The slides I presented on September 27th at the First Nations’ Futures Program at Stanford University are available for viewing for anyone interested:
To summarize, the purpose of the First Nations’ Futures Program is “to establish a world class fellowship program focused on building First Nations’ capacity through developing values based leadership and more integrated solutions for managing First Nation’s assets / resources.” These are the leaders and future leaders of First Nations’ groups like the Māori of New Zealand, Native Hawaiians, and Native Americans. These are the people who are often tasked with managing group resources so they are still available for future generations. Thus, sustainable energy is high on their list of priorities.
My presentation starts with some of the traditional aspects we think of being related to sustainability, but then talks about a more systematic and objective method for measuring sustainability. I cover the fact that sustainable solutions are different in different locales. For example, Brazilian sugarcane ethanol has been deemed to be potentially sustainable by a Dutch group who attempted to measure sustainability based on six categories. But take that example and move it to a location that doesn’t receive ample rainfall, or a location in which the terrain is prone to erosion, and what was sustainable in one case is not sustainable in another. On the topic of sustainability, one size definitely does not fit all. I also contrast the U.S. to Brazil to show why the two are not at all comparable.
Finally, I spend three slides to present for the first time in public a tentative org chart for my new organization, our platform, and our strategy. The org chart has been sanitized to remove some company names from the boxes, as some deals are not ready to be publicized. As indicated previously, I sit in the “Merica” box, but spend most of my time working on the Global Conversions leg of the platform.
Next up is the Pacific Rim Summit in a week. I will be on a panel with Guy Cellier – the President and founder of Forest Solutions – and Professor Scott Turn from the Hawaii Natural Energy Institute at the University of Hawaii. The topic will be sustainable bioenergy.
So I am finally back home for the next 10 days, and slowly catching up. I had a good trip to Panama and then to Stanford. I had my luggage sniffed by dogs when I connected in El Salvador, and then when connecting in LAX Gwen Stefani and her husband walked by within 3 feet of me. I told my wife that I probably could have touched her, but then I might have been delayed by a trip to the L.A. County Jail. I also read Oil on the Brain on the long plane trips, and will soon post a review of that. I will also put up the slides I delivered at Stanford.
One of the things I did on the trip was take a tour of an algae farm. I spent some time with the CEO, and got to ask numerous questions. He had some very interesting comments, which I will capture below. Because he has to work in this industry, I am not going to identify him or his company. Below I will indicate his comments as CEO and mine as RR.
RR: Talk about some of the challenges of growing algae.
CEO: The list is exhaustive. It takes a lot of water. It takes a lot of electricity. Solar penetration is only about an inch into the water, so we really have to keep the ponds mixed well. One thing people never mention is the phosphorous requirement. Phosphorous is a limited resource, but a critical one for the algal growth. If you are trying to make oil, then you have to stress the algae and push it into a lipid production mode. But that causes growth rates to stall. If you engineer algae for higher oil production rates, they can’t out-compete the native species in the ponds.
RR: I talk to John Benemann on a fairly regular basis, and he has said much the same. He likes algae for the potential, for the water treatment possibilities, and as something that should continue to get funding for lab research. But he is pretty harsh on the uber-optimists.
CEO: Yes, I know John as well. He has done some good work in the field. Have you seen his latest paper?
RR: (He shows me the paper, and I acknowledge that I do in fact have that one).
RR: I was looking at those open ponds and wondering if the evaporation rates wouldn’t be problematic. That could create seriously high water usage, especially for those schemes that propose to use open ponds where the solar insolation is high (like in the Arizona desert).
CEO: Yes, those open ponds require a lot of fresh water. You should see our water bill.
RR: What about photobioreactors? Some people envision them as a solution to some of the problems (evaporation, contamination) of the open pond system.
CEO: They are ungodly expensive relative to how much algae they can produce.
RR: So how do you foresee the future of algal fuels?
CEO: There is no future. Look, some of these guys are out there committing fraud with their yield claims. Nobody is making fuel except for small amounts in the lab. I just don’t see how anyone will ever make cost-competitive fuel from algae.
RR: How about fermentation approaches like Solazyme? I haven’t written that off yet.
CEO: Yes, but they are using sugar, and sugar is food. They say they won’t always use sugar, but who knows?
RR: I could see their model working in Brazil as sugarcane ethanol does. Instead of fermenting to ethanol, they could ferment to oil. I also recently had someone write to me and claim they were using a feedstock other than sugar.
CEO: Maybe cellulose?
RR: If it is cellulose, I am on the next plane to go see them. That would indeed be a tremendous breakthrough, presuming their conversions are reasonable. I presume you get a lot of phone calls from aspiring algae fuel producers wanting to do a deal?
CEO: Oh yeah. All the time. Someone with a business plan and no appreciation for the scientific challenges wants to form a company and go after investors. It used to happen every other day, but has tailed off some now.
RR: So you see the main barrier to commercialization of algal fuel as cost?
CEO: Yes, but it is important to note why the cost is high. I don’t see much hope of dramatically cutting those costs. For algae that has other uses – like in the nutraceutical market – the economics are sometimes there because the product is much more valuable. I can make 4-5 times as much revenue per acre growing algae for the supplements market, and at a lower cost than it would take to make fuel.
RR: How about if you extracted oil as a byproduct of the nutraceutical market? I could see that working if you had a much higher value product carrying the costs. On the other hand, you probably aren’t going to get a whole lot of oil.
CEO: Exactly. You could produce oil in that scenario, just not in bulk.
RR: OK, many thanks for your time.
CEO: My pleasure.
I am back in Hawaii, and over the next couple of days I will climb out from under an avalanche of correspondence. I have a couple of essays to get out, including an interview that I conducted with the CEO from an algae company. What he said may surprise you.
Until then, the latest energy-related story from Money Morning. As I previously explained topical Money Morning content will be featured here from time to time. As always, normal caveats apply: I am not an investment advisor. I don’t endorse any specific stocks mentioned in the following story; these stories are meant to spur discussion.
A Money Morning Interview: The Future of Energy
Renowned Oil Expert Dr. Kent Moors Details Shortages of Oil, the Impact of Higher Prices, the Promise of New Technologies and the Opportunities For Investors Dr. Kent Moors is one of the world’s foremost experts on oil, energy policy, finance, risk management and new technologies. Moors advises the leaders of six oil-producing countries, including the United States, as well as global corporations and banks operating in 25 countries.
Moors is the founder and director of the Energy Policy Research Group, which conducts analyses and makes recommendations on a range of energy-related issues. He is also the president of ASIDA Inc., a worldwide advisor on the oil-and-natural-gas markets.
In an interview with Money Morning Executive Editor William Patalon III this week, Dr. Moors detailed the top current energy challenges in the global economy, and also provided investors with a look at some of the looming new technologies, as well as a future in which China is a dominant global energy player.
Some of these issues are already at work. Although oil prices remain well below the all-time record of $147 a barrel set in July 2008, crude prices have been on the march of late. Just yesterday (Wednesday), in fact, supply concerns pushed oil futures up above $81 a barrel, their highest level in more than a year.
“If you think the run up to July 2008 was a wild ride, you haven’t seen anything yet,” Dr. Moors told Money Morning. “In the next five years, investors who focus on medium- to small-sized producers and oil-field-service companies having a well-developed specialty niche will outperform the overall energy sector.”
Money Morning (Q): In an earlier discussion, you said that the successful energy investor of the future wouldn’t be a person who just goes out and invests in ExxonMobil Corp. (NYSE: XOM). Can you explain?
Dr. Kent Moors: We are entering a period of rising prices. There is still some play left in the large verticals (vertically integrated oil companies, or VIOCs) such as ExxonMobil, but the primary profits will be made with smaller, leaner exploration-and-production (E&P) outfits, field-service companies and specialized producers (unconventional gas producers – shale gas, coal bed methane, tight gas, hydrates – heavy oil and biodiesel).
(MM): How will investors have to play this future? What types of companies should they be looking for, and where should they look?
Moors: The market rapidly approaching will be more volatile with valuation often more difficult to determine than in the past, even with prices increasing. How much of the increases result from actual product margins and how much results from oil becoming a financial asset rather than just a commodity is a major concern. It requires some careful homework. The types of categories mentioned above – smaller producers, new developments in field services and technology (especially those providing ways to decrease wellhead and operational costs, increase productivity, use associated gas, treat and utilize produced water, increase efficiency per barrel … there is a long list here) as well as the specialized producers and providers of their technical needs are the main targets.
