wpe5.jpg (1421 bytes)[as you get further and further back in time, fewer and fewer links actually work...So it goes]


GM Displays Its View of the Future

HydroGen1, GM's latest design for a fuel cell electric vehicle powered by hydrogen, is now in testing, with commercial release possible before the end of the decade.  Of course, there may be one of two problems getting cryogenic hydrogen down at the local Exxon, so the plan is to include a fuel processor that will convert gasoline into hydrogen. q.v.   Readers may also be interested in a clear statement of the case against GM's other electric cars. q.v.   And, while at it, the case against plain vanilla cars. q.v.


Iraq Closes the Tap

Unwilling to accept further UN control over export policy, Iraq cancelled oil exports subject to the 'oil-for-food' program. q.v. While the Saudis and Venezuelans offered to pick up the slack, it is not yet clear that either country can expand short-term exports enough to make up the difference.  Readers may be interested in reviewing what the US used to refuse to allow Iraq but now permits.*  Looks to Pete like a lot of things that shouldn't have been subject to sanctions were.

*Unfortunately, State removed the original link and Pete can't find it in the archive.


Energy Stock Held by Bush Appointees

For what it may be worth, the administration's key advisors tend to have significant energy holdings. q.v.  But you knew that.


The Natural Gas Supply Situation from the Industry's Point of View

By now it's well known that, unlike 2 or 3 years ago, the domestic natural gas industry is working at full speed to increase available supplies.  But the job is far more difficult than it used to be because of higher decline rates.  According to the testimony of industry spokesperson, R. Hovarth, "In 1990 producers had to replace about 10 percent of their natural gas volumes with new wells each year just to bring consumers the same amount of gas they had the year before.   Today, this average 'decline rate' has jumped to 23 percent.   This increasing decline rate occurs because our technological advances are allowing us to find fields that in the past were just too small to be economic, but because of their size they experience sharper decline rates.   As a result we must find more and more each year just to produce the same volumes ..."  He goes on to outline a credible case for the industry's reduced environmental impact and the need to open up additional regions to drilling.  q.v.


Possible Alternatives to Current Internal Combustion Engines

Pete's gloomy assessment below of the long term prospects for the internal combustion engine (ICE) strikes reader Graham Cowan as missing a possible approach that could be useful (however esoteric the idea may seem to Pete).  As he will explain to the 11th Canadian Hydrogen Conference q.v. in Victoria, BC on June 19th, the key to a grown up internal combustion engine may be the use of nuclear-generated boron, rather than hydrogen.  Here's the gist of the idea: "A boron filament [one of several possibilities] immersed in pressurized oxygen can be ignited at one end. Flame will then advance along it, leaving behind only a mist of boron oxide droplets. A combustion chamber containing such oxygen can have a small fuel inlet port into which boron filament will be fed at the same rate the flame advances, so that the fire will be stationary with respect to the chamber. The oxygen-and-mist will be much hotter than the oxygen was. Its expansion can turn a shaft. The heat source is internal to the working fluid, so, this is an ICE. The mist is eager to fall out and form thick liquid masses on any available surface. This behaviour was a major stumbling block for the boron hydride jet bomber program of the last century. However, I see it as helpful if one works with it. The liquid can flow into molds and there, on cooling below ca. 400 Fahrenheit, will freeze rock-solid. This is the only byproduct, and it's fluid only long enough to get to those molds. In going hundreds of miles, a car would accumulate hundreds of dollars' worth, so it demands recycling. Consider it not as ash but as an infinitely divisible, undamageable storage battery which can't locally be recharged but is light enough to send away to have it done." More info is available on the idea. q.v.  Worth further thought, but you might want to hang on the Exxon card just a bit longer.


Bush Energy Policy

After long anticipation, the Bush energy plan was released. q.v.  Pete's initial assessment is, right on the big ones, a primer rather than a plan, and too timid by half.

The problem with the plan is the central problem of all energy policies: what needs to be done is not just politically unpopular, it may be political suicide to even propose it. So the Bush administration didn't. In keeping with the myopia of the day, they played along with the false idea that the issue is domestic production versus the domestic environment, favoring the former while their political opponents prefer the latter. This isn't and never has been the issue.  Even if one were willing to pave over the entire state of Alaska so that every square inch could be drilled, there is no reason to think that would furnish more than minor long-term relief.  

One must squarely face the contradiction: Americans have built a wonderful society based on the automobile.  They used to have enough fuel to support the extraordinary way of life that developed after World War II, but now they don't.  True, they can do it for a while longer but to do so they must find some way to pay for both the balance of trade and the national security consequences of ever greater reliance on a commodity the rest of the world already prizes highly.  So far, neither money nor soldiers have been a problem.  The rest of the world has allowed the US to put its lifestyle on the cuff, and the US has had to fight one minor brush war when the Iraqis got a little greedy.  But either or both could become major, major problems, not in the distant future but over the next decade.  After all, it is not just a matter of keeping minor despots from swiping the prize, it is the largest and most important nations on earth who also depend upon, and have an interest in maintaining, access to the oil tap, and they circle around the Persian Gulf and the Caspian Sea like distant, silent vultures who know they must protect their interests, just as the US must.  At the moment, all is well and open competition for remaining resources is muted, but any nation that transports itself with SUVs is not likely to occupy the moral high ground when the game gets tougher.

The real problem presented to those who claim leadership is to begin to provide alternatives to an automobile-based economy.  For most Americans, this is an idea that just doesn't compute because it's too difficult to even imagine. Even posing the issue is disquieting. Ok, then limit the issue to replacements for gasoline-powered vehicles. Alternatives do exist, but they aren't nearly as satisfactory, and it will take more than tax credits to make it happen. Transitioning away from the internal combustion engine is not just a matter of directing sufficient capital flows away from Washington and toward Detroit: the immensely complex problem has implications for almost all aspects of American life. The Bush plan at least identifies many of the correct components that have the possibility of providing a solution, and omits many more that are necessary, but it fails to provide the compelling larger vision and sense of direction that are required to put the train back on the track.


Regulating in the Dark

One of the more innovative but dangerous aspects of the energy markets involves the transfer of price risk.  When prices triple or quadruple in a few years, the unprepared pay bigtime.  As most of the economy is still in the process of finding out, the real cost of being unprepared is enormous.  Conversely, those who have correctly anticipated developments and hedged against them either profit or are largely unaffected, having transferred the risk of loss to others.  The rest use up their credit trying to support a lifestyle they realize too late they can no longer afford.  US markets may not have produced any increases in domestic energy supplies, but they have produced risk transfer mechanisms out the wazoo.  While everyone knows that the derivatives markets exist and many understand the idea behind them, few understand the how much exposure key players face.  Unfortunately, that includes the institutions that are supposed to regulate the bank holding companies that are at the heart of this mostly invisible empire. 

It is quite true that the notional value of these markets is truly enormous, running in the multiple trillions, but by far the largest share of the market covers the problems financial institutions face when dealing with fluctuations in interest rates. In recent years, this has been relatively quiescent and the risk transfer mechanisms relatively well understood.  An unknown but growing segment represents exposure to changes in energy prices.  Even though smaller in volume, energy derivatives can be more difficult to manage because price fluctuations are more severe and depend primarily on political factors beyond anyone's control, at least anyone this side of Ras Tanura.

