R-Squared Energy Blog

Pure Energy

Gas Prices Rise

We are still on track for $4 gasoline by Memorial Day. If gasoline inventories have fallen significantly by mid-March, it is a near-cinch. One of my recent OPIS reports also said that investors have gone seriously long on gasoline futures:

Average Gas Price Rises to $3.07

CAMARILLO, Calif. (AP) — The national average price for gasoline rose nearly 10 cents over the last three weeks, according to a survey released Sunday.

The average price of regular gasoline on Friday was $3.07 a gallon, mid-grade was $3.19, and premium was $3.30, oil industry analyst Trilby Lundberg said.

Of cities surveyed, the nation’s lowest price was in Cheyenne, Wyo., where a gallon of regular cost $2.77, on average. The highest was in San Francisco at $3.39, according to the Lundberg Survey of 7,000 stations nationwide.

The cost of diesel was also up, with an average national price of $3.48.

I should probably point out that my last fill-up in Scotland (which was about 2 months ago) cost me $7.75 a gallon.

January 14, 2008 Posted by | gas prices | 18 Comments

Toyota Promises Plug-in Hybrid

Move over, Chevy Volt. You have some very serious competition:

Toyota Will Offer a Plug-In Hybrid by 2010

DETROIT — The Toyota Motor Corporation, which leads the world’s automakers in sales of hybrid-electric vehicles, announced Sunday night that it would build its first plug-in hybrid by 2010.

The move puts Toyota in direct competition with General Motors, which has announced plans to sell its own plug-in hybrid vehicle, the Chevrolet Volt, sometime around 2010.

Katsuaki Watanabe, the president of Toyota, announced the company’s plans at the Detroit auto show as part of a series of environmental steps.

Mr. Watanabe said Toyota, best known for its Prius hybrid car, would develop a fleet of plug-in hybrids that run on lithium-ion batteries, instead of the nickel-metal hydride batteries that power the Prius and other Toyota models.

Given Toyota’s experience, my money is on them to deliver before GM has the Volt ready for the mass market.

Despite its decision to step up its plug-in hybrid development, Toyota is not sure how much more consumers will want to pay for it, Mr. Lentz said. The Prius starts at $21,100. Some after-market companies are charging nearly that much to convert Prius models into plug-ins, he said.

Given that, it is more likely that Toyota would offer plug-in technology as an option on the Prius, at least in the short term, rather than switch all of its hybrids to plug-in models.

Ultimately, Toyota must determine “do people want to plug in their car?” Ms. Chitwood said.

Yes, I want the plug in my car! Sign me up. And as long as gas prices continue to stay high – which I think they will – a lot of others will sign up as well.

January 14, 2008 Posted by | auto industry, Chevy Volt, General Motors, phev, Toyota | 33 Comments

Coskata Hype

Several noteworthy energy stories in the past 24 hours, so a few quick posts.

First up is the Coskata news that has everyone talking:

GM Takes Stake in Small Biofuels Firm

Bill Roe, president and CEO of 18-month-old Coskata, said that at full production the company will be able to make ethanol for less than $1 a gallon. He said pump prices should dramatically reflect widespread production of the cheaper new ethanol by 2015 or 2016, when it expects to be building 20 to 25 fuel plants a year.

David Cole, chairman of the independent Center for Automotive Research, which receives a small part of its funding from auto companies, says GM’s move reinforces that U.S. carmakers are serious about developing alternative fuels. He calls the coming growth of cellulosic ethanol “a big deal.”

“Corn-based ethanol has never really been viable, it’s been driven by politics,” he said. “Once you’re into cellulosic or non-food biofuels, the resource base is very, very large and you’re talking about fuel at a buck a gallon. It changes the whole game.”

A growing number of biotechnology companies have been working to make cellulosic ethanol — long more costly than government-subsidized, corn-based ethanol — profitable.