(MM): When we look at the U.S. economy, you said that investors would be stunned to discover how much of our oil is produced by small players. In that discussion, in fact, you even described the type of firm that could be the “savior” of the U.S. energy sector, and perhaps even the economy. Could you take a moment to describe that situation and explain what that means for the economy?
Moors: The United States remains one of the top five producers of crude and will shortly ramp up production of natural gas (once the current glut has moved through the system). Sixty percent of crude produced in the U.S. market is at stripper wells providing less than 10 barrels of crude a day, but more than 20 barrels of water, a major byproduct. As America enters an accelerating field maturity curve (and an intensifying decline in well debit – well production), the efficiency of production declines. Therein lies a significant area for innovation and leaner companies. And that spells greater profitability at lower entry prices. Some offshore and Alaskan National Wildlife Refuge (ANWR) production will be done at scale, but that is not where the future of U.S. production will be. It will be the result of greater profitability at existing depleting wells with the new technology rolled out (on the oil side) and unconventional gas production.
(MM): Let’s take a look at the global markets, too. China’s global shopping spree has been well chronicled. As China locks up suppliers and supplies of oil and natural gas, what are the chances there could end up being what’s almost a two-tiered market, where China has access to oil and natural gas at lower prices levels, creating a shortage of non-captive supplies and leading to Western countries having to pay much higher prices?
Moors: Price rises for Westerners will occur anyway, and not just because of China (where a rising energy bubble resulting from the recent acquisitions is a concern). The competition for available energy sources will usually result in those regions prepared to pay more, increasing the overall aggregate price for most others. China, India, a resurgent East Asia, Japan and even regions such as West Africa will occupy important positions moving forward in this regard. Also, rising demand will center in places other than OECD countries. The new oil market emerging can hardly discount the developed countries, but the primary demand spikes are going to come from elsewhere.
(MM): After some significant turmoil in recent years, you said that Russia is finally opening up to foreign investment. Will that last, and what effect will that have on global energy prices?
Moors: To offset a more rapidly declining traditional production base (primarily Western Siberia), Russia must move north of the Arctic Circle, into Eastern Siberia and out on the continental shelf. These moves are technologically sensitive and very expensive. Moscow needs the outside investment and that will remain. However, projects must be carefully structured. Foreigners cannot own 50% of “strategic fields” under new laws or anything on the shelf. This means watch out for the smaller, focused operators and oilfield service companies. They will include companies currently trading on the Alternative Investment Market (AIM) in London: The AIM and London Stock Exchange (LSE) are the sources of the new external investment phase in Russia.
(MM): From a global perspective, which markets show promise? And which ones – either because of overly restrictive investment policies, or because of the risk of nationalization – are markets to be avoided?
Moors: Many markets show promise or telegraph restraint. Let’s look at some of the more noticeably promising markets, organized by energy category:
- Conventional Oil: Sub-Saharan Africa, Brazil, Kazakhstan, Russian Eastern Siberian and Far East smaller fields.
- Conventional Natural Gas: Turkmenistan (if recent government overtures to outside investment remain genuine), Uzbekistan, Northwestern Australia (region of the Gorgon project) and New Guinea.
- Unconventional Oil: Tatarstan (Russia) for bitumen and heavy oil, Alberta for oil sands (assuming an average and multi-year sustainable crude price of $72 [USD] a barrel or above).
- Unconventional Gas: The United States for shale (especially Marcellus Shale) and coal bed methane (Powder River Basin, Wyoming, also basin into Montana – if that state reduces regulations), Poland, Turkey and Germany for shale, south central Russia and Ukraine for coal bed methane. If Baghdad and Erbil can finalize central Iraqi and regional Kurdish oil legislation – and if security is maintained – Iraq will become a major play in both oil and gas.
- TO BE AVOIDED: Iran (sanctions and buyback contract frustrations), Mexico (collapsing infrastructure and nationalization), Venezuela (significant technical shortcomings, concerns over productivity assessments, and absence of Western operators).
(MM): If an investor were to divide the energy market into short/intermediate/and long-term segments, what will be the dominant energy plays (oil, natural gas, solar, coal-bed methane, for example) in each of those three time segments? What time periods would you tack onto the short-term, intermediate-term, and long-term segments? And which energy plays will be the real winners?
Moors: To make this easier to see, let’s divide this into short-term, intermediate and long-term segments and look at the key players, issues and technologies in each category.
- Short-Term (five years out): Here we’ll see an increasing efficiency at existing oil wells; Marcellus Shale natural gas; an extension of large fields into known deeper production layers – for example, BP-led (NYSE ADR: BP) multinational plays such as the Azeri-Chyrag-Guneshli and Shah Deniz deposits offshore Azerbaijan. Other developments to watch are the huge Chevron-led (NYSE: CVX) Tengiz field in Western Kazakhstan, initiatives in the central Gulf of Mexico and all satellite fields operated by other companies.
- Intermediate-Term (five to 15 years out): All U.S. and Canadian shale plays, Wyoming, Montana, New Mexico and Russian coal bed methane, selected wind power Western U.S. and Baltic Sea region (Denmark, Germany, Poland).
- Long-Term (20 years or more): All alternative and renewable energy (by this point, crude oil will be too volatile with supply problems and natural gas from whatever source will be the main power source both for conventional applications and for new technologies – fuel cells will obtain most of their price-sensitive hydrogen from natural gas).
Moors: Here’s the bottom line. Looking forward, successful energy investors will be those who: (1) weigh volatility as well as opportunities; (2) understand the rapidly changing supply/demand balance; (3) hedge within a focused time-frame; (4) watch the development of new technology to improve production, processing or transport; and (5) have a flexible approach to the market.
Folks, I know it has been almost a week since I posted anything new, and it will still be a couple more days. I have had a productive trip to Central America, and am at Stanford this morning to give a talk on sustainability. It will be the first time I have presented my new company’s plans in public (although that is a minor component of the presentation). I fly back to Hawaii on Wednesday, and then should start catching up on a backlog of correspondence.
The title of my presentation today is “Toward a Sustainable Bioenergy Platform.” I am well aware that the word sustainable has lost almost all of its meaning. It is like “being green.” I remember seeing an interview with a Hummer owner a couple of years ago who said he was “becoming green” by putting E85 in his Hummer. I see the same sort of logic being applied toward the concept of sustainability.
Anyway, below is the outline of the talk that I will deliver in two hours at the First Nations’ Futures Program at Stanford. I will host these slides somewhere following the presentation.
A Higher Standard
– Case Study: Sugarcane Ethanol
Has Brazil Paved the Path?
– Brazil versus U.S. consumption statistics
Building a Sustainable Platform
– Merica Overview
Political Risk Factors
While I have no intention of changing the general theme of this blog, I will spend some essays in the future providing more details behind my new job in Hawaii. I did this on occasion with my previous job at Accsys, but the focus of the blog remained on energy, sustainability, and the environment.
As explained in the previous essay, my new role involves development of an integrated bioenergy platform. We believe this to be a different way of looking at the problem of turning biomass into energy, and then ultimately supplying that energy to customers. We are not tying ourselves to a specific technology platform; we are using different platforms as suited for specific local needs. We are also as concerned about the sustainability of the biomass as we are the sustainability of the processes we will utilize.
Since moving to Hawaii, I have been asked to give talks at the local high school here about energy and sustainability. During one recent talk I was explaining some of the things we are thinking about as a company, specifically for alternative energy in Hawaii. One of the students said “I heard you were going to cut down all the trees.” At that moment, I realized that her view of forestry was much the same as my own view of forestry growing up in Weyerhaeuser country in Oklahoma. I viewed foresters as people who cut down trees, and I associated them with clear cutting.
My views have changed a lot since then, because I have met a lot of foresters and have a better understanding of what they do. Foresters are people who manage forests. With a managed forest, sometimes that means you harvest the trees like you would harvest any other crop. But managing a forest entails replacing what you cut down (thinning is an important exception).
That makes sense when you think about why people went into forestry in the first place: They love trees (and not in the same way that a polar bear loves humans) and they love the outdoors. They are very conscious of the important role trees play in the environment, and as such they are generally very good stewards of the trees and land they manage.
As indicated in my recent interview with Katie Fehrenbacher, sustainable forestry is a critical component of our platform. We have a forestry company called Forest Solutions, and our ultimate goal is to manage all of the forest assets that we will use in our platform.