Pete thought readers might either enjoy, or be alarmed by, or both, the admissions of just how little the Federal Reserve knows about the exposure of the institutions it is supposed to be regulating (i.e., kept away from the public purse when they fail, through supposedly impenetrable firewalls between constituent components of a holding company), and the whistling-in-the-dark quality of the rules it hopes to apply. qv1 qv2 (see page 6 ff)  So far it has only been a few hedge funds whose corpses have washed ashore, but no one really knows what's going on.  This applies not only to regulators and investors (even though the FASB continues to try), but it may also apply to senior management's of market participants. True, they may know more now than they did a few years ago, but they may or may not know what the whiz kids are up to on an intraday basis.  Do intraday exposures matter?  Yes because the parent's credit can be on the line until everything clears.  Does anyone not a player know what they are? No. Will they ever? Probably not, until after the fact.  But we all know who the ultimate risk holder is, no matter what the Federal Reserve Act may say.

To give you some idea of how little the world's central banks know about the game, read the most recent statistical report from the Bank for International Settlements. q.v.  The one thing known with some certainty about energy derivatives is that the market is growing rapidly.


Toothless Sanctions

More trouble for US sanctions policy: everyone ignored Iranian sanctions and Lybia appears to be next. q.v.


Moving Ahead With Nuclear Waste Storage

The US government has published the final procedure for determining whether to make Yucca mountain the repository for nuclear waste. q.v.  Information on the scientific basis for the decision has also been made available. q.v.   After 20 years of fooling around, perhaps the US is about the resolve a prerequisite to a renewed nuclear policy.

Or perhaps not.  It turns out the EPA issued incredibly stringent standards for Yucca mountain in the closing days of the Clinton administration.  The standards are so stringent that the granite and marble at the vicinity of the statue of Roger Williams, founder of Rhode Island, in the US capitol, emits 65 times the legal level. q.v.  According to Steve Milloy, "the radiation-dose rate at the Williams statue also is up to 550 percent higher than the dose rate received at the fenceline of a nuke plant, and about 13,000 times higher than the average annual radiation dose from worldwide nuclear-energy production."


Saudis Prepare to Expand Production Capacity

According to the Energy Intelligence Group, the Saudis have underway a sizable expansion to crude production capacity. q.v.   The potential increase of 800,000 b/d appears to be part of a more general movement within OPEC to expand production.  According to the article, as much as 5 million b/d may come on line over the next several years.


On Conservation As An Energy Policy

We use the word 'conservation' to mean two distinctly different things:   (a) reduced consumption brought about by price rationing; and (b) reduced consumption brought about by greater efficiency (that is, fewer inputs units per output unit).  One of our big problems at the moment is conservation in the second sense.   The US uses an incredibly large amount of natural gas to run combined cycle turbines to generate electricity because it is very efficient to do so.  It is efficient in the sense of Btu's input per kWh of output.  It is much more efficient in these terms than, say, coal, and all of the economies of scale produced by big coal-fired plants are nullified by the extraordinary efficiency of natural gas in this particular application.  The perverse part is that it doesn't reduce natural gas demand, it sends it through the roof as everyone realizes that they too must generate electricity in this fashion just to compete effectively.  But is it an 'efficient' use of gas? Yes, in the limited terms of reference of the question; no in the terms of reference for the governmental authorities who must ensure that there is enough gas to heat everyone's home next winter. 

Should US policy encourage conservation in the sense of increased efficiency? Yes, but not in all instances. New facilities that use natural gas to generate electricity should have to demonstrate that they have actual alternative fuel capability available at all times.


Reality Check: Can US Domestic Production Be Increased Materially?

As domestic production declined, imports rose ever higherThe key current issue in domestic petroleum policy is whether or not to attempt to rely on domestic oil production increases to mitigate the effect of ever-greater petroleum imports.  No one argues that domestic production could replace all imports, or even a very large share of imports.  On the other hand, no one believes that all domestic oil provinces have no prospect for greater production, even though most of the key provinces are declining and have been for some time.  The question is, when there are prospects for material increases, should they be drilled, particularly if it means taking greater environmental risks.The key current issue in domestic petroleum policy is whether or not to attempt to rely on domestic oil production increases to mitigate the effect of ever-greater petroleum imports.  No one argues that domestic production could replace all imports, or even a very large share of imports.  On the other hand, no one believes that all domestic oil provinces have no prospect for greater production, even though most of the key provinces are declining and have been for some time.  The question is, when there are prospects for material increases, should they be drilled, particularly if it means taking greater environmental risks.

Reader Roger Blanchard has completed a review of domestic production that provides an interesting reality check for those, like Pete, who (still) tend to favor drilling of favorable domestic prospects. q.v.  At the least, it helps place the issue in its long-term context.*

*Robert Ehrlich writes in to say, "Blanchard make some good points. However a major macroeconomic problem looming over us is our our negative balance of payments deficit--much of it tied oil imports (and soon LNG). Regardless of what our current economists say,this ultimately will lead to either higher interest rates or to devaluation of the dollar. The latter would probably lead to denominating oil in some other (or basket) of currencies making it even more difficult for us.  Neither Mr. Blanchard nor myself can really predict much into the future but it behooves us to minimize the rate of growth of this deficit. Increased domestic production is a short term option (say the next ten years or so) but could provide us the breathing room to get other initiatives underway; conservation being foremost."


Beginning of the End for the Iranian Boycott

Last Pete checked, Iran was still officially a state sponsor of terrorism and high-up on the official boycott list. But relations are clearly changing fast.  No one's played by the boycott rules for a long time and now Meridian House, closely affiliated with the State Department, is, together with Exxon, sponsoring an exhibit of Iranian art called A Breeze from the Gardens of Persia. q.v.


Next Generation Nuclear Reactor Designs

The International Atomic Energy Agency is ready with new reactor designs featuring High Temperature Gas-cooled Reactor technology. q.v.  Here, according to the IAEA, are the advantages of the approach. "A strong negative temperature coefficient over the entire range of plant operation is an essential inherent feature of a modular HTGR. It limits the power level that can be attained under accident conditions and provides a natural passive mechanism for decreasing power under conditions of increasing temperature. Providing assurance of a negative temperature coefficient as well as the ability to accurately predict other nuclear characteristics of the core are essential requirements for modular HTGR development."


Chevron Also Doubles US Petroleum Segment Profits

The news for Chevron is similar to that for Exxon:  first quarter profits doubled on US exploration and production operations over the same quarter last year. q.v.

U.S. Petroleum and Natural Gas Segment

First Quarter

Millions of Dollars 2001 2000
Operating Earnings
Special Items
$720
-
$365
-

Segment Income

$720 $365

The main source of profit was much higher average natural gas prices: $7.57 Mcf, up from $2.40. Net natural gas production increased 6 percent. Average crude oil realization declined $1.68 to $24.51 per barrel. Net liquids production was down slightly compared with the same period last year.


Redford Tweaks Bush

Just because you're another pretty face doesn't necessarily disqualify you as an energy analyst (Pete wouldn't know), and even being a movie star dilettante isn't necessarily damning, but Pete really, really hopes America won't take too much notice of Mr. Redford's silly remarks. q.v.   Hollywood's views on energy policy have been a source of harm for sometime.  Mr. Redford is a fine actor and an intelligent man, and is entitled to his opinion.   But he would at least do well to grace us with an informed opinion.


