Article Archive for May 2008
This week’s installment of the podcast is a conversation that I had with Ulf Bossel, organizer of the Lucerne Fuel Cell Forum, one of the biggest scientific fuel cell conferences going. This conference used to flip every year between a focus on low temperature PEM fuel cells and a focus on high temperature solid oxide fuel cells. A couple of conferences ago, the PEM cycle was dropped on “sustainability” grounds and now the conference is flipped between the SOFC program and a general fuel cell program.
You can listen to the conversation by clicking play in the built in mp3 player or by downloading the show directly by clicking on the link. A transcript is available for this conversation below the fold.
or download the link directly: Ulf Bossel on the H2 economy vs the electron economy (12MB, 35min)
Here are some reports that may be of interest as well.
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The concept of the H2 economy has fizzled from its peak along with many stock options but it still seems to creep up every once in a while. Every car manufacturer has a PEM fuel cell program and occasionally I see an ad on TV promoting a fuel cell car which is “right around the corner”. Here’s a tricky ad for Honda’s fuel cell car that was recently brought to my attention.
Now, the technology works, no doubt about it. If you live in the Southern California area, for $600/month you can lease Honda’s fuel cell car. Last year I took a test drive in a Ford Focus with a Ballard PEM fuel cell and a compressed H2 tank stuffed into the trunk. They couldn’t tell me how much it cost but I was told it was insured for $250,000. Also no mention of the lifetime, but the last person I spoke to about this who works in the business (it was a Japanese maker) tells me that they’re at the 5 year mark before problems arise and the target is to double that. I have confidence that they’ll be able to double it, just like they’ve been able to fix the sub zero freezing start issue.
The problem with the H2 economy isn’t in the technology, it’s in the thermodynamics when compared against battery cars (note, batteries do have their own problems). Making H2 is extremely hard to justify when you can keep electricity on the grid and charge up a battery instead. This isn’t to say that H2 as a fuel is a goner all together, it just means it will have a much smaller impact than previously thought. It’s the so called hydrogen economy which is a goner, and the market knows it. This smaller impact is largely reflective of the correction in Ballard’s stock price that happened about 8 years ago now when they first decided to investigate PEM fuel cells for stationary power generation, a much smaller market than the transportation sector.
Transcript
Disclaimer: This transcript was provided by a 3rd party and may not be 100% accurate. Please refer to the audio as well.
Ben : Joining me from Lucerne, Switzerland is Dr. Ulf Bossel who is the organizer of the European Fuel Cell Forum in Lucerne, which for me at least is one of the conferences to go to, although Switzerland’s Big Macs are a little more expensive than they are in Canada. Ulf has been around fuel cells and renewable energy for a long time now, but Ulf, I think, one of your best credentials is that your great, great grandfather back in the 1830s, Christian Friedrich Schoenbein, was the first to figure out how fuel cells work.
Ulf Bossel: Yes, he is the discoverer of the fuel cell effect.
Ben : So, fuel cells obviously run in your blood.
Ulf Bossel: Because of genes.
Ben : In your genes, yes.
Ulf Bossel: Fuel cell genes.
Ben : I have one of your books that you wrote about the history of fuel cells and it was dedicated to your great, great grandfather. So, thanks for coming on the show by the way. It is great to have you.
Ulf Bossel: Oh, thank you.
Ben : So, the topic…
Ulf Bossel: It’s a pleasure to have a show across the Atlantic.
Ben : So, the topic today is about sustainability and where our energy will come from for the rest of the earth’s lifetime. But before we get into that, you made a really significant announcement at the most recent European Fuel Cell Forum, which was the week of July 3rd and the announcement was that any discussion of hydrogen and PEM fuel cells will not be continued. So, why did you make this announcement?
