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Transcript from My EIA Panel Session

I only recently became aware that the 2009 Energy Conference put on by the Energy Information Administration has posted the audio and transcripts of all of the sessions. You can hear the audio or download the transcript from my session – Energy and the Media – here. I summarized the overall conference in two posts right after the conference:

The 2009 EIA Energy Conference: Day 1

The 2009 EIA Energy Conference: Day 2

My fellow panelists were Steven Mufson from the Washington Post; Eric Pooley from Harvard, (and the former managing editor of Fortune); and Barbara Hagenbaugh from USA Today. The panel was moderated by John Anderson of Resources for the Future (and a long-time reporter and editorial writer for the Washington Post).

There were questions on the oil price run-up of 2008 (and how the media handled the coverage), false balance in reporting, scale of biofuels versus petroleum usage, peak oil, and the role bloggers are playing now with respect to reporting news.

I will extract portions of my comments below, correcting the transcription as needed for clarity. (For instance, when I said I also write for The Oil Drum, it was transcribed as “aldrum.”)

Mr. Anderson: …subject of energy of the media, a rich subject if ever there was one. My name is John Anderson. I’m joined here by four people who are in the midst of that subject. From my left, Steve Mufson, who writes on this for the Washington Post, and incidentally was also a Beijing Bureau Chief of the Post for several years which turns out to have relevance to our subject. Eric Pooley, who had a long career at Time Incorporated. He was national political correspondent among other things, and managing editor of Time, and has recently been at the Kennedy School at Harvard. Robert Rapier, who resides over the R-SQUARED Energy blog which I and I suspect many of you pay attention to, and Barbara Hagenbaugh who covers economics and energy for USA Today.

I would like to start off by going around the table and asking about a piece of recent history clear in everybody’s minds — four dollar gasoline last summer, $147 oil. That was a huge story for several months. In retrospect, how did we do? Did we get it roughly right? Did we have the causes and consequences roughly right? And in retrospect, what could we have done differently?

My response to that one:

Mr. Rapier: I’ve got a stat counter on my blog, and it tells me what brought people in there and where they came from. “Why are oil and gas prices rising?” is probably the number one keyword search that brings people in. Sometimes ironically from the media, they want to know why oil and gas prices are rising.

I’m an inventory watcher, and I use the EIA data religiously every week when they put out the statistics. On Wednesday I go in and I look to see what oil inventories are doing, what gasoline inventories are doing because we have a pretty good idea of what the gasoline inventory situation is.

So in 2007 we had, I think it was ten or eleven weeks in a row, that gasoline inventories fell, and they fell well below the average range just as we were going into summer driving season. And I got in a little bit of a friendly banter back and forth with Doug McIntyre who wrote This Week in Petroleum at that time, he works for the EIA, and I said I think we’re heading for record gas prices by Memorial Day. He said that generally prices pull off before then and level off. And I said, “Yes, but look at the trend here. The gasoline inventory trend was like this.” I said, “Something has got to give here because demand is just about to pick up.” And sure enough, that’s when we hit $3.00 gasoline by Memorial Day.

In the world oil markets it’s a little bit more murky because we don’t always have good inventory data. Again, we do in the U.S. We’ve got pretty good data in the U.S., but gasoline — if you want to know what gasoline prices are going to do, pay attention to inventories, and the time of year. I mean, if gasoline inventories are low in the fall; it’s not such a big deal. Gasoline inventories low going into summer driving season, that’s something you better watch out for.

Hurricane season. Going into hurricane season you better have good inventories. And we didn’t last year, and that’s again — when the hurricanes started to come in, I warned people we’re going to see some gasoline shortages. And we did because the refineries went down. We didn’t have enough inventories on hand, and suddenly spot shortages.

I was then asked about peak oil:

Mr. Anderson: I hope the EIA is listening. There may be someone from the EIA here for all I know. Robert, you have dealt recently in your blog with the interesting question are we running out of oil? This is one that all reporters constantly have to deal with. How do you deal with that?

Mr. Rapier: It’s obviously a very controversial subject. And often I see very frequently media stories dealing with peak oil as we’re actually not running out of oil. We’ve still got a trillion barrels in the ground. So the issue is not running out of oil. We will never be running out of oil. We will have oil for one hundred more years. It’s can we get it out of the ground fast enough to keep up with demand growth? And that’s where the problem is going to lie in my opinion and forward.

We may see an oil production peak in the next three to five years. There are a lot of very authoritative people who believe that that’s the case. There are some people that would believe that renewables are going to come in and fill that void. I’m not one of those people. I believe it will — there will be a contribution, but if we have a world oil production peak in the next three to five years we’ve got a serious problem.