Contretemps

As you probably know by now, Pete accepts that combustion of fossil fuels has and will lead to global warming.  He also thinks something should be done about it.   However, some of Pete's readers, including a meteorologist, don't even accept the premises of the global warming argument.  In the interest of presenting diverse views, here are a few of the sites recommended for your instruction. qv1, qv2, qv3.  For balance, you might also want to review the IPCC's site. q.v.


Natural Gas Primer

Steve Andrews and Randy Udall have written a very good intro to the complex subject of natural gas, Methane Madness. q.v.


Exxon Profits: The Tiger Licks Its Chops

Petroleum and natural gas segment

First Quarter

Upstream 2001 2000
US (million $) 1,628 880
Non-US 2,150 1,874
Downstream
US 409 182
Non-US 590 187
Total petroleum and natural gas 4,777 3,123
Total net income from all segments 5,000 3,480
Oil production (kbd)
US 722 754
Non-US 1,897 1,848
Natural gas production (mcfd)
US 2,759 2,979
Non-US 9,324 9,167

Pete's favorite of the remaining sisters is Exxon, or Exxon Mobil to the legally correct.  It is big, fat, and happy, but that doesn't mean it is either slow or stupid.* Seems they are doing well, thanks in large measure to OPEC's reassertion of control over crude prices and the spike in US natural gas prices.  

The magic of Exxon is that, at least in the US, the less it produced the more it made.  How much less? A little. How much more? A whole lot more. US petroleum segment profits nearly doubled on somewhat lower production. Nice to have a cartel around when you need it, even if you don't participate. The profit increase contributed by foreign petroleum operations was not nearly as notable.

Several points are worth noting. Even though the oil industry was on its way to recovering during the first quarter of 2000, 1999 was not a good year for the industry due to low oil prices.  Second, while the company did not increase dividends, it did spend $1,442 million buying back its stock. Finally, keep the stock buyback figure in mind while noting that capital spending increased only about $300 million for both US and foreign segments.

*For instance, try some of Chairman Raymond's insights in response to annoyances from Enron's chief. q.v.


NAFTA and the New Legal Regime Affecting International Energy Trade

Admittedly, Pete's a bit out of his league here, but he wishes to draw attention to a fascinating article that appears in Alexander's Oil and Gas Connections, "Investment Arbitration under the Energy Charter Treaty in the light of new NAFTA Precedents" q.v.   The same subject is also treated at a consultant's site. q.v.  It doesn't take much imagination to conjure up some really interesting legal challenges to various energy policies.


Global Warming: The Tiger Blinks

No one would call it a resounding call for action on global warming, but at least Exxon is no longer pretending that it can avoid the problem entirely because of scientific uncertainty. q.v.   Perhaps there were some benefits to the merger with Mobil after all.

In other Exxon news, Mr. Raymond, the chairman who last year led the company to the greatest corporate profits in history had to get by on $17 million in compensation when his bonus was cut by more than $10 million. q.v.  Meanwhile, Exxon and Diamond Shamrock acted to cut back supplies to midwestern independent gasoline dealers in favor of their own outlets. q.v.   According to the story, independents are now paying 15 or 16 cents more per gallon at wholesale than are branded retailers.  Regional stocks are well below normal.


Nuclear Regulatory Commission

Nobody's requested permission to build a new nuke yet, but the nuclear regulatory commission has heard whispers along those lines and is all ready for them if and when they do. q.v.


DOE Budget

The department of energy didn't make out that well in the budget wars. q.v.  Clean coal programs were, quite rightly, slashed and burned, while research on solar, wind and similar incidentals was cut back a whole lot.  


Offshore Wind Farms   

As everyone who reads this page knows, Pete doesn't think the answer is blowing in the wind.  Still, some people do and they're up to some interesting, ambitious things. q.v.


The Magic of Coal

The more you use, the cheaper it gets, and other curiosities. q.v.

Figure 5.  Coal Consumption by Sector, 1989-2000Figure 6.  Delivered Coal Prices, 1989-2000 (Nominal Dollars)Figure 6.  Delivered Coal Prices, 1989-2000 (Nominal Dollars)

 

 

 

 

 

 

 


Is OPEC Just the Texas Railroad Commission Writ Large?

Three stories down, Pete expresses his opinion on aspects of the domestic legality of  OPEC. This provoked some interesting mail from reader Heiko Gerhauser, who writes from the UK to argue that OPEC's role is beneficial. While Pete disagrees in part, it seems worth recounting:

Does pro rationing ring any bells? Up to 1970 a US agency imposed production cuts to hold up prices.  OPEC is the equivalent of the Texas railroad Commission, just on an international basis. The only difference I see is that between an oligopoly and a monopoly.

It also makes a lot of sense to pro-ration to preserve spare capacity. Oil is an essential commodity and there are very large lag times before either consumption or production can be changed meaningfully. Without a cushion of spare capacity that means very high, economy- hurting prices in times of crisis, possibly followed by a bust for the industry. Both electricity and oil need regulation to ensure spare capacity, letting spare capacity erode was the real cause for California's electricity crisis (all the other errors wouldn't have mattered).

OPEC's present policy is just right. By raising prices moderately (and by historical comparison their price band is very reasonable) they should ensure that new oil production will come on-line in a timely fashion.

The Texas Rail Road Commission on the other hand made the mistake of allowing prices to decline in real terms for over a decade before the oil crises. If anything OPEC should be faulted for allowing prices to collapse in 1998.

Pete continues to believe that markets function best without any prorationing authority, but grants that throughout their long history, the petroleum markets have only almost never been without one.


Saudi - Iranian Rapprochement

Iran and Saudi Arabia are about to sign what the Iranian press agency calls a landmark security agreement. q.v. Even though limited in scope, the agreement could mark the beginning of a new, more cooperative era between the two gulf powers.*

*Reader Harold Ericsson writes from California, citing a friend's " ... wonderfully cynical [view that] the Saudi/American connection is a protection racket. Iran has long wanted to replace the US in that relationship."


On Declining Energy Intensity

EIA has released a brief, interesting examination of the declining share of GDP accounted for by energy. q.v.


Unsung Heroes

Here let us sing the praises of Carl and Debbie Prewitt, gas station owners in Alabama, who brought suit against OPEC for antitrust violations.  The odd part about it is that they won (they were awarded a default judgment when OPEC failed to respond). q.v.  That judgment, and $2.99, will get them a latté at Starbucks. 

Pete considers them heroic because they dared do the obvious, and he wonders why many more who suffered far worse damages didn't follow their example.  For that matter, why has the Justice Department ignored such clear cut violations of US anti-trust law? It may be argued that any action taken by OPEC in restraint of trade was taken outside US borders and any enforcement action would therefore involve extraterritorial application of domestic law, but, legally, this does not excuse market manipulation from afar because it was intended to have, and did in fact have, a domestic impact and therefore remains a violation. q.v.   We are all paying handsomely now for the collapse in domestic drilling that took place in 1998 and 1999 after prices dropped to $10/bbl as the Saudi oil minister attempted to whip the rest of OPEC into line.  He succeeded, energy prices tripled, our economic growth slowed or stopped, and the stock market tanked.  Nor should OPEC be let off on a sovereign immunity theory, because the illegal policies are implemented by state-owned commercial enterprises, which are not covered by the exception.  Note that most of these latter maintain offices and participate in US markets.  They aren't hard to find.

