Tag: fossil fuel

Will the price of oil ever increase again?

What is going on in the oil industry?

Graph of oil price from 2012 to 2016The price of oil has cratered. In 2012 it was over $120 a barrel. Today, 2016, it is at $42 a barrel, and this is an improvement from January and February of this year when it went under $30 a barrel.

Previously, when the price of oil fell, OPEC would meet, they’d agree to cut the output, and the constrained supply would ensure the price would rise once more. Why isn’t that happening now?

Most commentators are putting it down to the fact that Iran, who were under sanctions until very recently, understandably don’t want to cut production, and with Iran not cutting back, Saudi Arabia won’t either.

However, there’s another thesis which I think is more likely, and if true, oil prices will remain low for the foreseeable future. That thesis states that Saudi Arabia has realised that we are at the end of the Oil Age, and that a large percentage of the world’s fossil fuel resources will have to remain in the ground. With this in mind, it makes sense for Saudi Arabia to make sure they can extract, and monetise as much of their fossil fuel resources, as possible, while they still can.

What is the evidence for this?

First off, consider that last Friday 170+ countries signed the Paris Climate Accord whose aim to to limit global warming to 1.5-2C. Now that we have an upper limit on the temperature increase we are willing to accept, we also know how much CO2 we need to put into the atmosphere to achieve this amount of warming. It comes in at 1,100Gt CO2 [PDF] (1Gt = 1 gigaton = 1 billion tons).

On the other hand, the total proven reserves of the fossil fuel companies, and countries comes to 3,300Gt CO2. Notice the problem? 70-80% of the world’s proven reserves of fossil fuels will have to stay in the ground if we are to keep global warming below 2C.

Now Saudi Arabia has known about this issue for quite some time. As far back as the year 2000, Sheikh Yamani famously predicted that

Thirty years from now there will be a huge amount of oil – and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.

In fairness Sheikh Yamani’s reasoning didn’t have to do with climate change, but better drilling and exploration technologies, but still it has come to pass, and in this scenario Saudi Arabia has to race to produce as much oil as it can, no matter what the price, so as little Saudi oil as possible is left in the ground. Consequently Saudi Arabia is now producing somewhere between 10.3m-11m barrels per day – an historic high.

And then at last week’s OPEC meeting in Doha to try to stabilise oil production, Saudi Arabia scuppered the talks, ensuring no freezing of oil outputs. This has the added advantage of squeezing the other producers, few of whom can produce oil at the same low cost as Saudi Arabia.


On the demand side, the International Energy Agency (IEA) has admitted that for 2016 global demand trends are not as positive as they were. The IEA is counting on demand from developing countries where India recently announced that it is going to install 100GW of solar by 2022 (in large part because solar is now cheaper in India than coal), while China is aiming to increase its installed solar by over 100GW by 2020.

And if news of the 400,000 orders for the Tesla Model 3 are anything to go by, there is no love amongst consumers for fossil fuel spewing vehicles.

Then yesterday comes the announcement that the Saudi cabinet approved a set of reforms aimed at moving the country away from its dependence on oil profits. They have seen the writing on the wall, and so while on the one hand they are going all out to maximise the amount of oil they can extract and sell, they are at the same time setting up a sovereign wealth fund of $2tn to ensure they, in the words of Deputy Crown Prince Mohammed bin Salman

can live without oil by 2020

So, with Saudi Arabia diversifying away from oil revenues, and unlikely to reduce output any time soon, there is no obvious reason why oil prices will ever rise again. And Sheikh Yamani’s prediction about a huge amount of oil being left in the ground will come to pass.

Understanding the Smart Grid – my TreeHugger interview

Photo credit Lee Jordan

Jaymi Heimbuch contacted me recently to ask if I’d agree to be interviewed for a TreeHugger article she was planning to write on Smart Grids. “Love to”, I said.

Jaymi sent on the questions, I replied and today she posted the interview on TreeHugger.