Coskata’s three-step system — sending feedstock through gasification, a bioreactor and an ethanol recovery process — uses proprietary microorganisms and patented bioreactor designs that it is fine-tuning in its offices and laboratories in a Warrenville office park. It says the process is more energy-efficient than existing methods and will enable fuel to be made from a variety of non-food sources, even old tires.

The company says it can make more than 100 gallons of ethanol per ton of dry material, uses a third to a quarter the amount of fresh water for ethanol today and reduces greenhouse gas emissions by as much as 84 percent compared with conventional gasoline.

“We think that the Coskata process brings the first practical cellulosic opportunity to the market,” said GM’s Mark Maher, executive director of powertrain integration.

The first practical cellulosic opportunity? I thought that’s what Range Fuels was doing? Anyway, this story doesn’t mention it, but this is another Vinod Khosla backed venture. Is it legit? I have read through their web pages, and most of their technology has been done by others (like Range Fuels). If they can produce ethanol at high selectivity, that will be a breakthrough. But I will say again: Once you have syngas, I have no idea why you would put it in water and ferment it. Chemically convert it without the water, and avoid the wet purification step.

I will say that the process is over-hyped on their web page. They don’t even have a demonstration unit, and I can promise you the following statement from their Vision page is inaccurate:

Using its proprietary microorganisms and patented bioreactor designs, Coskata will produce ethanol for under US $1.00 a gallon anywhere in the world, from almost any input material.

Think about that. Anywhere in the world? My guess is that unless they found someone to pay a steep tipping fee to get them to take biomass, there is nowhere in the world that they will be able to make ethanol via gasification for under $1/gal.

I am not trying to be a naysayer – and I wish them all the luck in the world – but we heard all this before with TDP – and we know how that turned out. Often if you haven’t built a plant, you tend to underestimate your costs. My prediction is that this is what they will discover as they scale up. But even if they can produce ethanol from gasification at $2/gal, in the long run that will be pretty good.

Are they for real? Not enough information to say. Are there the classic signs of overhype? Definitely.

January 14, 2008 Posted by | biomass gasification, Coskata, ethanol | 75 Comments

Debunking Matt Simmons

I don’t suppose this essay is going to make me any new friends, but what’s good for Vinod Khosla is also good for Matt Simmons.

A couple of years ago, I took on Vinod Khosla because I felt like he was unduly influencing energy policy in the wrong direction. I pointed out a number of incorrect comments from him that I felt called into question his understanding of the issues upon which he was pontificating. I had no personal animosity toward Mr. Khosla, and in fact we have communicated numerous times over the past couple of years. He has even offered to put me to work in the biofuels industry. So, definitely no hard feelings exist between us. He believes in what he is doing, and I believe in what I am doing.

Now, in the same spirit I turn my attention to investment banker Matt Simmons. Let me first say that I think Matt wrote a fine book in Twilight in the Desert. He did a lot of research and read a lot of papers, and thoroughly presented his case. I have read the book, and have gone back to it many times as a reference. I think he is generally correct on the big picture, and I couldn’t agree with him more on the need to prepare for peak oil.

But even when I was reading the book, Simmons sometimes made comments or arguments that were (to me) either bizarre, or just wrong. For instance, in Twilight, I can recall him becoming alarmed by the term “fuzzy logic.” I had been around control systems based on fuzzy logic, so I was familiar with the term. But Simmons said he had never heard it before, and interpreted the phrase as one might interpret “hunch.” He went on and on about how Saudi didn’t really know how much oil they had because they were using fuzzy logic. Simmons tells the story himself:

There was a presentation that we had at the Expec (ph) Center at Saudi Aramco where one of the guys said the reason we are applying this technology is because it now takes fuzzy logic to make sure we are maximizing our natural resource base. I had never heard the term ‘fuzzy logic’ before’ so during the Q and A, I raise my hand, and actually I had two questions: “Was that model that you did of Ghawar with all those dots, were they wellheads?” And he said, “Oh yes.” And I said, “How come they’re all in the very north of the field?” [And he said] “Oh we just make an orderly progression from north to south.” And secondly, “What does ‘fuzzy logic’ mean?”

