Energy Literacy Advocates Newsroom

The following is an abridged version of John Hess's (Chairman and CEO of Hess Corporation - an integrated oil and natural gas company with operations in 18 nations) comments at the October 21 Oil & Money Conference, courtesy of ASPO-USA. Keep in mind these are the remarks of an oil company executive and industry insider. His list of facts are one of the most honest, succinct, and accurate representations of the oil future that I have seen.


John Hess, Hess Corporation, October 21, 2009:
Our industry is at a crossroads. In the past few years, oil supply has struggled to keep pace with demand. But the financial crisis has reduced demand by 2 million barrels per day, creating excess inventories and lower prices. But once economic growth recovers, it is likely we will return to the market conditions of one year ago. The price of $140 per barrel oil was not an aberration; it was a warning.

Over the past several years, many people in our business have expressed confidence that we can meet the challenges ahead. Oil producers have suggested that the remaining global endowment of up to 3 trillion barrels of recoverable oil meant that we should not be concerned with a prospect of shortages. Higher prices, advancing technology and sound government policies would enable supply to keep up with demand. Consuming nations viewed these issues quite differently, criticizing producers for rising prices, blaming oil for climate change and implementing policies to develop alternatives to hydrocarbons

The approaches of both consumers and producers are based on hope, but what we need is a sober reality. Given the long lead times of 5-to-10 years from oil discovery to production, we need to act now to avert an oil crisis.

When my good friend Nick Brady was Secretary of the Treasury in the United States, he sometimes referred to the need for “Truth Serum.” Nick knew that good facts lead to good policy; bad facts lead to bad policy. In the interest of creating good energy policy, let us administer the truth serum and establish the facts.

Fact No. 1: Eighty-five percent of the world’s energy comes from hydrocarbons. While renewable energy will be needed to meet future energy demand and contribute to reducing our carbon footprint, hydrocarbons will fuel the world’s economy for decades to come. Renewable energy does not have the scale, timeframe or economics to materially change this outcome.

Fact No. 2: Once the economy recovers, oil demand is projected to increase by 1 million barrels per day each year, as world population grows from 6.8 billion today to 9 billion by 2050. The introduction of higher mileage standards in the U.S. and the gradual phasing in of electrical power into automotive drive trains will only moderate growth in automotive fuel demand. That is because nearly one billion vehicles on the road today could grow to approximately two billion vehicles in the next 30 years. Keep in mind: The U.S. has 1000 cars for every 1000 people; China has 10 cars per 1000.

Fact. No. 3: Supply. We are not running out of oil. The issue is not our endowment of oil resources, it is the world’s production capacity. Additions from exploration last replaced annual production in 1987. The easiest oil has been discovered. Costs are increasing for new barrels, where wells can be drilled in water depths of over one mile to targets up to six miles deep, and discoveries can take over a decade to develop.

Oil field declines are running at more than 5 percent per year. That means we have to add at least 4 million barrels per day each year just to keep production flat. Yet non-OPEC production is in the process of, if not peaking, reaching a plateau. The U.K. Energy Research Centre just published a report that there is a significant risk that worldwide production of conventional oil could peak before 2020 and enter terminal decline. If we do not act now, we will have a devastating oil crisis in the next 5-to-10 years.

We will need the courage to act to prevent this crisis and make the commitment to change our behavior – not just in demand; not just in supply; but both.

The United States must take a leadership role. With five percent of the world’s population but 25 percent of its oil consumption, the United States can no longer blame oil producers for rising prices. We need to have the courage to demand 50 miles per gallon as the national standard for all vehicles; gasoline hybrids and diesel could get us there. A gasoline tax of $1 gallon would boost conservation and help pay down the federal deficit by $120 billion per year.

In non-OECD nations, energy subsidies that the International Energy Agency (IEA) estimates cost $310 billion per year unnecessarily inflate world oil demand and obscure the true cost of energy, resulting in wasteful energy usage.

In terms of supply, the petroleum industry spends about $400 billion a year to find and produce oil, but that is not enough. With 80 percent of global reserves essentially off limits to outside investors and only 6 percent of OPEC’s oil revenues reinvested in energy infrastructure, something has got to change. The role of the national oil companies is critical; they need to invest more or allow others to partner with them.