Here are the questions and my answers:

TH: What’s the biggest barrier with smart grids right now? Is it utilities not latching on? Is the technology too new? Is it that not enough people understand what it is?

There are multiple barriers to complete smart grid roll-outs at the moment. The biggest one, as far as I can see is money!

The smart meter roll-out alone costs in the order of $150 per household just for the device. Then there is the installation engineer on top of that. And the software to back it up. In terms of the software, remember that presently utilities take maybe one meter reading a month. When they start taking readings from smart meters they will be taking up to 2880 per 30-day month when they are taking 15 minute readings (or 720 for hourly readings). If they have 1 million customers they go from 1m meter readings a month to 720m per month (or 2,880m). That’s a massive jump in the amount of incoming data which needs to be stored, queried for billing, and held for however long.

A lot of the software to handle this is still being developed and utilities, being very conservative, don’t want to be guinea pigs. And newer technologies tend to have a price premium.

Circling back to the price for the utilities. If they have 1 million customers, they are looking at spending hundreds of millions on the smart grid roll-out (smart meters, communications infrastructure for smart meters, back-end database for data, back-office apps for using the data – customer care, billing, etc.).

One of the big deals about smart grids is that it will help us reduce our consumption – from the utilities perspective, they should invest these large sums of money so we can reduce the amount we purchase from them? You can start to see the difficulties.

TH: What’s the most apparent way a smart grid will change the average person’s daily life? What about the most important way?

You know, the best way a smart grid could change the average person’s life is ‘not a jot’ – apart from reduced utility bills.

Utilities are talking up demand response programs and how they will be able to come into your house or apartment and turn down your air conditioner (for example) at times when supply is short and demand is high. This is a top-down approach destined to piss off customers and will in no way get buy-in from a skeptical public.

Far preferable would be some kind of automated demand response, completely controlled by the consumer, so far example as a homeowner I’d set my dishwasher at 8 PM to come on at 5c per kWh or 5 AM, whichever comes first. As long as the dishes are done by 7 AM, I’m happy. Similarly with other devices. Plenty of loads in the home are movable. You don’t care when your hot water is heated, as long as it is hot when you need it hot. A well lagged (insulated) boiler would mean you could heat it when electricity is cheap, and then use it whenever.

By the way, totally counter-intuitive but cheaper electricity has a higher renewable percentage so actively selecting for cheaper electricity means you are actively selecting for electricity with a higher percentage of renewables in the mix. How does this work?

Well, electricity prices on the wholesale market are very volatile. Consumers are protected from this but electricity prices can fluctuate by orders of magnitude within a 24-hour period. Price is set by good old supply and demand. Demand fluctuates according to day of week, time of day and by season. As the price drops on the wholesale market, it becomes less attractive for more expensive generators (the ones with start-up costs for their generation – the fossil fuel burners, for example) to stay selling in so they drop out. The renewables, on the other hand, are price takers. They don’t have significant start-up costs for generation so they stay in the market no matter what price they get. So, as the price drops, more and more fossil fuel generators drop out and the percentage of renewables in the mix increases!

TH: Other than this change in demand and timing, how will the smart grid help us incorporate renewables into the grid?

Utilities are used to dealing with a situation where their generation (gas coal, oil) is steady and predictable in its output and their customers’ demand is unsteady but generally predictable (demand tomorrow = demand this day last year +1-2%, say).

For various reasons utilities are having to move to a situation where they need to incorporate more renewables into their mix. Renewables generation is not steady and is only slightly predictable (via weather forecasts, for example). Because electricity has to be used as it is generated (can’t be stored, generally), the more unstable the generation, the more unstable the grid.

How can you fix this? Well, one way would be to align the demand with the supply.

How do you do that? …

Is there really any need for baseload power?

No nuclear waste
Photo credit wonderferret

The electricity grid may not need “baseload” generation sources like coal and nuclear to backup the variability of supply from renewables.

