January 22, 2006
Does Kuwait Have Half Their Claimed Oil Reserves?

Instead of having 99 billion barrels of oil reserves Kuwait might have only 48 billion with only 24 billion of those actually proven. So says a report in the Petroleum Intelligence Weekly (PIW). The PIW claims to have seen internal Kuwaiti documents that contradict their public oil reserve claims.

"PIW learns from sources that Kuwait's actual oil reserves, which are officially stated at around 99 billion barrels, or close to 10 percent of the global total, are a good deal lower, according to internal Kuwaiti records," the weekly PIW reported on Friday.

I am sorely tempted to say something sarcastic about dynastic governments and honesty in the Middle East. But I'll resist the temptation.

The Kuwaiti government denies the report.

I have no idea where they got this figure from ... I don't think it's accurate,' Farouk Al Zanki, the chairman of state-run Kuwait Oil Company (KOC) said in Kuwait City.

I'd tell you how relieved I am to read their denial but I'm really trying hard not to say something sarcastic.

Jeremy Leggett, author of a new book The Empty Tank : Oil, Gas, Hot Air, and the Coming Global Financial Catastrophe (lest you be in any doubt where he stands on "Peak Oil" and in the UK I think the same book is titled Half Gone: Oil, Gas, Hot Air and the Global Energy Crisis) , says that all of OPEC mght be over-reporting their oil reserves by 300 billion barrels.

But consider what A M Samsam Bakhtiari of the National Iranian Oil Company (NIOC) has told the Oil & Gas Journal about the existing-reserves question: "I know from experience how 'reserves' are estimated in major Middle Eastern and Opec countries, and the methods used are usually far from scientific, as the basic knowledge for such a complex exercise is not to hand." Bakhtiari is withering about Saudi Arabia's reserves hike of 90 billion barrels in 1990. But he is not too keen on his own national figures either. The BP Statistical Review cited 92 billion barrels of "proved" oil reserves at the end of 1993, but Bakhtiari preferred the estimate of a retired NIOC expert, Dr Ali Muhammed Saidi, who could add the proved reserves up to only 37 billion barrels.

Dr Mamdouh Salameh, a consultant on oil to the World Bank, agrees there is a 300-billion-barrel exaggeration in Opec's reserves. More recently, a former director of Aramco has said that Saudi Arabia's proved developed reserves stand at 130 billion barrels.

300 billion barrels would be about $20 trillion at today's market prices.

The big flap from a couple of years ago where Royal Dutch Shell was found to have greatly overreported their own oil reserves makes me give more credence to the claims that governments have overreported oil reserves as well. A lawsuit by mostly Dutch pension funds has brought the Shell oil reserves story back into the news just as the accusation about Kuwait reserves has surfaced.

The complaint alleges that between 1997 and 2003, Shell executives knowingly overstated the company's oil and natural gas reserves by an aggregate 33 percent (about 6 billion "barrels of oil equivalent," the standard metric used to express reserves). The pension funds also charge that the oil company inflated its reserve replacement ratio (RRR) — a key performance indicator in the oil business — and overstated future cash flows by a total of $100 billion over six years.

But in order to really overestimate on a far more massive scale you need the sovereign power of government.

Christopher Flavin, president of the Worldwatch Institute, argues that most oil is under the control of national oil companies whose public reports can not be trusted. (same article here)

Those who take a more sanguine view of the global oil prospect point to the 1.1 trillion barrels of "proven" reserves that are currently on the books of the world's oil companies -- equivalent to all the oil extracted over the past century, or more than 40 years of consumption at the current rate. Although those same figures appear in most official oil reports, it turns out that roughly three-quarters of the world's oil is controlled by state-owned companies, whose reserve figures are never audited and are based as much on politics as on geology. Many countries have added paper barrels to their reserves at times they weren't even looking for oil.

I do not trust the Middle Eastern governments to be either competent or honest in estimating their oil reserves. Anyone disagree?

I used to hope that the oil production peak would come sooner because it would force a migration to less polluting energy sources. However, unlike peak oil doomsters I expect a migration to coal, liquified and gasified coal, oil tar sands, and oil shale and that such a migration could happen pretty rapidly once it becomes clear that peak oil has been reached.

The disruption of the shift will have some economic costs. But we probably already have reached an oil price where coal liquification and oil shale extraction are economically viable. I hope Shell's in situ oil shale extraction technology works so that we do not have to have landscapes littered with expanded shale rock because we'll be using oil from shale one way or another.

I would rather build thousands of nuclear reactors than shift toward coal, oil shale, and oil tar. Certainly hitting the oil production peak will accelerate nuclear development. But a scaling up of nuclear reaction construction will take time and when peak oil hits the rush will be on to scale up other energy sources that can be brought on line more quickly.

I hope peak oil does not usher in biomass energy on such a scale that lots of rainforests and species bite the dust. Perhaps genetic engineering of crop plants can provide a way to reduce the footprint of biomass energy production. But environmentalists who want to save rainforests and species ought to be working overtime lobbying for more photovoltaics research and they ought to support nuclear energy development. Either that or bye bye monkeys and big cats.

Share |      Randall Parker, 2006 January 22 12:06 PM  Energy Policy


Comments
G. Salter said at January 22, 2006 2:04 PM:

I agree, it's human nature to give one's self an advantage, so the over estimization of oil reserves is probablly happening is a good example of these company and countries behaviour.