We need a balanced approach going forward. It is not a decision of “either/or” but “and.” In addition to more oil supply and energy efficiency, we need a greater role for natural gas AND cleaner coal AND nuclear energy AND renewables.

Meanwhile, we must also establish realistic objectives for reducing greenhouse gas emissions that do not throw the world economy into reverse. Many governments want to limit global warming to no more than 2 degrees Centigrade. To meet this target, annual CO2 emissions would have to be reduced from today by more than 80 percent by 2050. But is this realistic? With world population growth and rising living standards, holding global CO2 emissions flat by 2050 would be a huge achievement in itself.

As the global system gets increasingly stressed over competition for resources, there is more and more protectionism among consuming nations and resource nationalism among producing countries. Nations are building walls to disengage from one another when they should be building bridges to collaborate.

Going forward, we need new models of collaboration. Over many decades, international oil companies and producing countries have worked together in a way that has been purely financial – through contracts that are either tax and royalty or production sharing. In the future, we need to build stronger bonds of trust. The investment model needs to be focused not only on oil resources but building the capabilities of host country’s human resources. We must redefine what it means to get a return on investment.

Second, we also need a global forum dedicated to energy policy. Without a common framework on energy, sustainable economic development will be impossible. I would suggest this challenge for the G-20, which represents represent six of the seven biggest oil producers and the 14 largest oil consumers. Its mission is sustainable economic growth. Energy not only fits this objective, it is essential for its success.

In conclusion, what kind of world do we want to leave to our children? If we do nothing, there will be severe consequences. Skyrocketing prices could become a way of life in a crisis-led world.
In a world where we all make concessions and put global interests first, we will all win. If consuming nations led by the United States commit to conserving energy, we could save 5 million barrels per day of incremental demand over the next 10 years. If producing nations led by OPEC commit to building more oil production capacity, we would add over 5 million barrels per day of incremental supply over the next 10 years. In this world, prices would be stable and our global economy could prosper. Does this scenario sound impossible? I do not think so.
The stakes have never been higher. We must build a balanced and comprehensive approach to energy security and protection of the environment to ensure sustainable development. We must unite and work together as an industry, communicating one message, having the courage to act and collaborating for the global good. In this world, there will be a bright future, not only for oil, but for many generations to come.

Labels: oil supply/demand, peak oil

Anyone who has dug into the intricasies of alternative sources of energy knows that one of the key hurdles for any type of renewable is the lack of a smart power grid. Not only is a more robust grid needed to distribute renewables but also to handle additional capacity that may be needed should the automobile fleet become more plug-in focused, as the following article points out. As with most policy choices there are unintended consequences that must be planned for and dealt with, and any economist will tell you that there can be dislocations and time lags when supply and/or demand shifts occur.