The real answer to why nothing is ever done, of course, is that the US cannot afford to enforce its own laws.  Americans need the oil and must just accept that a producers' cartel continues to manipulate the price.  Sorry Prewitts -- so it goes.*

*Some readers think Pete to be a "rable rouser" who favors stirring up litigation to bring lower prices. Au contraire. Pete wishes it were possible to treat the issue as a legal matter but also knows that won't work. However, he believes that since domestic producers and international majors benefit from the economic rents made possible by the oil cartel's illegal production controls, they are under something of an (extra-legal) obligation to spend the surplus on additional oil production that would have the effect of countering those controls rather than immediately returning the surplus to their shareholders as dividends. He also thinks US supervisory agencies should pay special attention when OPEC members play in the US futures markets through their state-owned oil companies, since this can be like shooting fish in a bucket.

Pete himself seems to have changed his thinking.  See Keeping It In Context above.


The Trouble With Federal Leasing Policy

Something like a third of domestic oil, gas, and coal comes from federal lands.   So uncle will remain an important player in the energy future whether or not a new national policy emerges and whether or not ANWR is drilled.  It's a good time to ask whether federal stewardship has been all it could be.  This is a particularly complex issue, but there's reason to think that policies pursued by the Department of Interior's Mineral Management Service could be improved. 

Reader Ken Ainsworth explains, "Here's how the system generally works. What today is considered 'goat pasture' is nominated for lease by some enterprising individual or organization. Since the area is not part of a currently active play, the nominator gets a ten year lease for about $2.00 an acre, with a 1/8 royalty (more on that later). The money down is comparatively trivial, and the time until expiration is great. Eventually, some group comes up with a legitimate concept and is trapped into paying 10 to maybe 50 times plus additional royalty as compared to what the original lessee paid for the lease."

"Personally, I believe that MMS should totally re-evaluate the parameters of its oil and gas leases. Given that the norm in the industry is a three to five year lease with a 1/6 royalty, I think the federal leases should be reflective of those kinds of terms. Simply because the surface requirements and restrictions of federal leases so greatly exceed those of virtually every private lease, the five year term is probably more appropriate. And that, in a nutshell, is a federal leasing strategy that would probably result in far more positive activities, usually in less environmentally sensitive areas, almost certainly more quickly, than the opening of the ANWR. It also generates more revenue for the federal government both in lease bonus money and in production royalty.  As an aside, the higher royalty percentage is a much better means of assuring 'fair payment' than the 'market rate' scheme USGS cooked up a couple years ago."


EIA Forecasts World Energy Trade Through 2020

EIA continues to forecast sharply higher world petroleum demand, particularly from developing countries, with only minor increases in real petroleum prices.  Looks a tad optimistic to Pete ...

World Oil Consumption (left) and Real World Oil Prices (right)

Sector comparison for oil demandComparison of real oil price forecasts 2000 v. 2001

 

 

 

 

 

 

Worldwide carbon emissions are expected to grow by 50 percent. The full report is well worth reading. q.v. (PDF)


Kyoto is No Longer US Policy

Pete notes for the record that the US has at last cleared the way for a realistic global warming policy by abandoning the approach taken at Kyoto. q.v.   It never made sense, was based on faulty analysis of how the US economy could respond, and was quite literally politically unacceptable.  This is not to say that global warming is not a serious problem deserving a well-planned, worldwide response.   Indeed, it may be the first step toward affirming that proposition.


Why Is the Issue ANWR or Nothing?

There is an odd unreality to much of the current oil policy debate.   Whether or not there's enough oil on the Alaskan coastal plain to be worth going after and whether or not the environmental risks are justified, everyone agrees that ANWR is no panacea for our problems.  It is also clear that it certainly won't be the average oil company that participates in developing it, if Congress allows anyone to.   Development will be left to one of a handful of majors or near majors.  If anything, the debate over ANWR or drilling the deep portions of the Gulf of Mexico should be a sideshow, because the debate doesn't even touch on the problems facing most of the domestic petroleum industry. 

Reader Bob Ehrlich points out, "the problem is that the domestic exploration system has been decimated over the past 15 years (c.f. Matt Simmons), has lost its traditional access to capital, rigs, geologists, engineers, etc. This is the consequence of many years of very low oil and gas prices. No question that shallower densely drilled strata will yield few if any giant fields, but comparable amounts are still present in small (2-10 well fields). In addition, in light of the thermal stability of methane, very large (Tcf level) accumulations are present in the less densely drilled deeper strata. It seems like the current debate is between Big oil and the conservationists. I don't hear anyone in Washington or elsewhere talking about the smaller, more efficient domestic exploration-oriented operations and how to encourage them."

Pete would have to agree.  We need to find the middle ground and soon.


The Case Against Bush Oil Policy

Pete doesn't buy it, but he thought you might be interested in reading an able presentation, written by Cutler J.Cleveland and Robert K.Kaufmann of the Center for Energy and Environmental Studies, Boston University. q.v.


Kazakhstan Offers Transportation Option    

Kazakhstan announced that a new outlet for Caspian oil was ready. q.v.   Presumably, oil from the world's sixth largest field, Tengiz, will use it, although other pipelines from that field and the nearby third largest Kashagan field are also planned.  Certainly, Chevron was pretty happy about the news. q.v.


Foreigners Continue To Purchase US Energy Assets

EIA has totaled the figures for 1999, and it turns out to have the second most active year in the decade for foreign acquisition, second only to BP's record purchases the year before. q.v.


Questionable Energy Policies - Part 9

Years ago, while learning civil procedure, Pete had a professor whose variant of the Socratic method was to follow nearly every student contribution with, "why is that wrong?"*  In his insufferable honor, Pete offers up the same as you consider the Senate democrats' energy policy. q.v.   Actually, that's a little unfair, since Pete likes the part about returning to serious café (corporate average fuel economy) standards, if we had time to fool around with it.  He reminds all participants in the energy policy sweepstakes that the bad part is nearer than you think and the clock is ticking.  You have seven months to bring working natural gas storage back to 3 Tcf (a feat EIA considers wildly improbable) or you run the risk of losing industrial load or worse next winter.  And before you can do that you have to make it through the summer, when a few really hot months on the east coast will make the task totally impossible.  And then there's California.  Have fun.

*Not just Pete's, honest.


Natural Gas: Just How Often Can We Squeak By?

Even though much of the east coast is still buried under a foot of snow, winter is effectively over for energy inventory purposes.  We squeaked by, finishing the heating season with the lowest natural gas inventories ever.  The US had unusually cold weather in November and December, followed by a very mild January and February.  Had the temperature break not happened, at the very least industrial load might have had to be dropped on some pipelines.  But the weather broke and we made it through.   Unfortunately, the issue is whether we can make up for lost time and put enough into storage for next year, so we don't have to run the risks we ran this past winter.   Here's part of EIA's analysis q.v., with emphasis supplied by Pete:

"The U.S. natural gas supply picture seemed to brighten a little last month as average storage withdrawals during the month were below normal and below previous expectations. However, even if only modest withdrawals are required this month, we are still likely to end the heating season with the total level of gas in storage below the previous low recorded by EIA. In our view, only a spectacular performance from the U.S. and Canadian gas industry in terms of increased production or an extremely mild summer this year would generate much in the way of additional reductions in natural gas prices beyond what has already happened since mid winter. As we currently expect working gas to reach 689 billion cubic feet at end-March, seasonal injections of 2,310 billion cubic feet would be required from April through October to reach 3 trillion cubic feet (the approximate average end-October level between 1995 and 1999) before the next heating season. That kind of build would be about 500 billion cubic feet (25 percent) above average (1995-1999). Consequently we expect the industry to fall well short. Average monthly gas spot prices below $4 per thousand cubic feet between now and next winter are possible but do not seem very likely under these circumstances. "

We were also lucky last summer because even though the mid-continent hit record heat levels, most of the east coast was relatively cool.  Consequently, air conditioning demand was not abnormally high, and therefore the natural gas used to generate electricity was not as great as it otherwise would have been.  The problem with storing 2.3 Tcf of gas between March and November, other than the the obvious point that it is way more than the industry has ever had to inject, is that a hot summer will make the task virtually impossible (since so much more gas must be used to generate electricity than ever in the past).  It will also be made far more difficult by the way California was allowed to get through its own crisis, which was to borrow electricity from hydro sources which are likely come summer to be severely strained by last winter's rainfall levels.  The problem is going to affect many western states by the summer, and there is no reason to think that they have much in the way of alternatives except to use more gas to make up for the lost hydro. 

