesn’t think PHVs are ready for prime time any time soon.


     

    Model 1 Saves on Productivity Costs, Eliminates the Need for
    Battery Charging Stations for Class I and II Forklifts

    FREMONT, Calif. — Oorja Protonics, the leader in
    ultra-powerful
    liquid methanol fuel cell technology, adds OorjaPac(TM) Model 1 to its
    product line. This addition to the OorjaPac family is 50 times more
    powerful than other direct
    methanol fuel cell
    Direct-methanol fuel cells or DMFCs are a
    subcategory of proton-exchange fuel cells where, the fuel, methanol (CH3OH),
    is not reformed, but fed directly to the fuel cell.
    (DMFC DMFC Direct Methanol Fuel Cell ) products
    available
    in the market. With a 4.5kW power output, Model 1 has the highest power
    output in the methanol fuel cell industry. Moreover, with an operating
    cost of $0.18/kW-hour, the Model 1 is an economical solution for
    forklift operators and fleet managers.

    http://www.thefreelibrary.com/…..0219079069

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  5. By paul-n on July 13, 2010 at 12:17 am

    RR, since your predictions seem to be doing so well, any stock picks for us?

     

    Pete S,  Interesting take from Toyota.  I’m not sure what the “myriad issues” are they have to solve that Hymotion has not already, but obviously there are some.  

    Also interesting to hear them say that shorter range on electric is better, if that were really true, then why not shorten it to zero?

    $1200/kWh of storage is staggering, that is $3600 for the 3 kWh battery pack.  You could actually achieve that with 300lb of lead-acid, for about $150-200.   I’m sure they could find say 150lb of weight saving somewhere, to account for the difference, and on a 300lb car, what’s the big deal?  

    Its too bad that Firefly Energy went bankrupt, as they had a technology that could halve the weight of lead acid batteries.  Somehow they burned through $30+million of VC money, including some from Khosla, before folding.  Hopefully someone else will pick up the patents and run with it.

    I think that perfect is being the enemy of good here.  In contrast to Kevin Kane’s approach that they should do this on luxury cars, I think the reverse approach is in order, taking an existing small car platform, stripping it of all unneccessary luxuries and weight, using lead acid or ni-cad batteries, and make a 30mile electric range, plug in series hybrid.  I.e. a cheap version of the Volt, with minimalist styling.  Every breakthrough car inhistory  (model T, Mini, VW bug, Citroen 2Cv, Toyota Corolla, Honda Civic) has followed this model, at least to start with.   Given that the primary market is commuters, even a two seater would work.  At least some of those people who feel strongly enough about saving oil to buy a phev will be happy to do without all the add-ons.

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  6. By PeteS on July 13, 2010 at 12:55 pm

    Benny, re: Peak Demand … IEA forecasts slowdown in demand growth, at least temporarily.

     

    http://www.irishtimes.com/news…..king6.html

     

     

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  7. By Benny BND Cole on July 13, 2010 at 12:51 pm

    I see China is going into Iraq to develop oil.
    Making predictions is tough, especially about the future.
    But ” the easy oil has already been found” doesn’t appear to apply to Iran, Iraq, Saudi Arabia, Kuwait, or Venezuela. They have incredible amounts of oil, much still undevceloepd and easy to develop. Maybe Russia too.
    Does this man Peak Oil Lite is not real? No, man’s boobery and thuggishness is unfortunately real.
    But lots could happen on both the demand and supply side. I am especially optimistic on the demand side–I think we have seen Peak Demand already.

    On Toyota–still, you can go 12 miles gasoline-free. If you can charge at work, that means 80 percent of commuters would go gasoline free. We are not talking improvements in mpg here–we are talking about obliteration of demand. We are talking about a commuter going from 10 gallons a week to one gallon a week.

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  8. By doggydogworld on July 13, 2010 at 1:04 pm

    Toyota has pooh-poohed PHEVs for years. This makes sense, they’ve invested billions and attained market dominance in hybrids using an architecture that is ill-suited to PHEV applications.

    Toyota’s battery cost numbers are a joke. Nissan Leaf has 24 kWh lithium battery and a $32k MSRP for the whole car.

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  9. By paul-n on July 13, 2010 at 1:50 pm

    But ” the easy oil has already been found” doesn’t appear to apply to Iran, Iraq, Saudi Arabia, Kuwait, or Venezuela.