California Electric-Cars Push May Raise Power Costs (Update2)
Access Article Here
By Alan Ohnsman and Mark Chediak
Oct. 23 (Bloomberg) -- California’s push to lead U.S. sales of electric cars may result in higher power rates for consumers in the state, as a growing number of rechargeable vehicles forces utilities to pay for grid upgrades.
The autos’ effect on electricity fees is being reviewed by California’s Public Utilities Commission this month as the most populous U.S. state will require Toyota Motor Corp., General Motors Co., Honda Motor Co., Ford Motor Co. and Nissan Motor Co. to sell more plug-in vehicles from late 2011.
Power companies including Southern California Edison, the state’s largest, have to install new transformers and meters to handle greater demand and prevent blackouts when autos are being charged at outlets. Utility rates will rise to cover the costs, said Travis Miller, a Morningstar Inc. analyst in Chicago.
“If you look at the kind of money that will be needed for a full smart grid and support for electric vehicles, then you are talking about a substantial amount,” Miller said in a phone interview. The spending may total “multiple billions” of dollars over a decade or more, he said.
From model years 2012 through 2014, the largest carmakers by volume in California must sell about 60,000 plug-in hybrids and electric cars combined, according to the state Air Resources Board. President Barack Obama is aiming for 1 million plug-in cars on U.S. roads by 2015 to curb tailpipe emissions and cut dependence on foreign oil.
System Overload
Rosemead, California-based Edison International, the owner of Southern California Edison, has identified the city of Santa Monica as a community with many potential battery-car customers that may require transformer upgrades.
A typical Santa Monica circuit, which serves about 10 households, may be overloaded should two or three of those customers charge vehicles simultaneously, even if they do so overnight during off-peak hours, Ted Craver, Edison’s chief executive officer, said in a phone interview on Oct. 20.
While surplus power is available at night at cheaper rates, the grid needs adjustments to handle such charging, Craver said. For example, additional or larger transformers may be needed in neighborhoods with numerous plug-in car owners.
“If all those people do it at off hours, in the middle of the night, a lot of our system is designed so the transformers cool down at night,” Craver said. “That’s part of how they are able to function at full capacity during the day.”
Electricity Rates
Edison, PG&E Corp., owner of Pacific Gas & Electric Co., and Sempra Energy’s San Diego Gas & Electric have said in filings with the state utilities commission they’ll have to make infrastructure investments related to plug-ins, without proving specific figures.
Expenses will start next year for plug-in “readiness efforts, and will require a reasonable process for seeking recovery of these costs,” Edison said in its filing.
Vehicle charging may wear out electric distribution equipment faster at some locations, Mark Duvall, director of electric transportation research at the Electric Power Research Institute, said at an event in San Francisco yesterday.
“It will raise costs and make rates go up a bit,” Duvall said, estimating that California utilities will need to spend a “handful of millions” for initial improvements. “There is a near-term investment needed versus a long-term benefit,” he said.
Offsetting Increases
Utilities providing power to recharge vehicles are set to receive “low-carbon fuel” credits that may be sold to oil companies. Edison, PG&E and San Diego Gas all said they’ll use revenue from the credits to moderate potential rate increases.
A decision by the commission on rate changes linked to plug-ins isn’t likely for “several months,” Edison CEO Craver said.
Edison fell 55 cents to $32.64 at 4:15 p.m. in New York Stock Exchange composite trading.
The Edison Electric Institute, the main industry group for U.S. investor-owned utilities, said Oct. 21 its members are increasing efforts to prepare for electric vehicles, calling it an “urgent imperative.”
Minneapolis-based utility Xcel Energy Inc. helped fund and install “Smart Grid City,” a $100 million project in Boulder, Colorado, designed for electric-vehicle charging. Toyota said this week it will supply 10 plug-in Prius hybrids for testing on the Boulder system in a program by the University of Colorado and the Energy Department.
Home-Use Chargers
In addition to transformers, so-called smart meters and upgrades to public chargers installed in California a decade ago, individual customers will also have costs if they install home-use charging units, Craver said.
Edison estimates that by 2020, as many as 1.6 million cars recharged by the grid may be in use in its 50,000-square-mile coverage area, about the size of Alabama.
Edison is making system-wide upgrades to improve efficiency and doesn’t have a cost estimate for modifications related solely to battery vehicles, Craver said in an Oct. 15 interview at the company’s Electric Vehicle Technology Center in Pomona, California.
“I don’t think you can really isolate and say this is just the pure incremental case related to electric vehicles,” he said.
In preparation for vehicles such as Nissan’s Leaf electric car and GM’s Chevrolet Volt, due in late 2010, Edison is trying to estimate how much demand there will be, where most of the vehicles will be in use, and potential impacts on its system.
“It’s important that the customer experience with plug-in electric vehicles be a good one,” Craver said.
To contact the reporters on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net; Mark Chediak in San Francisco at mchediak@bloomberg.net Last Updated: October 23, 2009 16:25 EDT

Labels: electricity

Whether or not ethanol should be embraced at any level is an argument worth having (although ELA generally sees it as a small contributor to a mix of fuel alternatives where it is logical and cost effective to produce - especially if cost breakthroughs can be obtained for cellulosic based ethanol production). Regardless one of the complaints is that vehicles must be equipped to burn higher concentrations of ethanol since it can be more corrosive than regular fuel. While there is some expense, more often than not the actual cost of ethanol ready components is in the hundreds of dollars at best, not thousands as some have claimed. In addition, mass production of these parts in all vehicles would surely drive the price down to insignificant levels.

By Bob Gordon
President and Co-publisher
The Auto Channel

http://www.theautochannel.com/news/2009/05/25/462650.html

Originally published May 25, 2009

There are a growing number of automotive aftermarket companies offering E85 Flex-fuel conversion kits for many of the U.S.’s 192 million EFI equipped cars and trucks. Vehicles that if converted to run on Ethanol would save American drivers billions of dollars each year and stop our support of the Oil Cartel that has been strangling our country for the past 50 years while also making Mother Earth a lot happier.

