The Oil Drum: Europe

It seems to me that there is likely to be a very short path from petroleum shortages to electricity shortages. There are a lot of issues involved, from the fact that the fuels used in electricity production are themselves dependent on petroleum for their extraction and transportation, to the current state of the US electricity infrastructure, to the impact of peak oil on debt financing. I have written about most of these issues before, but since the petroleum/electricity link is such an important one, I thought I would devote an article to putting the pieces together.

Fuels used for electricity generation

In the United States, the primary fuel used for electricity generation is coal, at 49% of electricity production. Natural gas follows at 22%; nuclear at 19%; hydroelectric at 6%, and petroleum at 1.6%. The newer renewables are all quite small: wood at 0.93%; wind at .77%; waste at .41%; and solar (for electricity generation) at 0.01%.

Figure 1. Distribution of fuel supplies used in US electricity generation, based on EIA data.

M. King Hubbert made his views about peak oil known in 1956, at a meeting of the American Petroleum Institute. Many people don't know that only a year later, in 1957, Admiral Hyman Rickover started trying to publicize the fact that fossil fuels are finite, and were likely to peak in the first half of the 21st century. Many of the things he said then are words we wish people had listened to years ago:

Fossil fuels resemble capital in the bank. A prudent and responsible parent will use his capital sparingly in order to pass on to his children as much as possible of his inheritance. A selfish and irresponsible parent will squander it in riotous living and care not one whit how his offspring will fare.

Today the automobile is the most uneconomical user of energy. Its efficiency is 5% compared with 23% for the Diesel-electric railway. It is the most ravenous devourer of fossil fuels, accounting for over half of the total oil consumption in this country.

I suggest that this is a good time to think soberly about our responsibilities to our descendants--those who will ring out the Fossil Fuel Age.

This is an updated post on the energy return on energy invested on Canadian natural gas by Jon Freise. Jon's initial draft of this analysis, and related comments, can be found here.

An intermittent but longstanding theme here on theoildrum is that dollars do not sufficiently inform us of the long term details of energy depletion, and that the inexorable race between technology and depletion can be better understood using biophysical methods. Essentially this post suggests that it is requiring more and more energy to procure the same amount of natural gas in Canada, and this trend will likely continue into the future. This update makes the initial analysis too pessimistic on the rate of EROI NG decline but also too conservative on the absolute level of energy return. It is going to be a very interesting few years as Canada declines, Barnett peaks, and Haynesville and other unconventional plays ramp up. The treadmill spins on.

Back in January, I made a financial forecast for 2008. In this post, I will update my analysis, looking both at what has happened thus far in 2008, and refining what is likely ahead.

Most forecasts are made with an overriding assumption of infinite growth, but the analysis made in January and updated now maintains an underlying assumption of resource limitations, such as will likely accompany the advent of peak oil. Under resource limitations, debtors are likely to find it difficult to pay back loans, as resources become more and more scarce. As a result, default rates are likely to continue to rise.

One of the issues I consider important in my forecast is systemic risk. This relates to the interconnectedness of the system, and predicts that if one part fails, other parts are also likely to fail. Many other articles mention this issue, but rarely address its full ramifications.

Figure 1. An example of a system with systemic risk (Photo from homebuyerphoenix.com)

New York State is about to approve Hydro-Fracture Drilling permits for Upstate New York in the area of the Marcellus Shale. There is a major concern about the impact on waste water containing many toxic chemicals, including areas near NYC drinking water reserviors.

Here's a slideshow of some of the key images. I'll have more on this as information becomes available. Kudos to WNYC and ProPublica for uncovering this in a great example of investigative journalism.

This is a transcript of a speech by Richard K. Lester, MIT professor of nuclear science and engineering and director of the Industrial Performance Center, who spoke on 14 JUL 2008 at the annual meeting of the National Governors Association. The prepared version of Lester's speech is below the fold.

