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By Robert Rapier on Jan 23, 2012 with 36 responses

Are President Obama’s Policies Causing U.S. Oil Production to Rise?

Question: What do President Barack Obama and ex-President Jimmy Carter have in common?

Answer: Both presided over strong increases in domestic oil production that were a result of decisions made before they took office, as I explain in this post.

In my recent post The Oilman in the White House, I posted the following graphic:


Is There More to this Graphic than Meets the Eye?

The purpose of the graphic was to get people to think about why oil production had behaved in this manner over the past decade. A lot of people took the bait, and asked how I could possibly believe that President Obama was responsible for this rise in production given his apparent hostility toward the oil industry. Some people on the other hand offered up the real reason for the production increases. One pointed out that the above graph could really be broken into three parts: Falling production until 2005, flat production from 2005 until 2009 as some new projects began to come online, and an increase from 2009.

This was one of the themes I was working on for my upcoming book, and I felt like it was worth discussing. I was looking back over the past eight presidential administrations, and it was pretty clear that what happens today in the energy markets is a result of decisions that were made 4-8 years in the past. For instance, the ethanol production gains in 2010 were not a function of Barack Obama’s energy policies; they were a result of energy legislation passed in 2005 and expanded in 2007.

When Jimmy Carter was in office, U.S. oil production rose for the first time in 7 years. The graphic below tells the tale, and is a pretty good analog for the behavior of U.S. oil production since President Obama has been in office.

The reason oil production rose under Jimmy Carter was because in 1973 President Nixon pushed through the Trans-Alaska Pipeline Authorization Act which cleared away legal challenges from environmentalists seeking to stop construction of the Trans-Alaska Pipeline. That pipeline started production in 1977, during President Carter’s first year in office, and as a result oil production rose for the first 2 years of his term.

Likewise, the reason that oil production has risen under President Obama is due to events that happened years earlier. In this case, it wasn’t some grand initiative that President Bush passed, rather it was years of steadily increasing oil prices that caused oil companies to approve a number of new projects that had marginal economics at lower oil prices. But these projects take some years to build, and as in the case of the Alaska Pipeline, decisions that were made 4-6 years earlier benefited President Obama with increased domestic oil production.

The reason I wanted to call attention to this is that I knew it would be an campaign issue in this election year, and indeed stories are beginning to surface in which President Obama touts his record on oil production:

Obama touts record U.S. oil and gas production in wake of pipeline rejection

Rejecting both the Republican push for an accelerated Keystone XL oil pipeline and the GOP argument that he doesn’t care about jobs, President Barack Obama Wednesday touted his record of increased domestic oil and gas production.

“Under my administration, domestic oil and natural gas production is up, while imports of foreign oil are down,” Obama said, adding that trend will continue “in a way that benefits American workers and businesses without risking the health and safety of the American people and the environment.”

Of course this situation isn’t unique to energy policy; one president’s policies often benefit or handicap the following administration. My intention is to raise awareness on this issue, so people understand the big picture as the energy policy debates play out this year. The current increases in oil production have little to do with Obama or Bush policies, but are simply a response to years of climbing oil prices.

But that cuts both ways. This is also the reason I have defended President Obama against criticisms that his decisions have caused gasoline prices to rise. The decisions he makes in this administration may ultimately impact gas prices, but due to the lag time they won’t impact gasoline prices for years. If President Obama is elected to a second term — as I expect that he will be — then he may begin to reap the outcome of his decisions by the middle of his second term. So his decisions today are certainly relevant for the future, and in 4 years he will deserve his share of the credit or blame for the status of the energy markets in the U.S.

Link to Original Article: Is Rising Oil Production a Result of President Obama’s Policies?

By Robert Rapier

  1. By Jerry Unruh on January 23, 2012 at 10:22 am

    The other important lesson from the Nixon-Carter graph is that current oil production in the U.S. is just over half of what it was at its peak.  This despite all the money spent in exploration/production.

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  2. By KLR on January 23, 2012 at 11:44 am

    I bet you don’t believe there’s a correlation between rock music quality with US oil production or pirates and global warming, either.

    Note: above post is completely tongue-in-cheek.

    Wonder if the Newtster will point out the obvious flaw in Obama’s logic here. Although Gingrich also talks big about achieving US energy inpendence in 10 months or some similar bit of promise straight from the land of candy canes and frolicking puppies, so perhaps not.

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  3. By Ben on January 23, 2012 at 4:14 pm

    This offering of RR is right on the money, as usual. A friend just sent an email pointing out the merit of including the Clean Air Act Amendments (1990) as a key date for kicking-off the ‘clean fuels’ era (what we might call the PADM-C Era–as in post-ADM and Cargill domination). Credit for that date was largely attributable to a pragmatic compromise (such a “dirty word” says Newt) of President George H. W. Bush and Senate Majority Leader (D-ME). I must agree that an oxygenate content was the catalyst to nearly all what has evolved (and continues to change).

