Energy Security Trust

Energy policy is a major topic of discussion during almost every State of the Union address. The most recent address was no exception, with President Obama devoting a substantial portion of his speech toward reviewing recent energy accomplishments, and then promoting new energy initiatives.

(Related: Are President Obama’s Policies Causing U.S. Oil Production to Rise?)

One of those initiatives was one of the three major energy policy recommendations that I promoted in my book Power Plays. Here was President Obama’s version during the State of the Union address:

I propose we use some of our oil and gas revenues to fund an Energy Security Trust that will drive new research and technology to shift our cars and trucks off oil for good. If a nonpartisan coalition of CEOs and retired generals and admirals can get behind this idea, then so can we. Let’s take their advice and free our families and businesses from the painful spikes in gas prices we’ve put up with for far too long. I’m also issuing a new goal for America: Let’s cut in half the energy wasted by our homes and businesses over the next 20 years.

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The Navy’s Biofuels Program

Sailors assigned to Riverine Group 1 conduct maneuvers aboard Riverine Command Boat (Experimental) (RCB-X) at Naval Station Norfolk. The RCB-X is powered by an alternative fuel blend of 50 percent algae-based and 50 percent NATO F-76 fuels to support the secretary of the Navy’s efforts to reduce total energy consumption on naval ships. (U.S. Navy photo by Mass Communication Specialist 2nd Class Gregory N. Juday).

In 2010 I conducted an interview with Tom Hicks, who is the Deputy Assistant Secretary to the Navy (Energy). During the interview, Tom described the Navy’s efforts in pushing for widespread availability of biofuels for Naval operations. He stated that sourcing alternative energy is a top priority for the Navy, and would enhance its war-fighting capabilities. He said the Navy sees itself in a leadership role in driving a transition to “homegrown, secure, independent sources of fuel.”

The goal, as described by Tom, is for biofuels to make a major contribution toward the fuel needs of the Navy by 2020. The Navy has embarked upon an initiative called the “Great Green Fleet” in which they would deploy a strike group on all alternative fuels by 2016. By 2020, the goal is for 50% of all of the Navy’s energy consumption to come from alternative sources. In pursuit of this initiative, the Navy is doing research, and testing and certifying all of their engines on renewable fuels. CONTINUE»

While I disagree with Amory Lovins on many topics, the man is definitely a visionary. In his latest book Reinventing Fire: Bold Business Solutions for the New Energy Era, Lovins and his coauthors make the case for retrofitting 120 million buildings, and for fundamentally changing our transportation infrastructure, the way our industries use energy, and the way electricity is produced and consumed.

Reinventing Fire is an epic piece of work. I was initially amazed that one author wrote this book, but then in the acknowledgements it is made clear that the book is the result of major efforts by a dozen or so contributors. (I will refer to Lovins as the author in this book review, but there were clearly many contributors). CONTINUE»

Oil Money is Bad Money, Except When…

Al Gore has just released a new book — The Future: Six Drivers of Global Change — and is on a media tour to promote it. But he has had to face some very uncomfortable questions involving a charge that has been around for a while: That Al Gore is a hypocrite.

The hypocrisy charge has been raised against Gore over the years. Until now, the most infamous incident of apparent hypocrisy took place in 2007 when it was widely reported that Al Gore’s mansion had a utility bill about 20 times more than the average family home. (See Al Gore’s ‘Inconvenient Truth’? — A $30,000 Utility Bill). I found the news troubling; after all Gore was the Conservationist-in-Chief but he certainly didn’t appear to be walking his talk.

But I also wrote that if he was running a staff out of his home, then the higher electric bills were more understandable. I also learned at the time just how rabidly partisan people can be when discussing Gore. Some on the left would not tolerate criticism of Gore, and I was vilified for saying that I was disappointed in his behavior.

But, I really wanted to like Al Gore. I thought of him as someone who was making a positive impact by calling attention to a serious problem, and getting people to conserve. I defended him when people noted that Gore traveled around the world in fossil-fueled jets. After all, I argued, if he traveled halfway around the world but convinced 500 people in a foreign country to become involved and take action, then the net impact could easily be lower carbon emissions as a result of his travels.

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In my previous column — Why I Don’t Ride a Unicorn to Work — I used an analogy to describe the US government’s approach to cellulosic ethanol mandates. In brief, they have mandated that something that does not exist — commercial cellulosic ethanol volumes — be blended into the fuel supply in the hopes that they can incentivize the industry into existence. They decided to require gasoline blenders to purchase the fuel, which as it turns out was a bit of a problem since it didn’t exist.

Last week the court sided with the American Petroleum Institute in a lawsuit against the Environmental Protection Agency (EPA) over the mandates. The court ruled that the EPA — which was responsible for determining the mandated volumes each year — based their projections on wishful thinking rather than on sound analysis (See the court decision here).