But again, it’s not about running out of oil. And that’s the most common misconception I see about peak oil when people write about peak oil. They want to debunk that by showing how much oil is left in the ground, and that’s what we’re talking about, issues like one trillion barrels of shale in Utah. The trillion barrels doesn’t help if it takes more than one trillion barrels worth of energy to get it out. In that case it’s useless. It takes a tremendous amount of energy to get that oil out. So we don’t have a trillion barrels of recoverable reserves, maybe a very small fraction of that because the energy balance on that is very marginal.

On the issue of there not always being black and white answers to some of the questions:

Mr. Anderson: Barbara, how does a reporter working from day to day deal with the problem of editors and readers who want sharp clear answers to questions like this that are very much in controversy and very often as Robert suggests aren’t even quite the right questions?

Ms. Hagenbaugh: It’s complicated, and you know, USA Today a lot of times, I’ve got this much space to do all that. So I mean, the most important thing is like Robert just said, there’s two sides to this story and this is always to try to bring that out. I sometimes — editors get frustrated with me because I don’t come out and say this is how it is and this is what the answer is.

On the question of false balance:

Mr. Rapier: I put the question to my readers on my blog and also at The Oil Drum where I write—I said, “Energy in the media, what do we need to talk about?” False balance, probably the most popular answer. One reader gave the example: “scientists discover that the earth is round: flat earth society disagrees.”

The problem is it’s not always clear who the flat earth society is especially in the new biofuels technologies. Algae into biodiesel, is that flat earth thinking that we’re going to be doing that on a grand scale within five years? I can’t even tell for sure early on. I have to really dig and dig.

Steve (Mufson) interviewed me about three or four years ago. It was very early on whenever I was writing about ethanol. He interviewed me for about an hour and one tiny snippet showed up in that story. And I thought, boy, that was a lot of work, but I understand why he did it now. Steve is one of the best writers out there on energy. He does his homework. It really takes a lot of discussion to determine whether I’m credible or a complete nut, and that’s what you have to do. And not everybody does that. And so you get some of this false balance reporting; lazy reporters who simply want quotes from both sides. It’s important for the reporters to really do research. And the good ones do, and the good ones don’t take the false balance approach.

Then came an exchange that was longer than I remembered it being:

Mr. Anderson: Robert speaks with some authority. He’s the one person on the panel, and one of the few people writing on this subject who has a technical background. He’s a chemical engineer, unlike most reporters. Steve, did you want to add anything to that?

Mr. Rapier: That means I can get away without wearing a tie, though, and people forgive me for that.

Mr. Anderson: What about ethanol? How should a reporter approach the future of ethanol? What are the questions he should ask?

Mr. Rapier: Energy in and energy out is very important, but it’s not the only important thing. And I give an example. Some people say that if it takes more than a BTU of a fuel to make a BTU of ethanol that’s a no go. It’s not really because coal, for instance, is quite cheap. So if you took two BTUs of coal to make a BTU of liquid fuel ethanol, from an economic standpoint maybe that’s doable. So the energy in and energy out is not the complete story.

Unintended consequences — I don’t think we spend enough time thinking about what can happen here. What are the things that can happen? Cellulosic ethanol -we turn all this biomass into cellulosic ethanol. What are the implications?

There was a story a while back. Michigan, they figured out they might not have enough trees to fuel this cellulosic ethanol plant because cellulosic biomass in general has a very low energy density. And that’s what I call the logistical problems of cellulosic ethanol. You have to go out farther and farther to fuel this plant. Do the calculations of a mid-size cellulosic ethanol plant; it is going to consume the equivalent of about one million mature trees a year. So think about a 20-year lifetime, 20 million trees, that’s a lot of biomass. And as you get out to the edges of that you’re burning up all your energy getting it back into the plant.

So, those are the kind of things I would question. Your logistics. How are you going to logistically pull this off? How many trucks in and out of days is that? And how in the future are you going to fuel this? A lot of the biofuel options we have are really recycled fossil fuel because they’re entirely dependent on fossil fuel. If fossil fuel prices go up —they have to go up because that’s what they are. They’re fossil fuel. And we really need to go to something — and I talk about the Brazilian ethanol example.

I’m a fan of Brazilian ethanol. I was in India last year, and they do the same thing. I went through a plant. They end up with a waste material at the plant that they have to dispose of bagasse It’s free fuel. Now we don’t have something — in Louisiana and Florida they could potentially do something like that, but the economics of selling molasses and sugar are better than turning it into ethanol, but they do the same thing. They’ve got all the bagasse, and they use it to fuel their plant. A model like that will work. And people sometimes say — and this is some of the false balance that we discussed earlier. Dan Rather, Frank Sesno out there saying, “I was in Brazil. I saw what they did. We can do the same thing.” The problem is we’ve got a higher population than Brazil. We use six times the per capita energy of Brazil. It’s completely apples and oranges.

