Consumer Energy Report is now Energy Trends Insider -- Read More »

By Robert Rapier on Sep 24, 2010 with 78 responses

How to Run an Oil Industry into the Ground

Chavez EconomyHugo Chavez is putting on a clinic in Venezuela. The theme is “How to Destroy a Domestic Oil Industry.” I have warned for years that this would be the end result of Chavez’s actions. As I wrote in 2007:

So, can Chavez under-invest in the industry while diverting money to his pet causes? He can for a while, but you can see the results. Despite having enormous oil reserves, he and his cronies are running Venezuela’s oil industry right into the ground. His generosity to the poor has only been possible because he had a goose that laid golden eggs because they constantly reinvested money back into the business. Once he kills the goose, where is he going to get the money to continue his programs?

Venezuela is in the Top 10 globally in oil reserves, but their national oil company is reaping what Chavez has sown:

Declining production will continue to hit Pdvsa

The report, which was prepared by the Ministry of Planning and Finance, includes Pdvsa’s consolidated results, characterized by falling revenues, lower earnings, and a growing debt. The report conceded that the oil industry was hit by lower production and a decline in oil prices.

Financial authorities acknowledged that production and expenditures have been key factors in the financial situation of the oil industry. They added that these factors will continue to hit the industry in the future.

The annual reports highlights that Pdvsa’s oil contractors have filed complaints against the state-run oil company over late payments.

It was pretty obvious that this would happen, but those who were praising Chavez would not listen. I got a lot of knee-jerk reactions about Chavez standing up for the people and sticking it to those greedy oil companies. Actually, I think it is great to use oil revenues to benefit the public. We do that in the U.S. by taxing the industry in various ways — and along with windfall profits for the oil companies came windfall taxes for the government. Chavez did it by raiding the industry and expropriating property of many private companies. I stress to my kids that actions have consequences, and the wrong actions will have undesirable consequences that one has to face. Chavez’s actions are an example of this, and his prediction of rising oil production in the face of siphoning revenues was just wishful thinking.

As I have said many times, the oil industry is very capital intensive. Those big revenues don’t come without some very big bills that have to be paid. You can’t raid gross revenues for very long without suffering serious production difficulties. But as oil revenues exploded on the back of higher oil prices, they became a very attractive target for governments seeking to pay for expensive social programs. What many didn’t understand is that as oil revenues exploded, inflation hit the entire oil sector and everything became much more expensive. I was in the North Sea as oil prices crossed $100/bbl, and the cost of doing projects escalated along with oil prices.

Chavez can only hope for much higher oil prices, or that he can convince foreign firms to come back and set up shop after previously stealing their assets. More likely he will continue to seize assets and dig himself into an even deeper hole. He has started a downward spiral that can only be corrected by a massive infusion of cash back into the industry; cash that he no longer has. It is a classic case of the Goose and the Golden Egg. Chavez reaped short term “profits” for the government, but in the long run he will have much less money with which to finance his social programs.

  1. By Kit P on September 25, 2010 at 9:11 pm

    “This bad boy would double US
    commercial production of solar power.”

     

    Perry, multiply that by five and you
    will get one nuke like the one I used to work at in California. If I
    am skeptical about renewable energy in California it is because I
    have been listening to what they are going to do for 30 years.

     

    Notice the the LAT did not mention once
    the environmental impact or cost.

     

    Do not count your MWh before they are
    generated.

     

    “I was surprised to see how many
    states already have RES laws.”

     

    Which is why we do not need a national
    standard. Producing electricity is a local matter when it comes to
    the source of energy. The goal should be modest too. A small
    requirement will establish the economics for the state. From Rufus’s
    link,

     

    “For example, oil-powered Texas began
    its voyage to world leadership in wind power with a tiny RES that was
    so timid as to almost seem more like a quota (to forbid them to make
    more than 3%).”

     

    Texas uses almost not oil to produce
    electricity using NG and coal (lignite). The Texas RPS is a model
    for many other states since it is one of the first suspenseful one.

     

    Texas produces 2,617 thousand MWh of
    renewable energy and 18.9% of US total

    California produces 2,528 thousand MWh
    of renewable energy and 18.2% of US total

     

    http://tonto.eia.doe.gov/state/index.cfm

     

    It should also be noted that both
    California and Texas faced a shortage of generating capacity in the 90s.
    Deregulation of the market to encourage private investment in power
    plants worked in Texas. The same design of CCGT power plants that got built in Texas
    took years longer to get a permit to build in California. When the
    rolling blackouts started in California, the 2000 MWe plant my
    company was building had just started construction.

     

    [link]      
  2. By slf on September 24, 2010 at 2:24 pm

    I agree but am more concerned about an implosion in Mexico which has done much the same, but does not have the vast stable base of crude exports that Venezuela has even if miss-managed. With present decline curves, a history of no investment and none planned, Mexico will by the end of this decade or sooner cease to export crude oil which accounts for ca. 15% of government revenues. Product imports, which represent a unnecessary drain Mexico’s balance of payments, are also on the rise due to chronic underinvestment in refining. Unlike Venezuela, which has poisoned the well for for Western investment in the industry, Mexico could reverse course and even grow significantly if it would only allow external participation in the sector as many in the goverment and external investors have counseled. Decades of industry neglect with yet another defeat to external participation handed down just last year do not leave me hopeful that Mexico will respond until it is too late.

    [link]      
  3. By Benny BND Cole on September 24, 2010 at 4:45 pm

    Excellent post by RR.

    It is sad, but to have a lot of oil seems to result in corrupt government.
    Mexico, Venezuela, Texas, Saudi Arabia, Iran, Iraq, Russia, Nigeria, Libya….

    Peak Oil is a misnomer; it should be called “Thug Oil.”

    If there were fair, democratic, free-enterprise-ish governments with enforceable contract law in the above nations, we would be drowning in oil.
    The oil exporters are all backward monkey-thug states, harmful to themselves, their citizens and to the world. A blight on humanity.

    Oh. I meant to take Texas off the list. Sorry.

    [link]      
  4. By paul-n on September 24, 2010 at 5:24 pm

    Well, at least you didn’t put Alaska and Canada on the list!  

    The governments of Canada (in the early 70′s) and Alberta (3yrs ago) both tried to get more of their share of the oil pie, by first nationalising stuff, and lately by hiking royalty rates, in each case with the inevitable result that the the oil companies stopped investing, and production plateaued.

     

    Chavez’ main priority has been to raise and maintain his own profile, but it would appear to be a good illustration of Margaret Thatcher’s view of socialism ” sooner or later you run out of other people’s money to spend”

    The V. oil industry was the only place he could find other peoples money and now that’s gone -from here on he, and the country, will have to earn it, the same as everyone else.

    [link]      
  5. By mac on September 24, 2010 at 5:44 pm

    Ben said “Oh. I meant to take Texas off the list. Sorry.”

    Thank goodness………..You had me worried there for a minute.

    Actually, the State Railroad Commission (that regulates oil and natural gas in the state) has been notoriously corrupt and scandal ridden at various points in its not so illustrious history.

    [link]      
  6. By Perry on September 24, 2010 at 5:51 pm

    The IMF says Venezuela’s economy will be the only one in the western hemisphere to contract this year. I read the declining production link in the story above and then an article about Venezuela’s “Economic Freedom” ranking at the same site. 138 out of 141. Chavez has choked the life out of the economy.

    [link]      
  7. By Perry on September 24, 2010 at 6:15 pm

    “I see solar as being the only renewable source that could provide enough energy to allow us similar mobility to today’s.”

    Robert, that’s a quote from the last story’s comment section. Are you aware that US wind potential has been upped to 10,500 gigawatts? We use about 10% as much during peak summer months. Although intermittant, wind blows day or night. Wind can power 20% of the US without needing any storage. That’s possible because conventional plants can adjust their output with the turn of a knob. If/when EV’s take over the roads, smart grid capabilty can raise that 20% number substantially.

    Wind power is growing much quicker than solar. It provides 8X the grid energy in the US that solar does. I’m not anti-solar by any means. Just saying we don’t need to wait for solar advancements to get off fossil fuels. Wind power gives us that opportunity today.

    [link]      
  8. By rrapier on September 24, 2010 at 6:41 pm

    Are you aware that US wind potential has been upped to 10,500 gigawatts?

    I am becoming increasingly skeptical of wind’s potential to displace large amounts of fossil fuels. I am almost finished with Power Hungry, and will have a review out early next week. But here are some of Bryce’s writings on wind. At the end of the day, whether you like Bryce or not, we have to ask “Are these things true?”

    The Brewing Tempest Over Wind Power

    Wind Turbines and Bird Kills

    Wind Power Won’t Cool Down the Planet

    RR

    [link]      
  9. By mac on September 24, 2010 at 7:02 pm

    Ben,

    Please don’t take Texas off the list.

