Attention Shifts to Pipeline’s Potential Benefits
Over the weekend the New York Times carried an interview with President Obama in which he commented on the merits of the Keystone XL pipeline project. The Washington Post suggested that these remarks “give opponents reason for hope.” While confirming that the White House’s main objective criterion for making this decision was still the pipeline’s greenhouse gas impact, the President also speculated about the project’s job-creation potential and the ultimate destination of the crude oil it would carry. This appeared to endorse arguments raised by opponents of the project. These issues deserve more than the dismissive treatment they received in the interview.
Estimating Keystone’s Employment Impact
With regard to the number of direct construction jobs that the northern leg of the Keystone XL Pipeline (KXL) might create, I don’t know whether the right number is the 2,000 the President cited or the tens of thousands estimated in an earlier State Department study. Either way, his administration lacks credibility on this subject. This is the White House that devised a new metric of “jobs created or saved” for assessing the impact of its 2009 stimulus measures. It has also routinely touted projects with “green jobs” potential, not just in terms of their direct employment gains, but also their indirect job creation estimated via generous multiplier effects.
Either indirect jobs are always relevant, in which case KXL would create far more jobs across the economy than the President seems willing to admit, or they also aren’t relevant to justifying clean energy and other, more favored infrastructure projects. In any case, his reported ”chuckles” at 50-100 new permanent jobs struck me as unseemly for a President still contending with unemployment over 7.5 percent in the fifth year of this recovery.
We’ve Arrived at the “Blend Wall”
The Energy and Commerce Committee of the US House of Representatives has been holding hearings this week on the Renewable Fuel Standard (RFS). It’s otherwise known as the ethanol mandate, although it covers biodiesel, as well. These hearings are timely, since at least two bills have been introduced to reform or repeal the RFS. During Tuesday’s session Rep. Waxman (D-CA) referred to the “gasoline blend wall, which may be around the corner.” In fact, a review of current gasoline sales and this year’s ethanol target confirms that the ethanol “blend wall” has arrived, at least for some of the nation’s refiners. That explains the urgency of the debate about the future of the RFS.
The blend wall is simply the threshold at which the RFS requires more ethanol to be blended into US gasoline than the quantity necessary to dose essentially all of it with the maximum 10% ethanol content for which most cars on the road were designed. Because the Environmental Protection Agency, which administers the RFS, has been unwilling to exercise its flexibility under existing law, the fuels industry must now choose from a set of unattractive options: It can limit mainstream gasoline to 10% ethanol content and absorb substantial RIN costs (see below) or penalties for failing to blend the required volumes of biofuel. It can produce less gasoline than the country needs, or export more of its production, to reduce its renewable fuel obligations. Or it can produce higher-ethanol blends such as E15 and risk the integrity of millions of cars and large portions of the country’s fuels infrastructure, including all but the newest gas station pumps and tanks. All of these choices affect the price consumers pay at the pump.
Which Oil Price to Watch?
Some economists and consumers are bracing for a sharp uptick in gasoline prices, because the price of crude oil has shot up by $10 per barrel in the last month. Except that it hasn’t, at least not if we’re talking about the global price of crude oil that’s factored into the price of the petroleum products sold in much of the US, especially along the coasts.
The global oil market, reflected in the price of UK Brent crude, is only up about $5 per barrel this month, mainly due to the situation in Egypt. A big part of the jump in domestic oil prices reflects the closing of a historically anomalous gap as US oil moves back into line with the rest of the world.
Such an increase in oil prices does not automatically herald a rise in gasoline prices, especially if it mainly erases a discount that benefited refiners in one region of the country. Moreover, gasoline and crude oil as commodities move in separate markets, linked but not in lock-step. Over the medium-to-longer term they must clearly be connected, but in the short term each responds to distinct forces of supply, demand, inventories and expectations.
Touring a “Fracking” Site in Pennsylvania
It’s easy to talk about the shale gas revolution in the abstract and forget that it is the cumulative result of thousands of operations in locations across the country. It combines the technological marvel of precisely planned and executed drilling more than a mile below ground with the efforts of teams of skilled workers on the surface, and affects the surrounding community in many ways. Last week I had my first opportunity to visit one of these sites, near Williamsport in north-central Pennsylvania. I also saw several nearby sites in different stages of development. Although I was consistently impressed, I also tried to observe with the concerns of shale gas critics in mind.