It is about time that the green movement stop fighting nano/biotech and add their pollitical clout to the development of new photovoltaics etc. to custom make better plants (I read an aticle recently on the possibility of getting electricity from genetically engineeered plants, (I daydreamed of this idea 25 years ago myself (and bored my co-workers with it and similar other loopy ideas), it's good to see people working on it!)).

Perhaps it would be possible to genetically engineer plants (trees etc) that could suck the carbon out of the atmosphere and network their roots together into a "carbon pipeline" where the carbon products are transported through this root network to be deposited in an uderground carbon storage facility. If you could engineer the trees, plants to stop growing at a given height and not rot out etc, then they could stand there for decades and centuries sucking carbon out of the atmosphere and shuttling it through their root pipelines to the storage facility. The advantage of this is that, to do something big like clean up the eviroment, people are always busy/lazy (I am) and also have pollitical ajendas/memes that wax and wane every decade/century, so you can't reley on people/governments to be consistant, you have to develop advanced nanotech/biotech that works and does the job in the background (for free).

David Friedman said at January 22, 2006 8:44 PM:

I agree that estimates by governments are probably not reliable. What I'm not sure of is whether governments have an incentive to overstate or understate them. Overstating makes the country look more important. But it also increases the incentives for someone else, at home or abroad, to try to take control of all that oil--a point that the Kuwaitis, at least, are surely aware of.

Randall Parker said at January 22, 2006 9:05 PM:

David,

The original motive for the OPEC members to overstate their reserves was to win them bigger allotments in OPEC production quotas. So one can go back to the 1980s and see a period where many OPEC members engaged in rapid competitive inflation of stated official reserves.

As for having large reserves and the effect on security: At the same time the Saudis and Kuwaitis are also aware that Uncle Sam is a lot more likely to protect their countries from hostile neighbors if their countries have large oil reserves (as we demonstrated). So the security issue cuts both ways.

tdean said at January 22, 2006 9:14 PM:

Parker: "But environmentalists... ought to support nuclear energy development. Either that or bye bye monkeys and big cats."

Parker sinks to new lows to help his benefactors in the nuke industry. In the early 80s the National Lampoon magazine had a cover with a pathetic, scared dog with a gun to its head. The caption read "Buy this magazine or I'll shoot this dog." Apparently it didn't work because the magazine went out of business shortly thereafter. Now we have Parker with "Buy this nuke plant or I'll shoot this monkey." I don't think Parker’s threats are going to work either.

Earlier in the evening I was too lazy to change the channel and happened to watch “The West Wing” which was about a near meltdown of a nuclear reactor in California. I dare say if you compare the effectiveness of the anti-nuke people in getting that script on prime time versus Parker’s pathetic efforts to sell nuke plants, you’d have to say the anti-nuke folks won this one.

I would also say that getting clean coal plants up and running even with sequestration of CO2 would be faster and cheaper than getting new nuke plants going - without killing a single monkey. And if we, in any reasonable fashion, risk weight the costs of a successful terrorist attack on a nuclear plant, nuclear is totally out of the running. It would be reasonable to ask, “Well if nuclear energy is so risky, where do the big power companies find investors to finance them?” Of course, the answer from the Big Energy folks is “No problem there. Our friends in Congress have put all the risk on the taxpayers with the Price-Anderson Act, so you don’t have to worry your little head at all about that, Mr. Deep Pocket investor. Ain’t that sweet?” It’s the same old situation of “If you can’t get your business to work, take your local congressman out to lunch.” Who knows, maybe eventually the taxpayers will get tired of footing the bills to bale out billionaires.

Rick said at January 22, 2006 9:47 PM:

Here's today's money quote: "I hope Shell's in situ oil shale extraction technology works so that we do not have to have landscapes littered with expanded shale rock because we'll be using oil from shale one way or another." You called it there buddy.

jimcrack said at January 23, 2006 1:20 PM:

Oil producers overstate their oil reserves.

It is also likely that these and most other developing countries have also accustomed themselves to overstating their POPULATIONS! An Israeli study concludes as much vis a vis the Palestinians, particularly since the PLO fails to account for out-migration of the population.PLO has a vested interest in overcounts so as to haunt Israel with the claim of Arab majority svereignty over all Israel. Other statisticians note a significant error margin in how China counts its population, meaning likely overcount. Certainly, a regime that may have killed as many as 60 mil of its own people would be hard pressed to confirm the matter with accurate headcounts (a similar problem existed under Stalin. Low birthrates counted in the 1930's were probably attributable to mass peasant exterminations. There was an alleged incident where a group of statisticians reported a depopulation of one province, and joined the liquidation).

A lecturing political scientist named George Deukmejian said Saudi Arabia had no more than 1 mil people, based on his visits to the country. That was then: today we are talking about roughly 4 mil heads, not 8-11 mil as the government claims. Saudi has never permitted a UN sponsored census to answer the question.

Outrageous claims extend to economic statistics as well. Wall Street Journal reported last week how China's oil import statistics dealt oil traders an anomoly. PRC claimed petroleum imports remained dead level from last year. The article all but accused China of flying in the face of common sense: Are these claims not out of whack with simultaneous claims of 9% growth per annum? Or did Peking somehow invent renewable energy behind our backs?

Bear in mind, Shell and oil producers foment the oil reserve scam partly because of US tax policies. Well owner/lessors enjoy depreciation allowances; importers enjoy "tax" write-offs to Saudi et al, which are really oil royalties. Add to this a pernicious tendency to create write-offs through aggressive legal interpretation, and make up the difference in kickbacks (which actually occured in Indonesia). We might actually stop this by adopting some form of "flat tax" or VAT in the US.