    I hope, as voters watch the quadrennial sweepstakes this fall, they will keep in mind that intelligent, sustainable solutions require (gulp) some compromises along the way. The Keystone Pipeline, as with several other important infrastructural issues, are no different. I wish some folks would get off the high horse and acknowledge there’s no free lunch and those offering that there is should be sent to the North Slope to keep an eye on all those reindeer.

    Ben

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    • By jim on September 13, 2012 at 8:25 pm

      Hey Ben,

      The purpose of Keystone is not to provide oil to the USA, but rather to get oil from Canada to the gulf so it can be sold to a broader market at hopefully higher prices.  Today the Canadian oil is landlocked, so our mid-west folks are able to buy it at a discount.  If Keystone is built, oil prices for mid-west refining will increase, resulting in higher prices for all oil base products in the middle of the country.

      You can verify this by reading the Keystone application.  The first paragraph describes how the pipelines purpose is to raise the price paid for Canadian oil.

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  4. By paul-n on January 23, 2012 at 4:52 pm

    Yes, we should get very excited that US oil production, as a result of this and that policies, is now back up to 1951 levels!

     

     

     

    Clearly, we are all saved!

     

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  5. By Optimist on January 23, 2012 at 6:19 pm

    The reason I wanted to call attention to this is that I knew it would be an campaign issue in this election year, and indeed stories are beginning to surface in which President Obama touts his record on oil production.

    The guy really is such a spineless opportunist. His comments on the do-nothing congress borders on hilarious, considering his own ‘tireless’ efforts. Hey, doing nothing is not very tiring. And it saves so much energy…

    Unfortunately that kind of candidate these days cruise to reellection.

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  6. By rrapier on January 23, 2012 at 6:56 pm

    Paul N said:

    Yes, we should get very excited that US oil production, as a result of this and that policies, is now back up to 1951 levels!

     

    Clearly, we are all saved!

     


     

    I initially used that exact graphic in the book, but then ultimately just made my own with the same data.

    RR

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  7. By paul-n on January 24, 2012 at 2:58 am

    I’m sure yours will look better, but I doubt we’ll see any politician (except perhaps, Ron Paul) using either of them, as they all seem to be trying to calim the credit for increased oil production.

     

    The more important graph, in my opinion, is net oil imports;

    And the turnaround definitely happened in the Bush era.

    Too bad much of this is recession induced, but still, net imports are down by 5mbd from the peak, which gets things back to where they were in 1996.

     

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  8. By JonSCKs on January 24, 2012 at 9:16 am

    How come the numbers don’t add up? Both the EIA numbers as well as Robert’s chart show domestic production around 5.5 mbpd along with imports per Paul’s EIA link showing 8 mbpd which would be 13.5 mbpd of demand. Yet US demand is reported as around 18 to 20 mbpd.

    This link says US production is 9 mbpd per the CIA world fact book..http://www.indexmundi.com/g/r.aspx?c=us&v=88

    So what gives? Ethanol would be about 0.9 mbpd am I missing something else?

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  9. By KLR on January 24, 2012 at 11:58 am

    JonSCKs said:

    How come the numbers don’t add up? Both the EIA numbers as well as Robert’s chart show domestic production around 5.5 mbpd along with imports per Paul’s EIA link showing 8 mbpd which would be 13.5 mbpd of demand. Yet US demand is reported as around 18 to 20 mbpd.

    This link says US production is 9 mbpd per the CIA world fact book..http://www.indexmundi.com/g/r.aspx?c=us&v=88

    So what gives? Ethanol would be about 0.9 mbpd am I missing something else?

    You’re confusing crude oil + condensate, or C+C as it’s usually referred to, and “All liquids,” which is C+C plus biofuels, natural gas liquids (NGLs), etc.
     

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  10. By paul-n on January 24, 2012 at 1:42 pm

    Yes, “consumption” is not the same as “oil supply”.  In addition the the NGL’s and biofuels, consumption also includes “refinery gain”, which is the volumetric expansion you get when crude oil is refined, partly from the NG that is added when hydrocracking the long chain hydrocarbons.    RR may have the exact number, but, (I think) 1bbl crude becomes about 1.05bbl of products.

     

    Here is the eia’s chart for “consumption”, which includes NGL’s of 2.2 mbd, ethanol, biodiesel and refinery gain;

    The data is here

    The peak in 2005 was 20.8 mbd  (all liquids) in 2010 it was 19.18.  

    Only 0.165mbd of the decline was in motor gasoline;

    From 2005 to 2010

    Jet fuel is down15% –  0.25mbd  - from retiring older jets,  and using less planes to fly the same number of people (higher load factors)

    Diesel is down 8% – 0.32mbd – retiring older trucks, and less cargo being trucked, more on trains 

    Residual fuel oil (heating oil) is down 41% – 0.375mbd  -No one uses it if they can avoid it.

    Petrchemical feedstock is down 33% – 0.23mbd – probably becasue more plastic stuff is being made in China etc

    Petroleum Coke is down 27% -0.140mbd -probably from different refining techniques to get more liquid products

    Asphalt and road oil is down 34% – 0.180mbd  Governments can’t afford to  build/repave roads anymore.