The Anadarko Petroleum well “pad” I toured is located in Cogan House Township in rural Lycoming County, atop the Marcellus shale formation. This site visit for bloggers and other media was arranged by API, which also paid for accommodations in Williamsport. Anadarko provided experts from its local engineering and public affairs staffs and hosted a dinner with members of the community the evening before the site tour.
What is DOE’s New “eGallon” and Why is it Useful?
I’ve been looking through a new website developed by the US Department of Energy (DOE) to assist consumers in comparing the energy costs of driving an electric vehicle (EV), relative to posted gasoline prices in their state. I heard about this site at the US Energy Information Administration’s (EIA) annual energy conference in Washington, DC earlier this week. It sounded like a handy feature for both current EV owners and those considering buying one, but I couldn’t help thinking about it in the context of a presentation I saw at the same conference on the cost effectiveness of federal tax credits for EV purchases. A key question in both instances concerns just what kind of car is being replaced by that new EV.
The website uses simple math, together with the EIA’s continuously updated data on gasoline and electricity prices around the country, to come up with a national and state-by-state price for an “eGallon”. That imaginary construct is essentially the quantity of electricity that would take a typical EV as far as a gallon of gasoline would take the average new conventional car. As the text points out, it’s hard for consumers to do this for themselves. They see gasoline prices everywhere they drive but must dig through their utility bills to find their electricity price–not always obvious–and then might not know how to compare the two.
Half of California’s Nuclear Generating Capacity Shut Down
I’m still digesting last week’s announcement by Southern California Edison that the utility’s San Onofre Nuclear Generating Station (SONGS) in Southern California will close permanently, nine years prior to the expiration of the facility’s operating license. The plant’s two nuclear reactors were shut down for repairs in early 2012, and the Nuclear Regulatory Commission (NRC) still hadn’t approved the company’s plan to restart them, despite a protracted review. Although this event is quite different from the 2011 Fukushima accident in Japan, its ripples are likely to extend beyond California, where both the state’s electricity market and its greenhouse gas emissions will be adversely affected.
California’s Emissions Could Increase by 6 Million Tons per Year
Before considering how the San Onofre closures will affect the nation’s nuclear industry and generating mix, let’s focus on California. While accounting for only 3% of the state’s 2011 generating capacity from all sources, the SONGS reactors typically contributed around 8% of the state’s annual electricity generation, due to their high utilization rates. That’s a large slice of low-emission power to remove from the energy mix in a state that is committed to reduce its emissions below 1990 levels.
US Ethanol Policy Should Reflect Circumstances and Consequences
This April, two separate bills were introduced in the US House of Representatives to reform, or repeal, the federal Renewable Fuel Standard (RFS) that mandates how much ethanol and other biofuels must be blended into gasoline.
To understand why reform or repeal makes sense now, we should recall the factors that led Congress to enact this standard six years ago and consider how many of the basic assumptions underlying its design have changed since then. That requires a review of US fuel consumption and import trends, commodity prices, and the impact of the RFS on food prices. After summarizing the other points I want to focus on the last one, based on an interview I conducted with Dr. Yaneer Bar-Yam, an expert on complex systems who has developed a model that explains the behavior of food prices since the introduction of the first, less ambitious RFS in 2005.
An Oft-Used Energy Slogan
Last week, Real Clear Politics and API hosted an energy summit in Washington, DC entitled, “Fueling America’s Future”. It was intended to provide a quick overview of most of the key technologies and issues associated with an all-of-the-above energy strategy for the United States. Going through the highlights of the webcast gives me an opportunity to introduce my point of view to a new audience at Energy Trends Insider. I’d sum that up as “All of the Above”, with asterisks for the proportions and situations that make sense.
This slogan, at least in the manner in which it has been espoused by politicians in both parties, has attracted fair criticism for being overly bland and safe. I suspect that critique reflects a general sense that our energy mix has always been composed of all of the above, or all of the technologies that were sufficiently proven and economic to contribute at scale at any point in time. However, as both our technology options and choice criteria expand, our understanding of the evolving energy mix is hampered by metrics and assumptions that are overdue to be revisited.