    Enron, a Texas based company at work………

    “Artificial supply shortage was created by gratuitously taking power plants offline for (unnecessary) “maintenance” on hot summer days of peak demand[4][5]. Rolling blackouts adversely affected many businesses dependent upon a reliable supply of electricity, and inconvenienced a large number of retail consumers. This demand supply gap was further exploited by energy companies, mainly Enron. Enron traders were thus able to sell power at premium prices, sometimes up to a factor of 20x its normal peak value.”

    By all ,means, keep Texas on your list.

    [link]      
  10. By Perry on September 24, 2010 at 9:30 pm

    Bryce is pretty much against any renewable energy. He’s probably so vociferous about wind, because it’s the fastest growing renewable. His criticisms are pretty lame if you ask me. If it’s true windmills are keeping folks awake, the wind industry could offer to soundproof homes within a certain distance. I would sleep like a baby with windmills whirring nearby. I use the hum of a fan to sleep now. To each his own though.

    In the bird essay, Bryce says meeting the 20% wind goal would kill 300,000 birds a year. Then he goes on to say house cats kill a billion birds per year now. House cats kill 3000 times as many birds as windmills ever will, and he wants us to shut the industry down? Whatever he’s smoking, pass me some.

    On the cycling thing, he’s just wrong. Utilities don’t cycle coal plants down because they have to. They do it because wind power is cheaper. That wouldn’t be true if they ended up using more coal anyway.

    Bryce’s funding comes from the Manhattan Institute, a foundation underwritten by oil and gas industry billionaires the Koch brothers. He’s a hack on crack, LOL.

    [link]      
  11. By mac on September 24, 2010 at 10:09 pm

    :Let us all bow down and observe a moment of silence for the Enron Corporation for their brilliantly orchestrated “rape of the State of California”

    [link]      
  12. By mac on September 24, 2010 at 10:33 pm

    Perry said:

    “Bryce’s funding comes from the Manhattan Institute, a foundation underwritten by oil and gas industry billionaires the Koch brothers. He’s a hack on crack, LOL”

    Yup……

    Bryce is just a journalist who used to work for a newspaper in Austin, Texas. (The Austin Chronicle) .

    He is no authority figure. He’s just a journalist,, apparently getting paid handsomely to to maintain “the energy status quo”

    [link]      
  13. By rrapier on September 24, 2010 at 10:54 pm

    Bryce is pretty much against any renewable energy.

    He has certainly been very vocal in his opposition to wind. I don’t care so much about who is funding him as to whether his comments are true. On the cycling, my takeaway was that there weren’t many savings due to the cycling up and down which consumes more energy than steady operation. On the birds, he pointed out the double-standard. Exxon doesn’t get away with a defense that “Cats kill birds.” Also, as he pointed out in Power Hungry, cats don’t usually kill eagles.

    RR

    [link]      
  14. By NobamaisGoodbama on September 25, 2010 at 1:55 am

    “convince foreign firms to come back”
    Shirley, you gest !
    and I didn’t mean to call you. “surely”

    [link]      
  15. By Rufus on September 25, 2010 at 2:14 am

    Bryce writes horribly inaccurate articles on something I’ve studied (Ethanol,) so I wouldn’t trust him on Solar, or wind, either.

    [link]      
  16. By mac on September 25, 2010 at 3:20 am

    Rufus,

    This has all been discussed before but is worth repeating. Apparently Bryce is not the only one who has trouble with his statistics,

    From the 2008 USDA Energy Balance for the corn ethanol industry

    “Harry Baumes, Acting Director of USDA’s Office of Energy Policy and New Uses, says a report that surveyed corn growers in 2005 and ethanol plants in 2008 indicates the net energy gain from converting corn to ethanol is improving in efficiency. Titled “2008 Energy Balance for the Corn-Ethanol Industry,” the report surveyed ethanol producers about ethanol yield (undenatured) per bushel of corn and energy used in ethanol plants.

    This report measured all conventional fossil fuel energy, 53,785 BTU used in the production of 1 gallon of corn ethanol. For every British Thermal Unit (BTU) (unit of heat equal to the amount of heat required to raise one pound of water one degree Fahrenheit at one atmosphere) of energy required to make ethanol, 2.3 BTUs of energy are produced (energy output/energy input). The ratio is somewhat higher for some firms that are partially substituting biomass energy in processing energy (thermal and electrical energy required in the plant to convert corn to one gallon of ethanol). Since the last study in 2004, the net energy balance of corn ethanol has increased from 1.76 BTUs to 2.3 BTUs of required energy.

    According to the report, overall, ethanol has made the transition from an energy sink (more energy used than energy produced), to a moderate net energy gain in the 1990s, to a substantial net energy gain in the present.”

    [link]      
  17. By paul-n on September 25, 2010 at 3:49 am

    Perry wrote;

    Utilities don’t cycle coal plants down because they have to. They do it because wind power is cheaper.

    No, they do it because they are required to use wind – it is first in the “loading order”, that is when, wind power is available, it the first source used.  

    This requirement is a decision made not by engineers but by politicians.

    And, in many areas, it is not cheaper, because it is being subsidised, with wind power getting paid a feed in tariff of 15-20c/kWh even though the spot price (=real value) is usually under 5c.   In some rare case (happened in Germany) the peak wind  production in the middle of the night has eclipsed the demand, and you get negative prices – the utility is paying someone to dump the excess electricity – while still being required to pay the 15c feed in tariff, of course.

    Because of these sorts of back-assward decisions, wind sometime gets built in places that it should not, and money is spent on it that should not.  Where there are these egregious feed in tariffs, there is no incentive for the wind operator to do anything to improve the value of their product (e.g storage, or work with customers to identify/create discretionary loads and can use the power when available).  

    instead they can sit back and collect the highest price even though they are often producing at the time of least value.

    The more this goes on, the more money is wasted on less than ideal projects.

    Wind has it’s place, but has it’s limitations – it us up to the wind industry to find solutions to those limitations, (and these seem to show up when wind capacity is around 20% of total nameplate)  Instead, much like the ethanol industry, they seem to spend a lot of time time trying to keep their subsidies.

    [link]      
  18. By Rufus on September 25, 2010 at 4:17 am

    I’ve read that Germany is steadily decreasing the feed-in tariffs on Solar; it seems logical that they will do the same with Wind.

    These imbalances happen, of course, when you’re trying to build out an industry slightly before its time, but I have a hard time seeing Wind, and Solar becoming “more” expensive in the future, and fossil fuels becoming “less” expensive.

    Overall, I like the direction we’re heading.

    [link]      
  19. By rrapier on September 25, 2010 at 4:41 am

    From the 2008 USDA Energy Balance for the corn ethanol industry

    For some reason, the USDA sent this out as a new press release this week, even though the news is months old. I responded to their press release:

    I would say that some of the comments in that press release are misleading. For example, the comment that 2.3 BTUs are produced for 1 BTU of input isn’t technically correct; what they did was allocate some of the energy inputs to the byproducts and then allocate a smaller portion to ethanol production — thus inflating ethanol’s energy return. The implication that is left is that you could take 1 BTU of fossil energy and produce 2.3 BTUs of ethanol, but that isn’t correct.

    I blogged on that in some detail:

    http://www.consumerenergyrepor…..n-ethanol/

    One of the more pointed comments from one of my readers:

    http://www.consumerenergyrepor…..nol/#p2818

    “To extend your financial metaphor, this would be like a manufacturing company calculating their net profit margin on a product saying that since every 100 pounds of product generates 50 lbs of scrap byproduct, they’re only allocating 67% of the costs to the product.”

    [link]      
  20. By mac on September 25, 2010 at 5:37 am

    A number of studies suggest that the real price of gasoline is somewhere between 8 and 15 bucks a gallon when you factor in all the hidden military costs to defend the Strait of Hormuz, government subsidies to oil, research grants from the DOE, etc, etc,etc.,etc,

    If oil companies sell their hydrogen or bottle up their process gas and sell it as LNG the profits oil companies make from these “scrap” products makes gasoline cheaper just as DDGS does for ethanol refineries. So called scrap products from the refining industry increase their EROI efficiency because they reduce refining costs just as DDGS does.for ethanol.

    [link]      
  21. By Rolf Westgard on September 25, 2010 at 6:15 am

    Remember 5%. At 5% ethanol is a useful replacement for MTBE. Beyond that it is a taxpayer subsidized scam. Wind at 5% can be managed by a grid. Beyond that it is a subsidized scam. Texas has 3 times the name plate wind of any state. Per ERCOT its 2009 capacity factor was 8.7% and it provided 1%, I repeat one, of Texas 72,000MW summer demand – 706MW.

    [link]      
  22. By ronald-steenblik on September 25, 2010 at 7:48 am

    Robert: good article, but the comments have taken the discussion into the usual direction (the relative merits of transport alternatives), so my comments are on the comments.