We know we were lucky last winter.  Can we afford to count on our luck again?*

* OK, this is the sort of  annoying rhetorical question that you already know Pete would answer in the negative.  But no one should be surprised next winter the way they were this last winter.  No doubt Pete will take it upon himself to tell you what should be done as soon as he figures it out.


Tech Wreck and Energy Policy

As an investor, Pete has watched like Mme. Lafarge as the market paraded each new dot com to the chopping block, tut tutting "what did they expect?" However, as an energy policy observer, he thinks the dot coms offer major potential as an energy policy remedy.  Specifically, the internet should soon end the stupidity of having knowledge workers power 2,000 pounds of metal to commute from their homes to their computer screens each and every work day, when electrons will gladly do the job almost for free.  So it is in this latter observer role that he draws your attention to a Cisco news release that announces new products for corporate virtual private networking. q.v.

While on the subject, Pete reminds you that it is important that the courts not break up Microsoft, since what is required is even better integration between operating systems, the internet, and office applications, and that will never happen if Microsoft is forced to split the functions into legally separate entities.


Roundup:  Nuclear Electricity Production in 2000

US nuclear power production had another record year in 2000.  According to EIA, "total power generated was 753.9 billion kWh, 3.5 percent above the previous record of 728.1 billion kWh set in 1999. This represents continued growth in power production for the nuclear power industry that had produced only 577.0 million kWh as recently as 1990."  The annual net capacity factor was 85.5 percent in 2000, while it had been only 70.2 percent in 1990.  Which is just as well, since last year's totals were produced by 103 operating reactors compared to the 111 operating in 1990.  EIA also notes, "The increase in nuclear generation over the past 2 years would have been enough to meet the power needs of all residential consumers in California in 1999."   Also see EIA's data for specific reactors. q.v.

If we could get the number of operating reactors back up to where it should be, we could actually be doing something about global warming and the impending natural gas crunch.  Then we could start building some new ones and actually have the basis of an energy policy.


Roundup:  Non-OPEC Crude Oil Production in 2000

Roger Blanchard reports, "Based upon data from the U.S. DOE/EIA, world crude oil production (including lease condensate) increased 2.117 million barrels/day (mb/d) in year 2000.  OPEC countries provided 1.534 mb/d of that increase (72.5%).   Non-OPEC crude oil production increased 0.583 mb/d.  

Table 1 Prod. Increase (b/d)
Russia 400,000
Australia 183,000
Norway 179,000
Mexico 106,000
Brazil 80,000
Canada 70,000
China 54,000
Oman 46,000
Ecuador 22,000
Angola 20,000

Table 2

Prod. Decrease (b/d)

U.K. -209,000
Egypt -142,000
Colombia -125,000
U.S. -42,000
Argentina -41,000
Syria -16,000
Gabon -10,000
India -8,000
Malaysia -3,000

Tables 1 lists non-OPEC countries with the largest increases in crude oil production and Table 2 lists non-OPEC countries with the largest decreases in crude oil production in 2000.  Several non-OPEC countries with large crude oil production increases in 2000, Australia (+183 kb/d and Norway (+179 kb/d), won't see those production increases replicated in 2001.    It appears that both will experience production decreases in 2001.  The International Energy Agency Oil Market Report for February is projecting that China and Oman, both with crude oil production increases in 2000, will also experience crude oil production decreases in 2001 due to declining production in large mature fields within the two countries.  The February IEA OMR projects that Mexican liquid hydrocarbon (mainly crude oil but includes natural gas liquids, other liquids and refinery gain) production will increase 265 kb/d in 2001.  That appears very optimistic in as much as the Cantarell field, which provides about 1/3 of Mexican crude oil production (1.2 mb/d), is poised to go into decline and several other large Mexican fields are also declining. 

The prevailing view seems to be that United Kingdom crude oil production declined in 2000 (-209,000 b/d) mainly because of an extended maintenance schedule during the summer of 2000.  U.K. crude oil production was consistently less in 2000 and the largest monthly declines were in the latter part of the year (Table 3).  That calls into question the maintenance related decline argument. 

Table 3 UK Production Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
2000-1999 Diff. (kb/d) 0 -84 -30 -197 -286 17 -137 -329 -355 -428 -393 -286

The average decline rate for mature major (>100 mb ultimate recovery) U.K. fields was about 13% in 1999 and a similar average decline rate probably occurred in 2000.   The February IEA OMR projects that U.K. liquid hydrocarbon production will decline 85,000 b/d in 2001.  The Elgin and Franklin fields (condensate) are expected on-line in 2001 and the Shearwater field (condensate) is expected back on-line in the spring or summer of 2001, but the 85,000 b/d decline projection appears optimistic. 

U.S. crude oil production declined only 42,000 b/d in 2000.  The small decline can largely be attributed to the significant crude oil production increase in the deepwater Gulf of Mexico (GOM) in 2000.  It will be interesting to see how long production increases can continue in the deepwater GOM." 


On the Insignificance of Wind and Solar

U.S. Energy Consumption by Source, 1999After a solid 25 years of trying to increase consumption of solar and wind power, it should be clear to all that hundreds of millions of dollars have been wasted.  Neither one amounts to anything worth mentioning.

Proponents of these technologies should take a look at EIA's Renewable Energy Annual 2000 q.v.   True, solar collector shipments went up a bit in 1999 over the previous year, but they still didn't amount to anything.  The combined total of solar and wind were greatly exceeded by burning agricultural and industrial wastes.  Indeed, any form of energy consumption in the entire economy was of more significance than wind and solar combined.  Once again:  Solar = .0747 percent; Wind = .0477 percent; Both = 0.1224 percent of US energy consumption.

Since we do have an energy problem of very serious dimensions, it is important not to always fund the perennially insignificant.  A quarter century is more than long enough to have tested these technologies.  It's time to draw the obvious conclusion.*

*There may be many reasons why these technologies haven't captured significant market share.  Some readers, like Michael Vickerman, argue that inconsistent federal funding has been a big problem for wind power and the technology might have been better off without subsidies.  His site contains more on renewable development. q.v. He also points out that the Europeans have made lots of recent progress with the adoption of wind power.


Crude Oil Prices and Per Capita GDP

Energy economist Jim Williams as prepared an analysis that contrasts the real oil price (right scale) with per capital GDP (left scale) for  a number of countries.  Note that the graph stops just before the 2000 price run up since there are no more recent GDP data:

Notice too what little progress many OPEC members were making, and how immune the US has been to the effects of oil price movements.  It will be interesting to track whether that is still the case after a few years.