And he said that fuzzy logic (which is a very common scientific term, but I just had never heard it before) is the difference between the other end of the spectrum from crisp logic. Crisp logic is true or false. A man of ten is young, true or false; a man of 20 is young, true or false; a man of 30 is young, true or false; a man of one hundred is young, true or false. When you get towards the center there is no true, there is no false, and it now takes fuzzy logic, and I said to myself, “if they have 260-billion barrels of reserves, if they can basically just keep turning on a tap, why does it take fuzzy logic?”

I didn’t want to be facetious – there was just something there that didn’t smell right, and I never realized (even doing this giant oil field study) it took me in the hotel in Dhahran, looking at this nice book we were given on the eastern province, to suddenly start realizing that you could draw a ring around these handful of great fields, and it would fit within the Great Salt Lake. I grew up in Utah – it’s not a very big territory.

I would say that most technical people are familiar with fuzzy logic, so I figured that Simmons was just not a technical guy. And I wouldn’t even tell this story, but this week my attention was called to this:

An Interview with Matt Simmons

In the interview, Simmons made several other claims that raised more flags with me with respect to his ability to interpret technical information. Such as:

Sour, heavy oil is really not worth very much.

That’s preposterous. Refiners with crackers and hydrotreaters love heavy, sour oil, because they can make a lot of money with it. I explained this in detail in The Assay Essay. Furthermore, refiners can get almost as much liquid product out as they can from light sweet oils. It may very well be worth nothing to a refiner who can’t process it, but to say it isn’t worth very much is ludicrous. It does trade at a $10-$20 discount to light, sweet oil, but that’s simply because more refiners haven’t yet adjusted to process it. But more are installing the equipment (cokers and hydrotreaters/hydrocrackers) every day.

Here’s another example. While I agree with Simmons that corn ethanol is “a terrible, tragic mistake”, I can’t agree with his assertion “It [ammonia] has 111 octane, whereas corn-based ethanol has a very low octane.” For all its faults, ethanol has a very high octane, and is used to boost the octane of gasoline.

So, the point is that I am learning to take Simmons with a grain of salt when he is discussing technical subjects. He may be an ace investment banker – and he has certainly made a lot of money – but he has given me no reason to put stock in predictions like this from him:

MS: Ocean energy, on the other hand, could actually be very surprising. Liquid ammonia created by warm seawater could turn out to be a surprisingly fast replacement, and a high-quality replacement for motor gasoline.

BC: Liquid ammonia? We’ve never heard of this.

MS: Well, no one has because there’s only about five people that are working on this. But we have transported liquid ammonia, and we have a history of almost 50 years of using it. It can be moved with exactly the same sort of pipeline system as motor gasoline. It has 111 octane, whereas corn-based ethanol has a very low octane. The biggest rap on it is that it’s dangerous to your health if you drink it. Well, I keep telling people, “Have you ever had a good swig of motor gasoline?” (laughter)

Or his claims on algal biodiesel, in which he is investing in, and proselytizing on:

“Call it seaweed, if you want,” Simmons said. Whatever you call it, Simmons said the world must start harvesting this micro algae using what he called “underwater lawnmowers.”

Simmons acknowledged that any plan for large scale harvesting of micro algae likely would be strongly opposed by environmentalists. His blunt message to them: “Get over it. We’ve already destroyed the fish stock.”

Simmons has been putting his money where his mouth is. He founded an ocean energy institute to investigate the potential of micro algae as a new source of oil. According to Simmons, micro algae has a fat content of roughly 25%, far higher than the 2% to 3% fat content of corn and the 6% to 7% fat content of palm oil.

I have addressed algal biodiesel challenges here previously.

The point of this essay is not to tear Matt Simmons down. Rather, I am just scrutinizing the claims of someone who is frequently put up as an authority. He has demonstrated to me a lack of knowledge in several key (technical) areas of the energy sector. So then we need to take his peak oil claims with a grain of salt:

My opinion is that it’s increasingly likely that we actually set an all-time record in May 2005 of 74,252,000 barrels per day. And for the first three months of 2007, we’re almost a million barrels per day behind that, and we’re dropping fast. If that record still holds a year from now, I’ll bet someone ten-to-one that we set peak oil in May 2005 and it’s now past tense.