     

    It is interesting to observe, that for all the talk about higher mileage cars, CAFE standards, hybrids etc, that (total) gasoline consumption has barely budged (down 2%), while almost everything else has gone down.  If we account for the 13bn gal of ethanol last year (equivalent to 0.53mbd of gasoline), the “petroleum gasoline” consumption has gone down by 6%.  

    Meanwhile, passneger Vehicle Miles Travelled in that time has not changed – it went up marginally in 06-08, but is now where it was in 05;

    So, personal VMT has not changed, and total gasoline consumption (energy basis) has decreased by all of 3%.  This shows that the efforts  for improving fuel efficiency of personal vehicles have not worked!  Most of the saving in petroluem gasoline has been by ethanol substitution (with attendant increases in diesel and NG consumption to make it).

     

    I am quite amazed at the lack of significant decline in both VMT and gasoline use in a recession economy.  This shows just how difficult the task is to get Americans driving less and/or more efficient vehicles.  

    It is far easier to feed this beast alternate fuels (like ethanol) than to decrease its appetite – the actions of the politicians attest to that.

     

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  11. By perry1961 on January 24, 2012 at 2:31 pm

    The recent increases in production came more as a result of technology gains than oil prices. New drilling techniques made oil plays in shale rock available, and the deepest areas of the Gulf are now reachable. Cuba is set to begin drilling 70 miles off the Florida Keys, in waters deeper than the Horizon spill. They couldn’t have done that 5 years ago.

    As far as politics and oil drilling, both parties share the blame (or credit) for various bans and impediments. Bush Sr. imposed a federal ban on drilling offshore Pacific, Atlantic, and Florida coasts in 1990. Clinton extended the ban. Bush Jr. rescinded the Presidential order. Obama moved to lift the ban on offshore drilling a month before the Horizon spill. Oops!

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  12. By rrapier on January 24, 2012 at 3:03 pm

    perry1961 said:

    The recent increases in production came more as a result of technology gains than oil prices.


     

    But those technology gains are a direct function of oil prices. Higher oil prices means more R&D money and the ability to exploit previously uneconomic resources. Some of these technologies have been around for a while, they just weren’t economical at $40 oil.

    RR

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  13. By perry1961 on January 24, 2012 at 4:20 pm

    Yeah, I don’t know what I was thinking Robert. Price is the game changer. It might even turn the Peak Oil theory upside down. Reservoir recovery rates peak at about 40% with $50 oil. With $100 oil, enhanced recovery with CO2 is profitable, and that rate can be pushed to 60%. Wouldn’t that mean the world has used 33% of the available oil in the ground, instead of the widely proclaimed 50% ?

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  14. By Ben on January 24, 2012 at 4:55 pm

    Yes, it’s about catalysts to energy production of every variety: price point.
    Equally important is the perception of sustainability. It’s one thing to hit a temporary high due to some transient event vs. sustainable prices reflective of fundamental supply & demand. Until we formulate policies accommodating the realities of energy supplies (much like a needed acknowledgment of our structural deficits resulting from imbalances between revenues and expenditures) where the longer-run costs of energy will/must increase significantly, we are simply fooling ourselves that the economy will enjoy the sort of performance that we came to expect/enjoy of the past century.
    America’s hegemony is not only not a foregone conclusion, it is very much in doubt given the progress of our economic competitors. In the words of the late Speaker of the House, Tip O’Neil (D-MA), “we are suffering from our own success” in the sense that we assisted in the rebuilding of the economies of foreign nations that now rival us in the international marketplace. That isn’t necessarily “bad,” as much as it is “challenging.” Energy policy will go a long way in determining if we’re to meet the challenge. At this juncture the jury remains out, but past evidence out of Washington leaves a great deal to be desired. As has often been the case in our national history, much of the leadership will come from the bottom-up. Again, that’s not necessarily bad,
    as much as it is unpredictable. Sort of like the price of energy:)

    Ben

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  15. By Optimist on January 24, 2012 at 6:50 pm

    So, personal VMT has not changed, and total gasoline consumption (energy basis) has decreased by all of 3%. This shows that the efforts for improving fuel efficiency of personal vehicles have not worked!

    Well, maybe it will get Benny to quit his happyspeak about Peak Demand. For 24 hours, maybe…

    Most of the saving in petroluem gasoline has been by ethanol substitution (with attendant increases in diesel and NG consumption to make it).

    Whoops! Just when you think it can’t get worse, it does!

    …in the sense that we assisted in the rebuilding of the economies of foreign nations that now rival us in the international marketplace. That isn’t necessarily “bad,” as much as it is “challenging.”

    Where’s the problem? We all benefit from each other’s success. Poor countries make poor trading partners, pun intended.

    Energy policy will go a long way in determining if we’re to meet the challenge. At this juncture the jury remains out, but past evidence out of Washington leaves a great deal to be desired.