Be aware that it is illegal and against federal law to install these devices EXCEPT for a certain make and year that Flex Fuel U.S. has gotten EPA certification on. Doing so carries a $10K fine for "Fuel System Tampering".

So what’s the problem you ask.

There seems to be a concerted campaign to slow up or prevent the support of converting existing gasoline powered vehicles into cars and trucks that run on Ethanol. The next generation Ethanol made from U.S. farmer grown switchgrass or as most of us know it as plain old hay. We believe that E85 could be our best stopgap in the, must happen, move away from gasoline powered vehicles into a EV-Motoring sustainable future.

As a good example of misinformation, some of you may have watched Pat Goss the in house mechanic and “expert” on Motor Week, the long running PBS TV car show and pass on what we have now discovered is just GM propaganda.(See Complete Story Below)

The premise of the Motor Week story was to illustrate the enormity of a Flex Fuel retrofit conversion of a GM/Chevy’s 5.3L engine & fuel system, an engine available as both a gasoline and flex fuel version to power the Tahoe, Silverado and Suburban would be. The gist of the story was to show how different most of the main parts of the Flex Fuel version was from the gasoline powered version.

Well what was shown and discussed just wasn't accurate or even true!

Just today I have been made aware of a presentation that the Ohio BioSystems Cooperative has put together to show some of the misconceptions and untruths about E85 can hurt our nation.

A section in the Ohio BioSystems presentation contains side by side part numbers for both the Flex Fuel and Gasoline versions of the 5.3L engine, they show a comparison of the part numbers of these OE parts as listed in the GM inventory... and folks, over 85% carry the SAME PART NUMBER for both the gasoline powered version and Flex Fuel Version…85% are the exact same part.

Below you will can see the parts, which are linked to the appropriate page in the Ohio BioSystems presentation, the red highlights show the part numbers that are different but in fact may be the exact same part.

Fuel Caps, Fuel Pump, Fuel Tank(Plastic), Vapor Canister, Fuel Tank Sender, Fuel Filler Hose, Fuel Rail, Engine Control Module, Intake Valve, Exhaust Valve, Piston Rings, Intake Manifold Gasket, Intake Valve Seal.

As you saw, over 85% of the part numbers were EXACTLY THE SAME, leading to our conclusion that maybe the conversion of certain gasoline engines to flex fuel is really not such a big deal...it's the only way to take our existing fleet and make it green and fuzzy.

The Motor Week misinformation example is just an easy one for me to point to,(and I like easy) but there are many, many others.

I have talked with manufactures of Ethanol conversion kits and other bright smart engineers, inventors and entrepreneurs who want to do what’s right for their customers, our country and the ecology and instead of getting support and encouragement from our government they are getting roadblocks from the EPA…roadblocks, while our nation is losing our most precious asset, our children in the defense of our need for oil to power our cars and trucks to maintain the freedom of mobility that our country is proud of...road blocks, huh?

You can read the complete presentation here for your self (but don't forget the Rolaids and your anger control breathing): http://www.ohiobiosystems.org/OBSC-NTEP_files/frame.htm

Let me know what you think; bgordon@theautochannel.com

Labels: automakers, biofuels

As oil rises for the third week in a row, and gasoline prices jump against historical trends, have we established a new floor for oil prices?

Industry and economic analysts predict that $70 a barrel is the new "bargain price" on oil. Lower than that, and oil producers can't fund exploration and development. Oil companies slash dividends. Taxes from governments and exploration constrictions raise new project costs. Oil wells are capped. Economically, the $20 a barrel price of oil, which reigned in the 1990s, is a thing of the past.

Adding to the new floor is the need to replace declining production in established oil fields. 3.5 million barrels a day of new production is needed annually to offset the loss in production from old fields.

For more on this story in The New York Times, click here.

Labels: oil companies, oil price, oil supply, oil supply/demand, peak oil

Labels: automakers, efficiency, oil price

Labels: automakers, efficiency

Labels: automakers, efficiency

There has been much ado about how to usher in breakthroughs in battery technology that would allow fully electric cars to become practical and affordable. In a recent post at Autoblog author Sam Abuelsamid comments on rumors coming out of Panasonic (below). Any work on battery technology that inches us towards affordable storage is good in my mind, even if it is a less scalable option in the near term. We need to break the ice in some fashion and then continue to build technologies from there.