     

    If those countries are the future for oil supplies, then the civilised world can’t get off oil soon enough!

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  10. By Thomas on July 13, 2010 at 2:57 pm

    Agreed Doggydog, Toyota is wiping the floor with the other guys in the hybrid segment. I’ve pointed out before that the two major automakers that are hottest on plugins ,Nissan and GM, have the weakest hybrid sales. Toyota knows that they haven’t sold every hybrid they can so why  rush to switch/upgrade the technology? If you’re making money selling AM radios why add FM? RCA sat on that technology for almost a decade with that logic.

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  11. By OD on July 13, 2010 at 3:50 pm

    Here’s more detailed specs for the Nissan Leaf. I would love to get my hands one one because it will fit my needs almost 100%.

    * Cruising at 38 miles per hour with ambient temps of 68 degrees, you could squeeze 138 miles out of the Leaf.
    * Averaging 24 mph in city traffic drops range to 105 miles, assuming air conditioning (A/C) is not in use on a 77-degree day.
    * In heavy stop-and-go traffic, averaging just 6 mph with temps of 86 degrees and A/C on, range drops to 47 miles.
    * At 55 mph on the highway in 95 degree temps and A/C on, expect range to be 70 miles.
    * Winter temps of 14 degrees with the heater on, will drop range to 62 miles in stop-and-go traffic, assuming an average speed of 15 mph.

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  12. By Benny BND Cole on July 13, 2010 at 7:05 pm

    Ford, which has been doing smashing work (the F-150 the best pick-up truck, the new Mustang a real sports car, and the new Lincoln MKZ a luxury car that gets 42 mpg) says it is bringing a EV to market too:
    “Focus Electric will have a targeted range of up to 100 miles per full charge with zero tailpipe emissions.”
    I have no connection in any way to Ford, btw.
    But soon you can buy a Nissan Leaf or For Focus and go 100 miles a charge.
    Who should be afraid–us, or OPEC?

    Paul N: Yes, it is a crew of uglies who dominate global oil markets, thug states all. That’s why I consistenly argue for gasoline taxes, and subsidies to buyers of very high mpg cars.

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  13. By PeteS on July 13, 2010 at 8:16 pm

    Glad to hear Toyota is behind the curve, folks. 13  miles on a charge sounded pretty crappy. I’ve been a Toyota driver all my life, but deserted them 3 months ago for a 70 mpg Skoda common rail diesel.

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  14. By Maguire on July 13, 2010 at 10:36 pm

    It is sad to see that it requires a disaster such as this to finally spark interest in alternative fuels and transportation methods. I remember when I was a kid in the 80′s there was a huge push for environmental awareness and initial prototypes for hybrid, solar, and electric vehicles. What happened to that drive? More than 20 years later we are now faced with a spill that has surpassed the Exxon Mobile crisis and we have an even higher dependency on oil than we did then.

    There is an interview series on alternative energy that I would like you to check out and comment on if you get a chance.
    http://www.ourblook.com/topic/…..rgies.html

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  15. By OD on July 14, 2010 at 12:09 am

    It is sad to see that it requires a disaster such as this to finally spark interest in alternative fuels and transportation methods.

    I would disagree, it was high gas prices that have led to this interest. The only thing I have seen surface from the disaster is clueless folks calling for BP gas stations to be boycotted. They are oblivious to the fact that those gas stations are owned by local folks, not BP.

    I believe the low gas prices pushed any effort in the 80s right out of peoples minds. Right or wrong, money seems to be what motivates the vast majority of people, nothing else.

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  16. By paul-n on July 14, 2010 at 2:02 am

    OD,

    It’s not just money, it’s also the threat of shortage, which was the situation in the 70′s though it then dissappeared.  Today there is no imminent threat of shortage/supply curtailment, or if there is it is being kept well hidden.

    I do agree that the BP incident has done little to change anything – it is a large industrial incident, but not a shock treatment like the oil embargoes of the 70′s – life goes on for most people.  If they still have their job, they are happy to use fuel to go to work.

    For the industry and government, a different story perhaps, but I don;t think that much will change – there is little point in curtailing domestic exploration and production, it is import reduction that must continue, though that is far easier said than done.

    while I am a proponent of alternative fuels like the alcohols, there is also a bit of economic restructuring needed to reduce fuel demand – that is much, much harder to achieve, and requires political and popular will that doesn’t seem to exist at the moment, and hasn’t really since the 70′s.