    I’d rather not trust Washington to do anything helpful, thanks. Quite the opposite: is there a way to keep Washington from trying to address energy policy while converting my tax $$ to thin air? I deperately like to know…

    As has often been the case in our national history, much of the leadership will come from the bottom-up. Again, that’s not necessarily bad, as much as it is unpredictable. Sort of like the price of energy:)

    Exactly! Pour yourself a stiff drink, and trust the free market to work for you!

    Better yet: maybe the speculators can help reduce volatility to an acceptable level…

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  16. By jcsr on January 24, 2012 at 10:35 pm

    Who cares? Oil is neither drilled for or grown in my state and our gasoline taxes our one of the highest in the country. With the help of Obama and none of the other presidents listed above my next car will be electric..

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  17. By perry1961 on January 24, 2012 at 11:18 pm

    “With the help of Obama and none of the other presidents listed above my next car will be electric..”

    How so jcsr? The $7500 EV subsidy is courtesy of Bush Jr. Bush also subsidized hybrids and CNG vehicles. Obama let those subsidies expire. I’ve also seen people giving Obama credit for getting troops out of Iraq. While it did happen under his watch, they were withdrawn under the timeline in the FAFSA agreement Bush inked with Iraq.

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  18. By Ben on January 25, 2012 at 12:15 am

    Thanks for the esprit. Competition tends to be a good thing and to the extent we take it seriously rather than simply shaking our heads about unfair trade practices, we may find our way back. As it stands, we are experiencing secondary consideration in places where we have long enjoyed preeminence. In my international travels, I find America enjoying an improved image in the last few years even as we enjoy less of a presumptive advantage in securing new business opportunties. In short, the world has caught up in most markets, as we now contend with others introducing every imaginable trick in the book to secure market share. This is particularly true as it bears on energy development, telcom and IT services. While the dollar is nominally the international reserve currency, dollar hegemony has eroded to the point that it requires a rethinking of some old assumptions that no longer hold sway. Washington is belated in coming up with a new and improved game plan and that will hardly serve us well as the competition picks up additional leverage among our trading partners particularly those in the emerging markets.

    Ben

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  19. By JonSCKs on January 25, 2012 at 11:08 am

    Thanks Paul.. That helps clearify some things.. From your numbers I find that Jet Fuel (0.25/0.15=) accounts for about 1.67 mbpd, Diesel at 4.0 mbpd, Residual heating Oil at 0.91 mbpd, Petroleum coke at 0.82 mbpd and Asphault /Residual Oil at 0.53 mbpd.. all of this sums to 7.63 mbpd combined with Gasoline demand of about 9 mbpd brings us up to 16.63 mpd.. still short of the 20.8 mbpd number.. So I am still searching to find the missing pieces.

    The links are still a little hard to grasp for someone like myself who doesn’t understand all the in’s and out’s of the refinery processes.

    The debate about the Keystone pipeline has opened other cans of worms for me.. I assume that in 1970 we produced “about” 10 mbpd of mostly WTI which is a light crude.. We currently have about 17.5 mbpd of petroleum refining capacity mostly along the gulf coast.. The refining industry has been consolidating.. well.. ever since Rockefeller.. so that isn’t anything new.. but it does seem that this stranded capacity was “made for” linking up with the heavy crude from Canada..??? I don’t understand what needs to be added.. Cokers.. Hydro Crackers..?? and such.. basically you run a heavier crude through the refining process again and again.. with increasing pressure and processes..??? So given such stranded capacity it would make sense to build around infrastructure already in place vs starting new…??? Like Hyperion in SD or in Canada..?? (or not..???)

    I assume that the growth of the ethanol distilleries (about 1 mbpd of capacity.. mostly in the upper midwest) have added to the capacity to ship “refined product” (from excess petroleum capacity) from the US to a higher world market.. so I belive I see the link there…??

    I saw everyone’s comments over on The Oil Drum about Cellulosic.. it’s been hard to guess how all the cards were going to be played.. we did think Cellulosic was going to be a factor.. as it turns out.. maybe the best Cellulosic factory is a bovine grazing pasture..(??) We have about 30+ million acres of Conservation Reserve Program land sitting idle (more land idle than grown for Corn ethanol..on a net of feed basis..23 mln acres) which the government pays a transfer payment to keep this Farm ground OFF the market.. (because of oversupply and conservation..) During the drought this past year the Ag Secretary opened this up and allowed haying and grazing for a payment penalty.. (had to pay part of the transfer payment back to the gov’t) my neighbor ran his swather over about 14,000 acres this summer and we have baled a bookoo amount of rouhages that we are feeding to livestock with the WDGS/DDGS output of the ethanol plants.. as they say “neccessity is the mother of invention” and this was a forced occurance.. but in a more normal production year.. this would free up more Bushels of corn to be converted to etoh. While the livestock convert the cellulosic land base.. (maybe mother Nature has it figured out better..?!?)