Incidentally, I will take that bet. 10 to 1? You have to be kidding me. Anyone else want a piece of that? Of course more recently he has been more emphatic about his claims that we have peaked, as he stated this in several interviews in late 2007.

Personally, I don’t think we have peaked, although I think we are probably pretty close. I personally think we have a 90% chance of peaking by 2015, and I think we will experience the symptoms of peak – Peak Lite – until then. I do think we need to take swift action to mitigate something that could potentially be very unpleasant. But when people – especially people who are considered to be authorities – go on record and are wrong on this issue, I think it diminishes the urgency to act by giving people a false sense of security given that we will have once again cried wolf.

January 14, 2008 Posted by | Matt Simmons, oil production, Peak Oil, Vinod Khosla | 26 Comments

Debunking Matt Simmons

I don’t suppose this essay is going to make me any new friends, but what’s good for Vinod Khosla is also good for Matt Simmons.

A couple of years ago, I took on Vinod Khosla because I felt like he was unduly influencing energy policy in the wrong direction. I pointed out a number of incorrect comments from him that I felt called into question his understanding of the issues upon which he was pontificating. I had no personal animosity toward Mr. Khosla, and in fact we have communicated numerous times over the past couple of years. He has even offered to put me to work in the biofuels industry. So, definitely no hard feelings exist between us. He believes in what he is doing, and I believe in what I am doing.

Now, in the same spirit I turn my attention to investment banker Matt Simmons. Let me first say that I think Matt wrote a fine book in Twilight in the Desert. He did a lot of research and read a lot of papers, and thoroughly presented his case. I have read the book, and have gone back to it many times as a reference. I think he is generally correct on the big picture, and I couldn’t agree with him more on the need to prepare for peak oil.

But even when I was reading the book, Simmons sometimes made comments or arguments that were (to me) either bizarre, or just wrong. For instance, in Twilight, I can recall him becoming alarmed by the term “fuzzy logic.” I had been around control systems based on fuzzy logic, so I was familiar with the term. But Simmons said he had never heard it before, and interpreted the phrase as one might interpret “hunch.” He went on and on about how Saudi didn’t really know how much oil they had because they were using fuzzy logic. Simmons tells the story himself:

There was a presentation that we had at the Expec (ph) Center at Saudi Aramco where one of the guys said the reason we are applying this technology is because it now takes fuzzy logic to make sure we are maximizing our natural resource base. I had never heard the term ‘fuzzy logic’ before’ so during the Q and A, I raise my hand, and actually I had two questions: “Was that model that you did of Ghawar with all those dots, were they wellheads?” And he said, “Oh yes.” And I said, “How come they’re all in the very north of the field?” [And he said] “Oh we just make an orderly progression from north to south.” And secondly, “What does ‘fuzzy logic’ mean?”

And he said that fuzzy logic (which is a very common scientific term, but I just had never heard it before) is the difference between the other end of the spectrum from crisp logic. Crisp logic is true or false. A man of ten is young, true or false; a man of 20 is young, true or false; a man of 30 is young, true or false; a man of one hundred is young, true or false. When you get towards the center there is no true, there is no false, and it now takes fuzzy logic, and I said to myself, “if they have 260-billion barrels of reserves, if they can basically just keep turning on a tap, why does it take fuzzy logic?”

I didn’t want to be facetious – there was just something there that didn’t smell right, and I never realized (even doing this giant oil field study) it took me in the hotel in Dhahran, looking at this nice book we were given on the eastern province, to suddenly start realizing that you could draw a ring around these handful of great fields, and it would fit within the Great Salt Lake. I grew up in Utah – it’s not a very big territory.