So why do we like woody biomass? Why not switchgrass? Sugarcane? Crop residues? Various sources of biomass have their strengths and weaknesses. Very high on the list for a sustainable model is to take care of the soil. One of the questions I sometimes pose is “What would the soil condition be after 500 years in a particular service?” If the answer is not approximately as good or better than the present, then it doesn’t meet the sort of criteria that I am looking for (of course taking into consideration that the soil doesn’t have to be utilized for the same purpose for the entire duration).
There are many potential pitfalls when considering biomass. Some sources are heavy users of nutrients, and as such the fertilization requirements can be high – especially when they are on short rotation. This can imply high fossil fuel inputs and a high risk for soil depletion. Some crops are heavy users of water. Sugarcane ethanol has been judged to be potentially sustainable for Brazil, but it may be a different story in areas that require irrigation.
Trees are different. During the first 10 years or so of their lives, trees can accumulate biomass at the rate of 7-10 bone dry tons per acre per year. You may see some switchgrass yields that are claimed to be that high, but those were almost certainly with fertilizer and plenty of water. But even if the yields were the same, the difference is that you have many harvests of the switchgrass over 10 years to get the same yield as one harvest of trees. Each harvest comes at the cost of energy and labor inputs.
But there is an even more compelling reason to utilize trees. Unlike most of the short-rotation crops that are frequently discussed as feedstock for fuel production, trees can actually improve the quality and health of the soil.
While this is not news to our foresters, it was something that I had not given much thought to until recently. I was taking a tour of a new energy lab being built here on the Big Island, and someone pointed out a plot of land behind the lab and said “We tested the fertility of that soil, and it is much higher than that of the surrounding soil.” I asked why, and was told that there used to be a stand of trees there.
What happens is that trees can bring up nutrients from the subsoil and concentrate them in the leaves and bark. This ends up falling back to the soil and adding to the organic material in the soil. Depending on the specific trees you use, managed forests can provide fuel while improving soil quality. You could also envision rotating trees with other crops to rebuild fertility.
A good example of the potential of trees can be found on the Hamakua Coast of Hawaii. For years the coast was planted in sugarcane. While the area gets plenty of water, it is also very hilly. The sugarcane operations led to a large amount of soil erosion. People who were around during that time said that the normally blue water would be brown for long stretches as soil ran off into the ocean.
The sugarcane industry was ultimately abandoned there, and the area is now planted in trees. The erosion has stopped, and the soil has started to recover. The ocean is once again blue there, and I was told today that a reef that had been damaged by soil runoff is healthy again.
So do not weep for the trees we will use. The right trees are ideal sources of biomass if they are properly managed. Besides providing fuel, they are going to perform an important function – recycling nutrients from the subsoil to the topsoil. The trees that are cut will be replanted. The forests we use will be from managed plantations, and not from rain forest or old growth forests.
That is a general overview of the first leg of the platform. There are a number of assets under management, as well as various acquisitions in progress. At some point I will provide details of these holdings and how we plan to use them.
Over the next six weeks, I will start to talk publicly about what we are putting together in Hawaii. There isn’t a specific strategic reason for doing so at this time, nor is it for the purpose of soliciting investors. The deal is that I have three speaking engagements between now and mid-November, and I believe it will be necessary to spell out the details and answer questions over our activities.
There have been very specific reasons for keeping a low profile. One is that we believe some of our technology pursuits are completely novel. We would rather not call attention to this until we have things nailed down a bit better. Another reason is that there will be specific competition for certain other technologies and biomass resources. Speaking publicly about those details could hamper our efforts.
But I can talk in broader terms about what we are doing, and I will do so at these speaking engagements. Further, in the next few days I will post some bits on my blog that will fill in some of the details.
My schedule between now and mid-November looks like this. This week, I have to go to Panama for a meeting. On the way back, I fly to San Francisco and will speak at the First Nations’ Futures Institute at Stanford University:
I will be on a panel session on October 27th with Stanford Professor Margot Gerritsen on the topics of energy and sustainability.
On November 11th, I will be on a panel at the Pacific Rim Summit on Industrial Biotechnology and Bioenergy in Honolulu. The topic is Specialty Crops, Renewable Feedstocks, & Sustainability.
On November 16th, I will be on the opening plenary session at a conference in Orlando on alternative energy and globalization:
I have received some requests since coming to Hawaii about what we are working on, and I did the first interview on that over the weekend. It is still purposely vague on some technology specifics, but the other details will be laid out as needed:
I say this again and again, and sometimes I can feel my co-workers wince when I say it: The primary goals here are all long-term, and as such we aren’t planning to make fast money. On the other hand, we are trying to put something together that has staying power, and that can make a real net contribution.
Additional details to follow in the next post.
This letter was written by a high school senior, and it is the sort of letter that makes me hopeful for the future. The letter resonated strongly with me, because I have been through some of the same thought processes as I worked my way through the implications of peak oil. I will insert my comments in the text as [RR: Comment].
Dear Mr. Rapier:
Thank you for posting your email address at TOD! I apologize in advance for the length of this letter, but I just can’t seem to express my thoughts succinctly on this topic. I know you are a busy man, but I would greatly appreciate it if you could read and respond to my message and help put my mind at ease.
I am writing to you to ask you some questions about peak oil. I am in my last year of high school and discovered peak oil by accident a few months ago. Like many people, I found Savinar’s site first, and of course my first reaction was one of terror. I stopped reading about the subject immediately to preserve my sanity. However, I knew I had to be honest with myself and keep investigating. Thankfully I found you and Stuart Staniford and all the others who believe that while some trouble may be coming, doom is not.
[RR: There are a couple of things bound to frighten many people new to peak oil. One is is you find Matt Savinar’s site and read through it before you have read through anything else. Another is if – like me – the first book you read on Peak Oil is Jim Kunstler’s The Long Emergency. I read it and thought “Can things really get that bad?” My wife read it and concluded “There is no hope.” What I told her is that this is one view of how things might play out. Nobody knows the future, and I see my job as working to change the future so it doesn’t play out according to worst case scenarios. Incidentally, I have since met Jim Kunstler, and he doesn’t come across like a doomer in person. He is very charming and witty, and is generally a fun guy to be around. But his writings have scared a lot of people.
On the other hand, if your introduction to peak oil is Peak Oil Debunked (which I often recommend to people who have become depressed over peak oil), you may come away with the impression that the post-peak world will be smooth sailing all the way. I don’t believe that (and I don’t think JD at Peak Oil Debunked does either). What I believe is that peak oil will present some upheavals and personal hardship for many people. Even if we have lots of coal and natural gas, the transition will be costly. I think what you are seeing in the economy right now is a taste of what a post-peak world will initially look like: Spiking energy prices that put a burden on people and keep us flirting with recession for many years.]
However, I still have some concerns. Though I do not want to believe in doom, the doomers’ arguments tend to keep resurfacing in my mind and bothering me. On my good days I think, “We can pull through. It won’t be fun, but we can do it.” But on my bad days I think, “What if we can’t?”
[RR: Over the years, I have gone through the same thought process. My undergraduate training is as a scientist, and one thing you learn as a scientist is to continually challenge your conclusions. In other words, conclusions are tentative. You have to be willing to ask yourself what kind of data it would take to cause you to change your position. If you find yourself fitting the data to the conclusion, or rationalizing away evidence that doesn’t seem to fit the conclusion, you have slipped from serious inquiry into dogma. In my view, many doomers are guilty of the latter.]
In other words, I sound like you in your article “My Worst Fears”: doom is my worst fear, but not my expectation. Scenarios, like oil production, fall on a bell curve, with heaven on earth at one end and hell on earth at the other, and in a world in which many factors play into any given situation, it seems simplistic to me to just say, “Well, it’s absolutely gonna be the worst-case and we’re all gonna die.” In real life, the worst-case scenario almost never plays out and reality lands somewhere in the middle. However, that worst-case scenario has a habit of captivating the mind, especially when you’re like me and have no real ability to prepare for it. So I thought I’d write to someone who knows a lot more than me to get my questions answered. (I’m also including, at the bottom, a few of the reasons why I think the doomers are most likely wrong.)
Who exactly are the doomers? Obviously, Kunstler, Heinberg, and Savinar are doomers. However, I had questions mainly about TOD in general and Simmons and Hagens specifically. Simmons, in most places, is called a doomer. However, I have heard him quoted as saying that humanity will “muddle through” peak oil. Does this mean that he is just a super-negative non-doomer? Or is he a doomer trying to tone down his position for the public?