    This spring the big debate will center about how much more production will rise in Corn.. some see an additional 4 to 5 million planted acres on top of last year’s harvested 84 miln acres.. with a return to trend yields of 163+ vs last year’s 147 if the weather cooperates we could be looking at a gain of 2 + billion bushels.. vs the 5 billion currently ground into etoh.. I just read an article where the writer makes the case that we can double corn yields in about 20 years.. this sounds high but on average we add almost 2 bu per acre per year.. In 1930 US average corn yields were about 24 bu per acre.. we reached about 90 bu per acre by 1970.. the record was established in 2009 at 164.7 bu per acre.. The writer claims that we are ontrack to reach 300 bu per acre by 2030.. I think that is a stretch (the trend crosses around 195..) but there’s no doubt that yields have been climbing. (we did 147 in a drought..this year) but it will be bumpy.. we’ll string together a stretch of below trend.. as well as above trend.. that’s what will make corn ethanol tricky.. However if we bust a 14.8 billion bu corn crop this next year.. we are going to be swimming in corn.. and we may not need a Pipeline crossing Nebraska..???

    Robert mentioned that his father ranched in Oklahoma.. There’s quite a diverse viewpoint in the two states.. Nebraska has almost as many pivots of Corn as Oklahoma has oil wells.. There’s 83,700 oil wells in Oklahoma producing in 2009 65.374 million barrels of Crude.. or roughly 2.14 barrels per day. A pivot of corn in Nebraska will probably go something like 220 bu per acre.. x 128 = 28,160 plus the corners 32 x 115 = 3,680 = a total of 31,840 x 2.8 gallons/bu = 89,152 / 42 /365 = 5.82 barrels per day.

    Nebraska produced 1.58 billion bushels of corn in 2009 if you converted it all to ethanol.. that would be 1.58 x 2.8 /42 = 105 million barrels of etoh.. almost double what Oklahoma can do in petroleum.. currently.

    Altogether the country can probably reach.. 1.15 mbpd of etoh or thereabouts in 4 or 5 years. Then again.. if the drought continues.. production can/will fall.. that is when we are going to need a pipeline through Nebraska.. imho.

    Oh one other thing.. Paul mentioned that a lot of fossil fuels was being wasted in the production of etoh.. I remember a comment by a representative of the nearby refinery saying that disesel demand for Ag was falling by a steady 3 to 5% per year.. with the adoption of no-till practices.. it’s not a big deal but fertilizer useage has been flat in the Country since the 1980′s.. as has diesel fuel useage. Although we see some hefty spikes every now and then..

    Corn crops.. not unlike drilling wells are a crapshoot.. you get what you get.. sometimes a gusher/bin buster.. other times it’s just a bust.. We’ve got both ahead of us in the future.. Ironing out the up’s and down’s is what will make things interesting.
    imho.

    sorry so long.. should have broken this up.. covering more than one topic.

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  20. By JonSCKs on January 25, 2012 at 11:23 am

    I guess that my point is that high prices will stimulate Corn production as well as Crude.. and there are technology gains in both industries.. but both are subject to big swings and production shortfalls… hopefully both don’t happen at once.. (but they could..?!?)

     

    I’d like to see more of a discussion about the Heavy Oil Sands.. and the effects of running Keystone down to the Gulf..  Specifically Why the gulf?  Is there really an excess of refining capacity?  Why?  Why not build closer to the fields?  What are the challenges in refining heavy crude?  etc..

     

    As for biofuels.. once we bury the corn ethanol market.. we could probably switch our attention to high oil crops such as camelina or what not..  It may not be a big deal.. but the US Diesel market isn’t as big as the gasoline demand either.. like etoh.. we probably wouldn’t bury the market.. but we could make a 3 to 5% dent.. maybe 10%..???

     

    I’m struck by Robert’s burning through 400 years of banked solar output per year by burning hydrocarbons.. Biofuels act like a giant solar panel capturing a yearly supply.. but will be up and down.. we capture and use that yearly income.. and draw the rest from the bank.. gradually weaning that down as needed…  at least that would be my approach.  Cool

     

    comments?

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  21. By ben on January 25, 2012 at 12:57 pm

    400 years of banked solar doesn’t have much water content and requires a lot less process energy and where EROEI remains the pivot point,
    petro holds near-term advantages that others do not from an economic standpoint. Now, if there are intangible, or other than purely economic considerations to assess, than we have net calculations to take into account. That seems to be the rub on GHG and initiatives to take into account total costs, to include impacts on vital statistics bearing on social health–something the likes of Hazel Henderson or the folks at RMI have advocated. This orientation has not been the province of private energy companies but of public policy. As mentioned in this space, this kind of net assessment methodology is evolving with dim prospects for near-term resolution. Higher energy prices pose a two-edged sword; they hold some promise of intensifying the search even as they simultaneously bend back public sentiment against measures that raise the specter of increased costs for the average American. The president and leadership in Congress understand these dynamics and, instinctively, they (safely) nudge their way ahead. That’s presumably some of what Warren Johnson had in mind with his evocations about our societal “muddling.”