So, no way can we emulate Brazil, but I see person after person saying the ethanol miracle in Brazil was done because the government set the mandates and they set the standards. What they don’t tell you is that the ethanol miracle really is about 90-percent oil. Ninety percent of their energy comes from oil, and Brazil makes a lot of oil per capita, and they’ve got a lot of oil reserves. That’s how the ethanol miracle in Brazil happened.

On the question of trying to sort what is and isn’t credible:

Mr. Rapier: It’s like Eric said, there’s a lot of garbage out there. And the thing is you can find an argument for any position you wish to make. I can support the flat earth position by things I find on the internet. I can go edit Wikipedia and then use that to support the point that I’m trying to make. So you really have to be careful and you have to know what’s credible, what’s not credible. It’s like drinking from a fire hose. There’s just so much information.

When I’m researching a story, I could take either side and I can support it.

It then went into Q&A from the audience:

Mr. Hall: Yes, Chris Hall, independent oil and gas producer from California. I enjoyed the discussion on ethanol because I think as an industry we spent $135 million to fight Proposition 87 which would have imposed a severance tax, but EIA and the country is focused on reducing our dependence on foreign oil by increasing investment in green energy. And yet the forecasts show the need as you referred to for large supplies of oil and gas and coal during the next 20 years. Meanwhile, the domestic fossil fuels are under attack in Washington, as well as state and local governments, to punish them for last year’s high prices, for polluting the environment, to raise funds to offset deficits, to pay for development of renewable resources, all of which appeal to the public. For example, the Administration 2010 budget would result in the elimination of most of the R&D budget from Department of Energy for the oil and gas industry, would increase 150 percent in oil and gas taxes and a 40 percent reduction in drilling by one account. This will only lead to less domestic oil supply for our needs. How can the media help explain the problem so that we just don’t make matters worse?

Mr. Rapier: I spend a lot of time writing about that kind of issue, and make no mistake I’m a big fan of alternative energy. I would like to see us produce all our energy domestically, but I’m a realist as well. I submitted a question to Secretary Chu yesterday. He did not take it, but it was along the lines of I find it very ironic that he is calling on OPEC to continue producing and at the same time domestic oil and gas has essentially no part in the Administration. So I agree with that. I think the reality is we’re heading down a path here where we’re likely to increase our imports because we’re going to disincentivize our domestic production.

And I know the administration is counting on renewable to fill that gap. I don’t believe that’s going to happen. I believe they will play a part. I believe we should continue to fund that, but I’d also like to see the Administration take a more realistic view of some of these forecasts. Seventy-nine percent oil and gas, maybe that’s not desirable, but that’s what it looks like it’s going to be. So we prefer to get that domestically, I think, as much to the extent possible, but I think we’re just going to be importing it more from OPEC when biofuel targets fall short. We’re going to be counting on Venezuela, and you’ll hear future energy secretaries continue to call on OPEC: “Please don’t cut us off.”

My friend Morgan Downey then asked which books I recommend:

Mr. Downey: Morgan Downey. Just written the book Oil 101. And Robert, I read in your blog this morning that a survey came out earlier this week that said that more than half of Americans could not name one alternative fuel. And is there a role for books and other slow media in improving the average person’s energy IQ and what books in oil would you recommend?

Mr. Rapier: Well, Morgan knows that I’m 250 pages into his book, which is a fantastic book, by the way. The survey you refer to, that was pretty disheartening to read that. I think 51 percent of people surveyed couldn’t name an alternative fuel. Thirty-nine percent couldn’t name a fossil fuel. Nineteen percent said I couldn’t care less. I think you’ll find and I see the same thing, interests waxes and wanes with oil prices. Oil prices are high. Gasoline prices are high. People want to know what’s going on. So the best thing for your book would be for gas prices to start setting new records this year. People will pick up the book and they want to know what’s happening? Why is this happening?

Mr. Downey: Any other books in oil you recommend, or what do you read?

Mr. Rapier: I read a lot of different view points. One of the first ones I ever read was Twilight in the Desert which I think is a good book. It has some faults, but it kind of brings attention to the potential issue with Saudi Arabia. So that was one of the early books that influenced me.

Within the industry, I’m reading technical books on refining. And this is what I told Morgan, that his refining section is incredibly detailed. I don’t think there is a popular book that exists like that with that kind of information. Within the refining industry I’ve got technical refining books, and those are the things that I read to — how do we troubleshoot the cat cracker – and you don’t go into that sort of detail, but for a lay person who really wants to be informed about energy, I can’t give your book a high enough endorsement. I think it’s a fantastic book.

Mr. Rapier: Gusher of Lies by Robert Bryce, I really like that one, too.

There was a question about fact-checking, which was the last thing I responded to:

Mr. Rapier: I have a big issue with fact checking myself. I saw that with the SPR, Strategic Petroleum Reserve. The rate of fill that was reported and picked up and reported and reported was wrong. I showed the actual numbers from the SPR. It was about half what the reported fill rate was. And those kinds of things annoy me. And I wonder why more people don’t. Somebody, somewhere calculated a number based on some monthly fill rate and extrapolated it for a year, and it was just wrong. And then everybody picked it up and just ran with it. So I sympathize.