[RR: I am going to be quite critical of Simmons here. Fans of his shouldn’t consider this Simmons-bashing; I just think this needs to be said. I definitely consider Simmons a doomer. I also consider him to be alarmist much of the time. I understand very clearly his desire to have people take this issue seriously, but lately he has latched onto some pretty skimpy evidence and run with it. (I thought it extremely ironic that he recently accused others of running off on a tangent based on skimpy data). The problem is that he takes a little bit of information – which he sometimes doesn’t understand very well – and then draws sweeping conclusions. Many – even some of his allies – acknowledge the contribution of Twilight in the Desert, but they question whether he isn’t doing more harm than good at this point.
An example of that – which I have discussed before – was his talk at last year’s ASPO conference. He claimed in his presentation that we don’t have a good idea of our gasoline inventories, and were just beginning a gasoline crisis that could bring the entire country to a halt. He spun quite a frightening tale, and I could see the shock on some people’s faces. Such shock tactics may work to get people’s attention, but if you cry wolf a few times they backfire.
Contrary to Matt’s argument, the evidence was just the opposite. Even as he was speaking, refineries were coming back online from hurricane outages and inventories were recovering. I was asked about Matt’s comments on a later panel session, and I said I thought gasoline inventories were beginning to recover and that they would be higher in a month. They were. Further, I noted that I was previously in the group that submitted weekly gasoline inventories from our refinery to the Department of Energy, and that we actually have a pretty clear idea of what gasoline inventories looked like from week to week.
Another example is his argument about the $100 trillion corrosion issue in the oil industry. The gist is that he argues that the oil industry is full of rusting infrastructure, and he questions whether we have the money or even the iron resources to fix the problem. Further, he questions aloud how it is that he – Matt Simmons, investment banker – has ‘discovered’ this problem that the oil industry has missed. I won’t go into all of the reasons that Matt is way off the mark on this, as that would be an essay in itself. A corrosion engineer at The Oil Drum has weighed in on this issue, and explains that corrosion is well-understood, and not actually something that Simmons just discovered. Oil companies are full of corrosion engineers who work to replace corroded equipment as needed. There was actually a lot of behind the scenes discussion on how hard to rebut Matt on this, as many felt like this warranted a sharp rebuttal. In the end – because he is considered to be a friend of TOD – he was treated much more gently in public than he was in private.
I did not attend this year’s ASPO conference, but I did get an e-mail from someone who saw his presentation. This from a friend and long time acquaintance of Matt: “Matt Simmons was NOT worth seeing. he seemed a bit crazy – not much new.”]
Obviously you and Staniford are not doomers. I have also seen Kjell Aleklett and Robert Hirsch distance themselves from the doomers. You mentioned that Nate Hagens was not a doomer, and that he wanted to use the term “resource depletion” rather than “peak oil” because peak oil was virtually copyrighted by doomers. However, when I read some of Nate Hagens’ articles at TOD, they sounded remarkably doomerish! I thought, since you know the man, you could tell me what his position was (since, as a student, I have no time to sit on my computer all day and read nothing but peak oil articles).
[RR: Nate is a friend of mine, and I feel like I know him fairly well. His big interest is in human psychology as it relates to peak oil – and I have suggested to him that he distance himself from the phrase “peak oil” because of some of the connotations it has taken on. Nate doesn’t expect people to collectively do the right thing, and as such he is more doomerish than I am. Funny story about Nate is that his original moniker at TOD was “The Last Sasquatch.” I liked a lot of his writing, and talked him into posting under his real name. I told him that he would be taken more seriously that way. He ultimately did start posting under his real name, and gained a lot of credibility as he continued to write. Nate talks about that decision here. But on a scale of 1 to 10, with 1 being extreme doomer, I would consider Nate to be about a 3 or 4. I consider myself to be about a 6 or 7 – fairly optimistic, but also realistic that it won’t be a piece of cake. Five years ago I was a 5.
By the way, I got to spend some time with Bob Hirsch at last year’s ASPO. I can definitely relate to his thinking. He considers the problem very serious, but something we can painfully work our way through if we get busy. That pretty much reflects my own thoughts.]
TOD in general seems to be a semi-doomer site. It sounds as though it used to be balanced, but shifted at some point. Consequently I only read a few contributors, and rarely touch the comments, which usually degenerate into debate about very fine points that I don’t understand or turn into “when you’re starving to death you’ll see that I’m right.” Which of the main contributors over there are doomers? Because sometimes it’s hard to tell. (By the way, I define “doom” to basically mean “die-off and/or Industrial Revolution reversal scenario.”)
[RR: I don’t want to name names, but very few of the ‘staff’ there are doomers. But two of the most frequent contributors are, and that may make TOD staff seem more doomerish than we really are on average. The readership, I think, does tend toward the doomerish end of the scale, but you have people all over the spectrum. And I can tell you through my own experiences that some doomers feel personally affronted if you challenge some of their views, and are vocal about it. This was also Stuart’s experience right before he stopped posting. He posted some articles forecasting that the future might not be complete doom and gloom, and he got some venom thrown his way. That is why I post there infrequently.]
Source of Aleklett/Hirsch/Simmons statements (dated May 2005, from attendee at Uppsala peak oil conference): [Simmons, Aleklett, and Hirsch] think Peak Oil is a very grave issue, but they also think the doomers are wrong. On a specific question they said Richard Heinberg was very much too pessimistic. They meant Heinberg was too pessimistic on technology and society. They didn’t believe that the end of the world was near, but that we would, and I quote, “muddle through.” They said we might have a few rough decades but that world will not end. For example, Aleklett was asked if he believed airborne mass tourism would continue in the future. He answered that sailing boats are very nice.
Is there any mathematical possibility of world decline rates approaching 8-12%? Doomers seem to throw these numbers around as though they are gospel truth. However, I have never seen a doomer actually lay out the math behind their enormous decline rates. I have only ever seen people in comments confuse field decline rates with world decline rates. Also, I have never heard any leading peak oil expert (except Simmons) predict anything worse than maybe a 6% decline rate. In fact, JD worked out Aleklett’s latest release and found that he was predicting a .5% annual world decline rate!
[RR: As you mention, individual fields can decline at those rates, but as prices rise different technologies can come into play that allow more oil to be extracted and so observed decline rates may be less than what would be observed in a constant oil price environment. But this may also accelerate the decline when it really begins in earnest. I was at the annual Energy Information Administration conference last April and in one of the presentations a slide was presented that showed that decline rates are climbing. See Slide 6 here.]
There is also a more specific question I want to ask you on this same topic. Freddy Hutter (at the Trendlines website) posts innumerable graphs and checks peak predictions and such. While I disagree with his “superabundant” scenario, his site is useful for getting the lastest predictions from leading people. He stated this (on the right side of the page under “worst-case scenario”):
Using the lowest recognized estimate of All Liquids (2021-Gb by EWG/LBST 2008), and assuming 2008 (85.4-mbd) as Peak Year, this projection depicts the Avg Decline Rate of 4.6% required mathematically to exhaust this conservative URR. The significance is that half of this year’s volume will still be available in 2035, and flow won’t dip below 10-mbd until 2055. Finally, All Liquids exhausts in 2083. A post-peak production decline rate higher than 4.6% “strands URR”…and that phrase is an oxymoron. Ignore all pundits that suggest a post-peak average extraction decline rate of over 4.6% in their musings. And please read their alarmist TEOTWAWKI forecasts with these hard numbers in mind.
Is this anywhere close to true? What is “stranding” URR and why is it an oxymoron? Since I agree with Staniford’s assessment that the decline rate is largely what determines the severity of the scenario, I would much rather side with Hutter and the “cornucopians” (a word I hate due to its pejorative application to anyone who is not a doomer), but I need to know if this is really true or not before I do that.
[RR: I think what he means is this. URR is the amount of oil that is ultimately recoverable with current technology. Assume for a moment that URR is estimated to be 100 units. Assume what has been produced is 50 units, and 10 units are being produced in the current year. Now assume for the purpose of illustration that the presumed decline rate is 50%. So then your cumulative recovery based on that decline rate might be something like 50 at the beginning of Year 1, 60 in Year 2, 65 in Year 3, 67.5 in Year 4… We already said that URR was 100, but it doesn’t look like we can get there with that presumed decline rate. So what has happened is too high of a decline rate was presumed which results in a cumulative production rate that will ultimately fall short of present URR estimates. Hence, the oxymoron.]