I would say that most technical people are familiar with fuzzy logic, so I figured that Simmons was just not a technical guy. And I wouldn’t even tell this story, but this week my attention was called to this:

An Interview with Matt Simmons

In the interview, Simmons made several other claims that raised more flags with me with respect to his ability to interpret technical information. Such as:

Sour, heavy oil is really not worth very much.

That’s preposterous. Refiners with crackers and hydrotreaters love heavy, sour oil, because they can make a lot of money with it. I explained this in detail in The Assay Essay. Furthermore, refiners can get almost as much liquid product out as they can from light sweet oils. It may very well be worth nothing to a refiner who can’t process it, but to say it isn’t worth very much is ludicrous. It does trade at a $10-$20 discount to light, sweet oil, but that’s simply because more refiners haven’t yet adjusted to process it. But more are installing the equipment (cokers and hydrotreaters/hydrocrackers) every day.

Here’s another example. While I agree with Simmons that corn ethanol is “a terrible, tragic mistake”, I can’t agree with his assertion “It [ammonia] has 111 octane, whereas corn-based ethanol has a very low octane.” For all its faults, ethanol has a very high octane, and is used to boost the octane of gasoline.

So, the point is that I am learning to take Simmons with a grain of salt when he is discussing technical subjects. He may be an ace investment banker – and he has certainly made a lot of money – but he has given me no reason to put stock in predictions like this from him:

MS: Ocean energy, on the other hand, could actually be very surprising. Liquid ammonia created by warm seawater could turn out to be a surprisingly fast replacement, and a high-quality replacement for motor gasoline.

BC: Liquid ammonia? We’ve never heard of this.

MS: Well, no one has because there’s only about five people that are working on this. But we have transported liquid ammonia, and we have a history of almost 50 years of using it. It can be moved with exactly the same sort of pipeline system as motor gasoline. It has 111 octane, whereas corn-based ethanol has a very low octane. The biggest rap on it is that it’s dangerous to your health if you drink it. Well, I keep telling people, “Have you ever had a good swig of motor gasoline?” (laughter)

Or his claims on algal biodiesel, in which he is investing in, and proselytizing on:

“Call it seaweed, if you want,” Simmons said. Whatever you call it, Simmons said the world must start harvesting this micro algae using what he called “underwater lawnmowers.”

Simmons acknowledged that any plan for large scale harvesting of micro algae likely would be strongly opposed by environmentalists. His blunt message to them: “Get over it. We’ve already destroyed the fish stock.”

Simmons has been putting his money where his mouth is. He founded an ocean energy institute to investigate the potential of micro algae as a new source of oil. According to Simmons, micro algae has a fat content of roughly 25%, far higher than the 2% to 3% fat content of corn and the 6% to 7% fat content of palm oil.

I have addressed algal biodiesel challenges here previously.

The point of this essay is not to tear Matt Simmons down. Rather, I am just scrutinizing the claims of someone who is frequently put up as an authority. He has demonstrated to me a lack of knowledge in several key (technical) areas of the energy sector. So then we need to take his peak oil claims with a grain of salt:

My opinion is that it’s increasingly likely that we actually set an all-time record in May 2005 of 74,252,000 barrels per day. And for the first three months of 2007, we’re almost a million barrels per day behind that, and we’re dropping fast. If that record still holds a year from now, I’ll bet someone ten-to-one that we set peak oil in May 2005 and it’s now past tense.

Incidentally, I will take that bet. 10 to 1? You have to be kidding me. Anyone else want a piece of that? Of course more recently he has been more emphatic about his claims that we have peaked, as he stated this in several interviews in late 2007.

Personally, I don’t think we have peaked, although I think we are probably pretty close. I personally think we have a 90% chance of peaking by 2015, and I think we will experience the symptoms of peak – Peak Lite – until then. I do think we need to take swift action to mitigate something that could potentially be very unpleasant. But when people – especially people who are considered to be authorities – go on record and are wrong on this issue, I think it diminishes the urgency to act by giving people a false sense of security given that we will have once again cried wolf.

January 14, 2008 Posted by | Matt Simmons, oil production, Peak Oil, Vinod Khosla | 34 Comments

   

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