Anyway, my contribution was only a small part of the whole, which I think went on for about an hour. I would have published this sooner, but only became aware of the transcript about a week ago.

December 28, 2009 Posted by | cellulosic ethanol, Doug MacIntyre, EIA, Energy Information Administration, gas prices, logistics, Media coverage, Morgan Downey, Peak Oil, Steven Chu | Comments Off on Transcript from My EIA Panel Session

Book Review: Oil 101

Oil 101 by Morgan Downey

Oil 101, by Morgan Downey, is without a doubt the most detailed and comprehensive book I have ever read on the oil industry. In fact, I am not aware that another book like this even exists. This is not an opinion piece, nor is it a peak oil book. It is a collection of factual information covering all aspects of the industry. From oil in the ground to product in the tanks (and everything in between) – this book contains everything you could ever want to know about the industry. I like to think I know quite a bit about different areas of the industry, but I still managed to learn a lot from this book.

It doesn’t matter if you are a complete novice or already know quite a bit about the industry; there is something for everyone in this book. Downey displays a deep understanding across all sectors of the industry. For instance, if I didn’t know better I would have guessed that the refining chapter was written by someone who had spent an entire career in the refining industry. The only books on refining that I have read that were more comprehensive were those written specifically as technical guides for running a refinery. Other areas are covered in similar detail.

There is no aspect of the industry left uncovered. The book starts with a brief history of oil, and then dives into fundamentals like assays, chemistry, exploration and production, refining, transport, storage, and reserves. There is a separate section on the oil markets that really gets into layers of the onion that I didn’t even know existed. One thing this section did for me was disabuse me of any notion that I ever want to trade oil futures (unless of course I have someone like Morgan Downey advising me).

The material in the book has already generated a number of essay ideas for me, as I learned a lot of new information. A few examples:

  • There are 500,000 producing oil wells in the U.S., 80% of which produce 10 bpd or less. Still, this accounts for 20% of U.S. production.
  • There are 1600 retail stations selling compressed natural gas (CNG) in the U.S., which is in the same range as the number of stations selling E85.
  • 20% of new transit buses in the U.S. run on CNG.
  • There is an actively traded freight forward market, in which you can purchase tanker routes (e.g., Ras Tanura to Yokohama)
  • Valero, the largest U.S. refiner, is not a member of the API.

One of the things that surprised me is that I didn’t spot more factual errors in the book. After all, this book is primarily a collection of a great many facts. With so many facts listed, I expected to find quite a few errors. I did not, although I did find a couple.

On page 194, Downey writes that the RVP of ethanol is 19 psi and is much more volatile than conventional gasoline. Actually, the RVP of ethanol is 2.3 psi. However, when blended with gasoline, ethanol behaves as if it had a much higher RVP. The reason for this is that ethanol is slightly polar, and doesn’t mix ideally with nonpolar gasoline. This means that ethanol does raise the RVP of gasoline when it is blended, contrary to what would be expected for a nonpolar blending component with a 2.3 psi RVP. So one could argue that when you are doing blending calculations the “effective RVP” of ethanol in gasoline is much higher than gasoline – but the true RVP is quite a bit lower.

In that same section Downey shows a table (Table 9-10) that states that the nationwide RVP for winter gasoline is 11.5 psi. However, in places where winter temperatures are quite cold, the allowed winter RVP is as high as 15 psi. (Since atmospheric pressure is about 14.7 psi, that means that your winter gasoline can boil if kept until summer). I covered some of these issues in Refining 101: Winter Gasoline.

There are a couple of other items to note. First, the book is not referenced, which meant I was often left wondering about the source of a specific fact. (Presently, this involves me e-mailing Morgan and asking for a source). Second, while the book is almost exclusively just factual information, there were a couple of occasions in which Downey injected his opinion. One instance occurs on page 277, where he is discussing oil shale, and writes that it is “a clear net waste of energy.” Another case occurs on page 317 where he writes “the so called hydrogen economy is mere hype…” While I happen to agree with him on both counts (at least the way things presently stand), these were instances where he departed from the agnostic style employed throughout the rest of the book.

Others Agree

As I write this, there are 17 reader reviews of this book at Amazon. All 17 gave the book 5 Stars, which is pretty impressive. These reviews are a testament to the wealth of information in the book. Dave Summers (Heading Out) reviewed the book at The Oil Drum a couple of months ago, and wrote that this book would be one of the select few to occupy a spot on his desk “because it has a vast reservoir of the small, but invaluable, snippets that provide that useful addenda that help in understanding a story.”