    Change will happen – slowly, and painfully 

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  17. By Benny BND Cole on July 14, 2010 at 1:06 pm

    Paul N-
    Or change may happen at a moderate pace, with benefits all around–higher living standards and cleaner air. Recent history, with the raft of innovation and use of the price signal, would suggest my version is quote likely!

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  18. By paul-n on July 14, 2010 at 2:39 pm

    Benny, I hope the change is moderate, but I don’t think it will be.  Problem is the government is scared of the price signal, remember the “gas tax holiday” idea during the last election campaign?  They do their best to prevent that signal from getting through.  

    the innovation is there, and a sustained fuel price floor, say $5/gal, it would happen fairly quickly – but there would still be some political pain involved, and none of the current leaders seem to have the stomach for it – Cameron in the UK comes closest.

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  19. By Benny BND Cole on July 14, 2010 at 3:29 pm

    Paul N-

    We can’t look to US political leadership. I know Obama knows we should have a higher gasoline tax. He won’t propose it, as the R-Party would honk about it to the moon, although their better leaders probably know we need it too.
    That said, the price signal is a marvel–cutting consumption while promoting alternatives, better than government can anyway.
    The world is full of smart R&D guys, publicly and pirvately funded, and they trade info instantly by Internet. Innovation is rapid.

    Sheesh, we had cheap gasoline for 20 years, then a spike in 2007-8.

    Now, two BEVs are hitting the market (Nissna and Ford) and one PHEV (the Volt). Surely, that is not depressing.

    Meanwhile, epic supplies of natural gas have been commercialized in North America, and I can’t imagine we are the only continent with shale. The methanol route is still open.

    Yes, we have dunderheads in DC. But we have really smart guys in R&D, and running many companies.

    I think we come out of this ahead, way ahead.

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  20. By Rufus on July 14, 2010 at 3:51 pm

    You don’t really need a “gas tax.” $3.00/gal gasoline will do just fine.

    Besides, you gotta be careful with too high a gas tax, guys. You put much of a tax on $3.00 gal gasoline, and you’re back in a Recession.

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  21. By OD on July 14, 2010 at 4:06 pm

    Ah Paul, you are correct. Threat of shortages is my sole reason for wanting to buy a Leaf or all electric Focus.

    I would guess, however, the threat of shortages has not been on 99% of the populations mind since the 1970s oil shock. It definitely is not today.

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  22. By Amanda on July 14, 2010 at 7:31 pm

    Looks like Apache is trying to buy BP’s interest in Alaska, it’s largest holdings in North America.
    http://alaskadispatch.com/disp…..for-alaska

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  23. By paul-n on July 15, 2010 at 2:00 am

    Rufus, $3/gal is hardly expensive, and hardly profitable for most gasoline alternatives (which have higher production and distribution and storage costs).

    I’m not sure that $4 or $5  gasoline will cause a recession. Yes its an increase in the cost of living for most households, but other costs (e.g. health care, housing, insurance, municipal taxes) are rising much faster, and claim a much bigger chunk of disposable income.

    If the prices are going up to that level, and everyone knows they will stay there, then they will start to seriously look at alternatives, be it ethanol, ev’s or transit.  It gives some degree of investment certainty, on both the supply and demand sides.  Otherwise, people just grin and bear it, waiting for the price to come down again.  If you know it isn’t your approach changes.

    And that change of approach is what is needed, then the alternatives become better capital investments, and buyers are more likely to use them.  When you get pension funds investing in ethanol plants, you know they are here to stay.  Until then, they are seen risky, and neither the investment community or government will bet “all in” on their future.

    Gasoline prices have been $6-7 in Europe for almost a decade, and their economic cycle is pretty much the same as here – gas prices did not stop the boom of 04-06.

    I know you don;t want the prices high, but they need to be high enough to bring on the alternatives, otherwise the Saudis have won, by keeping them low enough to keep the alternatives out.

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  24. By Rufus on July 15, 2010 at 8:43 am

    Paul, E85 is selling for $1.79 at Kum and Go (they still have a nice profit margin.)

    Add in $0.38 for the blender credit (.85X $0.45,) and $0.10 for the approx $0.30 bu corn subsidies, and you come out to a price w/o subsidies of approx. $2.27 gal. That’s very competitive with $3.00 gasoline. Especially when you consider the new engines, like the 2.0L DI Turbocharged engine in the Buick Regal coming out this fall will get essentially the same mileage on E85 as on dinosauer juice.