What is Hubbert Linearization and what is it good for? Some people seem to hold up HL as though it can work miracles, and some people seem to throw it in the trash heap. However, I have noticed that it seems to be used two different ways: to either predict a region’s peak, or predict the post-peak decline rate. You have come out against its use to predict a peak, but Staniford’s article on a slow world decline rate was based entirely on the second usage of HL. Since JD linked to this article as one of the main arguments in favor of a slow decline, I’d like to know if HL can be properly used this way, or if it useless here too.
[RR: And I can tell you that Stuart definitely agrees with me on the issue of using it to predict peak. He has stated this publicly and we have corresponded about it a great deal privately. What has happened here is something I often see. Someone has a theory. They think their logic is impeccable. They start using the theory to make predictions. But they never bothered to validate that theory by plugging in known data to see if it gives the right answer. In the case of HL, I did that and showed that it gave wrong answers more often than not. Hence, using HL to predict a peak is akin to astrology as far as I am concerned.
I have seen this before with relatively inexperienced engineers. They build a model, and start to use it without validating it. But models must be validated. That’s the only way you can have some confidence in the model predictions. (Then there are those who hear the word “model” and they immediately discount the results. That is also the wrong approach).
Because that article by Stuart was written very early on – and Stuart did modify his views on HL as time went by – I can’t really say whether HL gives reasonable and consistent answers on decline rates. I can’t say I have done those checks.]
Vis-à-vis Staniford’s article, how will world economic troubles affect peak scenarios? I am of the opinion that it is very possible that a major depression is looming sometime in the next decade, what with the credit contraction and stock market losses. Obviously a depression would kill oil demand, which might soften peak initially. However, it would also kill funding for alternative energy projects and other mitigation efforts. While I am still not convinced this necessarily spells doom, it could make the transition much more painful. I wonder if the initial depression (economically-induced and having nothing to do with energy or oil) would kill the demand and funding, and we would then stumble our way through recession after recession as peak “ripples through” until suitable alternative technology is developed. Does this sound even remotely accurate? Because the “worst fears” part of me is deathly afraid that a depression now, at the “critical moment,” could trigger the doom scenario. Staniford did not seem to think this, and neither did any of the commenters (early on, at least; I didn’t read the whole thread).
[RR: I think it all ties together. A sharp peak will cause an initial supply shortfall that will result in spiking prices which can cause recession/depression – as well as a drop in funding for renewables. This will cause demand to fall, which will cause prices to fall. Demand then picks back up, and we repeat the cycle. Due to reduced funding for alternatives in troubled economic times, the longer term mitigation options are endangered. This is how I foresee peak oil. It will cause economic troubles, which will feed back into demand. The ultimate impact is that oil will last longer than had the peak not resulted in economic difficulties. This was my premise in The Long Recession.]
Reasons I think the doomers are wrong/suspicions about doomers (in no particular order):
1) The track record/statistics of doom. People have always made doomsday predictions. Since civilization still exists, they obviously did not come true. First it was a global ice age earlier this century, then it was nuclear holocaust, then it was Y2K, etc. Now it is peak oil, or by extension resource depletion. While I understand the gravity of the concerns behind this latest doomsday “fad,” I am just not convinced that doom will play out, due to both their track record and to the mere probability of the event. The bigger and more severe the event, the probability necessarily goes down (like the probability of a major Gulf Coast hurricane vs. the probability of a meteor hitting the earth tomorrow). And doomsday is of necessity a very large and very severe event, pushing the chances down into the realm of the highly improbable. However, I do understand that statistics must be weighed against reality.
2) The lack of presented mathematical evidence for huge world decline rates.
3) The strange distribution of professions amongst the major voices of peak oil. Most of the more optimistic voices in the community seem to have been connected to energy at some point. They are either geologists or in some oil- or energy-related profession. However, the major doomers seem to be either journalists or lawyers, neither of which are energy-related jobs. I question the expertise of these people, especially when their predictions seem to flop so often and so spectacularly. They strike me, overall, as the sort of “annual prophets” who make negative predictions like clockwork, and whose followers seem to get yearly amnesia when their hero’s predictions are totally off the mark.
[RR: Geologists are pretty well-represented in the doomer camp. Think of people like Ken Deffeyes and Collin Campbell. And of course many doomers gain strength in their convictions from Hubbert himself, who was also a geologist.]
4) The “dark side” of peak oil. You don’t have to dig too far into any issue related to resource depletion before you find these people. The people who post things like “only the fit in our society should be allowed to have children” and “we should euthanize the handicapped” and “it’s cruel to be altruistic because it props up the weak,” etc. Obviously these people are all doomers, though not all doomers fall into this category.
[RR: While I view those people as a tiny minority, it has always bothered me that so many doomers can casually talk about billions of people worldwide dieing off as a result of peak oil. My mind can’t even comprehend such a horror, yet people toss that around as casually as if they were debating whether to have a second helping of lunch.]
5) Large amounts of other fossil fuels to “ease us into” the transition. There have now been huge natural gas discoveries under Texas and Louisiana, and if they turn out to be anywhere near as big as they say, it is, as one of your commenters put it, “nearly unalloyed good news.” Coal is even more abundant. From the EIA Coal Reserves page:
As of January 1, 2008, the DRB (Demonstrated Reserve Base) was estimated to contain 489 billion short tons [of coal]. In the United States, coal resources are larger than remaining natural gas and oil resources … Worldwide, compared to all other fossil fuels, coal is most abundant and widely distributed across the continents. Estimates of the world’s total recoverable reserves of coal in 2004 were about 998 billion short tons. The resulting ratio of coal reserves to production is approximately 164 years, meaning that at current rates of production (and no change in reserves), coal reserves could in theory last more than one and one-half centuries.
From Wikipedia’s coal article (not sure if this information is reliable – it’s Wikipedia):
At the end of 2006 the recoverable coal reserves amounted 800 or 900 gigatons. The United States Energy Information Administration gives world reserves as 930 billion short tons. At the current extraction rate, this would last 132 years. However, the rate of coal consumption is annually increasing at 2-3% per year and, setting the growth rate to 2.5% yields an exponential depletion time of 56 years (in 2065). At the current global energy consumption of 15.7 terawatts, there is enough coal to provide the entire planet with all of its energy for 37 years (assuming 0% growth in demand and ignoring transportation’s need for liquid fuels).
Of course, I do recognize that burning that much coal would result in a very bad spike in pollution (I am not yet convinced of the science behind global warming). However, it seems like more than enough to help us “limp along.” (One question about the coal, though: on my first and only visit to the Energy Bulletin website, I saw Richard Heinberg saying that a new study said that we only have 15 years of coal. I wonder if this is true – it is Richard Heinberg, after all. Have you heard of this?)
[RR: I had not heard Heinberg say this, but if he did I think he is wrong. I think one thing that is really going to help us transition away from oil is that we do seem to have substantial natural gas reserves. Natural gas is far more fungible as a transportation fuel than are things like coal, biomass, wind, or solar power, so it should buy us time. Hopefully we don’t squander that time. Of course if our coal reserves are as significant as is often claimed, CTL is a longer-term option for producing liquid fuels, albeit at a higher price point than we are accustomed to.]
6) All major doomers seem to be Americans. Now I am an American, so this is not American-bashing. However, it does make me wonder if, by living in this country, these doomers have a slightly lopsided view of the world (as regards usage and perceived “needs”), since no doomers seem to be coming out of “emerging” countries like China or India or even out of Europe. Notice also how almost all peak oil discussions seem to degenerate, often unknowingly, into “Americo-centric” scenarios (“the U.S. economy will implode,” “the U.S. dollar needs oil,” etc.).
[RR: I had never made this observation, but that does seem to be generally correct (although I do know of doomers who are European or Australian). Maybe this is because we Americans use so much oil, and our way of life is more dependent on oil than is much of the rest of the world. I have always felt like this makes us more vulnerable to oil shortages and oil price shocks. So perhaps it is just that we see the implications of peak oil as being more serious, because for us they may very well be more serious.]
Sorry again for the length of this message. I hope you can help me sort through my confusion. By the way, I love R-squared Energy Blog. It is a voice of moderation in a corner of the interent gone mostly mad, and it is nice to hear that not everyone is a doomer.
[RR: Thank you for your e-mail. As I said, it gives me hope for the future that you are so thoughtfully weighing these issues. Good luck on your quest for the truth. Just keep in mind that ultimately none of us know how the future is going to play out. Personally, I consider a number of possible scenarios, and I plan accordingly. Some of those scenarios including asking questions like “What if Matt Savinar is right?” Ultimately, I think you have to plan for some of the scenarios you think are low probability in the same way that you buy homeowner’s insurance for a house that you don’t believe will ever burn down. You do have to draw a line somewhere, though.]