    Mac wrote:

    A number of studies suggest that the real price of gasoline is somewhere between 8 and 15 bucks a gallon when you factor in all the hidden military costs to defend the Strait of Hormuz, government subsidies to oil, research grants from the DOE, etc, etc,etc.,etc,

    A number of studies? My guess is that you are referring to the 1998 study from the International Centre for Technology Assessment, “The Real Price of Gasoline“. Even if you believe those numbers are credible, it is important to stress that among the contributors to the ICTA’s “true” price estimate that they count are the costs to the government, or externalized costs, related to:


       

      • The subsidization of transportation infrastructure [1]
      • Export financing subsidies (provided by OPIC, US Eximbank, and US-funded multilateral development banks) [2]
      • Emergency and municipal motor-vehicle externalities [3]
      • Health costs associated with air pollution [4]
      • Agricultural crop losses (mainly from ground-level ozone and NOx) [5]
      • Loss of visibility due to air pollution [6]
      • Pollution damage to buildings and materials [7]
      • Global warming (including weather-Related insurance losses) [8]
      • Water pollution from oil production and transport [9]
      • The environmental effects of roadway de-icing and runoff [10]
      • Hydrologic impact of roadways and parking lots [11]
      • Noise pollution from vehicles [12]
      • External motor vehicle wastes (e.g., junked cars) [13]
      • The environmental impacts of sprawl [14]
      • Aesthetic degradation of cultural sites [15]
      • The social costs of sprawl [16]
      • Increased municipal costs due to sprawl [17]
      • Increased transportation costs due to sprawl (i.e., having to travel further distances) [18]
      • The barrier effect of roads on non-motorized travell (i.e., cyclists and pedestrians) [19]
      • Travel delays due to congestion [20]
      • Uncompensated damages from accidents [21]
      • Subsidized parking [22]

       

       

       

       

       

      (Sorry, I can’t seem to get the numbers from this list to display right.)

    Now, it should be evident to even the casual reader that many of these costs are not attributable to gasoline so much as to road transport. That is to say, Nos. 1, 3, 10, 11, and 13-22 apply equally whether the vehicles are powered by gasoline, diesel fuel, CNG, biofuels or electricity.

    Export financing subsidies (No. 2) were not being given out to alternative fuels in 1998, but they are now.

    Many of the costs associated with local air pollution are probably greater per mile for petroleum-fueled vehicles than for biofuel-fueled vehicles, but the pollution from burning the latter are not zero. Ethanol can contribute to the formation of ozone (Nos. 4, 5, and 6), and biodiesel emits high levels of NOx (4-7). The noise (No. 12) from biofuel-powered vehicles is identical to that from petroleum-powered vehicles. Only electric vehicles are quieter (but not noise-free, because of the noise from the tires).

    We know now, too, that the claims of significant reductions in GHG emissions from substituting biofuels made from crops (No. 8) are disputable. As Tim Searchinger has pointed out, the claim that CO2 emissions during combustion are offset by CO2 uptake during photsynthesis is only valid to the extent that the plant growth that occurs is additional.

    Water pollution from production and transport (No. 9) is certainly a problem for petroleum production, but it is not zero for biofuels by any means. Rather, the pollution is more dispersed, though a lot of it in the United States ends up in the Mississippi River eventually. In any case, a significant share of oil pollution in the United States comes from people illegally dumping or accidentally spilling crankcase oil (the green segment in the graph below), which of course is also used in vehicles running on E10, E85 and biodiesel.

    oil-pollution sources

    (Of course, the yellow segment of this graph should be a lot larger in 2010.)

     

    So, in short, if one is going to attribute all of these subsidies and externalities to petroleum fuels, then any comparison with alternatives should count these also, to the extent they are applicable.

    Finally, Mac, if you believe the true cost of gasoline if $8 to $15 per gallon (presumably higher when adjusted for inflation), then can we assume that you would endorse a gasoline tax of $5 to $12 per gallon?

    [link]      
  23. By Perry on September 25, 2010 at 9:11 am

    Robert Rapier said:

     On the cycling, my takeaway was that there weren’t many savings due to the cycling up and down which consumes more energy than steady operation.


     

    Yeah, that seems to be the story coal wants to get out. Sorry, but I can’t wrap my head around less coal being a bad thing. Last year, natural gas and wind were neck and neck on new power generation. Coal is being kicked to the curb, so to speak. When plants have to be throttled back to make room for wind power, gas-fired and hydro-electric are first and second choices. They’re just quicker to power down. Those industries aren’t complaining. Water and gas not used today, can be used just as readily tomorrow. Hydro plants will pump water into storage reservoirs during off peak hours for later use when rates are higher. Wind helps them do that even better, since it tends to blow more at night.

     

    When a coal plant cycles down, it’s using less coal. When it cycles back up, it’s using the same amount it was previously. The down cycle may well be less efficient, but less coal is burned nonetheless. Coal is a finite resource. Anytime we can use less, it’s a good thing. This Bryce character would have us believe that since a Hummer has lousy mileage (coal plants are maybe 30% efficient), driving it at 55 mph is better than parking it in the garage.

    [link]      
  24. By Perry on September 25, 2010 at 9:24 am

    Robert Rapier said:

     On the birds, he pointed out the double-standard. Exxon doesn’t get away with a defense that “Cats kill birds.” Also, as he pointed out in Power Hungry, cats don’t usually kill eagles.

     


     

    Smog kills birds of all kinds. It even kills people. Visit Mexico City on a summer day and watch those birds drop like flies. That didn’t shut down the car industry though. We just decided to make cars cleaner.  Bryce says windmills are keeping people awake. Maybe we should make windmills that birds can hear too.

    [link]      
  25. By Gordon Comfort on September 25, 2010 at 10:03 am

    If you have not read it, I commend to your attention the book “The Last Exit to Utopia” by Revel. Of the many aspects of the cultures he describes, the most alarming to me is the pattern of thought that enables and then leads to inappropriate decisions. That pattern might be cynically stated as “the results don’t matter, it’s the idea that counts”. This pattern can be seen in everyday life and its collective application reached a high water mark in Joseph Stalin’s Soviet Union. There are other examples.
    Windmills kill birds; it doesn’t matter, its the idea that counts.
    Windmills are noisy, ditto.
    Windmills are expensive, ditto.
    Clearly, decisions must be made regarding the use of (in this example) wind energy but they need to be made with a clear understanding of all the conseqences, or at least as many as can be identified. We ignore known aspects at our peril. We need to continue searching for the unknowns and to recognize that we may indeed encounter a show stopper.
    Other alternative energy forms need similar evaluation. In this regard, with specific reference to ethanol as motor fuel, little has been said about the effects of the products of combustion on public health and other life forms. The aldahydes emitted when ethanol is used this way create atmospheric components that are not nifty. Show stopper? Maybe not, but it should be recognized. As should other materials used as fuel. Coal has been thoroughly demonized and many reject its continued use as a fuel. Perhaps that is appropriate but, given present technology, careful comparisons with alternatives need to be made before it is finally rejected. At least one company that is processing coal using technology that has survived scale up has shipped the first unit and is building several more for China, in part because their efforts have been stonewalled in the US. First unit operation should occur somewhere around years end. Perhaps the effort will ultimately fail but initial results are promising. As far a I know, no public money has been involved.

    If we decide ultimately to burn what we could otherwise eat, we need really good reasons and thorough understanding of the long term (vs. short term) consequences.

    Charlie One

    [link]      
  26. By Kit P on September 25, 2010 at 10:11 am

    “Please don’t take Texas off the
    list.”

     

    First of all, ENRON was not an oil
    company. Second, the problems MAC is quoting occurred in California.
    The problem in California was caused by a serious shortage of
    generating capacity and a flawed market. Most of the conviction
    against ERNON have been over turned too.

     

    Texas does have a history of producing
    fast talking con artist. If you get taken by a con artists it
    because you are mostly greedy and stupid.

     

    In Texas, deregulation worked very
    well. It included a modest RPS that resulted in Texas becoming the
    world leader in wind generation.

     

    The combination of building wind where
    NG is already a large part of the mix, reduces the amount of fossil
    fuel burned to make electricity and the combined cost of making
    electricity.

     

    There are plenty of places where like
    the Texas pan handle and eastern Oregon ans Washington State where
    wind farms do not impact birds or people. However, while some places
    may be able to achieve 20% generation from wind; it can con be done
    without putting wind farms where they will be a nuisance.

     

    So Bryce is mostly wrong.

     

    “I use the hum of a fan to sleep
    now.”

    Oh gosh Perry, wind turbines are not
    fans. Fans produce white noise. Wind turbines produce a ‘womp’
    sound every time a blade passes the tower.

     

    “spot price (=real value) is usually
    under 5c.”

     

    You lost a zero Paul! You are thinking
    50c/kwh or $50MWh.

     

    “the utility is paying someone to
    dump the excess electricity”

     

    Excess electricity does not happen very
    often.

     

    “Wind has it’s place, but has it’s
    limitations”

     

    I think we should keep building wind
    farms as fast as we can we should invite Paul to come to the US and
    explain it to us. I love Texans and Canadians, they are very amusing
    in there own way.

    [link]      
  27. By Rufus on September 25, 2010 at 10:30 am

    My understanding is, Texas really needs to build some more “Power Lines” to get the considerable electricity generated by Wind, at night, to Urban consumers. I kinda imagine Germany has a similar problem.