    Ben

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  22. By paul-n on January 25, 2012 at 1:09 pm

    Hi Jon, 

     

    Your numbers are close. From the EIA page, for 2010, they show total (refined) petroleum products supplied as 19.180mbd broken down as follows;

     

    NGL’s 2.265

    Gasoline 8.993

    Jet fuel 1.432

    Diesel 3.80

    Residual fuel oil 0.535

    Petrochem feedstock 0.469

    Lubricants 0.131

    Pet. coke .376

    Asphalt 0.532

    Still gas 0.672

    and a few other categories under 0.1

     

    So your big missing part was NGL’s and Still gas.

     

    On the oil sands and Keystone..  My understanding is that the Gulf coast refineries were built/modified to take the heavy oils from Venezuela and some heavier grades from Saudi Arabia.  Because of this, they can handle oils ands bitumen directly.  But, imports of heavy oil from V and KSA have been decreasing, so these refineries are looking for oil to refine!  The oilsands people know this, and rather than go to the expense of building upgraders (to turn bitumen into synthetic light crude), they can just ship the heavy oil directly to these refineries, if they had a dedicated pipeline – that would be Keystone XL.  The margin on refining – the “crack spread” is in the order of $10-20 on a $100bbl of oil.  And these Gulf coast refineries have sharpened their pencils and will take an even lower crack spread – if they can get the oil – they just want to keep their refineries running at capacity.

    Now, most east coast refineries were built for lighter oil (WTI) and North Sea oil.  They can;t handle heavy oil/bitumen, and the cost of modifying them is more than it is worth.  The WTI is all being taken up by the midwest refiners, so they are paying premium prices to import light crudes from N. Sea and Africa.  That is why the older ones are starting to close.

     

    With cellulosic, the thing there is not so much that the industry has failed to deliver – most people -inside and outside – expected that.  The problem has e the unap[ologetic hype of those involved, that has resulted in billions of investor and taxpayer money being wasted, while Khosla and company get rich in the process.  he said he had made a billion dollars -even though *none* of his cellulosic ventures are in commercial production.  should you make a fortune off the taxpayer for hype and not delivering?

     

    At least with corn, actual product is made and used.  For the record, I did not say that the diesel and NG is wasted, just that it is being used.  If we assume that all the increased corn production is really for ethanol, then there is an increase in diesel and NG usage for that purpose.   The problem is that this diesel is counted in the “product supplied”, and then used to produce ethanol which is also counted in “product supplied”, but the net amount available for use is just the ethanol.  so we have a double counting that makes it look like we have more fuel available than is actually the case.  AS ethanol production goes up, so does this double counting.  It is the equivalent of you saving your own seed. while you grew 150bu/ac, you can only sell 148 as you need the remainder for your seed.  So if you report that you “produced” 150 it makes it look like there is more available for use than is actually the case.  What matters is net production and net energy.  The more energy you use to make your energy, the less net energy you have available to use on anything else.  

    The total ethanol production – in oil equivalent terms is just over 500 kbd – about the same as oil from N Dakota.  And this with 2/3 of the crop going to etoh.  I am sure we will see more corn grown and etoh produced, though I think getting to 1mbd equivakent (1.5mbd etoh) will be a stretch.

    As for the Nebraska production – how many of those pivots are supplied from the Ogallala?  That aquifer is being depleted in some areas, and the way aquifers work, once you deplete them, they do not recover to the same level (it is the soil mechanics – imagine a compressing a sponge to half it’s size get the water out, but once you let it go, the sponge only rebounds to 75% of the original size).  So, if that is happening then they are – literally- “mining” the water, and once it is done, it will never be the same again. 

    But, it is up to the corn industry (and ag in general) to manage their own soil and water- some farmers and regions are better at that than others.  If they want to produce corn and etoh, then fine, I have just never agreed with them being excessively subsidised to do so.  The pay to not grow program is even worse.  I would be very happy to be a farmer and get paid to not grow corn, though, just to be different, I might want to get paid to not grow wheat or soybeans – you know, rotate my virtual crops…

    As for the 400 years.  Now that we know ethanol is supplying about 1/20th of US oil consumption – think of how much corn would have to scale up to supply all of it.   And then add in NG and coal, and how much corn would be needed to replace that, and you start to get the picture of just what an amazing resource hydrocarbons in the ground actually are.  We can’t possibly hope to match it with biofuels, no matter what the algae people and cellulosic people say…

     

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  23. By Rufus on January 25, 2012 at 1:39 pm

    Paul, with 960,000 barrels of ethanol produced, daily, we’re probably replacing something closer to 740 or 750,000 barrels/day of gasoline with ethanol.

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  24. By mac on January 25, 2012 at 2:42 pm

    Rufus,

    I see that Poet has teamed up with Royal DSM to help fund their cellulosic ethanol plant. Poet turned down the already approved loan from DOE for over 100 million dollars and has apparently gotten financing from DSM, which I think is a Dutch pharmaceutical company.

    Poet plans to open its plant in 2013. Assuming all goes well, it will be interesting to see if they can successfully make ethanol at a competitive price.

    The fact that the amount of stored solar energy in plants is quite low makes it a tough proposition. This has been my main gripe about ethanol — that we are simply never going to be able to make enough if it even if ethanol is price competitive with gasoline/diesel.