A couple of years ago, I wrote an essay that ultimately turned out to be very controversial:
That same essay published at The Oil Drum received 560 comments, and was until recently the most-commented upon post in The Oil Drum’s history. Global Warming/Climate Change is a topic that people get very emotional about, and the idea that I claimed that we would never address it didn’t sit well with a lot of people.
Now I know that I have some global warming skeptics here. And I have said many times that I am fine with that, but I don’t want to engage in that debate for multiple reasons. And in the hopes that I can focusing this essay, let me say what I really mean: We won’t stop rising atmospheric carbon dioxide concentrations. If you want to argue that increasing carbon dioxide is not resulting in climate change, fine. But I think we can all agree that carbon dioxide concentrations are steadily increasing in the atmosphere. In fact, one of the key monitoring stations is here in Hawaii at Mauna Loa, which I can see clearly from my house.
The reason I don’t believe we will stop accumulating carbon emissions is that this is a global issue, and people around the world are going to generally gravitate to the cheapest source of fuel they can find. So, many of the world’s countries can sign a well-intentioned protocol in Kyoto, but then China plans 562 new coal-fired power plants. Carbon emissions continue unabated, despite Kyoto.
This week I saw a new article by Lester Brown – author of the “Plan B” series, the most recently published version of which is Plan B 4.0: Mobilizing to Save Civilization. In his article, Brown observed that the U.S. has had major reductions in carbon emissions:
For years now, many members of Congress have insisted that cutting carbon emissions was difficult, if not impossible. It is not. During the two years since 2007, carbon emissions have dropped 9 percent. While part of this drop is from the recession, part of it is also from efficiency gains and from replacing coal with natural gas, wind, solar, and geothermal energy.
The U.S. has ended a century of rising carbon emissions and has now entered a new energy era, one of declining emissions. Peak carbon is now history. What had appeared to be hopelessly difficult is happening at amazing speed.
For a country where oil and coal use have been growing for more than a century, the fall since 2007 is startling. In 2008, oil use dropped 5 percent, coal 1 percent, and carbon emissions by 3 percent. Estimates for 2009, based on U.S. Department of Energy (DOE) data for the first nine months, show oil use down by another 5 percent. Coal is set to fall by 10 percent. Carbon emissions from burning all fossil fuels dropped 9 percent over the two years.
All of that may very well be correct. But China and India continued to build new coal plants. Demand for oil around the world remained high. And the result so far is that the monitoring station on Mauna Loa shows absolutely no sign that global carbon emissions have been impacted by this sharp drop in U.S. emissions. In fact, the most recent measurements show the highest atmospheric concentrations that the observatory has ever measured:
This is one of the reasons I have never focused my time on carbon emissions. I just can’t see that anything the U.S. does or that I can advocate is going to really impact global emissions. Sure, we may reduce our carbon emissions in the U.S. But there is a long line of countries waiting to use that fossil energy that we don’t use. So I think the best we could hope for is to slow the accumulation rate. But I think the atmospheric concentration will continue to rise until fossil fuels start to run out. That’s the only thing I think will permanently rein in carbon emissions.
Let me be clear that this has nothing to do with what I would like to see happen. The reason the essay was so controversial at The Oil Drum was because some people perceived my attitude as “I don’t care about climate change.” That’s not it. This is just the way I see things playing out.
I have instead chosen to focus my efforts on changing the forms of energy we use. There is of course some synergy with those who are working to reduce carbon emissions. We both would like to see expanded use of alternative energy. For me, this is about energy security. Increasing the locally produced energy should help insulate against future energy shocks. This would also reduce localized carbon emissions.
But I don’t expect this to impact the global carbon emissions picture. If that was my goal, I think I would be very frustrated by that Mauna Loa graph. I see no reason to believe that picture will change in the next few years. But I am optimistic that we can continue to develop some alternative energy options that enhance energy security for specific locations that have limited fossil fuel resources. I think those countries with ample fossil fuel resources will continue to burn them, though, which is why I think the focus on carbon emissions is ultimately futile.
This is the concluding post in a series looking at the impact of increased ethanol production on petroleum imports. Previous posts concluded that there has been little measurable impact on our petroleum imports as a result of increased ethanol production. In this post, I provide a spreadsheet to all the data and graphics used, and delve a bit deeper into the issue.
Previous posts in the series were:
The spreadsheet that was used to tabulate all of this information is archived here:
(For some reason the graphs don’t show up in the Google Documents link. However the data and calculations are all there).
One of the most frequently cited reasons for our U.S. ethanol policy is that it will reduce our dependence on foreign oil. Some of the more audacious claims actually suggest that one barrel of ethanol will displace more than one barrel of foreign oil. Here is a sampling of some of the claims. From the Renewable Fuels Association’s (RFA) “Energy Facts”:
FACT: The production and use of 9 billion gallons of ethanol in 2008 displaced the need for 321.4 million barrels of oil. It also saved American consumers and taxpayers $32 billion, an average of more than $87 million a day. This is the equivalent of eliminating oil imports from Venezuela for 10 months, or looked at another way, it would mean that the U.S. would not have to import ANY oil for 33 days.
The RFA’s page on industry statistics shows that ethanol production in 2006 was 9 billion gallons, which is 214 million barrels. Once refined, a barrel of oil will turn into products with an average BTU value of 126,000 BTUs/gal, versus 76,000 BTUs/gal for ethanol; therefore 214 million barrels of ethanol contain the BTU equivalent of 129 million barrels of oil. (Source: ORNL). The claim then is that ethanol with an energy equivalent of 129 million barrels of oil (BOE) displaced more than twice that much oil – 321 million barrels!
The RFA’s source on that was the consulting firm LECG, where director John M. Urbanchuk consults for the Renewable Fuels Association and the National Corn Growers Association. Thus, Urbanchuk is expected to spin a positive ethanol story, but one would hope he could do so without completely sacrificing his credibility. He has also been quoted:
The production of nearly five billion gallons of ethanol means that the U.S. needed to import 206 million fewer barrels of oil in 2006, valued at $11.2 billion. This is money that stayed in the American economy.
Source: Contribution of the Ethanol Industry to the Economy of the United States in 2006 (PDF download)
Even grander claims have been made by the U.S. Government. From DOE Assistant Secretary Alexander Karsner’s keynote address to the RFA’s National Ethanol Conference (link now dead) in Tucson, Arizona:
Last year, we contributed something on the order of a displacing 500 million barrels of oil, oil that we didn’t have to import from regimes that are hostile to our interest or might leverage energy economics over our future.
Over 6 billion gallons of ethanol were produced in the United States last year, and we have an additional 5 billion gallons of refining capacity under construction.
That effort means 500 million fewer barrels of oil that we have to import from the Middle East.
That’s from the U.S. Department of Energy. Those are pretty bold claims. How on earth are people coming up with these numbers? More importantly, can we go to the data and actually see this impact?
Probing the Data
The import situation is complicated by several factors, the biggest of which is the rapid run-up in petroleum prices over the past few years. The increase in prices caused overall demand to fall, which can be seen in Figure 1 below:
It is important to note that “demand” includes all crude oil, natural gas liquids (ethane, propane, butane, etc.), ethanol, fuel gas (offgas from the refinery used as fuel or feedstock), and asphalt. (See the full list of products covered here). This is important to understand, because if ethanol displaces petroleum, it has no impact on overall demand – since it is already included. What you would see in that case is merely a shift between ethanol and gasoline, for instance, with total demand remaining constant (actually it would have to go up a little due to ethanol’s lower BTU content).
The conclusion one draws is also influenced by the time period over which one looks. In the first post in this series, I looked at imports, demand, and ethanol production over the time period 2002 through 2007. The reason for choosing that particular time period was that this was when ethanol was ramping up sharply.
I left off 2008 because of the very sharp drop in demand due to the recession. However, as one reader pointed out, since ethanol is included in the demand number, it doesn’t really matter whether demand went up, down, or stayed constant. If ethanol is displacing imports, we should see that effect even if demand drops sharply. For example, if demand fell by 1 million barrels a day, then all else being equal I would expect imports to fall by 1 million barrels a day. Now add in expanding ethanol production, and I expect imports to fall by more than 1 million barrels a day.
What I observed was that between 2002 and the end of 2007, our petroleum imports do not appear to have been impacted at all by the increase in ethanol production. But that time period is complicated by a couple of things. First, the largest increase in ethanol production took place in 2008. Thus, the largest impact would be expected to show up in 2008 – a year I left off because of the recession effect.