    Looked at over a reasonable period of time it looks like Wind is going to turn out to be very cheap electricity. Coal, on the other hand is a question mark. Remember, the price of coal spiked pretty good just a couple of years, ago. Who knows what it will cost in twenty years.

    Solar is, at present, suffering from Ridiculously Hight Installation Costs. Kind of a Risk Premium paid to “first movers.” In the Long Run I can’t see a reason in the world why “installation” costs should be much higher than, say, $0.25/watt (they’re running between $2.00 and $3.00 at present.) Figuring $1.00/watt for the panel, and $0.25/watt installation, and you’re looking at a very reasonably priced long-term “peak” power source.

    [link]      
  28. By Kit P on September 25, 2010 at 10:53 am

    Perry wrote,

     

    “Last year, natural gas and wind were
    neck and neck on new power generation. Coal is being kicked to the
    curb, so to speak.”

     

    You may want to check to see what is
    happening this year. There are lots of stores of old coal plants
    being put in moth balls. It cost a lot less to keep a NG plant in
    standby. A coal plant might have 200 employees while a gas plant
    plant might only have 25. When the economy was strong in 2006, all
    the coal plants were running and even some oil fired plants producing
    record amounts of electricity.

     

    When industrial production picks up in
    the US, industrial demand for electricity will increase those coal
    plants will be taken out of in moth balls.

     

    “Perhaps that is appropriate but,
    given present technology, careful comparisons with alternatives need
    to be made before it is finally rejected.”

    “Coal has been thoroughly demonized
    and many reject its continued use as a fuel. Perhaps that is
    appropriate but, given present technology, careful comparisons with
    alternatives need to be made before it is finally rejected.”

     

     

    All large power projects are required
    to have an EIS to that the environmental impact to show that the
    environment impact is insignificant.

    [link]      
  29. By Perry on September 25, 2010 at 11:47 am

    Gordon Comfort said:

    Coal has been thoroughly demonized and many reject its continued use as a fuel.


     

    Count me in the waste not, want not camp. The coal we don’t burn today will be available for our grandchildren to use. I like green solutions because they’re sustainable. Use as much wind and sun as you like. The availability will be just as much tomorrow. If windmills are killing birds, we need designs that don’t. If they’re keeping people awake, we can work on that too. But, we don’t kill off something that works because it has downsides. If we did, we wouldn’t use nuclear, gas, or coal either.

     

    At current use rates, we’ll be out of oil in 2047. We’ll exhaust natural gas supplies in 2068. Coal in 2140. Uranium in 2144. Yes, it’s true that more supplies of each will be found. It’s also true that 1000′s of people are added to the population each day. Chances are, those resources will be tapped out long before those dates. We either find other ways to make power, or go back to 15th century living.

     

     

    [link]      
  30. By rrapier on September 25, 2010 at 12:28 pm

    (Sorry, I can’t seem to get the numbers from this list to display right.)

     

    Ron, I tried to fix them, but I didn’t have any luck either. Sam is on a little vacation, but I will call it to his attention when he returns.

    Based on the comments here, we are going to have a lively discussion when I put the Bryce book review out there.

    RR

    [link]      
  31. By rrapier on September 25, 2010 at 12:33 pm

    mac said:

    If oil companies sell their hydrogen or bottle up their process gas and sell it as LNG the profits oil companies make from these “scrap” products makes gasoline cheaper just as DDGS does for ethanol refineries. So called scrap products from the refining industry increase their EROI efficiency because they reduce refining costs just as DDGS does.for ethanol.


     

    But that’s not how we calculate EROEI for the refining industry. Indeed the by-products make costs cheaper, in both oil refining and ethanol production. In fact, with oil refining we can often run the plant off of the byproducts. That would make the EROEI calculated by the USDA method infinite for oil refining. But that’s not how we calculate it. Whether using internal or external natural gas, that gas is calculated as an input. Using the USDA’s method, we would simply say that there was no energy input when we used internally produced natural gas.

    That is the problem. It is misleading. If you tell me that the EROEI of ethanol is 2 to 1, then my assumption is that I could take 1 BTU and produce 2 BTUs of ethanol. When you tell me that you can actually only produce 1.4 BTUs of ethanol from 1 BTU of input, but are calling the EROEI 2, you have a misleading metric.

    RR

    [link]      
  32. By rrapier on September 25, 2010 at 12:44 pm

    Perry said:

    Robert Rapier said:

     On the cycling, my takeaway was that there weren’t many savings due to the cycling up and down which consumes more energy than steady operation.


     

    Yeah, that seems to be the story coal wants to get out. Sorry, but I can’t wrap my head around less coal being a bad thing. Last year, natural gas and wind were neck and neck on new power generation. Coal is being kicked to the curb, so to speak. When plants have to be throttled back to make room for wind power, gas-fired and hydro-electric are first and second choices. They’re just quicker to power down.


     

    Actually, the example he uses is of natural gas plants. Again, I don’t care about his motives so much as whether it is true. The claim is essentially this. As a plant is cycled up and down, it uses more gas per MWh than if it was run at steady state. His contention is that wind doesn’t offset that additional energy used to cycle the plant. Thus, “less coal” or “less natural gas” isn’t happening. As I indicate in the book review, I am not an expert on wind power. I don’t know if these things are true. I am simply pointing out the case he makes in the book.

    What I care about is data. We can say in theory one way or another what is happening, but I would like to see that actually verified with data.

    RR

    [link]      
  33. By Rufus on September 25, 2010 at 1:24 pm

    I agree. We should be able to find the number of btus of coal, and nat gas used for power generation in Tx. per Megawatt of electricity produced in, say, 2000 vs. 2009. Same for Iowa, I’d think.

    [link]      
  34. By iorr98 on September 25, 2010 at 1:53 pm

    Well I think Hugo is on to something and is looking at the long term picture, keeping the oil in the ground for future generations, also as the consequences of peak oil plays out in the next few decades, the black stuff will become much more precious and essential to possess. So why make the same mistake as the US by overexploiting its resources for a quick gain and suffering later by loosing its energy independance.

    [link]      
  35. By Rufus on September 25, 2010 at 2:16 pm

    Say what you want about California, they sure make things “interestin.”

    http://cleantechnica.com/2010/…..ergy-goal/

    California Regulators have approved a plan (goal?) of getting 1/3 of California’s power from Renewable Resources by 2020.

    One Third? That’s a pretty big old number, there, Hoss.

    [link]      
  36. By Kit P on September 25, 2010 at 2:45 pm

    “As a plant is cycled up and down, it
    uses more gas per MWh than if it was run at steady state.”

     

    Load is always changing so it is a mute
    point. Some power plants will always be running in a load following
    mode. Oil and coal fired boilers have a section called the
    economizer which may not work as well while changing power. The last
    time I operated an oil boiler was 1971, so I may not be up to date on
    current practices.

     

    Furthermore, enough spinning and
    non-spinning reserve capacity has to be available for loss of largest
    generator or transmission line.

     

    If wind is causing NG or coal load
    following plants to reduce output of a less efficient load following
    plant, then less coal or NG is being burned. On the other hand, if
    wind generation drops off suddenly and very inefficient non-spinning
    reserve SCGT start making electricity and more NG is being burned.

     

    Generally I think wind is a good way to
    make renewable energy if that is what society wants. However, it is
    not a very good way to reduce ghg emission in an industrial society
    by any significant amount.

     

    Wind turbines and solar panels a shiny
    things to distract the environmental movement while meeting the day
    to day electricity demands of customers.

    [link]      
  37. By Benny BND Cole on September 25, 2010 at 2:55 pm

    Mac-

     

    I had Texas in there for laughs, but when Texas was Texas, there was corruption galore.  As you point out, the Texas Railroad Commission was there to reward friends, punish foes, and raise the price of oil. Free enterprise—bah. 

    There are actually serious studies on the impact of oil wealth, and usually it is negative.  Populations become dependent on the easy money, and government dole, rather than work.  Government, in control of a fabulous resource, sees no need for build other industries, schools, etc.

    Even at best, being a one-industry country is a risky route. 

    In the end, everything your Grandma said is true: To be earnest and work hard is the best way.  Easy money is no gift. 

     

     

    [link]      
  38. By Kit P on September 25, 2010 at 3:17 pm

    “One Third? That’s a pretty big old
    number, there, Hoss.”

     

    Rufus in California the inmates are
    running the asylum. Yes California has the largest unattainable goal
    compared to other states.

     

    In 2008, the CEC bragged about creating
    500 MWe of new renewable energy capacity. I found a spread sheet of
    projects. 430 MWe of the projects were outside of California. I
    have not seen any number for last year yet but judging by contracts
    that I have read about, that trend will continue.

     

    MAC wrote,

     

    “Let us all bow down and observe a
    moment of silence for the Enron Corporation for their brilliantly
    orchestrated “rape of the State of California”

     

    You can try to tell people in
    California they are getting screwed when the brag about their
    leadership, then the cry foul when the consequences of their folly
    become apparent.