Kuwait Allegedly Cuts Off Japan

According to published accounts, the government of Kuwait has notified the Japanese government that it will not renew Arabian Oil Company's access to crude from the neutral zone (between Kuwait and Saudi Arabia).  The action follows Arabian Oil's loss of a 40 year concession in Saudi Arabia. q.v.    Japan imports almost all of its oil supplies.


The Saudi and Israeli Human Rights Records

The Saudis haven't gotten better. q.v.  The Israeli human rights record, which was never particularly good, seems about to get worse. q.v.


Consumer Credit

Consumer credit expanded at a remarkable pace in January.  Was it actual new spending or just consumers putting winter energy bills on the tab? q.v.   You have to admire congressional timing in making consumer bankruptcy harder to arrange.  That'll teach 'em the joys of energy deregulation. As a non sequitur: the largest contributor to the Bush campaign was MBNA (credit cards), followed by Enron (natural gas).


O Canada

Wonder what the National Energy Board makes of EIA's forecast that US imports of Canadian gas, already the source of at least 15% of US supply, are likely to increase by a further 15% in 2001 and 4% more in 2002?  q.v. Canada maintains a vague statute that says, in effect, if Canadian markets are disrupted by external demand, exports can be restricted.  They used this against the US in the late 1970s.  Surely some Canadian gas consumers must be wondering whether local rates wouldn't drop a bit if exports to the US were reduced, eh?

Murky Transparency

With the news that US crude inventories are at 27 year lows while OPEC ponders how much to cut production, it is time for a reminder that the world petroleum market is at best seen through a glass darkly.  Read Robert Mabro's views in the most recent Oxford Inst. for Energy Studies Monthly Comment. q.v.


The Tax Regime for Oilsands

Anyone familiar with the North American energy situation knows there are several important hole cards that don't get much attention.  The north slope gas cap is one, and the 300 billion barrels of crude locked in Alberta's oilsands are another.  A recent study questions whether the government of Alberta is receiving enough in royalty income for the province's resources, with particular emphasis on the generous practice of allowing oilsands developers to fully expense capital expenditures against current revenues. q.v.   Canadians are also questioning whether NAFTA has worked to their advantage in so far as the energy trade is concerned. q.v.


The Fed as Energy Policy Maven

By now it should be pretty clear that the only agency with a semblance of an energy policy is the Federal Reserve.  Unfortunately, there's evidence a) that it doesn't realize this fact, and b) when it acts, it gets it wrong.  Even if the correlation between the recessions of 1974-75, 79-82, and 2001-? and immediately preceding energy price spikes has been noted by the Fed, the central bank tends to make the damage worse by responding to upward price movements with higher interest rates and credit contraction, thinking the problem is symptomatic of  inflation.  Then, when the upheaval to capital flows caused by the energy price movements has squashed consumer demand and sent the oil service industry off into a drilling frenzy that results in furious activity but no appreciable addition to domestic supplies, the economy sinks into recession.  The Fed must then quickly undo what it's done, drop interest rates as fast as it can, and wait for conditions in the energy markets to equilibrate.  It takes several years and the cost to the real economy is substantially greater than it otherwise need have been. 

If the Fed is going to remain the only agency with any power to do something about energy policy (and of course Pete hopes this won't always be the case), it should begin applying its monotonic remedies well before prices explode upward, rather than just after.  All other things being equal (and they never are), energy price spikes are deflationary, not inflationary.*

*Heiko Gerhauser writes from the UK to advise, "you are assuming that the Fed can do something it cannot, create actual goods and services. An energy supply shock is a reduction in the amount of goods and services available and inflationary in energy. Investment needs to be redirected towards energy and therefore taken away from other areas.  To balance inflation in energy, other areas need to deflate. No action by the Fed means, inflation in energy and deflation elsewhere balance, and investment is redirected efficiently. All the Fed can do is print more money, leading to inflation everywhere, and possibly a postponement of the necessary curtailmant of consumtion and investment elsewhere to redirect to energy. It cannot prevent economic contraction due to less supply, and should not prevent reallocation of capital."


Tax Cuts and the Proverbial Belgian Dentist

Pete's been wrong about lots of things and high among them are his constant warnings that the Belgian dentist is just about to repatriate her wealth and dump dollars.  The Belgian dentist (a metaphor for the holders of the $10 trillion in external claims against US assets), has been remarkably calm even though a lot of her money has vanished down the financial black hole that is Nasdaq.  Nor did she become flummoxed when the US ran twenty years of trade deficits on its way to becoming the world's largest debtor nation.  She didn't even mind when the trade deficits began to spiral out of control, and the US had the nerve to lower interest rates even further on all the money it was borrowing from foreigners.  So we know we're talking about a pretty forgiving type.  But could she possibly be forgiving enough to allow the US to pull off a $1.6 trillion tax cut at a time when the savings rate is negative?  Either she may be due for some remedial psychological counseling or Pete's going to be right one of these days.


Drilling ANWR Does Not An Energy Policy Make

... not even if you throw in accelerated depreciation for mom and pop refineries and special fol de rol for cogenerators. That's right, the senate energy committee is preparing an energy policy.  q.v.  Drilling ANWR is a step in the right direction, and Pete is all in favor of steps in the right direction, but it's nothing more than that.  And the senate republicans' package is a little bit better than their last useless attempt, so that's sort of a good thing.   But who's been telling those boys that the overthrust belt could produce 137 Tcf of gas if only drilling restrictions were removed?  We may have finally found the guys who inhaled what Clinton only puffed.

Hear a discussion of ANWR policy from Bloomberg Radio. q.v.


Coming to Terms With the Rich/Green Pardons

Dirigiste to a fault, Pete regards Marc Rich and Pinkie Green as energy policy outlaws and not just your run of the mill billionaires on the lam, since the daisy chains of bogus invoices they so artfully wove were allegedly offenses against the Energy Policy and Conservation Act, in addition to other offenses against the tax laws.   So the bird President Clinton flipped Washington on his way out of town was not just bad law enforcement policy, it was bad energy policy.  Pete was therefore at something of a loss to account for the impressive list of names who supported the pardon, and the chutzpah of so many Israeli leaders in offering opinions on an internal US matter.  However, he has been persuaded by the views of Jonathan Tobin writing in the Jewish World Review. q.v.  Tobin concludes, "At best, Bill Clinton is probably skirting the truth when he puts so much of the onus for the Rich pardon on Israel and the Jews. But that doesn’t erase the fact that both Israeli and American Jewish leaders made a terrible mistake by involving themselves in Marc Rich’s web of influence peddling. This pardon was not a Jewish issue. They had no right to speak in our name or to associate the honor of the Jewish people with this disreputable character."


Sanctions Continue To Be Ignored, US Interests Wain

The Japanese, having been thoroughly dissed by the Saudis, continue to invest heavily in Iran, despite US sanctions. q.v.   Meanwhile, the US continues to lose out on the chance to develop some of the middle east's more promising fields.


Crude Inventories Drop Sharply

US crude inventories fell to their lowest level in 27 years. q.v.


Pete Enters DOE's New Contest

Here's the contest, according to DOE: "The U.S. Department of Energy today called on the energy industry to participate in a nationwide competition for new power plant technologies that could help relieve the growing strain on America's electricity supplies in the coming years. The new effort, termed the "Power Plant Improvement Initiative," is targeted at advanced clean coal technologies. Coal-burning power plants account for more than half of the nation's electricity. The department issued a solicitation offering $95 million in federal matching funds for projects that demonstrate ways operators can boost the electricity produced by their power plants or that help the plants meet more stringent environmental standards." q.v.