Conclusion: Oil IS becoming a house of cards.

gmoke said at January 23, 2006 2:20 PM:

Matthew Simmons, energy investment banker, will be touring the country in the next few months with his new book on the end of oil. He also believes that many if not all countries have been over-estimating their oil reserves (not to mention their oil resource which is basically what they wish they had in the ground). He is betting his business on near-term peak oil. There are many educated observers who believe that peak is here or already gone. There is something that can't be denied: production is roughly equal to demand at this particular time and with no new oil fields coming into production, demand will probably soon outstrip supply. That means that oil prices will rise.

I note that Randall Parker proposes only two alternatives, coal or nuclear, for the energy shortfall. He gives lip service to renewables and greater energy efficiency in other places but immediately reaches for his Big Nuke guns when push comes to shove. Well, we love oil because it is a liquid fuel that feeds our transportation system and you can make liquid fuels from coal and you could make hydrogen from nukes but I don't think the infrastructural changes those require are anywhere within reach yet.

BTW, it seems that the largest emitter of CFCs in the USA is the nuclear enrichment plant in Paducah, Kentucky. I know that many people who read futurepundit believe Global Warming is bunk but I wonder how many of them disbelieve in the stratospheric ozone thinning. I mean even S Fred Singer has recanted on that one. More nukes mean more CFCs, folks.

Randall Parker said at January 23, 2006 5:51 PM:

Gmoke,

I keep listing several alternatives and certain of my posters simplify that and attack a strawman.

Extensive infrastructural changes are not needed for a shift to Coal-To-Liquid (CTL). Some plants would have to get built near coal fields. The capital needs of doing this would be easily financed by the profits once the arrival of "Peak Oil" becomes clear. From what I can tell from my reading CTL is already cheaper per barrel than current oil prices. But investors are waiting to see if the current high oil prices are really a permanent fixture or a temporary condition.

The market is going to choose from among lower cost solutions. This puts coal (whether burned directly or as a gas or liquid), oil shale, oil tar, nuclear, and limited amounts of wind and biomass in the running.

Photovoltaics cost too much. Solar could play a bigger role in water and space heating and I've posted arguing that tax subsidies for photovoltaics purchases would be better spent on solar heating. But that'd still be a small role.

I'm not fond of biomass because I am fond of forests and undisturbed fields.

Conservation: I know people who think of themselves as environmentalists who then proceed to build houses with gobs of energy leaking windows because they love the views. Ditto environmentalists who drive SUVs. People will spend only so much on energy efficiency.

You can criticise my choices. But I do not see you offering choices that much chance given human nature. I'm afraid we are going to go for more fossil fuels combined with more biomass than I'd care to see. I'm not promoting utopian alternatives. I'm trying to stay at least on the edge of what is possible.

tdean said at January 23, 2006 7:39 PM:

Jimcrack: "Oil IS becoming a house of cards."

Or you might say "The s**t is hitting the fan." While it is true that you can have as much oil as you want until you run out of money, the supply is tight and getting tighter. If, as many learned folks suggest, the big boys of OPEC are about to peak out in their production curves, we are in very deep s**t. While I didn't really comment on the concept of plausibility/implausibility of oil as a political weapon, the tighter the market gets the more plausible weaponizing oil becomes. Right now a few crazies in Nigeria take a couple Shell hostages and the price goes up $5. If the OPEC countries wanted to send us a message, or if they just wanted to squeeze us, they could cut their production by 10% and double the price on the world market. And with tight supplies, they could even target the US and enforce it by cutting off any country that back doors oil to the US. Non-OPEC producing countries just don't have the capacity to increase exports to the US while maintaining their other commitments. So OPEC can hose our economy by massively running up our already outrageous trade deficit and still make more money. The only thing restraining them from doing that is that they understand what can happen from their previous experience in the 80s. They finally realized that if they put western economies into a depression, their market will disappear. In those days huge fields coming online in non-OPEC countries like the North Sea and offshore Africa also would ensure that OPEC's market share would suffer. These days, that flexibility on the supply side just isn't there. And with a monolithic government, prone to long term thinking, China will be happy to snap up long term supply contracts to fuel their massive expansion as the US economy slides into debt-ridden decline. By our incompetent invasion of Iraq we may actually achieve the impossible and get Muslims to agree on something. And by financing and coordinating a coup attempt against Venezuela's democratically elected president, there seems to be little indication that we are working overtime to appease the governments of OPEC members. The Bush administration's approach to getting what it wants from OPEC is much more direct, if clumsy and inept. Regardless of how one might feel about the correctness of our cause, if OPEC as a group decides to make a statement about our interventions in sovereign nations, the US is in a very vulnerable position economically and diplomatically. In a fight between a unified OPEC and the US we are running out of friends in the world.

K said at January 23, 2006 10:48 PM:

jimcrack wrote:

"A lecturing political scientist named George Deukmejian said Saudi Arabia had no more than 1 mil people, based on his visits to the country. That was then: today we are talking about roughly 4 mil heads, not 8-11 mil as the government claims. Saudi has never permitted a UN sponsored census to answer the question."

Is this the George Deukmejian who was Governor of California? I heard he was doing some polysci.

Saudi Arabia may be disguising their actual population for internal reasons. They are fanatical about who is a Saudi citizen. But are more foreign servants and workers in the kingdom than citizens. A census that points that out would put more pressure on the government. There are already some activist movements which the Saudis keep down.