     

    If is very easy to figure out who took
    advantage of who. Who should what amount of electricity for how
    much. The biggest rapists in of California IOU customers”

     

    LADWP, BPA (US goverment), POWERX
    (Canadian socialists), Grant PUD, other PUDs.

     

    So while LADWP GM, S. David Freeman,
    was standing on California statehouse steps pointing at Texas, he was
    legally picking the pockets of his neighbors. Very slick too!

    [link]      
  39. By mac on September 25, 2010 at 3:27 pm

    My computer was broken for several months including the period when the USDA report came out. Sorry I missed your post about it. Normally, I take government statistics pretty much at face value, such as stats from the EIA or official EU statistics. After all, if you can’t trust your government, who can you trust ? (LOL)

    The methodology used by the USDA may indeed be faulty. In fact, the methodology used by all government agencies gathering statistics might be suspect. I don’t know. That’s for some brilliant college math professor to figure out. I don’t have the time or energy to go into “attack mode” every time some-one publishes a statistic I don’t like.

    A number of disparaging things have been said in this post about Texas, As a loyal resident of the state I must, of course defend the honor of this Great State. Actually, you can say just about anything you want to about Texas and it doesn’t bother me. Just don’t knock the Canadians (LOL)

    [link]      
  40. By Rufus on September 25, 2010 at 3:47 pm

    I seem to remember California being only about a year away from reaching their 15% goal. Hell, if Kaleeforniay shoots for 33%, and only reaches 25% I Still like the achievement.

    [link]      
  41. By mac on September 25, 2010 at 4:26 pm

    Kit

    Kit

    Yes, Enron was not an oil company. They started out as a natural gas company, and grew into what was called an “energy” company. I think they even built a hydro power station in India.

    Yes, Enron was not the only culprit in the big California mess..

    [link]      
  42. By Perry on September 25, 2010 at 5:32 pm

    Iowa gets 14% of its electricity from wind. California used to be the wind leader. Texas passed them in ’06, and now produces 3X as much. If solar is ready for prime time, California would be the best place to show it. Lots and lots of sun out that ways.

    [link]      
  43. By Perry on September 25, 2010 at 5:46 pm

    In Ivanpah California, BrightSource is developing its first solar power complex. When constructed it will be the largest in the world and will produce enough energy to power more than 140,000 homes while reducing 400,000 tons of CO2 per year. Still, environmentalists are protesting the location where the solar power complex will be built.

    http://inventorspot.com/articl…..troversial

    [link]      
  44. By Perry on September 25, 2010 at 5:58 pm

    This bad boy would double US commercial production of solar power. Also in California.

     

    http://latimesblogs.latimes.co…..ators.html

     

     

    [link]      
  45. By Rufus on September 25, 2010 at 6:34 pm

    I’m not crazy about the partisan (simplistic) way this gal writes, but it’s an interesting article on the “Renewable Energy Standard.” Especially the “who’s in, who’s out” aspect. I was surprised to see how many states already have RES laws.

    http://cleantechnica.com/2010/…../#comments

    [link]      
  46. By mac on September 25, 2010 at 6:47 pm

    Ronald,

    “Finally, Mac, if you believe the true cost of gasoline if $8 to $15 per gallon (presumably higher when adjusted for inflation), then can we assume that you would endorse a gasoline tax of $5 to $12 per gallon?”

    First off, here are a few other references concerning the true price of gasoline.

    National Defense Council Foundation report: the hidden cost of imported oil

    Milton R. Copulos testimony in front of the Senate Committee on Foreign Relations on the hidden cost of oil

    International Center for Technology Assessment (CTA): The Real Price Of Gas

    Oil Imports: An Overview and Update of Economic and Security Effects
    Costs of Oil Dependence: A 2005 Update (prepared by Oak Ridge National Laboratory)

    Costs of Oil Dependence: A 2000 Update (prepared by Oak Ridge National Laboratory)

    No, I would not be in favor of a gas tax. We are already paying taxes to support military operations in the mid-east (OPEC) area. We are already paying taxes so that the DOE can give oil companies grant money for oil research.

    All a gas tax would do is burden John Q. Citizen. All a gas tax would do is hurt Joe six-pack.. It would increase the cost of doing business significantly, and would not deliver us from any of the military expenditures necessary to keep the oil flowing.

    I specifically mentioned the hidden costs of oil to Robert in regard the true EROI of oil. If you include these hidden costs, the EROI of oil might not be much better than ethanol and might be worse.

    Thanks for the pollution graph. Interesting. The graph shows most pollution comes from natural seeps and the actions of the oil consumer and not the oil companies, although that may have changed a bit since the little accident BP had in the Gulf.

    mac

    [link]      
  47. By jcsr on September 25, 2010 at 9:28 pm

    Mac
    No, I would not be in favor of a gas tax. We are already paying taxes to support military operations in the mid-east (OPEC) area.
    No we are not. The payment for that venture is being added to the national debt.

    [link]      
  48. By rrapier on September 25, 2010 at 9:46 pm

    Well I think Hugo is on to something and is looking at the long term picture, keeping the oil in the ground for future generations…

    Well, no, what has happened was not what he intended; he believed he could raid the coffers and keep production up. Or that he could convince foreign firms to come back in and set up shop so he could get another shot at expropriating their assets.

    So we can debate whether keeping the oil in the ground is best for the future, but one thing is for sure: That is not what Chavez intended because then he has no way to pay for his social programs.

    RR

    [link]      
  49. By rrapier on September 25, 2010 at 9:49 pm

    I specifically mentioned the hidden costs of oil to Robert in regard the
    true EROI of oil. If you include these hidden costs, the EROI of oil
    might not be much better than ethanol and might be worse.

    No, you are going to have a very hard time concocting a method that gives oil a worse EROI than ethanol. Plus some of the “hidden costs” you cite for oil dependence will be the same for ethanol dependence. But if you want to come up with a method for counting the embodied energy in these hidden costs, we can debate that.

    RR

    [link]      
  50. By mac on September 25, 2010 at 9:54 pm

    jcer,

    Thanks, I forgot about the national debt. Hilarious comment

    [link]      
  51. By Rufus on September 25, 2010 at 10:04 pm

    Kit, here’s a question for you: What percentage of Texas’s electricity would be considered “peak?” ie Capable of being produced with Solar?

    Or, just a general guesstimate for the South/Southwest/S. California lattitudes.

    [link]      
  52. By Rufus on September 25, 2010 at 10:12 pm

    I’m aware that I worded that poorly, but I think you realize I’m just trying to get an idea of Solar’s potential contribution in the Southwest, et al.

    BTW, I agree that a slow, calculated build-out would be preferable to a too-hurried one. A more methodical approach will give a better opportunity for “lessons learned.” Also, a “slower” approach will give more time for training of installers, and thus lower cost installations a few years down the road.

    [link]      
  53. By Wendell Mercantile on September 25, 2010 at 11:13 pm

    I specifically mentioned the hidden costs of oil to Robert in regard the true EROI of oil. If you include these hidden costs, the EROI of oil might not be much better than ethanol and might be worse.

    Mac~

    There may be hidden monetary costs to oil (fighting wars, keeping the sea lanes open, etc.), but they don’t much contribute to the EROEI. Oil’s significantly positive* EROEI is due to the fact that when we burn oil, we burn biomass that grew millions of years ago — biomass that Mother Nature converted to oil with millions of years of free heat and pressure.

    When we make corn ethanol someone has to supply all the energy — from growing it, to harvesting it, to fermenting and distilling it. The only free part of the ethanol EROEI calculus is the sunlight without which corn wouldn’t grow.

    At some point as oil becomes more difficult to find and we have to drill deeper and deeper in more hostile environments to get it, the EROEI of oil will drop to that of corn ethanol — but we aren’t there yet. (Best estimates put the current EROEI of fuel form oil at about 5:1, while the EROEI of corn ethanol may be as high as 2:1 — depending on the process used and where the corn was grown.)
    _____________
    * In the early days of the oil industry when oil was found in shallow pools and squirted out of the ground under its own pressure, the EROEI of oil was phenomenally high — on the order of 100 to 1. That’s why those in the oil industry got so rich so quickly, and why oil quickly moved to the forefront as the preeminent motor fuel. As we should all remember, Henry Ford envisioned ethanol as the original fuel for his cars. But in the first part of the 20th century, it was impossible that ethanol with a then-EROEI of less than 1:1 could compete with gasoline from oil that had a then-EROEI of 100:1.

    [link]      
  54. By Kit P on September 26, 2010 at 10:28 am

    “Kit, here’s a question for you: What
    percentage of Texas’s electricity would be considered “peak?”
    ie Capable of being produced with Solar?”