    DSM and POET form major JV for cellulosic bioethanol; POET to decline $105M DOE loan guarantee.

    http://www.greencarcongress.com/

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  25. By Rufus on January 25, 2012 at 3:55 pm

    I read that, Mac. Official Groundbreaking to be in March. Interesting.

    DSM is a Publicly-owned Company; I guess they have pretty deep pockets. Jeff Broin as much as said that the deal won’t be profitable, at least in the present, without the “Cellulosic Producer’s Tax Credit” (which expires at the end of this year.)

    I would be more likely to put this down as “DSM taking a Flyer” than anything else.

    We’ll see, eh? :)

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  26. By Rufus on January 25, 2012 at 3:57 pm

    If things “Were” to break their way, it could end up being a highly profitable partnership.

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  27. By mac on January 25, 2012 at 4:18 pm

    Rufus,

    You may be right. The Poet plant may be a “flyer” for DSM as you say. I think Peter Lynch, who masterminded the meteoric rise of the Magellan Mutual Fund from obscurity to Glory used to call them “runners”. Lynch didn’t always pick winners but the some of the great stocks he found performed so well that they more than made up for the dogs.

    Will Poet be able to pull off what nobody else has been able to do for the last 100 plus years ? I don’t know. It will be interesting to see.

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  28. By paul-n on January 25, 2012 at 5:36 pm

    Paul, with 960,000 barrels of ethanol produced, daily, we’re probably replacing something closer to 740 or 750,000 barrels/day of gasoline with ethanol.

    Rufus, according to the RFA, it is 906,000 bpd.

    With ethanol having 66.67% of the btu’s gallon of gasoline[source], that is the equivalent of 604,000 bpd.  

    If we then look at the net liquid fuel output – take out 2/3 of the diesel used to produce the corn (allowing for ddg’s) and then the extra fuel used to truck the corn to distilleries and then the ethanol to all the markets all over the country, and the actual net dispalcement will easily be under 600,000 bpd.  

     

    Probably not as low as 500kbd , but wouldn;t surprise me if it was 550.  That would imply 1/10 th of a barrel of liquid fuel used to grow, make and transport 1 (gasoline equivalent) barrel of ethanol, or 1.5 bbl of the real thing.  I think that is a reasonable number.

     

    Believe it or not, I actually wish POET success with their venture.  Of all the companies trying to do cellulosic ethanol, they seem to have been the one to engage in the least hype and the most actual work.  If they can do it without loan guarnatees then DoE should say the same to all Khosla’s ventures…

     

     

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  29. By mac on January 25, 2012 at 6:30 pm

    Paul N.

    Believe it or not, I actually wish POET success with their venture.

    In a similar vein. I hope the Eagle Ford oil formation here in Texas will end up producing 11 Billion bbl (as is forecast) much like the Baken in the Dakotas.

    Do we need the oil ? Sure.

    But we also need a strategy to get away from oil…………………….

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  30. By Alex on January 25, 2012 at 7:39 pm

    The answer is a categorical NO. Oil production on federal lands is down 40% during the Obama administration, while the permitorium and the movement of oil rigs overseas dramatically slows down future offshore production. I’m in the exploration and drilling business coming on three decades now, and never has their been an administration more hostile to expanding production, refining facilities, or burdening the industry under a flood of bureaucratic no men and red tape.

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  31. By JonSCKs on January 25, 2012 at 7:42 pm

    Thanks Paul that’s the link I needed. That will give me something to chew on for awhile. ;-)

    Why do you count the energy used to produce Corn but not Crude? Around me there’s a lot of salt water disposal trucks running around.. shoot they were running them 24/7 through Oklahoma to keep the wells pumping.. I commented that I saw as many Salt Water trucks in Oklahoma as Grain Trucks in Nebraska.. Maybe even more in Oklahoma.. Also you have to haul the Crude to the refinery.. here that goes by truck for about 45 miles.. AND there’s no backhaul..

    I belive you may be the Paul I replied to back in 2010 over on the Oil Drum.. there are “alot” of efficiency gains with ethanol. My area was predominately wheat production when I was growing up.. “the markets” were producing wheat for the export market.. Everything was shipped East and then South.. Corn Production in Kansas has exploded from about 180 mln bushels to almost 600 mln in 09.. this grain moves to the SW feedlots as well as ethanol production.. It is not uncommon for Wheat to be shipped east with feedgrains coming back West.. My neighbor has a combine that will chew through about 4500 bu per hour consuming about 22 gallons of diesel per hour.. or about 0.00489 gallons per bushel or 0.00175 gallons of diesel per gallon of etoh.. Yes there is more consumed for other operations but not a third.. Also I believe that there are benefits from adding an oxeygenate (we’ve had this discussion here before.. so I’ll skip it this time..) but I believe you have to allow for an effective energy value greater than just the btu content.. from a more complete burn of the fuel mixture… (but that’s just me.. although there are studies that back this up.. posted the last time..)