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Anyway. Salter presented a fascinating idea about genetically engineered trees. Whether it works or not, it merits the Imagineering Award. (Disney may have copyrighted that term)

gmoke said at January 24, 2006 8:39 PM:

Show me where in your original posting on Kuwait's oil reserves you mention solar or efficiency or conservation. I know that you often mention solar and better batteries as part of your solution to the coming energy crunch. I happen to believe from reading your work that nuclear tends to be your first choice. If you want to believe that is a straw man argument please continue. I tend to doubt that you read my blog where I propose whatever meager solutions I can come up with and that's perfectly fine with me.

And tdean, we don't need OPEC to throw a spanner into the works of the world oil market. A few people with some well-placed explosives can tighten the noose in any number of countries. John Robb over at http://globalguerrillas.typepad.com/ has been investigating this scenario for years now.

tdean said at January 24, 2006 11:16 PM:

gmoke,

Yeah, but I thought people were getting tired of me talking about terrorists all the time.

When you consider how easy it would be to sink a really big oil tanker: A sailboat with an electric, acoustic homing torpedo hung on it's hull, releases it as it sails past the shipping lanes. It settles quietly to the bottom and when it recognizes the acoustic signature of a particular super-tanker it waits till it gets close then turns on and delivers a 500 lb. shaped charge warhead that blasts clean trough the whole ship and turns it into an inferno that coasts into a port and dumps a flood of flaming oil all over the place. Think that might raise insurance rates for tankers a bit? And almost double the price of oil overnight. But why scare people? Let them enjoy their Hummers in peace.

Bob Badour said at January 27, 2006 4:15 PM:

Seems like a lot of bother when a couple of suicidal Yemeni's in a power boat could do the same thing.

tdean said at January 27, 2006 7:23 PM:

So why didn't they? They attacked the Cole and a French oil tanker in suicide boats and didn't kill either one. Air blasts are nowhere near as effective against hard targets as a shaped charge. The Iraqi insurgents have only recently begun using shaped charges and they have killed all of the occupants of at least one armored troop carrier. A 500 pound shaped charged is a very large one and would probably be big enough to blow through a tanker. The attacks on the WTC show that the terrorists learn by their mistakes and they have infinite patience. They have clearly stated their intention to attack petroleum transportation, and they will refine their methods until they succeed.

LPG said at January 28, 2006 10:45 AM:

Just a side light on the latest threat to the rainforest. Jennifer Lopez The discovery of perhaps the largest diamond mine in the world deep in the Amazon Rainforest has caused a huge surge in fortune hunters as well as conflicts with native and protected Indian tribes on whose land the mine exists. It is a particularly large mess because the miners are fighting with the Indians and the government is fighting with both. Meanwhile all the usual Hollywood save the rainforest types are fighting over who has the largest and most exotic colored diamonds. The old Marilyn Monroe white variety won't do. The Brazilian mine has produced some spectacular exotic colored stones. This free for all land rush is causing both the invading miners as well as the indiginous tribes to tear up the rainforest in their quest for the increasingly popular bling. So now the usual diamond wearing neuvoux riche....Opraha, all the NBA and I doubt if Angelina Jolie is wearing 5 carret CZs in her ears; have an even more chic and ironic area in which they can exhibit their ignorance and double standards in addition to the old standby provided by Africa.
LPG

Randall Parker said at January 28, 2006 7:36 PM:

gmoke,

I promote a big increase in research on photovoltaics. But it is obvious that right now solar is not a serious alternative. MIT solar energy researcher Daniel Nogera sees his own solar energy research as in pursuit of a more distant prospect:

Professor Nocera's area of research, and one he believes holds enormous long-term potential for energy creation, is solar power. If photosynthesis can be duplicated outside the leaf, he explained, the sun's energy can be harnessed as a fuel. The combination of water and light from the sun can be used to produce hydrogen and oxygen. The hydrogen can then be combined with the oxygen in a fuel cell to give back water and energy.

There is, however, a catch. Admitting that our scientific know-how is not yet advanced enough to enable this technique, he warned his audience: "If you want to buy into me, it will be the worst investment you've ever made in your lives."

tdean said at January 29, 2006 10:00 PM:

LPG,

What this has to do with Kuwait's oil I can't figure, but it does illustrate the contorted lengths right-wingers will go to blame liberals for every evil in the world. Check out:

http://www.pbs.org/frontlineworld/stories/brazil501/video_index.html

“In the last few years, more than a billion dollars in diamonds has been extracted from this forest,” reports van Zeller, “and if the big mining companies are allowed in, many believe this could become the richest diamond mine in the world.”

In the scheme of things, a billion dollars of diamonds is not a real significant thing in the world-wide diamond trade. You see the problem is not the rich liberals who are buying the diamonds, it is the giant multinational mining companies that can bribe governments to do their bidding that is the problem. If De Beers didn't maintain it's stranglehold on diamond supply to the market, diamonds would be worth less than rubies and people would be less inclined to fight over them. DeBeers had so much power that they were able to bribe the 1960s Soviet Communist governement to market their newly discovered diamonds exclusively through DeBeers outlets. That's the way it goes in the real world. When big business gets in bed with big government they both benefit and have great fun screwing the people, who in this case pay twenty or thirty times what a product is worth.

pages.stern.nyu.edu/~lcabral/teaching/debeers3.pdf

By the way, the super rich folk in the US who form the market for large diamonds overwhelmingly vote Republican. And no wonder. Under Bush, the rich have become much richer and the poor are poorer. The Republicans decry "class warfare" but in fact, they started it and they are unquestionably winning it. For now.

tdean said at January 29, 2006 10:21 PM:

Parker: "But it is obvious that right now solar is not a serious alternative."