Last month David Henson, President of Choren USA, came to visit me in Dallas and I happened to have the book sitting on my kitchen table. David picked it up several times, and finally said in his charming Australian accent “This is really great stuff! I have to pick up a copy.” I told him that I hadn’t read it yet, but in the three weeks since then I managed to finish it (I read when I fly, and over the 3 weeks I have flown a lot). To this date I have never known of David to be wrong on an issue pertaining to energy, and found his assessment of the book to be spot on as usual.

Conclusion

To conclude, if you want to understand the oil industry, Oil 101 will tell you what you need to know. In fact, “Oil 101” will be my stock answer from now on for anyone who wants to learn more – whether you know nothing or already feel like you are well-informed. Likewise if you want a very good reference book that deals with even the most esoteric information (e.g., like the differences in various grades of asphalt, or the differences between hydraulic fracturing and thermal recovery). In fact, I would even strongly recommend the book to anyone who had just gone to work for the oil industry and wanted a detailed understanding of how the entire oil supply chain works.

April 27, 2009 Posted by | book review, Morgan Downey | 7 Comments

Book Review: Oil 101

Oil 101 by Morgan Downey

Oil 101, by Morgan Downey, is without a doubt the most detailed and comprehensive book I have ever read on the oil industry. In fact, I am not aware that another book like this even exists. This is not an opinion piece, nor is it a peak oil book. It is a collection of factual information covering all aspects of the industry. From oil in the ground to product in the tanks (and everything in between) – this book contains everything you could ever want to know about the industry. I like to think I know quite a bit about different areas of the industry, but I still managed to learn a lot from this book.

It doesn’t matter if you are a complete novice or already know quite a bit about the industry; there is something for everyone in this book. Downey displays a deep understanding across all sectors of the industry. For instance, if I didn’t know better I would have guessed that the refining chapter was written by someone who had spent an entire career in the refining industry. The only books on refining that I have read that were more comprehensive were those written specifically as technical guides for running a refinery. Other areas are covered in similar detail.

There is no aspect of the industry left uncovered. The book starts with a brief history of oil, and then dives into fundamentals like assays, chemistry, exploration and production, refining, transport, storage, and reserves. There is a separate section on the oil markets that really gets into layers of the onion that I didn’t even know existed. One thing this section did for me was disabuse me of any notion that I ever want to trade oil futures (unless of course I have someone like Morgan Downey advising me).

The material in the book has already generated a number of essay ideas for me, as I learned a lot of new information. A few examples:

  • There are 500,000 producing oil wells in the U.S., 80% of which produce 10 bpd or less. Still, this accounts for 20% of U.S. production.
  • There are 1600 retail stations selling compressed natural gas (CNG) in the U.S., which is in the same range as the number of stations selling E85.
  • 20% of new transit buses in the U.S. run on CNG.
  • There is an actively traded freight forward market, in which you can purchase tanker routes (e.g., Ras Tanura to Yokohama)
  • Valero, the largest U.S. refiner, is not a member of the API.

One of the things that surprised me is that I didn’t spot more factual errors in the book. After all, this book is primarily a collection of a great many facts. With so many facts listed, I expected to find quite a few errors. I did not, although I did find a couple.

On page 194, Downey writes that the RVP of ethanol is 19 psi and is much more volatile than conventional gasoline. Actually, the RVP of ethanol is 2.3 psi. However, when blended with gasoline, ethanol behaves as if it had a much higher RVP. The reason for this is that ethanol is slightly polar, and doesn’t mix ideally with nonpolar gasoline. This means that ethanol does raise the RVP of gasoline when it is blended, contrary to what would be expected for a nonpolar blending component with a 2.3 psi RVP. So one could argue that when you are doing blending calculations the “effective RVP” of ethanol in gasoline is much higher than gasoline – but the true RVP is quite a bit lower.

In that same section Downey shows a table (Table 9-10) that states that the nationwide RVP for winter gasoline is 11.5 psi. However, in places where winter temperatures are quite cold, the allowed winter RVP is as high as 15 psi. (Since atmospheric pressure is about 14.7 psi, that means that your winter gasoline can boil if kept until summer). I covered some of these issues in Refining 101: Winter Gasoline.

There are a couple of other items to note. First, the book is not referenced, which meant I was often left wondering about the source of a specific fact. (Presently, this involves me e-mailing Morgan and asking for a source). Second, while the book is almost exclusively just factual information, there were a couple of occasions in which Downey injected his opinion. One instance occurs on page 277, where he is discussing oil shale, and writes that it is “a clear net waste of energy.” Another case occurs on page 317 where he writes “the so called hydrogen economy is mere hype…” While I happen to agree with him on both counts (at least the way things presently stand), these were instances where he departed from the agnostic style employed throughout the rest of the book.

Others Agree

As I write this, there are 17 reader reviews of this book at Amazon. All 17 gave the book 5 Stars, which is pretty impressive. These reviews are a testament to the wealth of information in the book. Dave Summers (Heading Out) reviewed the book at The Oil Drum a couple of months ago, and wrote that this book would be one of the select few to occupy a spot on his desk “because it has a vast reservoir of the small, but invaluable, snippets that provide that useful addenda that help in understanding a story.”