     

    The practical number is very small
    because of economics. Here are some links to show what solar
    produciton curves look like:

     

    http://www.caiso.com/green/ren…..sWatch.pdf

    Tucson
    Electric Power (Springerville Generating Station:
    http://www.greenwatts.com/page…..Output.asp

    )

     

     

    I am assuming by ‘peak’ Rufus means the
    amount that daily the daily peak is above the 8am demand. What part
    of load can solar provide to offset all the AC turning on as it gets
    hot. Looking at California yesterday (9/25) we see that the ‘peak’
    demand was about 10K MWe higher and solar peak was 353 MWe

     

    % solar = 353/10,000 = 0.0353 = 3.5%

     

    On really hot summer days (8/25), we
    see that the ‘peak’ demand was about 17K MWe higher and solar peak
    was 342 MWe

     

    % solar = 342/17,000 = 0.0201 = 2.0%

     

    Somebody posted a LAT story about
    adding a 1000 MWe of solar thermal, so lets see what happens.

     

    % solar = 1353/10,000 = 0.1353 = 13.5%

    % solar = 1342/17,000 = 0.1201 = 12.0%

     

    If you look for solar resources on the
    maps here:

     

    http://tonto.eia.doe.gov/state/index.cfm

     

    West Texas has good solar resources
    like NM. AZ, Nevada, and California. East Texas, LA, LA (lower
    Alabama), and Virgina do not have good solar resources.

     

    It is the humidity stupid! All those
    dam shade trees do make lots of waste wood for biomass however.

     

    To estimate ‘peak’ demand for Texas I
    would have to more about the demand curves and how AC is used in the
    summer but I would say less than 10%.

    [link]      
  55. By rbm on September 26, 2010 at 1:41 pm

    RE: RES

    As a resident of Nebraska I am not surprised by ‘who’s in’ or ‘who out’, but mark it up to status of will, status of incentives, and status of vested interests who have existing leverage due to their position of the status quo.

    On the aspect of the author’s ‘dirty states’ remarks, NE is overlooked (NE’s coal supply is in mid to high 60′s%) for one. It has some distinctly excellent potential due to geography, but shares attributes in mindsets of those in power that will most likely take a national law to overcome.

    I would be glad to see a well crafted national law to get NE ‘with the program’.

    [link]      
  56. By Duracomm on September 26, 2010 at 2:05 pm

    A national RES is a simple political give away to politically well connected corporations.

    More welfare rent seeking on a grand scale. And really stupid to boot since it makes energy production dependent on a one country cartel that is far more effective that OPEC.

    The best energy policy would be some X prize style competitions for improved technology and to get the government out of the business of picking winners and losers

    Rare earths are a crucial elements required for the manufacture of wind turbines and electric and hybrid cars.

    China Is Said to Halt Trade in Rare-Earth Minerals With Japan

    Eight executives, analysts and traders in the Chinese, Japanese and North American rare earths industries said that China had suspended the shipments Tuesday in response to a diplomatic dispute over Japan’s detention of a Chinese fishing trawler captain.

    China mines 93 percent of the world’s rare earth minerals and more than 99 percent of the world’s supply of some of the most prized rare earths, which sell for several hundred dollars a pound.

    A supplier for Toyota in Japan, who deals in machinery parts that require magnets containing rare earths, said that the automaker had alerted his company Monday of a possible halt in rare earth shipments. “Toyota is already seeing shipments being stopped,” said the supplier, who spoke on condition of anonymity.

    [link]      
  57. By ronald-steenblik on September 26, 2010 at 3:12 pm

    Mac wrote:

    First off, here are a few other references concerning the true price of gasoline.

    Mac, it would be helpful if you provided links. And one of them on your list, ”The Real Price Of Gas”, by the International Center for Technology Assessment (CTA), was the one I dissected above.

    As for the study by the National Defense Council Foundation (“The hidden cost of imported oil”) and the testimony to the Senate Committee on Foreign Relations by its President, Milton R. Copulos, that all comes from the same study, The Hidden Cost of Imported Oil: An Update. Note that the total cost to the U.S. economy that they attribute to imported oil in 2006 is $825.1 billion. (I love the claimed precision down to four significant figures!) Almost half of that, $394.2 billion, they estimate as “the lost of investment arising from our import dependence”. They don’t explain how they arrived at that figure. Another $117.4 billion — slightly more than one-third of total outlays on imported petroleum — they attribute to “the loss of domestic employment and related economic activity that results from the huge capital outflow required to pay for our import dependence.” To get at that figure, they assume that none of the higher payments to Middle East oil producers lead to increased purchases of U.S. goods or investments in the United States by those same producers.

    Assuming for the moment that these are real costs, representing the marginal cost to the economy of importing oil, then the next question is: how can that cost be reduced? The biggests gains are through conservation: people using less oil, or purchasing a substitute that costs the economy less than imported oil — even better if the substitute involves ADDITIONAL value added to the economy. But biofuel advocates, while rightly citing the high cost to the economy of imported oil, then advocate taxing the rest of the economy to support their favored fuels, which divert resources from other parts of the economy. So while some imported fuel may be substituted, some exports of crops are reduced. Revenues per tonne of corn and soybean are increased, but so are domestic prices to consumers of tose crops. If some way were discovered to produce biofuels from something that was truly being wasted (e.g., human sewage) at a cost at least competitive with ithe price of mported fuel, then that would truly be a boon to the economy.

    What I find hard to square, Mac, is that you believe that the true cost to the economy of gasoline made from imported oil is $8 to $15, yet you reject the idea of confronting consumers with this true price through a gas tax. You write:

    We are already paying taxes to support military operations in the mid-east (OPEC) area. We are already paying taxes so that the DOE can give oil companies grant money for oil research. All a gas tax would do is burden John Q. Citizen. All a gas tax would do is hurt Joe six-pack. It would increase the cost of doing business significantly, and would not deliver us from any of the military expenditures necessary to keep the oil flowing.

    As if the economy isn’t already paying for those costs? If you truly believe your numbers, then every gallon of gasoline that your fellow citizen is consuming is biting him (or his grandchildren, through future debt) in the butt to the toon of an additional $5 to $12. Putting a high tax on gasoline and diesel, on the other hand would: (1) give a boost to alternatives to gasoline and diesel; (2) encourage conservation and a shift to more energy-efficient modes of transport, thus reducing demand for two important petroleum products; (3) provide the government with new revenues that could be used to offset (i.e., allow a reduction in) taxes on income, thus reducing a burden on businesses (especially those that are not energy-intensive); and (4) ultimately, because the importance of imported oil will have been reduced, to reduced military costs and military lives lost. Personally, I don’t believe that reducing oil imports will have much of an impact on military expenditure, but if you are inclined to make that link, then to be consistent you have to assume that reducing imports would also save on military expenditure. 

    [link]      
  58. By Duracomm on September 26, 2010 at 6:15 pm

    Ronald Steenblik said,

    Personally, I don’t believe that reducing oil imports will have much of an impact on military expenditure,

    Good point and the structure of the worldwide economy is a big reason why your statement is true.

    Oil is not the only imported product that is vital to the US economy.

    A certain chunk of military expenditures are going to continue because the US acts as one of the principle guarantors of worldwide free access to shipping lanes for countries around the globe.

    Dell feeling effects of higher memory costs

    Although an earthquake ripped through Taiwan nearly a month ago, computer makers will feel the effect at least through the end of the year, analysts said today.

    The surge in memory prices, which doubled from July to early October and rose again last week, has added approximately $70 to $75 to Dell’s manufacturing cost per computer

    Just one example of how connected the markets are and just how important open shipping lanes are.

    [link]      
  59. By Kit P on September 26, 2010 at 6:33 pm

    “I would be glad to see a well
    crafted national law to get NE ‘with the program’.”

     

    So RBM start a campaign in your state
    to get a RPS that is good for your state. However, it does seem a
    little to absurd to have a Californian resident like Susan Kraemer
    with 33 years experience designing clothing tell you are from a dirty
    state.

     

    Last time I was in NE in July it was a
    very clean state. Not something California can brag about.

    [link]      
  60. By ronald-steenblik on September 26, 2010 at 7:22 pm

    Duracomm wrote:

    Oil is not the only imported product that is vital to the US economy.

    And don’t forget coffee, for which the United States is 99% dependent on imports, with just three countries accounting for more than 50% of supply.

    Anybody who doesn’t recognize what a disaster it would be if there were a major disruption in coffee supply clearly hasn’t encountered my wife before her first morning cup of ‘jo.

    [link]      
  61. By paul-n on September 27, 2010 at 4:15 am

    Have we hit Peak Coffee?

     

     

    From WikiWeedia;

     

    There is continued debate about whether the world will soon hit “Peak Coffee”, with some commentators saying it has already been reached.  Fast rising demand from China and India has strained world markets.  The International Coffee Organisation, dominated by Brazil (the “Brazil” of coffee), Colombia and Costa Rica, moved to assure world markets that they had plenty of “spare capacity”, and that coffee was trading in an “acceptable” price range. This has done little to allay fears around the world that Peak Coffee and subsequent high prices will lead to a shortage and plunge the world into a coffee deprived depression.

     Analysts have pointed out that America’s economy “runs on coffee” and that leaves it exposed to supplies from unstable parts of the world.  Meanwhile, fingers are pointed at Big Coffee (Maxwell House, Folgers, NesCafe), with complaints about “windfall profits”.