In his never ending quest to serve his nuke industry propaganda benefactors in the NEI, Parker consistently misrepresents the economic viability of solar power. Using current technology, studies show that valuable peaking power for the US southwest can be produced via solar thermal for approximately one nickel per kilowatt/hour.

http://whitepapers.zdnet.co.uk/0,39025945,60015828p-39000361q,00.htm

With reasonable incentives for it's zero risk and low environmental impact, it would be far less than half the most optimistic estimate for costs of nuclear power.

This site should be titled "Nuclear Propagandist".

LMcClinton said at January 30, 2006 5:51 PM:

Nothing kills high prices faster than high prices. With oil currently stting at just under $70 all kinds of other technologies are becoming more cost effective and more money is being spent on reseach on new technology. For example Isaacc Berzin's work at MIT that is being commercialized by Greenfuel.

Algae,the tiny, single-celled plant could transform the world's energy needs and cut global warming. About three years ago, while working on an experiment for growing algae on the International Space Station, Isaac Berzin at MIT came up with the idea for using it to clean up power-plant exhaust. Algae cleansed 40% of the CO2 (a larger cut than the Kyoto treaty mandates) and 86% less nitrous oxide.

The algae is harvested daily and a combustible vegetable oil is squeezed out: biodiesel for automobiles. High oil density algae also grows so fast, it can produce 15,000 gallons of biodiesel per acre. Just 60 gallons are produced from soybeans. Berzin calculates that just one 1,000 megawatt power plant, coupled with a 2000 acre algae farm could produce more than 40 million gallons of biodiesel and 50 million gallons of ethanol a year. (the US burns abut 170 billion gallons of diesel a year) In the US alone there are nearly 1000 powerplants with enough available land to make this feasible.Currently the technology is being tested at a power plant in the the US southwest.If tests confirm hopes this could cost effectively meet 25% of America's diesel needs and make a big dint in gasoline consumption as well.

Big advancesare happening in Solar Power too. Here's a brief summation of one of my stories in Canadian Business magazine last winter. Ted Sargent at University of Toronto has used nanotechnology to create infrared sensitive paintable solar photovoltaics. This should drop the cost of solar power by an order of magnitude.

According to Professor Peter Peumans, a solar cell expert at Stanford University, the combining the technology would produce real benefits. "Calculations show that, with further improvements in efficiency, combining infrared and visible PVs could allow up to 30 per cent of the sun's radiant energy to be harnessed, compared to six per cent in today's best plastic solar cells."

People love this technology (solar photovoltaic),” White says. “Right now the biggest problem with it is the cost. Generating your own solar power is 10 times more expensive than buying power off the grid. If Sargent’s work does reduce the cost of solar power by an order of magnitude (knocks off a zero) it will change everything.

Randall Parker said at January 30, 2006 6:35 PM:

Lorne McClinton,

I expect photovoltaics to drop in cost by an order of magnitude and probably more. The big question is when?

As for the stories you reported: I've done posts for a few years on all sorts of similar promising photovoltaics research reports. Some companies made predictions that didn't pan out. Maybe one of the ones you reported on will go and quickly. I hope so. Maybe one of the research teams I've reported on will succeed. Victor Klimov and associates at Los Alamos continue to make progress in increasing conversion efficiency for example and I periodically post on their latest work.

But we might have 5 or 10 years to wait for solar to really become competitive.

I agree about the effect of higher prices. More venture capital money is flowing into energy start-ups. Harvard and other universities are priming the pump to get more of their faculties working on energy research.

Maybe Stirling for steam electric power will make solar competitive before photovoltaics do. I already see lots of signs that solar space and water heating have pretty fast periods of payback for many situations and solar heating is probably underused.

We still have the problem with storage. But we need regulatory reform to usher in dynamic pricing to reorganize the economy for power that is not continuously available.

Lorne said at January 31, 2006 5:59 AM:

I agree with you about regulatory change. We definitely need to encourage holdout provincial and state governments to implement commonsense changes like implementing net metering legislation. For any readers not familiar with the conceptnet metering records the times you are draw power from the grid (typically the wee hours of the morning when rates are low) and when you are generating power for the grid (typically at peak usage times when rates are high). At the end of the month you are billed or receive a check for the balance. These changes are absolutely essential to encourage alternative electrical generation sources ranging from solar power to bio-gas generators on farms.

Biodiesel too has just become a lot more econmically feasible with Galen Suppes at University of Missouri's process for converting glycerine, the byproduct you get when you convert vegetable oil into bio-diesel (you have to remove the sugar), into propylene glycol (antifreeze). This process makes the byproduct into a valuable commodity instead of just industrial waste.

HTC Hydrogen Technologies Corporation has an interesting membrane scrubber technology that can remove 100% of the carbon dioxide from hydrocarbon exhausts. A large Canadian coal plant in western Canada currently is running a pilot project with this on one of its power plants

The point I wanted to make is there are all kinds of interesting technologies out there that offer hope for an energy future not so dependent on oil consumption which won't make the planet unliveable.

I think nuclear power stations will remain highly problematic for sometime still. The issue of radioactive waste has never been solved since there seems to be no shortage of fanatics willing to fly airplanes into them they remain too big of a security risk - Lorne

Nick said at January 31, 2006 11:47 AM:

The problem here is that any response to this problem will take time. Nuclear, in the most optimistic of scenarios, can't grow quickly because mass adoption will wait until the current generation of new plants has been installed and tested, and that will take at least 7 years. If the next wave takes 5 years, that's 12 years.