Here's Pete's entry:  "Turn them all into nukes."   (Reverse-Zimmer 'em*,  for the cognoscenti)

Pete hopes Mr. Abraham will send the $95 million to any favorite charity except Senator Byrd's.

*The Zimmer plant started out as a nuke and ended up a $6 billion coal plant, albeit "used and useful" and in the rate base.  The good folk of Ohio will be paying for that transmogrification for the rest of their lives.


Prudhoe Production Declines: Only 3% or the Usual 10%?

Pete ran a news release suggesting that Prudhoe production only declined a little bit. q.v.  But Roger Blanchard of Northern Kentucky University's Chemistry Department reports that

"From Jan. 1, 2001 through Feb. 15, 2001, Prudhoe Bay production is down 9.36% relative to production through the same period in 2000. Average production for the period in 2000 was 605,454 b/d and for the period in 2001, it was 548,755 b/d.  [(605,454 - 548,755) / 605,454 * 100 = 9.36%]

I suspect the 3% decline in 2000 relative to 1999 was a temporary reduction in the decline rate. To my knowledge, BP hasn't done anything to increase the estimated ultimate recovery, which is 12-13 billion barrels. The approximately 550,000 b/d produced so far this year is a long way from the 1.5-1.6 million barrels/day that the Prudhoe Bay field was producing during much of the 1980s (see attached graph). For the graph, historical data through 1998 is from the Alaska DNR. Data for 1999 and 2000 is from the Alaska Department of Revenue. The two sets of data don't quite jive so the small decrease in production from 1998-1999 may be less than it actually was. Production during the winter is higher than during the summer because the production equipment is designed to work better in colder temperatures. That is the reason for the high value for the Jan. 1-Feb 15 period in 2000 compared to year 2000 average."

The slippery north slope

Pete is grateful for the new data and the clarification of what's been going on.  Just to complicate matters, EIA predicts that north slope production will actually increase in 2001 due to new fields coming online.


BP Reports Greater Capital Spending

Unlike Exxon, BP managed to both double earnings and increase capital spending for 2000 over 1999. q.v.   According to the somewhat elliptical press release, "Excluding the cost of acquisitions and spending by the acquisitions, capital expenditure for the year was $9.0 billion, compared to $6.9 billion in 1999, an increase of 29%. Disposal proceeds amounted to $11.4 billion compared to $2.4 billion a year ago. Cash acquisitions in 2000 amounted to $8.9 billion compared to $0.4 billion in 1999. Net cash outflow for capital expenditure and acquisitions, net of disposals, was $6.2 billion compared with $5.1 billion for 1999."   Like Exxon, the company put a lot of its new revenue into dividends and stock repurchases.  So a billion more capital spending is at least a tiny bit better than Exxon, but not exactly the go-for-broke spirit Pete would like to see infect the majors.  They seem to be content if they replace the reserves they used and remain cash cows. 


New Test for Anti-Iran Sanctions

Sinopec, the Chinese state petroleum and chemical company, now partially privatized and listed on the US bourse (NYSE:SNP), has just made major investments in Iran. q.v. The apparent objective is to facilitate the development of Iranian infrastructure capable of processing Caspian oil, allowing offsetting volumes of Iranian crude to be exported.  The problem is that these actions violate something called the Iran-Libya Sanctions Act.   ILSA is the sort of law that only the head of the senate foreign policy committee could love (and he does), since it purports to apply extra-territorially to the whole world.  Of course, the US has never enforced it against any foreign concern, and the whole thing was scheduled to die a quiet death in August.  Except now that SNP is tapping the American capital markets, and has Exxon and BP as shareholders, the issue forces the Bush administration to decide whether to enforce the law and whether to rethink US sanctions when it gets the chance.  Pete strongly recommends dropping sanctions that prevent US companies from adding to crude supplies no matter where they occur. 


Clean Coal Isn't

Pete finds it hard to understand why the US government continues to waste a great deal of money on 'clean coal' programs, except for the obvious correlation between certain politically powerful senators and coal deposits.  You can spend a fortune to scrub the sulfur and, with heroic efforts, reduce nitrogen, but you can't avoid producing C02 if you burn it.  And you do burn it.  It's always going to be a major producer of greenhouse gases.  So why waste money on a non-starter technology?   Coal is strictly 19th century.  Let it be.

But Maybe It Will Be Some Day?

No way thinks Pete, who slept through high school chemistry but thought he'd at least learned that one inevitable result of combusting carbon was CO2.  For you optimists, Pete has heard from James Clark who argues, "Years ago most people thought there would never be safe flying machines. A little later the same sort of folks thought space travel was not possible, that we could never send people into space and have them return safely. And before that there was old Christopher Columbus and old Louis Pasteur etcetera. How do you know that in some laboratory somewhere right now some positive thinker is not on the threshold of deciphering that clean coal dilemma? :o}" Since Pete was copping zzz's at the time, he's loath to quote his high school chemistry teacher in response to the march of progress,  Columbus,  Pasteur, and the unknown geniuses now toiling away.  But is he wrong?  (Or is Pete failing to detect tongue firmly in cheek?)


New Gas-Fired Generators Should Have Alternate Fuel Backup Capabilities

That appears to have been the conclusion of the New England ISO after it reviewed coming prospects for system reliability over the next several years. q.v.   It concluded that there was not likely to be enough natural gas to satisfy winter heating demand and still permit generators to produce electricity beginning with the winter of  2003.  Other seasons should be OK until 2005.

Pete thinks that most state regulatory authorities should be considering similar rules in the immediate future.  A few jurisdictions may even have to consider requiring retrofitted alternate fuel capability on existing gas-fired generators if they hope to make it through the next several winters.


On Nukes*

Pete has heard again from Ruedi Rechsteiner, a member of the Swiss Parliament's energy committee, who argues, to Pete's chagrin,  in favor of greater use of wind power.  Here is a portion of Pete's response:

I think that many Europeans, including you, are missing the larger picture. The US has a dangerously large appetite for energy, especially oil and gas, and has been totally unable or unwilling to scale back. The rest of the world, including your famous gnomes of Zurich, have allowed it to finance this addiction, even though doing so has caused it to run what would otherwise have been ruinous trade deficits. To be fair, much of American prosperity is due to our ability to import cheap oil, so we should be grateful, but can this basis for our prosperity be sustained?

If you answer this question in the negative -- as I think you must -- then what should US strategy be? I believe that the only real long term strategy must be to move toward gradual electrification of the transportation sector and less gradual electrification of other sectors. The issue then becomes which fuel to use for generating future electricity.

Although it would take me a long time to demonstrate it to you, the US has no plausible alternatives to use either wind or solar. Nor does Europe, for that matter. I know you find this sort of statement annoying because in theory both of these resources could be many times larger than they actually are. Granted. Let's even say they could rise 10 fold. Even if they did, they would still be trivial in the US energy picture!!! (In the most recent year for which statistics are available, the US generated 3,677.7 billion Kwh of electricity, of which 3.6 were from wind and 0.3 from solar). The point is that there is no way solar and wind could ever produce, say, even two/thirds of current electricity generating capacity. I'm all in favor of people trying to make both solar and wind as prevalent as possible. I personally wish they would succeed. But there's no realistic prospect for any sustained solar or wind development of the required size at any time in the foreseeable future. These energy sources are dangerously illusory, since they captivate the imagination of so many and yet can't deliver the goods.

