A year ago, President Obama, under pressure from a deadline set by House Republicans, rejected the application of TransCanada for the Keystone XL pipeline that would pump Canadian crude from Alberta to the American gulf coast.
With a new decision on the Keystone XL pipeline due in the first quarter of 2013, according to the State Department — a date that may slip according to some observers — it is useful to assess the actual effects of not building the Keystone pipeline on Canadian oil production and North American energy markets.
Stopping the Keystone XL pipeline was touted as a big win for environmentalists, who had set their sights on Keystone XL as a big target. As Bill McKibben often quotes NASA scientist James Hansen, using the entire resources of Canada’s oil sands would mean “game over for the climate.” Once complete, Keystone XL would have a capacity of up to 1.1 million barrels of diluted bitumen per day – 54% of Canada’s total bitumen production (note: bitumen is the crude product from production in the oil sands). So, for groups like McKibben’s 350.org, the goal of stopping the pipeline was to slow and eventually stop the exploitation of Canada’s tar sands. The thought was that if environmentalists could stop the building of the Keystone pipeline, they could prevent Canada from having a market for their oil, and thereby production would slow and eventually stop.
Liquefied Natural Gas (LNG) Export Terminal Approval
Last year, the Department of Energy (DOE) granted Cheniere Energy a permit to export liquefied natural gas (LNG) from a terminal at Sabine Pass in Louisiana. The terminal is currently used as an LNG import terminal, but the company has plans to convert it into an export terminal, with exports beginning by 2015. The permit has been challenged by the Sierra Club, but is expected to be approved.
However, there are about 15 total other permit applications outstanding, with only the one permit accepted. After approving exports from the Sabine Pass terminal, the Obama administration put a hold on further approvals until a Department of Energy study on the economic implications of exports is completed. That study was originally due out in March, then the DOE said it would be released by the end of the summer, now the study is expected before the end of the year. (Read more: Investment Opportunities in Natural Gas)
Last week, I spent two days at the International Atomic Energy Agency’s 2012 Fusion Energy Conference in San Diego. The conference, sponsored by the U.S. Department of Energy’s Office of Science and General Atomics, brought together about 1000 fusion scientists from around the world to meet and discuss the state of the art in scientific research to develop fusion energy.
Fusion is a technology that holds great promise in meeting our energy needs. By fusing together two hydrogen isotopes – deuterium and tritium – enormous amounts of energy can be produced, as predicted by Einstein’s equation, E=MC2. The heat from this reaction creates steam to spin a generator just like any other electricity power plant. Since deuterium comes from ocean water, and tritium can be bred from lithium, fusion holds the promise of providing a nearly inexhaustible supply of energy, with no pollutants, no greenhouse gases, and no radioactive waste. There is no threat of a nuclear meltdown like there is with the nuclear fission reactors of today.
Recently, I sat down to speak with Vice Admiral (Ret.) Denny McGinn, the President and CEO of the American Council on Renewable Energy (ACORE). Adm. McGinn served for 35 years in the Navy as a naval aviator and test pilot, rising to command an Aircraft Carrier, and ultimately the 3rd Fleet. His final position on active duty was as Deputy Chief of Naval Operations for Warfare Requirements and Programs at the Pentagon, which helps scope and develop the Navy’s capabilities for the future.
State of the Solar Industry
We had a wide ranging discussion on renewable energy issues, touching on issues that will be familiar to regular readers of my blog column, including the rapid growth of solar power and the challenge of Chinese competition, wind power, the military’s transition to clean energy, and the politics of renewable energy. I’ve divided the interview into two blog posts. In this one I will talk about wind and solar, while I will focus on the military in the next.
We see this week news that Tesla is having trouble meeting it’s loan repayment schedule, and faces a need to raise more money on the markets. Combined with this week’s pronouncement from the chief of Toyota against electric cars and lackluster sales of GM’s Volt that have forced the company to reduce production, it seems there are more troubles ahead for electric-driven cars.
I believe this shows that pure electric cars are not yet ready for the consumer market. They are both too expensive, and they don’t meet the needs of consumers for range and performance.
Tesla and Fisker, in particular face consumer challenges that the traditional car makers do not face. As a start-up, they have to convince customers that they can both make a reliable car, and their small dealer network will be able to maintain the cars when they need servicing and repair. (See more: CBO: Electric Cars Will Flop, Despite $7.5 Billion in Subsidies)
The US government provides a tax credit of up to $7500 for purchasers of electric or plug-in hybrid cars. But, for cars that range in price from about $35,000 for the Leaf, to $45,000 for the Volt, to $57,000 for the baseline Tesla Model S, that does not drive the price down to a place where it would be competitive with high efficiency traditional gasoline-driven cars, or even hybrids, which are probably the source of the most competition.