    I kind of agree that Cellulosic has underperformed.. However the grain side is doing.. pretty decent right now.. a healthy chunk of the plants are running now.. something like 209′ish.. about 94% of capacity.. You also have to remember that the feed component of the distillaries is a very useable product.. Net Net about 16.5 lbs out of 56 lbs of input gets returned to the feed bunk (somewhere..) or almost a third.. so we are not using “that much” of the crop.. In fact.. the net supply of corn has gone up every year during the ethanol boom.. We are NOT eating into other uses.. although we are re-arranging some things (in a not so subtle way..)

    I never said ethanol was going to be a 100% replacement.. there’s plenty of room for Crude.. Wind.. Solar.. Nuclear.. even CNG if that’s what you want to look at.. I just believe that ethanol is due it’s Credit for the modest success that it has attained.. If nothing else we have eliminated the blender’s Credit and it looks like direct payments to farmers are going to get axed next.. (might be regretting that someday..) but in the current environment the demand for energy is pulling the load. (now if it would just rain..)

    Anywho.. I’m not coming down on you.. I believe your arguments are fair and justified.. I will say that I believe the ethanol folks in the cornbelt speak one language while the Crude folks in Texas/Oklahoma speak a different one.. they are not as far apart as what would first appear… (maybe..) ???

    I keep telling my farmer friends that they may need a plan B.. such as the Keystone Pipeline someday to offset a short crop.. which could happen..??

    I loaded the next to last load of corn out of the bin today from the 2011 crop.. despite the drought it was weighing almost 63 lbs.. that’s pretty good (standard is 56..) I’m ready to put 2011 in my rearview mirror.

    We have challenges in all of our industry’s but we also have capable people to meet them.

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  32. By Rufus on January 25, 2012 at 10:01 pm

    A couple of very good comments, Jon.

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  33. By paul-n on January 27, 2012 at 3:47 am

    Hi Jon,

     

    We may well have crossed comment paths before, I always enjoy a discussion about (or with) ethanol.

     

    Why don;t I count the oil to produce oil?  Well, except for the oillsands, it is almost insignificant.  Sure it takes a lot of oil to run the drill rigs, the frac fluid trucks etc etc.  But you do all this once, and then get a well that produces say, 100 barrels a day for the next four years, and 10bpd for years after that.  Some wells have been producing 10bpd for almost a century (Bakersfield Ca).

    The oil imports have almost zero oil use associated with them- that all happened overseas.  And finally, the oil, and oil products, are moved by electrical or NG powered pipelines – the only oil used for distribution is the last truckload to a gas station.

     So there is still some double counting, but I would guess it to be an order of magnitude less, per barrel, than with ethanol.

    Agree about the DDGs being a useable product -that’s why I said use 2/3 of the fuel used to grow and harvest the crop.  Once it is ethanol, you account for all the fuel used to truck it to wherever.

    Did the price spike of 08 cause a decrease in consumption, did the price drop in 09 cause a sudden increase?

    I never said ethanol was going to be a 100% replacement..

    True, but can the same be said of the RFA, Growth Energy etc?  They talk about how ethanol can achieve energy independence, when, at best, it will be a minor player in the game.

     

    I have nothing against people growing corn and making ethanol (or other alt fuels). I do have a problem with companies and lobby groups making outsize claims that can’t be met – this is what happened with cellulosic, or say other things that are just plain wrong, in order to get their way.

    Like this from Bob Dineen of the RFA  in JUly 2010;

    “Now is not the time to add uncertainty and complexity to the energy tax debate,” said Bob Dinneen of the Renewable Fuels Association. “Losing the tax incentive will shutter plants and cost tens of thousands of jobs.”

    So, the person most plugged into the ethanol indsutry clearl said plants closing and tens of thousands of jobs.  Now less than 18 months later, the tax incentive is gone, and just how many plants are closing or jobs being lost, or how much is production decreasing?

    Was Dineen being sincere at the time, or just scare mongering?  Will he admit that he was wrong?  Should he be held accountable for what he says?  if the industry leader says X will happen, and then it doesn’t, how credible is he/his organisation as the leader?  Until he does and is, why should Congress listen to anything he says now?

    If the ethanol industry groups were as honest and realistic as the actual people who produce corn, then maybe they would get more respect. Until they are, they deserve little, in my opinion.

     

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  34. By rrapier on January 27, 2012 at 1:10 pm

    JonSCKs said:

    Thanks Paul that’s the link I needed. That will give me something to chew on for awhile. ;-)

    Why do you count the energy used to produce Corn but not Crude?


     

    If you do a net energy curve, you will see that the energy inputs only become significant below an EROEI of about 6 to 1. Biofuels are below that; oil is above. I have a graph in the book that shows this pretty clearly.

    RR

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  35. By hayleebeauty on April 9, 2012 at 2:58 am

    It is politically fast to suggest boosting domestic oil manufacturing. The theory goes that if only we “drill baby drill,” then gasoline costs will go considerably down. Unfortunately, that does not gel with the data, because domestic oil manufacturing is at the greatest level in years. Source for this article: Domestic oil production has little effect on gas prices

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