October 5, 2009
Sam Abuelsamid for Autoblog.com
Access the article here

While the lithium ion battery technology that everyone expects to be at the heart of the upcoming generation of electric vehicles was initially used in consumer electronics devices, only one company so far has committed to using laptop-style cells. Tesla Motors builds a battery pack for the Roadster that consists of 6,831 cells of the type used in portable computers. Virtually every battery maker developing lithium ion for automotive applications is creating larger format cells that have what is referred to as a prismatic (flat rectangular) shape.

Interestingly, one company seems to be taking a different approach. Panasonic – which has a joint venture with Toyota to produce nickel metal hydride and lithium ion batteries for hybrid and plug-in vehicles – reportedly intends to produce automotive battery packs using laptop cells. The company claims to have developed a new method for connecting the cells which will bring the cost down by half compared to the larger format cells. The savings are claimed to come from using existing production facilities and tooling to produce cells.

However, critics suggest that while it may be true that producing cells on existing equipment will be cheaper than building new lines for prismatic ones, the quantity of cells required if EV sales approach projections over the next decade could quickly outpace this approach. Using larger format cells means far fewer interconnects are required and the complexity of building packs from the cells is greatly reduced. Because of the size of packs needed for car applications, the prismatic cells also provide greater density and improved thermal management.

Labels: automakers, efficiency

Labels: climate change, economy, global warming, u.s. energy policy

Ask the average American and they probably have never even heard of the Energy Information Administration (the EIA). Commissioned by Congress in the seventies, this government organization acts as the statistical bureau for the US Department of Energy. By mission EIA reports and analyses support sound policy making, efficient market development, and public understanding about energy.

Why is this important to you? Because not only are key energy policies based on EIA projections and statistics, but many businesses use the organization’s Annual Energy Outlook as a planning tool for future capital expenditure projects, for example. And anyone who has dug into the world of energy data soon finds there are few data-based sources of information to utilize for policy decisions outside the EIA. So it is safe to say (especially after 40 plus years of stagnate energy policy) that EIA numbers have been key drivers of policy discussions.

Don’t get me wrong, the EIA provides a very valuable service, but as Energy Literacy has pointed out before (read our piece critiquing the EIA here), the EIA may be reasonably good at projecting near-term (five years or less) energy prices and production, but long-range predictions exhibit a high margin of error. This should be of no surprise, as quoted from the EIA website, “Two of the more important factors influencing energy markets are economic growth and oil prices,” and “World oil prices play a key role in domestic energy supply and demand decision making and oil price assumptions are a typical starting point for energy system projections.” Clearly crafting assumptions 25 years out (the 2009 Annual Energy Report runs projections to 2030) for economic growth and oil prices is a daunting, if not impossible, task for any organization. (Note very few individuals predicted oil price spikes in the seventies or the current financial crisis).

This means that policy makers and businesses alike must be overly cautious when using future projections by the EIA for decision making, yet in the absence of other credible sources for energy projections outside of paid consultants one could argue there is nowhere else to turn.

I urge caution because when oil production plateaus and/or begins to decline (note there has not been significant increases in worldwide production since 2004) models that assume growing supplies will clearly be faulty. Those who have read the book “The Black Swan” by Nassim Taleb are familiar with the concept of a Black Swan event – one that comes along very rarely but in its severity has profound consequences once it occurs. These types of events are almost never included in models, and a restricted supply of oil is likely just such an event.

So all of us should try to wrap our heads around the paradigm shifting concept of a restricted oil supply – a difficult task for a society and economy built on the availability of cheap, abundant energy supplies. And be critical of data that makes you feel comfortable with our current energy use situation, as we will have to change our habits, it’s just a matter of when.

For more information on how the EIA projects energy data read The National Energy Modeling System: An Overview. Or read the Annual Energy Outlook 2009. Note to readers these are both a bit technical.

For more information on the peaking and plateauing of oil supplies visit ASPO-USA and/or attend their upcoming International Peak Oil Conference in Denver, CO October 11-13, 2009.

Labels: energy policy