Jon Wellinghof is the Chairman of the US Federal Energy Regulatory Commission (FERC). FERC is an independent agency that amongst other things, regulates the interstate transmission of electricity, natural gas, and oil – for more on FERC’s responsibilities see their About page. Chairman Wellinghoff has been involved in the energy industry for 30 years and appointed to the FERC as a commissioner by then president Bush in 2006.

Last year, shortly after being appointed as Chairman of the FERC, Mr Wellinghoff announced that:

No new nuclear or coal plants may ever be needed in the United States….

Wellinghoff said renewables like wind, solar and biomass will provide enough energy to meet baseload capacity and future energy demands. Nuclear and coal plants are too expensive, he added.

“I think baseload capacity is going to become an anachronism,” he said. “Baseload capacity really used to only mean in an economic dispatch, which you dispatch first, what would be the cheapest thing to do. Well, ultimately wind’s going to be the cheapest thing to do, so you’ll dispatch that first.”…

“What you have to do, is you have to be able to shape it,” he added. “And if you can shape wind and you can effectively get capacity available for you for all your loads.

“So if you can shape your renewables, you don’t need fossil fuel or nuclear plants to run all the time. And, in fact, most plants running all the time in your system are an impediment because they’re very inflexible. You can’t ramp up and ramp down a nuclear plant. And if you have instead the ability to ramp up and ramp down loads in ways that can shape the entire system, then the old concept of baseload becomes an anachronism.”

This was quite an unusual contention at the time (and still is) and despite the Chairman’s many years working in the sector it was, by and large, ignored – even by the administration who had appointed him to the Chairmanship. In fact, the Obama administration has since announced financial backing for new nuclear power plants.

However, a study published last week by the Maryland-based Institute for Energy and Environmental Research backs Chairman Wellinghoff’s assertion. In a study of North Carolina’s electricity needs it concluded backup generation requirements would be modest for a system based largely on solar and wind power, combined with efficiency, hydroelectric power, and other renewable sources like landfill gas:

“Even though the wind does not blow nor the sun shine all the time, careful management, readily available storage and other renewable sources, can produce nearly all the electricity North Carolinians consume,” explained Dr. John Blackburn, the study’s author. Dr. Blackburn is Professor Emeritus of Economics and former Chancellor at Duke University.

“Critics of renewable power point out that solar and wind sources are intermittent,” Dr. Blackburn continued. “The truth is that solar and wind are complementary in North Carolina. Wind speeds are usually higher at night than in the daytime. They also blow faster in winter than summer. Solar generation, on the other hand, takes place in the daytime. Sunlight is only half as strong in winter as in summertime. Drawing wind power from different areas — the coast, mountains, the sounds or the ocean — reduces variations in generation. Using wind and solar in tandem is even more reliable. Together, they can generate three-fourths of the state’s electricity. When hydroelectric and other renewable sources are added, the gap to be filled is surprisingly small. Only six percent of North Carolina’s electricity would have to come from conventional power plants or from other systems.”

With larger and more inter-connected electricity grids, the requirement for baseload falls even further because the greater the geographical spread of your grid, the greater the chances that the wind will be blowing or the sun shining in some parts of it.

So, is there really any need for baseload power any more, or is this now just a myth perpetuated by those with vested interests?


Investors, the EPA and now the SEC are making pollution an increasingly unattractive option

Photo credit Neubie

A perfect storm consisting of the EPA, the Securities and Exchange Commission (SEC) and investors is pressuring companies to come clean on their environmental risks and performance.

I wrote a post a couple of weeks ago about FaceBook’s decision to use a primarily coal-burning utility to power its new data center where I asked should FaceBook’s investors be worried about the decision.