Both wind and solar are doubling every 2 years. At that rate they'll grow by about 100 times in about 14 years. I think cost reductions will happen quickly enough to support that rate of growth, but still...that's 14 years away.

Plug-in hybrids have roughly the same problem as nuclear: they have to be developed, used and evaluated to get people comfortable, and then we have to replace a big fraction of the existing vehicle fleet. I expect them to do great things, but it will take a while, probably 15 years.

I too would love to see government involvement to speed this up. Surely this merits a massive national commitment.

Randall Parker said at January 31, 2006 5:58 PM:

Nick,

What's your source for the claim that wind and solar are doubling every 2 years? I've recently reported a 35% to 40% growth rate for wind. But that rate might not be sustained.

I do not know what the growth rate is for solar photovoltaics. But I'm guessing it is slower than wind. Solar photovoltaics is still far too expensive for such high growth rates.

Lorne,

My view is that corn is far better used for heating than for making ethanol. Corn for heating needs no government subsidies and already is cheaper than oil and natural gas.

Similarly, the emphasis on deploying photovoltaics now is misplaced. Solar for space and water heating has much shorter payback times in many locales right now. Photovoltaics needs a much higher level of research funding, not a higher rate of deployment of current expensive technology. I'm in favor of increasing government funding for photovoltaics by an order of magnitude. Ditto for battery research.

Solar Stirling is probably closer to competitiveness than solar photovoltaics.

But I'm expecting a continued strong growth in demand for coal and oil extraction from Alberta tar sands followed eventually by a big ramp up of in situ shale oil extraction. We need a much more rapid rate of development of non-fossil fuels technologies. The air would eventually be much cleaner and total energy costs much lower if we accelerated photovoltaics, batteries, pebble bed nuclear reactors, and other non-fossil fuel energy research.

Nick said at February 1, 2006 10:21 AM:

"Solar photovoltaics is still far too expensive for such high growth rates."

This is a good example of where intuition can lead astray, without the numbers. Here's my data for world production/consumption for the last 7 years.

Cumulative: 42.6%
Yr MW(peak)Growth
05 1,700.0 35.4%
04 1,256.0 67.5%
03 750.0 33.9%
02 560.0 39.7%
01 401.0 39.7%
00 287.0 42.1%
99 202.0

This came from http://www.photon-magazine.com" (though I can't find the stats again, I think they're behind a pay wall) and "http://blog.monkeysign.net/2006/01/early-report-photovoltaic-market-grows-faster-than-expected-in-2005/".

Annual doubling requires 41% growth per year (the square root of 2). You can see that the growth is slightly faster than that. It would be even faster if polysilicon weren't constrained. This growth is heavily subsized in Germany, though the Japanese subsidies are now ending. PV costs have fallen annually by about 7% for the last 30 years (and that will continue, as newer technologies expand), which means costs will drop in half in 10 years. That will bring costs to around $.12 per KWHr, at which point it will need little subsidy to continue growing.

This growth can and should be accelerated by the kind of expanded committment to R&D that you've been recommending.

Nick said at February 2, 2006 11:03 AM:

"Annual doubling requires 41% growth per year (the square root of 2)."

Oops. I meant "Doubling every two years requires 41% growth per year (the square root of 2).".

Lorne said at February 2, 2006 11:08 AM:

I think you can make a strong argument that any new generating stations and perhaps existing generating stations in the major agriculture regions should be outfitted to accept dual feedsources. If it cheaper to burn coal/natural gas, they burn fossil fuels, if corn or other grains work out cheaper they can burn them. I agree that it is unsustainable to gave corn and other grains to continue to sell for low cost feed stocks when they are more valuable for energy. Of course all this precludes the continued low cost of corn and other grains. Since with the exception of the huge crops of corn in the US in 2004 and 2005 the general trend is the world has slowly been consuming more of the major grains than they are producing. Major buyers are quite comfortable letting farmers store the reserves. It would be an interesting pschological effect to see what would happen on the commodity markets if one or more of the power companies announced the purchase of 4 or 5 unit trains of feed grains to burn in their power plants.

Anyway, the relative cost of grains versus coal, electricity or natural gas is somewhat dependant on where you live and how close you are to major supplies of grain/coal. Here is a comparative chart I put together for a recent story I did on this topic. The table compares the different btu to cost ratio for fuels and grains in Southern Ontario, Canada. I did not include firewoood in the chart. Prices are in Canadian dollars and are as current as I could obtain. The cost per ton figure for coal is most suspect since it involved a bit of interpretation and is perhaps at best an educated guess.

Typical residential Heating - 200,000,000 BTU's (25% hot water)
Ontario
Fuel Yield in BTU's Annual Consumption Unit Cost Total Cost/YR
Natural Gas 35,301 BTU's/m3 5,666 m3 41˘/m3 $2323.06
Electricity 3,413 BTU's/kWh 58,600 kWh $.05 & $.055/kWh $3172.50
Fuel Oil 36,300 BTU's/L 5,510 L 69.9˘/L $3851.49
Propane 24,200 BTU's/L 8,264 L 52˘/L $4297.28
Coal 14,000,000/ton 15 tons $100/ton $1500.00
Feed Wheat 429,540 BTU/bu 465.61 bu $3.48/bu $1673.98
Corn 415,767 BTU/bu 481.03 bu $2.90/bu $1394.99

Randall Parker said at February 2, 2006 4:14 PM:

Lorne,

The most amazing thing about your chart (and thanks for constructing it btw) is that fuel oil is more expensive than electricity for heating in Southern Ontario. Wow. I would not have expected that.