The problem, in short, is that the battery-only cars (Leaf, Tesla, Fisker) are inferior cars at a higher price point.
The following article was written by Andrew Holland for Energy Trends Insider, a free subscriber-only newsletter published by Consumer Energy Report that identifies financial trends in the energy sector. Get you free subscription today.
The ethanol industry has seen its position in Washington severely weakened over the last year. The modern ethanol industry is a creation of Congress; the Renewable Fuels Standard (RFS), the ethanol tax credit, and a tariff on imported ethanol were all responsible for creating the ethanol industry we see today. We should note that this industry has seen some remarkable successes: it has replaced almost 10% of the country’s gasoline fuel supply, with an impact on prices that is marginal at best.
It is important to note that more advanced biofuels still receive tax support: cellulosic ethanol receives $1.01 per gallon in tax credits, but that is set to expire at the end of this year. A Senate bill would extend that credit for a year, as well as retroactively re-instate the $1 per gallon biodiesel tax credit that expired at the end of last year. The fate of these credits is up in the air, as Congress will have to consider a broad range of tax policy questions before the ‘fiscal cliff’ coming this year.
High Gas Prices During Election Season
Last week, reports from both Platts Energy News and Reuters said that officials in the Obama Administration are considering releasing oil from the U.S. Strategic Petroleum Reserve. The Platts report even said that a release was “imminent,” citing a meeting on Thursday at the White House with oil analysts. Other reports stated that the release could be up to 180 million barrels – six times as large as last summer’s.
Such a release would be contrary to the rationale of having Strategic Petroleum Reserves, and — coming only 60 days before an election — it would be a nakedly political ploy seemingly aimed only at alleviating a persistent political vulnerability: high gas prices.
Power to the States
Yesterday, I wrote about the shortcomings of the Romney energy plan, saying that by looking simply at supply-side, it only goes halfway; a real energy policy addresses both demand and supply sides. There is one part of the plan, however, that I want to highlight because I believe it deserves praise.
The section that stands out as genuinely new and innovative is Romney’s plan to transfer control over energy production on federal lands to states. A Romney Administration would allow states to “establish processes to oversee the development and production of all forms of energy on federal lands within their borders” with the exception of lands “specially designated off-limits” (presumably national parks and the like). Federal agencies would certify state’s regulations as meeting an “adequate” level, but would leave most of the decisions to the states themselves. Romney would then encourage a “State Energy Development Council” that would allow states to share best practices and work together. This idea of Energy Federalism would allow states – the “laboratories of Democracy” in Justice Brandeis’ terminology – to test different regimes for energy production.
Dealing With the Total Picture
Last week, Governor Romney released his plan for “Energy Independence” that promises to “increase domestic energy production and increase partnership with Mexico and Canada to gain energy independence by 2020.” Briefly, the plan proposes to increase domestic fossil fuel production by opening new areas to exploration and by reducing regulatory barriers to the building of new power plants.
My concern is that this is simply a one-sided energy policy – it focuses solely on increasing the supply of energy (and almost exclusively on fossil fuels, especially oil). A true energy plan would realize that no matter how much oil your country produces, it can never escape the world market price. In a world with a globalized market for oil, OPEC will always be the most important price-setter, and the price of oil will not be set at home. The price will track with demand from economic growth in India and China and will follow supply shocks from the most recent unrest in oil-producing regions, whether Iran, Sudan, or the South China Sea.
I want to post a quick rant on the uselessness of statistics about a country’s oil reserves. I was preparing this afternoon to write a blog post about the revolution in oil production in the US, caused by the adoption of new technologies of fracking and horizontal drilling in areas like the Bakken Shale and the Eagle Ford Shale.
The USGS reports that, with perspective additions, the U.S. holds 32 billion barrels (bb) of oil, 291 trillion cubic feet (tcf) of natural gas, and 10 billion barrels of natural gas liquids in mean potential undiscovered reserves. This is a substantial upwards revision from last year’s estimate – showing how the new technologies are revolutionizing America’s energy outlook.
Then I started doing the math. The U.S. uses about 18.7 million barrels of crude oil equivalent per day (mbd), according to the EIA. Of that consumption, we’re importing about 8.7 mbd, and producing about 10 mbd. That works out to a total annual consumption of about 6.875 bb of oil, of which about 3.65 bb is from domestic production. At those rates, America would completely exhaust its total reserves, as estimated by the USGS at 32 bb of oil in eight years, nine months. So, by April or May of 2021, the United States would no longer have any oil – if these reserve estimates went unchanged.