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  25. By Rufus on July 15, 2010 at 8:51 am

    I don’t know, Paul. We’re pretty sensitive to gasoline prices over here. All of our Recessions Have been preceeded by a spike in gas prices.

    And, when it comes to “lowering” the price of gasoline, nothing works like a Recession. We’re arguing a moot point, anyway; there’s not a chance in honeysuckle hades that Congress is raising gasoline taxes in the middle of a recession. That just ain’t gonna happen.

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  26. By Wendell Mercantile on July 15, 2010 at 11:17 am

    as on dinosauer juice

     

    Rufus~

    I hope you were smiling when you said dinosaur juice. Petroleum has nothing to do with dead dinosaurs — depsite the big green dinosaur on those old Sinclair filling station signs. Petroleum came primarily from algae and phyto-plankton that died and collected in thick layers at the bottom of oceans, seas, and lakes. Under the right heat, pressure, and anaroebic conditions, all that dead organic matter cooked into petroleum over millions of years. (Essentially what the algae-to-oil people are trying to do, except they have to compress millions of years into a matter of weeks.) 

    When you fill the tank of your flex-fuel Caprice, you can be just as happy some algae or plankton grew millions of years ago and gave its little life for you, as you can be that some corn kernels grew a few months ago just for your benefit. Both gasoline and corn ethanol come from plants:  One plant cultivated, fertilized, harvested, fermented, and distilled at great expense; the other plant, one that grew naturally, but millions of years ago.

    Actually, if you get down to basics, oil is the original bio-fuel.

    __________________________________

    Coal doesn’t come from dinosaurs either.  It primarily comes from leafy plants that died and collected in thick layers in forests, jungles, and swamps, and over millions of years metamorphosed into the rock we know as coal, passing through several phases on the way: peat, lignite, brown coal, bituminous, and anthracite.

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  27. By Rufus on July 15, 2010 at 11:37 am

    Yep, I wuz smilin. :)

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  28. By Rufus on July 15, 2010 at 2:12 pm

    Here’s a Video of RR questioning Jeff Broin on the need for the blenders credit:

    http://www.rhapsodyingreen.com…..dit-1.html

    And, a surprising answer: NO

    Growth Energy has, evidently, come out today with a proposal to do away with the blenders credit, and redirect some ot that money to a build-out of blender pumps, flexfuel cars, and other infrastructure.

    Damn, RR, I didn’t know you were a “teenager.” :)

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  29. By paul-n on July 15, 2010 at 2:43 pm

    Rufus, I am in agreement, that, no matter the merits of fuel taxes, they are not going to happen, for the political reasons.  I don;t think there economic consequences are that bad, but that is purely an academic discussion.

    I guess that is why there is also little action to remove any of the “hidden” subsidies for oil, as it will raise the price as surely as a tax will, but at least there is a political flip side in ending subsidies to the very profitable oil companies.

     

    Interest in that video that at the end, Broin says they want “access to the market”  .  That strikes me as an odd statement.  They can sell their ethanol to anyone they want, any where, any time.  They can set up independent filling stations, you don;t have to do it through the existing chains of gas stations (and I note that most E85 pumps are at independents).  As far as I am concerend, they have “access” in that they are not legally barred from selling ethanol retial or to oil companies, and they have a 10% mandate – that seems like good access to me.

    if they want to sell more, then they have to get out and work for it.  The missing link still seems to be to make customers want to buy it, and no one, especially the ethanol industry,  is making any effort on that.

     

    That said, I think re-directing some of the credit money to blender pumps is a good idea.  The feds should simply pay a lump sum, say $50k, per pump installed between now and Dec 31, 2011, up to say 10,000 pumps.  That is $500m, one eight of this years VEETC, and would give very good “access to the market”.  Pumps must be capable of handling ethanol methanol, and mixed alcohols.

     

    $1.79 at your local is a real bargain – hope the taxis are using that.  I filled up in Vancouver yesterday (regular unleaded) for Cdn $1.15/L, or about $4.37/gallon.  No recession here because of that fuel price.  But there are lots of small efficient cars, electric buses and electric trains.  Still plenty of PU’s (I drive a Ranger) and SUV’s, but people only have them if they actually need them, because if you don;t, you are wasting your money. 

    I still don’t know why farmers aren’t using it to co-fuel their tractors – then they can claim the VEETC (while it is still there).

     

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