Last month David Henson, President of Choren USA, came to visit me in Dallas and I happened to have the book sitting on my kitchen table. David picked it up several times, and finally said in his charming Australian accent “This is really great stuff! I have to pick up a copy.” I told him that I hadn’t read it yet, but in the three weeks since then I managed to finish it (I read when I fly, and over the 3 weeks I have flown a lot). To this date I have never known of David to be wrong on an issue pertaining to energy, and found his assessment of the book to be spot on as usual.

Conclusion

To conclude, if you want to understand the oil industry, Oil 101 will tell you what you need to know. In fact, “Oil 101” will be my stock answer from now on for anyone who wants to learn more – whether you know nothing or already feel like you are well-informed. Likewise if you want a very good reference book that deals with even the most esoteric information (e.g., like the differences in various grades of asphalt, or the differences between hydraulic fracturing and thermal recovery). In fact, I would even strongly recommend the book to anyone who had just gone to work for the oil industry and wanted a detailed understanding of how the entire oil supply chain works.

April 27, 2009 Posted by | book review, Morgan Downey | 4 Comments

Anything But Oil

The 2009 EIA Energy Conference is history, and I will write a summary as soon as can. One of the things I commented on today is that I am concerned about the path we are headed down on our domestic oil and gas industry – and if things don’t go according to plan it will mean more dependence on OPEC. A great line by Paul Sankey today (he had many) was that the policy imperative seems to be “Anything but oil.”

I really do understand the desire to move away from oil. A portion of my career has been devoted to developing replacements for petroleum. But as I said today, I am also a realist. Let’s suppose for a second that the following happens. Policies are put into place that hasten the downfall of our domestic oil and gas industry. Marginal wells become uneconomic and are shut in. According to Morgan Downey in Oil 101 there are 500,000 producing oil wells in the U.S., 80% of which produce 10 bpd or less. Yet those 10 bpd wells account for 20% of U.S. production. What happens if we put these marginal producers out of business?

Some of you will say “That would be great. That’s what we need to combat climate change.” OK, I respect that opinion. However, there is now a shortfall in production to deal with. We either reduce demand or we have to find something renewable to fill the void. Right now, I don’t see anything that can fill even a 10% shortfall in U.S. production in the next few years. So that means either higher prices or some incentives (paid for by higher taxes) will be needed to reduce demand (and I don’t think that’s a bad thing) or we will become even more dependent upon OPEC – the outcome that I think is most likely in this scenario.

Robert Bryce* – author of Gusher of Lies which was the other book I mentioned today – just wrote a provocative essay that touches upon this theme of declaring war on our domestic oil and gas industry. He notes that while it is seemingly a great idea to have Treasury Secretaries from Wall Street, being from the energy industry almost immediately disqualifies a person from being energy secretary:

Let Exxon Run the Energy Dept.

This is stunning. At the same time that the Treasury Department has begun looking like a wholly owned subsidiary of Goldman Sachs and the other Wall Street mega-firms that are too big to fail, the top leadership at the Department of Energy remains a bastion of anything-but-Big Oil. “It’s the mythology of the Beltway,” one Houston energy analyst told me recently. “You are hopelessly compromised if you are anywhere close to the oil industry.”

Bryce runs through the history of our Energy Secretaries:

A Nobel Prize-winning physicist, Chu has experience in energy-related issues, including his job as director of the Lawrence Berkeley National Laboratory, but he’s never been in the energy business.

Jimmy Carter named James Schlesinger—an apparatchik with no history in the energy sector—as the nation’s first Energy secretary.

Ronald Reagan claimed he was going to dismantle the Department of Energy. His pick for Energy secretary was James B. Edwards, a man who understood drilling—he was a dentist.

Bill Clinton’s choices for the top Energy spot were: Hazel O’Leary, a lawyer; Federico Pena, another lawyer; and finally Bill Richardson, a politico and diplomat.

George W. Bush’s choices to head the Department of Energy included Spencer Abraham, a lawyer who’d just lost his seat in the U.S. Senate, and Samuel Bodman, an engineer whose professional career was in investments and chemical production.

I understand that there are many who still think if we can only run Exxon out of town, we will live happily ever after in a low-carbon, renewable world. I would just warn against the law of unintended consequences, as it is quite possible that Chu’s pleas to OPEC to keep production flowing will take on a more urgent tone if we pursue the extinction of our domestic oil and gas industry.

* Incidentally, if you guessed based on his views on energy, you would probably incorrectly guess Bryce’s political leanings. And if you want to be disabused of the notion that he is involved in the oil industry, read the book he wrote called Cronies: Oil, The Bushes, And The Rise Of Texas, America’s Superstate.