The US, until this year, has instead been betting its future on natural gas. The US has a lot of gas (much more than current prices would indicate) but it doesn't have nearly enough to heat 75 million homes and run most of the electricity generation and industrial sectors over the next 30 years. It does have enough coal to do this. But, if you accept the general premises of the global warming argument -- and I do -- then the US cannot rely on coal and still do something about reducing greenhouse emissions (even though with great expense it could do something about coal's SO2, NOX, and other pollutants).

The one technology that will actually work, while greatly ameliorating global warming, is to use nuclear power. It already produces 23 percent of our electricity from utilities, and, as the French have shown, this factor could safely triple. True, nuclear comes with very heavy baggage. I often wonder if reasonable people would have allowed Fermi to proceed with the first reactor beneath the University of Chicago stadium had they known even half of what was to follow. Both the forces unleashed and the incredibly dangerous byproducts produced will be around long after we're all long gone. But my generation is presented with a fait accompli produced by a previous generation. The transuranic zoo is nasty stuff, but there is every reason to suppose that we can handle it, if for no other reason than we must. We have no choice. Fermi, Oppenhiemer, and co. saw to that. There is no serious technical problem with long term storage of nuclear waste, and we have to do it anyway, so why not scale it up to handle the larger amount that increased electrification will produce?

Once the US proceeds with an extended electrification strategy, it becomes possible to avoid the question of reducing general energy demand since it no longer needs be reduced, permitting us many more timing options for the extent to which we channel demand away from fossil fuels. The move away from fossil fuels needn't be, and won't be, at a rapid pace, but will be at the sort of pace that future US national security requirements will dictate. ...

Ruedi promises that he will give these arguments some thought and respond in kind.   In the meanwhile, he has been good enough to provide several links that you might want to consider: qv1 qv2   

*Before writing to Pete on this topic, please read Stanford professor J. McCarthy's excellent faq on nuclear power. q.v.


Venezuelan Oil Strike Continues

It's hard to know whether to mention the Venezuelan oil strike.  The PDVSA, the state oil monopoly, and its workers are always fighting, threats of strike are frequent, unrest is constant.  Just now the workers are on strike and have been for several days.  It is reckoned that after seven days or so, the US will be affected since the PDVSA is one of the largest crude importers into the US. q.v.


When Is An Electric Utility No Longer An Electric Utility?

When it's rid of the grid. q.v.  


"Watch February 6th"

Pete's decided that it doesn't make sense to watch specific dates, as whatever he suggests may happen in California gets postponed or superceded by fast moving events he doesn't know much about.  Instead he suggests reading the coverage in the Mercury News. q.v.   Pete regrets his Kathryn Kulman-like approach to apocalyptic utterance.  At the very least, he should have learned to keep the dates vague.

[Editor's note:  Pete made a fool of himself by telling everyone that California was going down on Feb. 6, 2001.  This is what he eventually replaced his warning with.  Ah, well ...]


Case for Foreign Management?

While Exxon was busy not spending money (see below), it seems that foreign companies were, as usual, busy buying up what remains of American oil and gas.* Foreign controlled firms owed 21.5% of US oil reserves and 12.8% of US gas reserves at the end of 1998, the most recent year for which data are available.  Both shares represented big increases over the previous year.  But the interesting story was how well foreign firms did in replacing their reserves.  Foreign-controlled firms owned 154% of US gross oil reserve additions for the year (presumably meaning a considerable number of domestic firms didn't come close to replacing production with new reserves), and 61% of gross gas reserve additions at the end of 1998. q.v. (specially Table 8).  Perhaps instead of importing foreign oil the US should just import foreign oil company managers.**

*This dig at Exxon isn't fair, since the story below on how little it was spending on exploration covers the years 1999 and 2000, while the government is slow on compiling statistics on foreign ownership and only has them through the end of 1998. But the point remains the same, even though Pete doesn't have the data to show it.  **Come to think of it, the dig at the expense of the domestic industry isn't that fair either. The statistical aberration is probably just the impact of BP swallowing another US firm and buying a larger share of the Prudhoe Bay gas cap.  But whatever the reason for the poor showing on reserves, we're paying for it now.  Keep in mind that BP and Exxon's investment in the gas cap is only worth something if they can keep all wellhead gas prices above the approximately $4/mmBtu level it would take to finance a pipeline through Canada for all the years the gas cap would last.  Your gas bill isn't going back to last year's levels no matter who is managing the show.


Beginning to See The Light

Pete, a nonpolitico if ever there was one, can't help being impressed with George Bush.  He has already been briefed on the possibility that persistent shortages may spread well beyond California and understands the pressing need for a national energy plan . q.v.   He's actually starting the wheels in motion to come up with something.   Perhaps none of his advisors have yet warned him that there is no political capital to be made by challenging the indolence of the American lifestyle.  Or perhaps he really is a leader, as he promised. Time will tell.

In any event, one can't but draw a striking contrast with his predecessor.  Not only did Mr. Clinton do nothing about energy policy (after all, he wasn't short of advisors who knew all too well that the people and their representatives didn't really want one), as he left Washington he pardoned Marc Rich, that ultimate symbol of how to cheat the system when last there was an energy policy. 


California: Outlines of the Deal

It looks as though the curious result of deregulating the California electricity market will be not just reregulation following abject failure, but something approaching nationalization (statification?) of the private sector utilities who played the fall guys. q.v.


Exxon Records Record Profits, Reduces Capital Spending

Despite a record year with profits more than doubling, Exxon Mobil cut capital spending in 2000 over 1999.  Here are the numbers, as supplied by the company:

Fourth Quarter

Twelve Months

2000 1999 2000 1999
Net Income $ Millions 5,220 2,284 17,720 7,910
$ Per Common Share Assuming Dilution 1.49 0.65 5.04 2.25
Earnings Excluding Merger Effects/Special Items
$ Millions 5,120 2,709 16,910 8,380
$ Per Common Share Assuming Dilution 1.46 0.77 4.81 2.38
Revenue - $ Millions 64,132 54,582 232,737 185,527
Capital & Exploration Expenditures - $ Millions 3,850 3,457 11,144 13,307

Surely it's fair to ask why more than $40 billion in additional revenues resulted in a $2 billion drop in capital and exploration spending?  Shouldn't Exxon be out buying up even more of the Caspian with the money the OPEC cartel's production restraints sends its way?  After all, whats the point of being entitled to reap the spoils of the cold war if you aren't going to do something with them?


UN Rings the Alarm Bells

The UN has warned the nations of the world of the increasingly serious implications of the global warming problem. q.v.  Pete suggests that you should be worried too.  Of course, there's a lot of stuff to worry about right now.


California Isn't the Only Problem

Working Gas Volume as of 1/12/01

Bcf % Full
East

West

Prod. Area

US

872

264

323

1,459

48

52

34

44

Source: AGA via EIA

California remains the désastre du mois, but notice that the US has less than half its gas storage remaining just three+ weeks into the thirteen weeks of winter.

Much of the rest of January was at, or is expected to be at, normal or above normal temperatures for most of the big gas consuming regions, so large drawdowns aren't expected.  But this doesn't mean that an already strained situation got better, it just didn't get worse. 

Will February and March be cold or warm?  A whole lot depends on that one.