So how did the EPA respond? Less than a week after the court ruled that the EPA had based their cellulosic ethanol projections on wishful thinking, the EPA set the 2013 cellulosic ethanol mandate at 14 million gallons — up from last year’s mandate of 8.65 million gallons. Given that only around 20,000 gallons of qualifying cellulosic fuel was produced in 2012 — about 0.2% of the final mandated volume — the EPA’s decision to increase the 2012 mandate by over 60% is odd to say the least. It seems like they have doubled down on last year’s wishful thinking with an even larger dose of wishful thinking. CONTINUE»

The Unicorn Analogy

There is a reason I don’t ride a unicorn to work.

It isn’t because it’s too far to work. Nor is it because it rains here in Hawaii nearly every day and I might get wet. It isn’t because the powerful automobile lobby has convinced me that driving a car to work is a better option for me. No, it’s a bit more fundamental than that.

I don’t ride a unicorn to work because unicorns don’t exist.

But imagine the following scenario. A number of companies claim that they are developing unicorns, and in 3 years they will be commercially available. The  government thinks “Hey, this is a great idea. It would be a more environmentally friendly method of transport. Let’s force automakers to start selling these unicorns in 3 years. We will base our projections on how many unicorns these unicorn companies say they will produce. After that we will increase the number the automakers must sell in each subsequent year, and then force the automakers to pay up if they don’t meet these quotas.”

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A few years ago, I made the observation that the best thing that could happen to mitigate against some of the potentially severe consequences of peak oil was for oil prices to rise, and remain high in the years before oil production peaked. That would have the effect of encouraging conservation, as people adapted to a world in which oil is no longer cheap. High oil prices would also incentivize oil production, which would have the effect of preventing steep declines in global oil production — which some had predicted would lead to severe economic crisis or possibly economic collapse.

We have certainly seen both conservation and increased oil production, but I have been really surprised by some of the details of how it has happened.

For example, as oil prices raced to $100, consumption in the US and Europe declined as I expected. But consumption in all developing regions increased sharply — so much so that the net impact was for global consumption to increase.

(Read More: Petroleum Demand in Developing Countries)

I didn’t expect this; rather I expected that we would see oil consumption decline across the board.

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Normally when I list the Top 10 stories of the year, I close the post by making predictions for the upcoming year. For 2012, my predictions were:

1. President Obama will easily win reelection, which means that energy policies will likely continue along the current trajectory.
2. The Keystone Pipeline project will be approved (although that decision may still slide into 2013).
3. Natural gas prices will remain low, averaging below $5/MMBTU for the year.
4. Oil prices — both West Texas Intermediate and Brent — will average above $100/barrel in 2012.
5. We will look back on the fact that Newt Gingrich was once the leading Republican contender for president and have a good laugh about it.

Those predictions were correct for the most part. The first and third were correct, I believe the second will ultimately be correct, the fourth was mixed (Brent averaged above $100 and WTI averaged about $94), and the 5th just depends on one’s personal opinion. In my opinion, it is correct.

However, when I listed the Top 10 Energy Stories of 2012 — as voted upon by readers — I failed to list my predictions for 2013. So here they are:

1. Brent and WTI crude prices will both average less in 2013 than in 2012.
2. The Brent-WTI price differential — which has widened substantially in the past two years — will narrow in 2013.
3. The average annual price of natural gas — as measured by the Henry Hub Gulf Coast Natural Gas Spot Price — will be higher than in 2012.
4. The Obama Administration will approve the northern leg of the Keystone XL pipeline.
5. US oil production will continue to grow (but at a slower pace than in 2012), reaching the highest level since 1995.

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Mr. Jan Koninckx, director of biofuels for DuPont Industrial Biosciences, testifying at a U.S. Senate committee hearing on domestic renewable fuels.

During the recent Total Energy USA Conference in Houston, I had a chance to interview Mr. Jan Koninckx. Mr. Koninckx is the global director of biofuels for DuPont Industrial Biosciences – an arm of DuPont that has a strong focus on biofuels. Also present was Wendy Rosen, DuPont’s PR director.

The interview was focused around DuPont’s efforts in 2nd generation biofuels. DuPont is currently engaged in two major projects to commercialize advanced biofuels.

The first is a 30-million-gallon per year corn stover-fed facility in Nevada, Iowa. DuPont has been working on this technology for about 10 years. They focused on corn stover because it is one of the easiest feedstocks to process, and because it is already there as a byproduct of corn production. The stover first undergoes a mild pre-treatment, which means that less inhibitors are produced, and this positively impacts the ability to ferment sugars to ethanol.

DuPont broke ground on this facility on November 30, 2012 and start-up is planned for mid-2014. The facility has about 100 farmers under contract, which will grow to eventually provide 360,000 tons per year of corn stover (dry mass basis) for DuPont’s enzymatic process. CONTINUE»

Happy New Year’s to readers everywhere! Last week we posted a poll listing 15 of the major energy stories of 2012. Readers voted, and the Top 10 are presented below with a short narrative describing the story.

1. Revolution in US oil and gas production continues

The fracking revolution in the US continued, with oil production at its highest level since 1998 and dry natural gas production at an all-time high. President Obama became the first president since LBJ to serve in office during four consecutive years of increasing US oil production. The International Energy Agency (IEA) projected that by 2020 the US will become the world’s largest oil producer. They also projected that the US would become a net oil exporter again by 2030, which would be the first time that has happened since the 1940s. CONTINUE»