Ulf Bossel: Well, the overriding issue is the creation and establishment of a sustainable energy future. Sustainability, let me say that, it is a term which was coined by the Prussian Forest Administration back in 1790 or so and it means that one should never take more wood out of the forest than can re-grow between two harvesting periods. That means we leave nature intact and just live from nature’s interest rates. We take from nature what nature can provide without harming nature. Now, in the energy field, we interact with nature in two ways. We first interact when we draw energy from nature and then we interact again when we release the products of the energy use into nature. Clearly, all fossil fuels are finite and therefore we cannot live off the fossil fuels forever. This is also true for uranium, that is also depletive in whatever time this may be, but Uranium deposits will not last forever. On the other hand, after energy use, we leave CO2 or radioactive waste behind which nature cannot absorb. Therefore sustained energy can only come from renewable sources, i.e. solar, wind, biomass, hydropower, geothermal. It means that a sustainable energy future will be based on energy from renewable sources used with the highest energy efficiency we can afford or we can accomplish between source and service, i.e. between energy harvest and energy use.
Ben : So, basically hydrogen fuel cells just…
Ulf Bossel: Hydrogen is an artificial, synthetic fuel. It has to be made from other energy. If you look at renewable energy, most of it is harvested as electricity, some as biomass and some as solar heat, but basically most of the renewable energy is harvested as electricity. Hydrogen has to be made artificially by splitting water by electrolysis. This requires more energy than you will ever recover from the hydrogen. However, hydrogen has to be compressed or liquefied for handling, it has to be distributed, and then reconverted back to, guess what, electricity. That means electricity derived from hydrogen has to compete with its original energy source, electricity. If you go through a hydrogen chain, you find that after the fuel cell only 25% of the original electricity is available for use by consumers. A hydrogen economy is a gigantic energy waste. We cannot afford this in the future. Therefore, three of four renewable energy power plants are needed to balance the losses within a hydrogen economy luxury. Because of the losses, electricity derived from fuel cells and hydrogen must be four times more expensive than power from the grid.
Ben : So, you might as well just keep it in grid form.
Ulf Bossel: Sure. People will not choose the hydrogen roots to make their own electricity, but they will take it from the grid. That means we have to extend the grid, of course. We have to develop renewable electricity generation and electricity storage systems. People talk about a hydrogen infrastructure. We have to adjust the electricity infrastructure to meet the challenges of the future.
Ben : So, why did you make this announcement now? I mean we have known about this problem for a while now.
Ulf Bossel: There is no future to a hydrogen economy because it is much too wasteful. We cannot solve the energy problem by energy waste. The energy losses are all caused by laws of physics. If you go through the entire hydrogen chain starting with AC-DC conversion, electrolysis, compression, or liquefaction, transportation, storage, re-conversion the electricity by fuel cells with subsequent DC-AC, there are additional losses in every process stage. These are all related to physical processes. This is physics, not poor handling, and as the laws of physics are eternal, there was no past, there is no present, and there will be no future for a hydrogen economy. Hydrogen economy is a structure of mind, which has no backing by physics.
Ben : Actually, I just want to clarify. When people generally say hydrogen economy, what they overwhelmingly mean is hydrogen-fuelled vehicles, right?
Ulf Bossel: Right. This is part of the game, the hydrogen-fuelled vehicles, but electric vehicles will be four times less costly to drive.
Ben : Yeah.
Ulf Bossel: So, who wants to buy a hydrogen vehicle? Today, the plug-in hybrid is the proper development goal. We will have plug-in hybrids in the sustainable energy world because 80% of the driving is done for rides of less than 50 kilometers, or 50 miles. 80% of the miles are driven in short-range commuting traffic. Such short rides can all be handled with electric cars. So, a plug-in hybrid means you fill up the batteries at home, you fill them up again at work and you commute between work and home with electricity. When you take your car on longer rides or go on vacation you may fill up the tank with gasoline as long as it lasts, but with methanol or some fuel derived from biomass in the sustainable future. This is the most likely picture of the future.
Ben : I totally agree that hydrogen is much less efficient than batteries. Just from quick back of the envelope calculations, if somebody drove a hydrogen-fuelled cell car, say 35 kilometers everyday, then the amount of extra electricity that you have to use to make that hydrogen is pretty much the same amount of electricity as the per capita electricity consumption in Germany.