Second, the phase-0ut of methyl-tertiary-butyl-ether (MTBE) took place during this time. I went into detail on how this would have impacted the issue in the second post in this series. The bottom line was that even when MTBE was taken into account, it still did not appear that ethanol production had a measurable impact on petroleum imports.
However, the MTBE phase-out was completed in the first half of 2006. So for the rest of this post, I want to focus on 2007 and 2008. (And as I write this, I don’t know what the answer is; I will work it out as I put the rest of this post together).
During 2007 and 2008, total demand fell by 434 million barrels. Domestic production fell by 74 million barrels. (You can see all of the data in this spreadsheet; there are comments indicated where different data originated). So then all else being equal, I would expect imports to fall by 434 million barrels, but then they also need to make up for the 74 million barrel domestic production deficit. That modifies the expected import change to (-434 million + 74 million) = – 360 million barrels.
Over that two-year time period, net imports actually fell by 466 million barrels. This is the first time period I have looked at over which the import change was less than the demand change, which is what I would expect to see if ethanol was displacing imports. The change certainly isn’t the often exaggerated 200 million or 500 million barrels, but over the course of 2007 and 2008 imports did fall by 106 million more barrels (53 million barrels per year) than would be expected on the basis of demand and domestic production changes. Over the longer time frame of 2002 through 2008, the cumulative increase in imports (+207 million barrels) is very close to what would be expected based on changes in demand and domestic production (-225 million barrels), still implying no measurable impact from ethanol.
How much ethanol was produced over that period of time? Per the RFA’s ethanol statistics, a total of 15.5 billion gallons of ethanol was produced in 2007 and 2008, which amounts to 369 million barrels. On an energy equivalent basis, this is equal to about 215 million barrels of finished petroleum products. Yet the measured fall in imports was less than half that value.
One of the problems here is that we may be looking for a needle in a haystack. By that, I mean that the contribution of ethanol is so small relative to that of overall demand, that any actual displaced imports would be lost in the noise. Figure 2 illustrates:
For this graphic, I have put ethanol production on the same scale as total demand to show the relative contribution. The production for ethanol in 2008 amounted to 0.59 million barrels per day of a total demand of 19.5 million barrels per day. For people who claim that the oil companies are threatened by the ethanol companies, that graphic puts things in perspective.
One could argue that the ethanol impact should show up most strongly in a comparison with gasoline demand. Figure 3 shows that effect:
In fact, gasoline demand* did dip in 2008 by 300,000 bpd. Ethanol may have been part of the reason, but the increase in ethanol production was quite a bit less than the fall in gasoline demand. Corrected for energy content, the ethanol increase was less than half the drop in gasoline demand (which can be mostly explained by higher prices and recession, as shown below).
One thing Figures 2 and 3 show is the dip in demand in 2008, which followed a flattening of demand for a few years prior. Recall that since ethanol is included in the demand number, ethanol can’t be a cause of the drop in demand. Figure 4 shows part of the culprit:
As crude prices began to climb in 2004, crude demand flattened. As the price skyrocketed in 2008, we were also entering a recession. The combination caused a sharp drop in demand. One interesting thing to consider is that since ethanol is mandated in increasing volumes each year, it is not impacted by the drop in demand. While total demand fell by 1.2 million bpd in 2008 relative to 2009, “demand” for ethanol actually increased by nearly 200,000 bpd – because the mandated increase has no allowance for overall drops in demand.
What to conclude from this exercise? The easiest conclusion is that the claims of petroleum import displacement have been at a minimum grossly exaggerated. It may even be that ethanol hasn’t backed any petroleum imports out, or that the impact is so small as to be unnoticeable.
All of these conclusions, however, point toward a common theme: Even our biggest source of alternative fuel is taking very little bite out of our petroleum consumption. Much more effective has been high prices and recession. In fact, I believe it unlikely that any combination of biofuels will ever replace even 50% (net) of our present petroleum consumption. That points toward the need for conservation as a critical component of any major effort to wean off of fossil fuels. Perhaps some combination of conservation, electrification, mass transit, and biofuels can make a significant impact on our fossil fuel consumption. But the graphics above should demonstrate that it isn’t a trivial matter to significantly impact our petroleum consumption.
*Total gasoline demand contains the ethanol contribution. Therefore, Figure 3 shows gasoline after subtracting out the ethanol volumes.
Special thanks to the Energy Information Administration for answering some of my questions about the data.
My normal readers can ignore this, as it has nothing to do with energy or the environment.
This post is about a small measure of justice against a small-time scammer who tried to rip me off – and who has ripped others off. As I will document here, the attempted fraud happens on a regular basis. By writing this, people who are trying to figure out if he is running a scam should run across this in their Google search results – and realize that there is a history here they need to be aware of. This all started on 10-26-09, but I am back-dating this post so it doesn’t show up on the first page (but still high enough that the Google spiders will find it).
Here is the story. I like to play computer games with my kids. One of the games we play is called Diablo II, and to play together online we need two licensed copies of the game on two computers. Since I already have the software, all I needed was another key. (Actually two keys, as there is also an expansion).
People do sell game keys, and so I did a Google search for Diablo II Game Keys. Up popped a Google ad for this site: http://www.diablo-keys.com/. Here is a snapshot of part of the ad:
Note the language of the ad. “The keys are fresh from the box – unmuted, unbanned and only in use by you.” The bottom portion of the ad reads “If you have any problem with any of the keys, we will replace them free of charge, forever. All orders are shipped INSTANYLY [sic] upon purchase.”
There were other comparable ads, but this was the best price, so I bought two keys. I almost bought multiple sets – and would have later on – except for what happened after I bought the keys. Right after I got them, I tried them out and found out that they had already been registered. In other words, they were not “fresh from the box”, and were in fact worthless since I could not use them to play the game with my son. I gave the merchant the benefit of the doubt, and simply reported that the keys didn’t work:
For both of the keys below, I received this message when I tried to authenticate and add them to my Battlenet Account:
The authentication key you entered has already been claimed.
Each authentication key can only be redeemed once. Please refer to your games section of the home page to review the keys attached to this Battle.net account. If you’re sure you have not previously claimed this key, please double-check the spelling and enter it now.
The response I got was pretty lame, and immediately aroused my suspicions:
We are glad to hear from you. We fully investigate and reply to each e-mail submitted to us. Whatever your concern is, expect the best customer support ever!
Your request will be answered within 24 hours. We will be glad to fix any problem you, valued customer, could get. To ensure the best customer service, please do not submit multiple e-mails unless you have new information to submit, or if we haven’t replied for 24 hours (this usually means our response has been blocked by your junk filter).
As again, thank you for your great customership and for your trust in Diablo-Keys, top Diablo 2 reseller 🙂 !
At that point, I started wondering whether this person was trying to scam me. So I did some Google searches on Diablo Keys scam and some other related keywords. I found that I wasn’t the first to have a problem with this guy. Here is someone documenting that his keys didn’t work. And here is the amazing response from “Diablo-Keys, top Diablo 2 reseller:“
So the response from firstname.lastname@example.org, the same address responding to me, was to verbally insult the customer who complained about getting ripped off. I also noted that he had used PayPal, but when I bought my keys PayPal wasn’t the payment option. He was using a service called AlertPay.com. In hindsight I think what that probably means is that PayPal dropped him after people complained about being ripped off. I also ran across multiple other accounts of people being ripped off by this clown.
So I knew that I was going to have trouble, so in response to the delaying tactic I got when I reported my non-working keys, I wrote:
Guys, I have a blog with a whole lot of viewers. Please don’t try to get funny with these keys. After my keys didn’t work, I looked into it, and I see that others have reported the same problem:
So I either need to get my money back, or two keys that work. Failure to do either one will result in me publicizing this and reporting fraudulent advertising to Google Ads.
That’s when it took a turn toward the comical. Based on the response, I knew that this scammer was simply trying to wear me down and hope I just wrote it off like a lot of other people have done:
We understand this problem might be frustrating.We are proud to offer one of the best customer service on the market, at no additional cost. Your satisfaction is our priority. We will do everything we can to fully satisfy you.
Per our 100% working guarantee, all products are guaranteed to be 100% working. We would be more than happy to give you all the required technical support at no charge. Our experts are ready to assist you. If you require any instructions, we can send full guide, written in simple words.