But the number you quote for electricity per kwh is unexpectedly low. In the US electricity prices go as low as 7 cents per kwh hour (in areas with lots of hydro power and low populations). But some areas prices are about twice that amount. I'm talking retail prices. Are you using retail or price coming out of the electric generating plant before distribution and sales costs come in?

What do you pay for electricity on your own bill? I'm paying over 12 cents per kwh in California. It is hard to figure it out exactly since they have taxes and all sorts of fees and special prices in different consumption ranges for social engineering reasons.

To other readers: At the moment I'm writing this there is about 1.14 Canadian dollars to 1 US dollar. So knock off about 14% to 15% off the prices above to get them in US dollars. Still, his prices as are they are rough estimates for US prices.

As for dual energy sources: As I recently discovered and posted about one Cedar Falls Iowa electric utility has found burning biomass in a coal electric furnace to require almost no changes in the furnace. So I think the electric plants which burn coal already can burn biomass. Maybe the electric plant operators are about to figure out that it might be cheaper to burn corn. OTOH, I expect a price drop in coal as coal production scales up to meet the recent surge in demand.

My guess is the plants that can burn only natural gas would have a tougher time burning biomass. But some plants are built to be able to switch between coal and natural gas depending on price. Given the high cost of natural gas a shift toward coal might eventually accelerate a shift toward biomass by causing more electric plants to get upgraded for coal and in the process gain the ability to burn biomass.

Lorne said at February 3, 2006 1:36 PM:

Hydro One, the Ontario provincial electricity utility, has regulated rates. I took the rates from the residential sales price list off their web site. The lower 5 cent rate is for, if I remember correctly, the first 750kw per month after that it is 5.5 cents. I live in Montreal where rates are even lower at 4.5 cents. There is a reason all those aluminum smelters are here. The fuel oil price was taken from our fuel oil supply contract. I'm sure that anyone without a contract is paying even high rates. We pay very high fuel consumption taxes in Canada. Currently regular gasoline is hovering around $1.00/litre. (approximately 4 litres to a US gallon)

I used retail grain prices too, those were the rates you would pay if you bought corn or wheat from one of the rural livestock feed mills. If you bought directly from a farmer you could probably do a lot better. - Lorne

Randall Parker said at February 5, 2006 5:44 PM:

Lorne,

I'm talking to a friend who lives on Prince Edward Island. He says his cost for electricity is 10.7 cents per kwh and drops to 7 point something (prices Canadian) above some threshold that he does not reach. He says the cheap hydro power in Ontario and Quebec is not indicative of the rest of Canada that generally has more expensive electricity.

The interesting thing about your table is that it suggests electricity would have to come down to about 2 cents per kwh to compete with corn for heating. Well, new nuclear power plants are going to be 4.5 cents (US dollar) or so per kwh at the plant and of course higher by the time it gets to residences. So I do not see current nuclear technology as driving electric prices down low enough to compete against biomass for heating. Bummer.

I wonder what the energy efficiency would be for the use of electricity to create liquid hydrocarbons. The other alternative for using electricity in transportation will be nanotech to make much better batteries.

My fear is that we will have a massive shift from expensive oil and natural gas to coal and biomass with some oil shale thrown in. I'd rather we go nuclear and eventually photovoltaics with bits of tidal/wave power and wind power thrown in. But I'm expecting more biomass and more fossil fuels.

Another point: wind power can't compete for heating for the same reason nuclear can't compete for heating: it costs too much.

Nick said at February 6, 2006 2:36 PM:

I should think that turning electricity directly into heat would be the wrong way to use it. Electricity is a much more "refined" form of energy, and it would be a waste not to take advantage of that.

The best way would be ground heat exchange, aka geothermal. You can easily get 3-4 times the heat out compared to electrical resistance heating. I believe it's very cost-effective in Canada (where the air is too cold for using a simple heat-pump with air, like conventional A/C reversed).

It's capital intensive, and is cheaper and easier with new construction (and so isn't a silver bullet, at least for the short-term), but I believe it's very practical.

Lorne said at February 6, 2006 5:02 PM:

The electrical utilities in nearly all Canadian provinces are government owned public utilities and as such rates do not necessarily reflect market conditions. Electrical use patterns are different in Canada than in the US too. Usage is heaviest during the winter months in Canada which, if I understand correctly, is opposite patterns in the US where air conditioning usage drives up consumption in the summer months.

We have a dual heat system in our house, an oil burning furnace for emergency heat and a simple heat pump. The simple heat pump works very cost effectively down to -10C. Below that we have to switch to oil at a much higher cost. We switch back to electricity as fast as possible. Hydro Quebec also had installed a peak use warning light in our system. If there is a very heavy draw on electricity rates jump to a higher level. The light is there to warn you that if you choose that time to do laundry or run the dishwasher you will pay extra for the privilege.

Geothermal heating is used on a very small scale in Canada. In most of the inhabited part of the country the ground never freezes much below 6 feet.

The Government of Ontario currently offers rebates of the provincial retail sales tax (RST) on the purchase of residential solar, wind, micro-hydroelectric or geothermal energy systems, or on any expansions or upgrades to existing systems installed in residential premises until November 25, 2007.The Government of Canada has launched a grant program to encourage homeowners, particularly those who have older homes that are in need of energy efficiency upgrades, to retrofit their homes to make them more energy efficient and reduce greenhouse gas emissions that contribute to climate change. The house must achieve a minimum energy performance improvement.