Lester is a co-author of recent MIT reports on the future of nuclear energy and coal energy, and he has published widely on the management and control of nuclear technology. He is currently leading the Energy Innovation Pathways Project, an interdisciplinary MIT assessment of the capabilities of the U.S. energy innovation system.

I found the speech interesting, so I thought I would bring it to you. A quote that particularly caught my eye is the following: "And so, to conclude, it is long past time for serious federal leadership on energy innovation. But it is also time to move beyond the Manhattan/Apollo Project metaphor. A better metaphor might be a domestic Marshall Plan for energy innovation. The original Manhattan project involved a relatively small number of people working in secret. The original Marshall Plan took everyone, working together, to rebuild the broken European economy."

An increasing number of stories in Drumbeat, and in the world press, are focusing on the impacts of higher oil prices. Whether it is in the sacrifices that families must make to stretch their incomes to cover costs, the lack of city and state funding to cover all the utility and maintenance cost increases , or the rising fuel bill that the military must meet, often, particularly in national bases, from existing budgets. And even in field operations the use of alternate approaches is being considered.

The different sizes and scales of the price impact mean that, short of greatly increased supplies of oil becoming available at low cost, (as readers know an unattainable dream) alternate solutions and changes to lifestyles and practices will have to be implemented, on a growing scale as the costs of supply continue to rise. But these answers must be different in different places, and as they seek to address different scales of problem.

From time to time, and particularly in Comments, there are suggestions and reality based discussions on what individuals can do to change or help with their personal lifestyle changes. At the other extreme we debate the success, or otherwise, of national programs to address the issue, and certainly there is a need for such a debate. But there is also an intermediate level, the one where the impact of oil and natural gas cost increases is already clearly apparent, and that is at the level of local, and state government. And here, while the pain is immediate, remedial steps can either occur quite quickly or much more slowly – depending on the local government understanding of the situation.

It is also at this level that most of the decisions are made about permitting new power plants. I was thinking about that, and the factors that lead to permitting decisions when I looked at the announcement about T. Boone Pickens new wind farm program. The plan does not have as immediate an impact as I first understood.

Algeria is one of the world’s most important oil and gas exporters. Morocco has no significant oil and gas production, but has about 2/3 of the world’s rock phosphate reserves, a critical component in global fertilizer supply that increased 300% in price in the past year (.pdf) and may peak alongside global oil production. The two nations have historically been at odds, especially over the phosphate-rich territory of Western Sahara. Now, more than ever, their exports are critical to the energy and food supplies of the world. Alongside increasing importance, tensions between the two are on the rise as the US and Russia provoke the situation with massive opposing arms deals and bi-lateral trade agreements. This article will look at the forces behind these rising tensions and consider issues of fertilizer mercantilism, infrastructure vulnerability, and the potential formation of a natural gas cartel.

Will Demand for Gas & Fertilizer Bring New Conflict to Morocco & Algeria?

The title will hopefully make some readers choke on their coffee and spill the remains in their cup all over their computer(s).

Click on all charts to enlarge

[Editor's note: Rune Likvern the Norwegian energy man otherwise known as nrgyman2000 or NGM2 has joined TOD E as a contributor. Welcome aboard Rune.]

When problems start to arise, it is common, and often wise, to focus attention on the issues that the problem starts to generate, and to reduce attention on less obvious other problems. So it is at present, when the rising price of oil, and its consequent impact on gas, and thence more general prices, is showing the vulnerability of the economy to the supply of this critical fuel.

But there is another fuel with an almost equally critical role in some aspects of our daily lives and that is natural gas. And with a growing reliance on Russian supplies and the Russian gas pipelines that also carry gas from places such as Turkmenistan, I think that more attention should be given to a statement made by Alexei Miller, CEO of Gazprom, last Thursday.

Gazprom forecasts that Russian gas prices will reach 500 U.S. dollars per 1,000 cubic meters by the end of 2008. "If oil prices exceed in the future 250 dollars a barrel, then gas prices will grow to 1,000 dollars per 1,000 cubic meters," Miller said.