Once more I asked for either a refund or keys that worked – or I would take action:
I don’t need technical support, I just need keys that haven’t already been authenticated. The ones you sent me have already been claimed. So please send another pair or refund the money. Otherwise I will just contact the credit card company, dispute the charge, contact Google Ads, and then write a story about this on my blog (and then it will be one of the first things that pops up when someone Googles “Diablo keys.”)
Note that I have made multiple requests for replacement keys, and all I was getting was stalling tactics. So I nearly fell out of my chair laughing when I got the following typo-riddled response. This was supposedly from a Joseph Karlson (email@example.com) who claims to have a law firm at www.KarlsonandKarlson.com (located in Toronto).
from Joseph Karlson
to Robert Rapier
date Tue, Oct 27, 2009 at 6:20 PM
subject CEASE AND DESIST- Diablo-Keys.com
My name is Joseph Karlson and I represent Diablo-Keys.com
This notice is to inform you my client, Diablo-Keys.com, intends to press charges against your person for harassment, defamation, verbal abuse and fraud.
On October 28th, 2009, despite various answers that your cd-keys would be replaced, you have chosen to keep harassing, threatening and insulting my client’s customer support agent. As you are surely aware, such a behavior is not only unethical, but illegal.
For this reason, I now seek reparation on behalf of my customer. We are legally required to inform you that we plan to press charges on October 30th, 2009, unless you complete the following points:
* A complete apology letter for your rude behavior and abuse towards my client’s employees.
* A statement of retraction of everything submitted, posted or writen against my customer.
* A $5,000 compensation for the time and efforts deployed in this case.
If you fail to fulfill the following points by October 30th, 2009, charges will be pressed against you directly in state courts. You will then have to defend yourself directly in court.
Diablo-Keys.com intends to fully pursue you for any damage, interest, claim and compensation caused by this situation. You have fourty-eight (48) hours to complete the above points. By law, you are now considered to have been served the required preliminary notice.
For any further information do not hesitate to communicate with me.
So, not satisfied with simply ripping people off, now he is trying scare tactics that might work on a 12-year-old kid. But the typo-ridden rant above (just like the typo-filled website of this “attorney”) simply made me laugh. How funny is it to claim that there were “various answers that your cd-keys would be replaced” when a simple replacement set could have been sent instead of empty promises to replace the keys?
So after I stopped laughing, I responded to his lame extortion attempt. I also decided that instead of making a “statement of retraction of everything submitted”, I would do the opposite and publish all correspondence:
You are either the stupidest lawyer on the planet, or a fraud like your client to think you can “serve” someone over the Internet and across national borders. Or your client isn’t really your client and is falsifying this response (copying the real Karlson and Karlson in case that is the case). No matter, you picked the wrong person to defraud, and the end game is all the same.
Let me tell you what is going to happen. Your client is committing Internet fraud. He is fraudulently advertising keys to a game. He is guaranteeing that they work, and money back if not satisfied. He is selling keys that have already been sold and used, and therefore do not work.
So here is the deal. I tried to buy these keys for my son’s birthday. I received a lame response from your client informing me that my satisfaction is his highest priority. I informed him that I merely wanted keys that work, and then I received the same message from him again, and now this from you. So here is what is going to happen.
Your client has 12 hours to either refund my money or provide keys that work. Failure to do so will result in the following:
1. I will file a claim with the credit card company, explaining the nature of the fraud. As I have observed already, others have documented this fraud from your client.
2. I will file a report with Google, with whom your client is advertising. This will stop your client from advertising with them, as they will not tolerate fraud.
3. I will file a report with AlertPay, which your client is using to receive money.
4. I will document this on my blog, which has very high traffic. Rest assured that when people Google “D2 Keys”, on the first page of the Google results they will see “Diablo-Keys.com is a Scam.” Google my name if you think I am exaggerating.
5. I will file a report with the Internet Crime Complaint Center (http://www.ic3.gov/default.aspx)
Now, the ball is in your court. You don’t have to respond with any further lame threats. Your client has never offered to replace the keys; he just keeps saying that my satisfaction is his highest priority. So if you are truly stupid enough to harass me over this, assure that you will be counter-sued for wasting my time – and I think you know you will lose.
12 hours to replace the keys. Any other response will result in Actions 1-5 above, no further response from me, and publication of all correspondence related to this (which will put a damper in your client’s scam). To be honest, I will probably do all of that anyway, but if I get keys that work I might be in a generous mood and forget this ever happened.
Following that, I did go ahead and file reports with the Internet crime division (he may only be scamming $5 at a time, but I hate low-life scammers), I filed a dispute with AlertPay, and I filed a complaint with Google Ads. No response the next morning, so I sent my final communication:
You have had 8 hours. Four more hours and I also have a word with the FBI’s Internet crime division. I think they would be interested in the $5,000 extortion attempt below.
About to get on a plane. When I get off, if I don’t have 2 working keys, or a refund, don’t say you weren’t warned. And I don’t bluff.
This will be the last communication from me.
One more comical response from the “attorney”, who doesn’t seem to understand the difference between civil and criminal law. (I think it obvious that this wasn’t written by an actual lawyer; if it was then it truly is the stupidest lawyer I have ever encountered):
from Joseph Karlson
to Robert Rapier
date Wed, Oct 28, 2009 at 4:19 AM
subject Re: CEASE AND DESIST- Diablo-Keys.com
Thank you for your response. Any additional evidence is appreciated and only adds to our evidence.
By harassing, threatening and blackmailing my client, Diablo-Keys.com, you have committed fraud under federal law. Although we intend to prosecute you under state laws, this crime is a felony in most of the United States and punishable by up to three years in jail and/or $100,000. As you are without a doubt aware, verbal violence is not tolerated, and Diablo-Keys.com will not make an exception.
As your e-mail was very clear, we will begin legal procedures against Mr. Robert Rapier in the state of Hawaii. Karlson and Karlson is authorized to practice civil law in the United States.
I have recommended my customer to refund your order both to help procedures and to prove good faith in the case of Diablo-Keys.com, Inc Vs. Robert Rapier. For now, you have nothing to do. As required by US Law, every legal document will be served to you. For now, you have nothing to do, except maybe finding a suitable attorney.
Diablo-Keys.com had no choice but to prosecute you to protect its brand, image and quality service. While it is sad this matter couldn’t be settled off court, you have given us very little choice.
For any further information do not hesitate to communicate with me.
LOL! Yes, Diablo-Keys is going to “prosecute me.” Oh no, I have to get an attorney. I might go to jail for three years! What a douche. Then the scammer himself responded twice more:
from Lawrence Irwin “firstname.lastname@example.org”
to Robert Rapier
date Wed, Oct 28, 2009 at 4:09 AM
subject Re: CEASE AND DESIST- Diablo-Keys.com
Thank you for the additional evidence. I know you mentionned this was the last communication, but please keep writing to us: every e-mail is more and more evidence and our lawyer LOVES it.
Our lawyer has been very strict: we are unable to make comment this situation. We will see each other in court.
So Lawrence Irwin (which is probably just a name this loser is hiding behind) at email@example.com, is “unable to make comment” on the advice of his make-believe attorney. But stupid people rarely know when to shut up. So two minutes later, he sends this:
Yes, continuing the theme of illiteracy, “such it hard” is his answer. He must have gotten help with the spelling from his “attorney.”
So if you happened upon this because you were trying to determine whether http://www.diablo-keys.com/ is a scam, now you know. Here is how the scam goes:
1. He sells you invalid keys that have no value (and because you can find invalid keys from free from lots of places). You pay $5 because he claims they are new.
2. You report that the keys are invalid, and he promises to investigate.
3. He sits tight and hopes you forget all about it.
4. If you are persistent, he has his make-believe attorney write a threatening letter.
5. If you continue to be persistent, he refunds your money, lashes out like a two-year-old, and has his make-believe attorney send another letter.
It is just brilliant enough to have been crafted by a couple of 7th grade dropouts.
If you are coming here because you have gotten a pair of bad keys and are trying to get resolution, my recommendation is to file a fraud complaint and dispute the charge. If the guy had any actual working keys, he would have sent them instead of refunding my money after I made multiple requests for a replacement, before finally disputing the charge.
The guy could have had an actual business, but instead tries to scam people, and then scare them if they complain. If you are looking for a legitimate site for Diablo keys, after this experience I went to http://www.mmo1st.com/ and got a pair of working keys for $7. No problem at all from them, unlike the scammer/con artist/fraud at Diablo-Keys.com who will charge you $5 and then proceed to waste your time.
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