April 9, 2009 Posted by | EIA, Morgan Downey, oil production, Paul Sankey, Robert Bryce | 157 Comments

Anything But Oil

The 2009 EIA Energy Conference is history, and I will write a summary as soon as can. One of the things I commented on today is that I am concerned about the path we are headed down on our domestic oil and gas industry – and if things don’t go according to plan it will mean more dependence on OPEC. A great line by Paul Sankey today (he had many) was that the policy imperative seems to be “Anything but oil.”

I really do understand the desire to move away from oil. A portion of my career has been devoted to developing replacements for petroleum. But as I said today, I am also a realist. Let’s suppose for a second that the following happens. Policies are put into place that hasten the downfall of our domestic oil and gas industry. Marginal wells become uneconomic and are shut in. According to Morgan Downey in Oil 101 there are 500,000 producing oil wells in the U.S., 80% of which produce 10 bpd or less. Yet those 10 bpd wells account for 20% of U.S. production. What happens if we put these marginal producers out of business?

Some of you will say “That would be great. That’s what we need to combat climate change.” OK, I respect that opinion. However, there is now a shortfall in production to deal with. We either reduce demand or we have to find something renewable to fill the void. Right now, I don’t see anything that can fill even a 10% shortfall in U.S. production in the next few years. So that means either higher prices or some incentives (paid for by higher taxes) will be needed to reduce demand (and I don’t think that’s a bad thing) or we will become even more dependent upon OPEC – the outcome that I think is most likely in this scenario.

Robert Bryce* – author of Gusher of Lies which was the other book I mentioned today – just wrote a provocative essay that touches upon this theme of declaring war on our domestic oil and gas industry. He notes that while it is seemingly a great idea to have Treasury Secretaries from Wall Street, being from the energy industry almost immediately disqualifies a person from being energy secretary:

Let Exxon Run the Energy Dept.

This is stunning. At the same time that the Treasury Department has begun looking like a wholly owned subsidiary of Goldman Sachs and the other Wall Street mega-firms that are too big to fail, the top leadership at the Department of Energy remains a bastion of anything-but-Big Oil. “It’s the mythology of the Beltway,” one Houston energy analyst told me recently. “You are hopelessly compromised if you are anywhere close to the oil industry.”

Bryce runs through the history of our Energy Secretaries:

A Nobel Prize-winning physicist, Chu has experience in energy-related issues, including his job as director of the Lawrence Berkeley National Laboratory, but he’s never been in the energy business.

Jimmy Carter named James Schlesinger—an apparatchik with no history in the energy sector—as the nation’s first Energy secretary.

Ronald Reagan claimed he was going to dismantle the Department of Energy. His pick for Energy secretary was James B. Edwards, a man who understood drilling—he was a dentist.

Bill Clinton’s choices for the top Energy spot were: Hazel O’Leary, a lawyer; Federico Pena, another lawyer; and finally Bill Richardson, a politico and diplomat.

George W. Bush’s choices to head the Department of Energy included Spencer Abraham, a lawyer who’d just lost his seat in the U.S. Senate, and Samuel Bodman, an engineer whose professional career was in investments and chemical production.

I understand that there are many who still think if we can only run Exxon out of town, we will live happily ever after in a low-carbon, renewable world. I would just warn against the law of unintended consequences, as it is quite possible that Chu’s pleas to OPEC to keep production flowing will take on a more urgent tone if we pursue the extinction of our domestic oil and gas industry.

* Incidentally, if you guessed based on his views on energy, you would probably incorrectly guess Bryce’s political leanings. And if you want to be disabused of the notion that he is involved in the oil industry, read the book he wrote called Cronies: Oil, The Bushes, And The Rise Of Texas, America’s Superstate.

April 9, 2009 Posted by | EIA, Morgan Downey, oil production, Paul Sankey, Robert Bryce | 99 Comments

Natural Gas Gaining Momentum

I have said a number of times that I would prefer to take the natural gas we use to make ethanol and just use it directly in compressed natural gas (CNG) vehicles. Natural gas burns very cleanly, and I think that would be a lot more efficient than the convoluted scheme by which we turn natural gas into ethanol. One of the criticisms I sometimes encounter from ethanol advocates is that we would have to build out a new CNG infrastructure to do so. I always point out that the only reason we have built an E85 infrastructure is that taxpayers funded it.

But I learned something of interest today when I was flying back to Texas from Europe. I am currently reading Oil 101by Morgan Downey. This is a really great book by the way, which I will review as soon as I finish it. Downey covers natural gas in some detail, and the book states that there are 1600 retail stations in the U.S. selling CNG. That made me wonder how many stations are selling E85, since some ethanol advocates have claimed to me that we are already too far down the E85 path to start down a CNG path. It turns out that today there are 1900 stations selling E85, but the number only went past 1600 in 2008. So CNG isn’t operating from as big a deficit as some of my ethanol friends would like to believe. CNG just hasn’t benefited from the same kind of legislation that has benefited ethanol.