Now the SEC has started taking an interest in this area as well and recently clarified that companies’ have responsibilities [PDF] to report on:

  1. the direct effects of existing and pending environmental regulation, legislation, and international treaties on the company’s business, its operations, risk factors, and in Management’s Discussion and Analysis of Financial Condition and Results of Operations
  2. the indirect effects of such legislation and regulation on a company’s business, such as changes in demand for products that create or reduce greenhouse gas emissions and
  3. the effect on a company’s business and operations related to the physical changes to our planet caused by climate change — such as rising seas, stronger storms, and increased drought. These changes to the environment could have a number of material effects on corporations, such as impairing the distribution and production of goods and damaging property, plant, and equipment

In announcing the clarification SEC Commissioner Luis A. Aguilar stated that the SEC will begin to be far more proactive on environmental reporting:

The Commission’s action today is a first step in an area where the Commission will begin to play a more proactive role, consistent with our mandate under the National Environmental Policy Act of 1969, to consider the environment in our regulatory action. The National Environmental Policy Act charged the Federal Government “to use all practicable means” to, among other things, “fulfill the responsibilities of each generation as trustee of the environment for succeeding generations.”

Noting the interest of the SEC and their clarification around companies’ environmental risk reporting requirements, investors are now becoming more vocal and are increasingly asking companies to report more information about their environmental risks and responsibilities. These investors need to look after the long term interests of their funds and the last thing they want is to have their monies disappear in some environment-related mishap like the Kingston Fossil Plant coal fly ash slurry spill or a class action litigation.

Ceres, the non-profit network, reported recently that investors filed a record 95 climate change resolutions, a 40% increase over the 2009 proxy season! And these are serious investors. Jack Ehnes, CEO of CalSTRS for example, manages $131 billion dollars in assets. That’s billion, with a b!

As Ceres notes:

Many of the investors are part of the Investor Network on Climate Risk (INCR), an alliance of more than 80 institutional investors with collective assets totaling more than $8 trillion.

$8 trillion! Investors with a war chest of $8 trillion wield a lot of clout.

Combine this with the fact that on Dec 29th 2009 the EPA’s Mandatory Reporting of Greenhouse Gases Rule came into effect and it states:

suppliers of fossil fuels or industrial greenhouse gases, manufacturers of vehicles and engines, and facilities that emit 25,000 metric tons or more per year of GHG emissions are required to submit annual reports to EPA. The gases covered by the proposed rule are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), sulfur hexafluoride (SF6), and other fluorinated gases including nitrogen trifluoride (NF3) and hydrofluorinated ethers (HFE).

So, the EPA is requiring the reporting of Greenhouse Gas Emissions from the top 10,000 emitters in the US, the SEC now has environmental risk reporting and transparency in its sights and investors with considerable resources are looking for more details on possible environmental risks from companies they invest in. You have to think that this is not a good time to be in the pollution business!


Nice Dutch project using ‘waste’ heat and CO2 to increase greenhouse yields!

Photo credit przemion 

Came across a great story on pressreleasefinder today via Twitter about a project in the Netherlands called WarmCO2.

What is WarmCO2?

It is a project which takes residual heat and CO2 from Dutch fertiliser manufacturer Yara and using infrastructure supplied by partner company Visser & Smit Hanab, pipes them to vegetable growers in the nearby Terneuzen commercial greenhouse project.

From the release:

WarmCO2 will be redistributing up to 84MW of residual heat and 70,000 tons of purified CO2 per year. The CO2 is used by growers to enrich the greenhouse atmosphere and encourage crop growth. Normally they would use a natural gas fired boiler to produce both CO2 and heat throughout the growing season, or a combined heat and power installation that supplies heat, CO2 and electricity, which is then fed back to the national grid.

As a result of the Terneuzen greenhouse project the redistribution of heat and CO2 from Yara via WarmCO2 will save some 52 million m3 of natural gas, which translates into a 90% reduction in fossil fuel consumption. This makes Terneuzen one of the most sustainable commercial greenhouse developments in the Netherlands.

This is being made possible by the “Green Projects” initiative of the Dutch ministries of Health & Environment, Agriculture and Treasury. This initiative offers fiscal benefits to ‘green’ investors and savers, which in turn allows banks to offer financial loans at lower interest rates. Under the Green Projects initiative a maximum of € 25 million can be made available per project.

ABN AMRO are the banking partner in this project and they stumped up the maximum €25 million (out of a total investment of €80 million in the project).


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