    Coffee prices have shot up and are nearing the record levels, last seen in the early 90′s during the ICO coffee embargo.   This happened from an incident in the 1994 Soccer World Cup, in a match between  Colombia and the USA, when the Colombian goalie let in an own goal.  There was speculation that this was the result of clandestine work by the CIA, attempting to show the Colombian government who was boss.  On his return home  the Colombian goalie was assassinated, leading to riots.  This destabilised the entire Latin America region, home to three quarters of the world’s exportable coffee.  The ICO imposed a coffee embargo, which cause widespread panic in the US, leading to coffee hoarding and long lineups at Starbucks.

    The situation was so severe that (then president) Clinton had to intervene to defuse the situation.  He pledged to break America’s “addiction” to coffee, and started government programs to find alternatives.  This lead to things like “unleaded coffee” and also experiments in “bio-coffee” and coffee from algae.  Unfortunatley these programs were, ultimatley, unsuccessful and America’s dependence on imported coffee has only increased in the decade since.

    America’s never ending thirst for coffee, and the environmental impact of it, was highighted by the “Maxwell Valdeez” incident, where a truck carrying coffee ran aground in Puget Sound en route to a west coast roastery.  The coffee spill lead to thousands of sleepless birds and fish, and the environmental impacts of the botched cleanup still linger today, with the water often being brown after a storm exposes fresh coffee.

    The price of coffee has risen steadily since 2002, with the benchmark for Arabica coffee topping 100c/lb.  Retail prices peaked in 2008 at over $4/cup.  It was widely believed that high cofee prices were a factor in the 2008 presidential election.  During the campaign John McCaint suggested a “summer coffee tax holiday” while Obama talked about a “windfall tax” on coffee companies.  Prices have since retreated back to about $3/cup, but the population remembers the pain, and no politician wants to be remembered for seeing $4 or $5 coffee “on their watch”.

    Part of the blame is widely laid at the feet of the “Big Three”, Starbucks, Peets, and Tim Hortons, who, over the last two decades have produced ever larger “pick up coffees” and luxury SUB’s (Sexy Urban Blends, like caramel macchiatos), instead of making small, efficient, European style coffees.  Even the imported Espresso gets super sized and relabelled the “Americano” for the US market.  Under government pressure, the Big Three have committed to doing research on “hybrid” and “eclectic” coffees, but many see this as them just paying lip service while they continue to sell grande sized caramel macchiatos.  Others point to the widespread use of diesel coffee in Europe, which dramatically reduces coffee consumption, but the Big Three have steadfastly refused to introduce it here.  Despite being the darlings of the west coast treehuggers and movie stars, hybrid coffees are yet to catch on, and eclectics, which don’t use any coffee at all, are an unknown quantity in the market – it is feared that customers will suffer “caffeine anxiety” and not buy them.

    Meanwhile, the Obama administration has funded a number of alternative coffee programs, including bio-coffee, corn coffee, coal-to-coffee, even waste-to-coffee, and others.  These XTC programs have been widely criticised as a waste of money, as they can’t scale up and the CROCI (Caffeine Returned On Caffeine Invested) is barely greater than 1.

    The backlash against Obama and his coffee policies, have spawned a new political movement, the Tea Party, which has its slogan of “Brew, baby, Brew”.  They have,  paradoxically, pledged to do more to find domestic sources of coffee, pledging to open up the Arctic for coffee exploration, though there is debate as to whether there actually is any coffee there.

    Meanwhile the world is running out of new sources of coffee, and unconventional coffee, such as the Venezulean Coffee Sands, are increasingly being exploited, though many in America reject this as “dirty coffee”.  America remains as addicted to coffee as ever, but with the world’s growing population wanting an Americano lifestyle, international competition for coffee will only increase.  If the Peak Coffee theorists are right, one day America will wake up to no coffee, and predictions of the consequences range from mild anger to the “Mad Maxwell” scenario.  

    Only time will tell…

     

     

    [link]      
  62. By paul-n on September 27, 2010 at 4:15 am

    {double double!}

    [link]      
  63. By Kit P on September 27, 2010 at 8:57 am

    “clearly hasn’t encountered my wife
    before her first morning cup of ‘jo.”

     

    Thanks for the reminder, it is never
    too early to serve the wife coffee in bed. We are co-enablers.

     

    PaulN you have missed your calling. In
    that vain, I can recall a time before I understood my coffee
    addiction.

     

    I was a young sailor stationed in
    California. I would work on my POS POV before getting coffee. This
    is before all those mandatory sensitivity training classes required
    of employers in California. I regret all those hurtful things I said
    to that ’64 Chevy with a ¾ race cam and Holly 4 barrel.
    Unfortunately, I learned too late to make amends to that POS, may it
    RIP after a glorious end one Saturday night on a dirt track.

     

    Speaking of the politically correct
    elites who sit at Starbucks sipping away discussing how the world is
    FUBAR and TU. Gone are points and carburetors replaced by computer
    controlled fuel injection and electronic ignition, it is not that I
    can not work on a car anymore but I do not have to get good mileage.

     

    “The situation was so severe that
    (then president) Clinton had to intervene to defuse the situation.”

     

    I remember it a little differently.
    Clinton ordered Richardson SOC (Secretary of Coffee) to send the last
    reserves of coffee in Washington State to California. While it is
    true California has more electoral votes, coffee is an essential on
    cold winter mornings in Washington State.

     

    “and luxury SUB’s”

     

    A state where even the smallest towns
    like Starbuck have a drive through cappuccino stand next to the grain
    elevator in this case.Not all small towns have grain elevators.

     

    http://en.wikipedia.org/wiki/S…..Washington

     

    “living below the poverty line,
    including 100.0% of under eighteens”

     

    That may have changed since the last
    census because of all the new windfarms.

     

    “If the Peak Coffee theorists are
    right, one day America will wake up to no coffee, ..”

     

    Not the US, maybe some other places
    because we have no shortage of theses:

     

    http://www.globalsecurity.org/…..rriers.htm

     

     

    [link]      
  64. By Duracomm on September 27, 2010 at 11:43 am

    Ronald Steenblik,

    Your coffee comment is filled to the brim with win.

    Coffee advertising slogans.

    [link]      
  65. By Wendell Mercantile on September 27, 2010 at 1:47 pm

    Oil is not the only imported product that is vital to the US economy.

    You make a good point Duracomm. Just as we have a Strategic Petroleum reserve, and one time we used to keep a Strategic Metals Reserve. Haven’t heard much about that for a long time — hope it still exists.

    Let’s hope that someone in Federal government — and not just speculators — is thinking ahead and we’ve bought up and are stockpiling coltan ore, lithium, lanthanum, hafnium, neodymium, praseodymium, niobium, yttrium, dysprosium, and the other rare earth metals we need to make efficient batteries, high-strength magnets for electric motors, and the motor/generator sets in wind turbines.

    I hope that is happening, but I wouldn’t bet on it.

    [link]      
  66. By Wendell Mercantile on September 27, 2010 at 1:51 pm

    Oh, no, we’re already behind: Rising Concerns Over China’s Rare-Earth Dominance

    “There is also talk of setting up a U.S. stockpile for rare earth elements, as South Korea and Japan have already done, but any such plans for an American ‘strategic metals reserve’ remain embryonic. It may be time to get cracking: According to the latest projections by Dudley Kingsnorth, an industry consultant, China could be consuming nearly its entire annual production of rare earth elements by as early as 2014. “

    [link]      
  67. By ronald-steenblik on September 27, 2010 at 5:21 pm

    Part of the blame is widely laid at the feet of the “Big Three”, Starbucks, Peets, and Tim Hortons, who, over the last two decades have produced ever larger “pick-up coffees” and luxury SUB’s (Sexy Urban Blends, like caramel macchiatos), instead of making small, efficient, European style coffees.

    Holy Toledo! Stay away for one day and Paul writes a thriller novel! Brilliant, simply brilliant. 

    Paul: copyright that before somebody else sells it to Hollywood! The only explanation I can come up with for your burst of inspiration is that you must have super-sized your café doppio and then added some No-Doze tablets to it. I hope you’re able to sleep tonight.

    [link]      
  68. By savro on September 27, 2010 at 7:28 pm

    Paul, simply brilliant! You put The Onion to shame!

    One minor change I would make though, is to call it the Organization of Coffee Exporting Countries (OCEC) instead of the International Coffee Organization (ICO).

    [link]      
  69. By paul-n on September 27, 2010 at 8:16 pm

    Ron/Sam,

    It was actually a late night satirical mood, with no coffee involved, not even any alcohol!.  I used to write things like that for my college magazine back in my university days, and occasionally for yearbooks for companies I have worked at – satirizing management policies, of course.

     

    For the record, the International Coffee Organisation actually exists – and if you read just a little of their mission, they actually put OPEC to shame.  It is a cartel of the exporting countries, and controls 98% of the world trade!  They used to have quotas, but countries would “cheat” sound familiar?