Randall Parker said at February 6, 2006 5:18 PM:

Nick,

But a comparison of energy sources by what they'd cost as a straight heat source gives an excellent picture of their relative expense.

Granted, you can use electricity to, for example, run a heat pump and get more effective heat that way in cases where it is not too cold outside. But any energy source that makes electricity directly (e.g. wind turbines and solar photovoltaics) can not displace coal or biomass as long as it costs more per BTU.

Again, my fear is that as fossil fuels costs stay high and even rise further we are going to see a massive shift toward biomass for heat and possibly even for electric generation to a limited extent. I do not want to see the amount of area farmed go up by a factor of 3 or 5. I like nature.

NIck said at February 7, 2006 3:36 PM:

"I do not want to see the amount of area farmed go up by a factor of 3 or 5."

I agree. I'm afraid that biomass and coal will be used as much as possible, and that that would be far from the best thing for all concerned.

"Granted, you can use electricity to, for example, run a heat pump and get more effective heat that way in cases where it is not too cold outside."

Geothermal heat exchange isn't limited by the outside temperature (it relies on the temperature 10' to 100' down). That's why it's attractive.

"But any energy source that makes electricity directly (e.g. wind turbines and solar photovoltaics) can not displace coal or biomass as long as it costs more per BTU."

I disagree. That is true only if you're adding the artificial constraint that the cost per BTU is based on the least efficient way of generating heat from each source.

Granted, geothermal heat-exchange is capital intensive, but in new construction it can create balancing economies, like reduction of or elimination of air ducts, and elimination of a conventional furnace. Even for retrofits it can be cost effective.

Electricity is much more valuable than raw heat. It's a waste to just turn it into heat directly. Why not compare heat sources based on the best design for each energy source?

Randall Parker said at February 7, 2006 4:35 PM:

Nick,

Electricity that flows when the sun shines or wind blows is less useful than biomass or coal or oil that sits there available to be burned when you need it. Also, fuels that can be turned into liquid forms are far more useful for transportation.

What's the percentage increase in efficiency of electricity when used to run a heat pump versus when used to generate heat directly? Any source for this? I'd love to see that as a function of outside temperature.

Nick said at February 8, 2006 9:06 AM:

"Electricity that flows when the sun shines or wind blows is less useful than biomass or coal or oil that sits there available to be burned when you need it. Also, fuels that can be turned into liquid forms are far more useful for transportation."

Well, sure, those are the basic barriers to solar and wind. Those are good things to talk about, because I think you may be overestimating how important they are, but let's talk about one thing at a time.

"What's the percentage increase in efficiency of electricity when used to run a heat pump versus when used to generate heat directly?"

Let's be clear: a "heat pump" as commonly referred to, uses air. That can be very useful (on the one hand, it's easy to install, but of course it runs into problems at very low temperatures), but what I've been talking about is a geothermally based heat pump, which is independent of outside temperature. BTW, here's a source for air based heat pumps: http://www.energystar.gov/index.cfm?c=airsrc_heat.pr_crit_as_heat_pumps. You can see that in what the DOE describes as "moderate climates" the overall ratio of input to output, for energystar rated systems, is about 7 to 8. That means for every BTU of electricity you get 7-8 BTU's of heat. Pretty good.

Now, geothermal has a ratio of 3.3 to 3.6 ("http://www.energystar.gov/index.cfm?c=geo_heat.pr_crit_geo_heat_pumps"). That's independent of outside temperature. The EPA says: "Because they use the earth's natural heat, they are among the most efficient and comfortable heating and cooling technologies currently available."

A good reference for info is: http://geoexchange.org/about/questions.htm. They say: "While they sometimes cost more to install in homes than conventional systems because of the ground loop piping, geoexchange systems typically have the lowest life-cycle cost of any heating and cooling system. Heating and cooling costs for a typical 2,000-sq.-ft. home can run as low as $1 a day." and "There are more than one million installations in the United States today. Although this is a very small percentage of the total HVAC market, the number of people who are choosing to install geoexchange is growing rapidly (about 20% every year) as more learn about the technology.".


Randall Parker said at February 10, 2006 12:52 PM:

Nick,

I admit to knowing very little about geothermally based heat pumps. I am curious about them though and appreciate the links. I just went and fixed them into HTML a href tags so that people can click thru on them.

Nick said at February 21, 2006 10:19 AM:

Randall, you were interested in a chart for performance vs temperature for air heat pumps, so here's an industry chart.

http://www.acdirect.info/new_faq/info_sizing_heat_pumps_4.php#simple

I suspect some of the rule-of-thumb comparisons with fossil fuel systems are out of date, as propane, fuel oil and NG have risen in price much more quickly than electricity. For an example of a truly misleading comparison, see usepropane.com, which uses a 5-year avg of $1 per gal for propane, when it's now at $2 per gal. At their benchmark price of $.0835 per KWHr even resistance heating is cheaper.

Randall Parker said at February 26, 2006 10:17 AM:

Nick,

I'd like to see a chart that compares natural gas prices to heat pumps for different regions of the US. It is not clear to me when heat pumps make sense or when geothermally based heat pumps make sense. One Department of Energy chart makes me thing geothermal heat pumps are a bigger benefit in hot weather than in cold weather. Is that your sense of it too?

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