But the landscape may be starting to change. Of course T. Boone Pickens has been pushing CNG hard as part of his Pickens Plan. Then last month AT&T announced they would invest $565 million to replace 15,000 gasoline-powered fleet vehicles with compressed natural gas and hybrid engines. And yesterday Reps. Dan Boren (D-Okla.), John B. Larson (D-Conn.) and John Sullivan (R-Okla.) introduced new legislation to further incentivize CNG:

House members plan bill to expand NGV use

Known as the New Alternative Transportation to Give Americans Solutions (NAT GAS) Act, the bill also would create a new tax credit for automakers which produce natural gas and bi-fueled vehicles, the three federal lawmakers said. Currently, all major automakers manufacture NGVs for overseas markets and this provision is critical to encourage them to begin offering NGVs in the United States, they said.

Energy investor T. Boone Pickens applauded the measure. “America’s national and economic security depends on moving off foreign oil as quickly as possible. Natural gas is the cleanest, most abundant, most economic fuel to replace imported diesel fuel. The US has enough natural gas to last more than 118 years; we should turn to it as an immediately replacement for foreign oil in fleets and heavy-duty vehicles,” he said.

I will have to look into the context of that 118 year claim a bit later. But the U.S. is certainly in better shape with respect to our gas reserves than we are with our oil reserves. Further, gas can be produced renewably from the same feedstocks that go into any other biofuel.

Of all the schemes promoting energy independence, a massive expansion of CNG just might have a chance of displacing enough oil to achieve at least independence from the Mideast and Venezuela. Again, it will take many components, but I don’t see any possible way it can be achieved without a healthy contribution from domestic oil and gas production.

Now, since I have been up for 24 hours, I am going to call it a day.

April 3, 2009 Posted by | CNG, Morgan Downey, natural gas | 65 Comments

Natural Gas Gaining Momentum

I have said a number of times that I would prefer to take the natural gas we use to make ethanol and just use it directly in compressed natural gas (CNG) vehicles. Natural gas burns very cleanly, and I think that would be a lot more efficient than the convoluted scheme by which we turn natural gas into ethanol. One of the criticisms I sometimes encounter from ethanol advocates is that we would have to build out a new CNG infrastructure to do so. I always point out that the only reason we have built an E85 infrastructure is that taxpayers funded it.

But I learned something of interest today when I was flying back to Texas from Europe. I am currently reading Oil 101by Morgan Downey. This is a really great book by the way, which I will review as soon as I finish it. Downey covers natural gas in some detail, and the book states that there are 1600 retail stations in the U.S. selling CNG. That made me wonder how many stations are selling E85, since some ethanol advocates have claimed to me that we are already too far down the E85 path to start down a CNG path. It turns out that today there are 1900 stations selling E85, but the number only went past 1600 in 2008. So CNG isn’t operating from as big a deficit as some of my ethanol friends would like to believe. CNG just hasn’t benefited from the same kind of legislation that has benefited ethanol.

But the landscape may be starting to change. Of course T. Boone Pickens has been pushing CNG hard as part of his Pickens Plan. Then last month AT&T announced they would invest $565 million to replace 15,000 gasoline-powered fleet vehicles with compressed natural gas and hybrid engines. And yesterday Reps. Dan Boren (D-Okla.), John B. Larson (D-Conn.) and John Sullivan (R-Okla.) introduced new legislation to further incentivize CNG:

House members plan bill to expand NGV use

Known as the New Alternative Transportation to Give Americans Solutions (NAT GAS) Act, the bill also would create a new tax credit for automakers which produce natural gas and bi-fueled vehicles, the three federal lawmakers said. Currently, all major automakers manufacture NGVs for overseas markets and this provision is critical to encourage them to begin offering NGVs in the United States, they said.

Energy investor T. Boone Pickens applauded the measure. “America’s national and economic security depends on moving off foreign oil as quickly as possible. Natural gas is the cleanest, most abundant, most economic fuel to replace imported diesel fuel. The US has enough natural gas to last more than 118 years; we should turn to it as an immediately replacement for foreign oil in fleets and heavy-duty vehicles,” he said.

I will have to look into the context of that 118 year claim a bit later. But the U.S. is certainly in better shape with respect to our gas reserves than we are with our oil reserves. Further, gas can be produced renewably from the same feedstocks that go into any other biofuel.

Of all the schemes promoting energy independence, a massive expansion of CNG just might have a chance of displacing enough oil to achieve at least independence from the Mideast and Venezuela. Again, it will take many components, but I don’t see any possible way it can be achieved without a healthy contribution from domestic oil and gas production.

Now, since I have been up for 24 hours, I am going to call it a day.

April 3, 2009 Posted by | CNG, Morgan Downey, natural gas | 43 Comments