    Also, that price/volume graph is real data from their statistics (and the World Cup incident really happened, though I just invented the part about CIA and coffee)  

    The idea just started with the peak coffee graph, but the more I looked for to satirize the oil trade, the more I found!  The real world similarities to the oil business are quite scary, as would be the consequences of a real world embargo – the US gov would never  invade Colombia or Costa Rica to secure the coffee supply, would they?

    [link]      
  70. By Kit P on September 27, 2010 at 9:21 pm

    the US gov would never  invade Colombia or Costa Rica to secure the
    coffee supply, would they?

     

    Chocolate is a different matter. Paul
    be prepared for someplace in California to take you seriously.
    Remember the dihydrogen oxide scare.

    [link]      
  71. By rrapier on September 28, 2010 at 2:07 am

    Ronald Steenblik said:

    Part of the blame is widely laid at the feet of the “Big Three”, Starbucks, Peets, and Tim Hortons, who, over the last two decades have produced ever larger “pick-up coffees” and luxury SUB’s (Sexy Urban Blends, like caramel macchiatos), instead of making small, efficient, European style coffees.

    Holy Toledo! Stay away for one day and Paul writes a thriller novel! Brilliant, simply brilliant. 

    Paul: copyright that before somebody else sells it to Hollywood! The only explanation I can come up with for your burst of inspiration is that you must have super-sized your café doppio and then added some No-Doze tablets to it. I hope you’re able to sleep tonight.


     

    Yeah, we are going to put that up as a post. Very clever.

    RR

    [link]      
  72. By paul-n on September 28, 2010 at 2:08 am

    Kit – I even heard about that one in Australia – my engineering schoolmates were ticked off that they didn;t think of it.

    And, it is stil out there, the and apparently fools people to this day;  (they do call it dihydrogen monoxide as that sounds more scary)

    http://www.dhmo.org/

    The closest I have seen to a “chocolate embargo” was in Australia in the late 80′s.  There is a

    biscuit company there called Arnotts (now owned by Campbell’s) that makes a chocolate biscuit called Tim Tams.  They are simply the best chocolate biscuits in the world, and quite an institution in Australia, (where 400 million of them are eaten each year).  Anyway, the workers at the Tim Tams factory went on strike, demanding higher pay, etc etc, and so production stopped.  Naturally this made headline news, and with reports the strike could go on for weeks.  There was panic buying at stores, rationing of Tim Tams at offices, etc (I am not making this up).  The company press releases said that the price of Tims Tams for everyone would have to go up to cover the increased costs, etc etc.  It even led to questions in Parliament as to whether the government would intervene, and the (then) Prime Minister, Bob Hawke, a former trade union leader, (cleverly)  offered his services to mediate the dispute, “in the interests of all Australians”.

    I guess an American equivalent would be a Starbucks strike.

    Just to show you that California does not have a monopoly on stupidity, and San Francisco does not have a monopoly on silly left wing mayors, here is what the mayor of Sydney did just last year regarding Tim Tams;

    http://www.theaustralian.com.a…..5692803790

    This actually happened, it is not an April Fool’s day article.  Her popularity took a dive after that because she effectively insulted the Tim Tams eaters, which would be all of Sydney.

    Some things should just be left alone…

    [link]      
  73. By ronald-steenblik on September 28, 2010 at 6:38 am

    Paul,

    If you are going to develop your article on Peak Coffee (which I have circulated widely, to many appreciative remarks!), here are a couple of editorial suggestions:

    “… America’s never ending thirst for coffee, and the environmental impact of it, was highighted by the “Maxwell Valdeez” incident,”

    Suggest change “Maxwell Valdeez” to “Juan Valdez

    “… such as the Venezulean Coffee Sands, are increasingly being exploited, though many in America reject this as “dirty coffee”.”

    Suggest change “dirty coffee” to “sludge”.

    In addition it would be interesting to go back to the 1970s for more paralels with oil. As shown here, coffee prices were even higher than they are now back in the 1970s:

    Brazilian coffee prices, 1975-2002

     

    Which reminds us, of course, of that fateful evening, on July 15, 1979, when President Jimmy Carter appeared on national television to outline his plans to address the coffee crisis and improve the efficiency with which Americans brewed the stuff. In the months preceding his speech, coffee prices had briefly dipped to below $1.50 per pound, but by July 1979 were well on their way up to $2. During what would later be called his “Crisis of Confidence” speech (sometimes known as the “Malaise” speech), Carter encouraged his fellow citizens to do what they could to reduce their consumption of coffee. He announced that he had already imposed coffee rationing on White House staff, and had issued an executive order to subsidize a rapid expansion in the cultivation of chicory root, a home-grown alternative to coffee. Carter seemed poised to announce other new policies, but fell asleep in his chair before he could finish his speech.

    Carter’s coffee-conservation policies were later over-turned by President Ronald Reagan, whose 1984 campaign slogan was “It’s morning again in America!” – a subtle reference to the fact that, under his watch, coffee prices had fallen and apparently stabilized at around $1.50 per pound, so people had gone back to their normal early morning routine of drinking prodigeous amounts of java at breakfast. In an ironic twst, shortly after Reagan was sworn into office for his second term, coffee prices zoomed back up to $3 per pound.

    [link]      
  74. By savro on September 28, 2010 at 10:22 am

    Appreciate the suggestions, Ronald. We will be posting an edited version of “Peak Coffee” shortly.

    [link]      
  75. By Kit P on September 28, 2010 at 11:18 am

    Paul I discussed your post with my wife
    is more informed about the cost of coffee. Like all good satire it
    has an element of truth that I was not up to date on. When we moved
    from California we made a lot of lifestyle changes to slow down and
    enjoy life on one income. Our two oldest children always have had a
    parent at home after school. However, the daily visit to Starbucks
    was hard to resist.

     

    In Spain and Italy, a cup of espresso
    at a sideway cafe is part of a very affordable social experience.
    However, I maintain that driving your SUV through a drive through to
    get a $4 fancy coffee is about as anti-social as you can get.

     

    We decided that the ROI of fancy coffee
    was too high. Our modern world is full of traps of class warfare
    that worries about how big Bill Gates house is while not celebrating
    the wonderfully safe DHMO that Americans get from the tap. Family
    values start with putting your children in warm bed after a bath in
    clean water. It is really hard for some foreign dictator to take
    that away.

    [link]      
  76. By Engineer-Poet on October 4, 2010 at 10:05 pm

    Robert Rapier said:

    Are you aware that US wind potential has been upped to 10,500 gigawatts?

    I am becoming increasingly skeptical of wind’s potential to displace large amounts of fossil fuels. I am almost finished with Power Hungry, and will have a review out early next week. But here are some of Bryce’s writings on wind. At the end of the day, whether you like Bryce or not, we have to ask “Are these things true?”

    The Brewing Tempest Over Wind Power

    Wind Turbines and Bird Kills

    Wind Power Won’t Cool Down the Planet

    RR


     

    I’ve read some of Bryce’s ranting about wind, and what I’ve seen is severely off-base.  Sure, there are weather conditions (summer high-pressure zones) when power demand skyrockets while wind production is nil.  During these times, you need something else.  Nobody claims otherwise.  What Bryce argues from this is that wind is worthless, a complete non-sequitur.  With wind, instead of needing the “something else” all the time, you only need it a fraction of the time.  Wind plays nicely with technologies like CAES, which we are going to need anyway as the old, small, dirty but fast-ramping coal plants are decommissioned or updated.

    I have been through the Altamont Pass wind farm (and driven up narrow roads to see some of the others in the area).  Those farms are positively ancient.  They have tiny, fast-turning turbines on lattice towers which are “attractive nuisances” for birds.  If it weren’t for California’s laws which prevent removing old turbines to replace them with new, they would have been gone years ago.  For Bryce to use them to claim that wind power means slicing and dicing our protected raptors is nothing short of dishonest.

    Pictures on request, Robert.  I have an album-full that I can scan (they are from my pre-digital days).

    [link]      
  77. By Engineer-Poet on October 4, 2010 at 10:45 pm

    Robert Rapier said:

    Actually, the example he uses is of natural gas plants. Again, I don’t care about his motives so much as whether it is true. The claim is essentially this. As a plant is cycled up and down, it uses more gas per MWh than if it was run at steady state. His contention is that wind doesn’t offset that additional energy used to cycle the plant.


     

    More gas per MWh is true; the efficiency falls off as power is reduced from the efficiency peak.  More gas total?  Emphatically false.  The firing temperature is reduced to cut power, and that means less fuel.

    At  some point turbines are shut down (if not needed for spinning reserve) and they use no fuel at all.  More wind means more plants shut down and burning nothing.

    [link]      
  78. By jcsr on December 25, 2011 at 12:29 am

    Engineer-poet; Holy Cow. I haven’t heard from you for years. And it sounds good. How did the subject get twisted from bashing my good Socialist friend Chaves to the price of Four Bucks coffee? All I know is his gas is at least a nickel a Gallon cheaper than anyone else in the area and he is willing to help the poor keep warm in the New England . I guess that is worth The CIA’s time to mess with him just to keep the good old USA’s interests intact.

    [link]      
Register or log in now to save your comments and get priority moderation!