Ulf Bossel: Yes, this sounds right.
Ben : Quite a bit. If you went to battery cars, then you would be using the same amount of electricity as the per capita consumption of Poland.
Ulf Bossel: Yes, exactly. There are a number of studies confirming this. With the same amount of electricity, original electricity, be it from wind solar energy, with the same amount of electricity you can drive an electric car three times farther than a hydrogen car. On 100 kWh of electricity you can drive an electric car 120 kilometers while a hydrogen fuel cell car of similar size can do only about 40 km. If we want to have mobility and a sustainable future, we have to go for electric cars and not for hydrogen cars because we electric cars are less costly to operate. It is not the vehicle technology, but a question of energy cost of the fuel. Hydrogen must always be much more expensive than electricity needed to split water by electrolysis etc. That is a very clear picture. I have analyzed the situation to illustrate how much water and electricity is needed for certain hydrogen jobs. If you take the Frankfurt Airport and Frankfurt Airport is perhaps comparable to the airport at Montreal. About 50 jumbo jets leave Frankfurt every day, each charged with 130 tons of kerosene. If you replace kerosene by hydrogen on a one-to-one energy base, each plane needs 50 tons of hydrogen. As a side remark: 50 tons of liquid hydrogen occupy 720 cubic meters of space, while 130 tons of kerosene take only 160 cubic meters. We need totally different airplanes for hydrogen. But that is another story. To fill the 50 jumbo jets one needs 2,500 tons of liquid hydrogen every day. 22,500 cubic meters of water, the water consumption of a city of 100,000, must be split by electrolysis. For this one the continuous electricity output of about eight nuclear power plants is needed. Now, if the entire traffic at Frankfurt Airport was all done with hydrogen, one would need the water consumption of the City of Frankfurt plus about 25 nuclear power plants. Using hydrogen for all public air and road transport in Germany, it would take the power output of about 400 nuclear power plants plus enormous amounts of water. You need nine kilograms of water to make one kilogram of hydrogen. The Rhine river and all other rivers would be dry in the summer because the water is used to make hydrogen. So, we are really approaching limits and we have to talk about these limits before we talk about a hydrogen economy.
Ben : So, while we are on the topic of flying, what can replace kerosene though?
Ulf Bossel: Well, in my vision, the long distance transport by air, ships and also transcontinental trucks, some railroads that is not electrified will continue to run on diesel or diesel-like fuels.
Ben : Okay.
Ulf Bossel: Or kerosene. That means we have to reserve the last drop of fossil fuels of oil for these kinds of applications and we have to also reserve the diesel-like fuels we derived from biomass for these kinds of application. We should not use biomass fuels for the local transport where we can use electricity, but airplanes cannot run on batteries or solar energy. They cannot on hydrogen either because hydrogen is simply impractical for long distances. We need different planes which are so bulky that they cannot fly at high speeds, but have to fly at low speed and still, their drag is so high that the fuel consumption is up. So, the last drops of oil plus biomass fuels must remain reserved for long distance transportation by air sea and surface.
Ben : Okay. So, let us just get back to my original question, which is why did you make this announcement now? I mean why not five years ago?
Ulf Bossel: Well, the European Fuel Cell Forum is a completely independent body. We are not receiving money. We are not accepting money or asking for money from governments and other organizations because that would imply, that we cannot be critical about energy policies. But we are free to articulate our concerns. Five years ago things were not that clear, but today the facts are on the table. A hydrogen economy is in conflict with a sustainable energy future. Even the promoter of hydrogen say, “Well, it will come in 30 years or so.” Patents have a lifetime of 20 years.
Ben : Yeah.
Ulf Bossel: That means all the research and development we do now will not be put to commercial use in the foreseeable future. Why spend money for a technology, which may become useful in 30 years if we are not even 100% sure that a hydrogen economy will ever come?
Ben : But is not there a risk though if you stop researching, say PEM fuel cells outright, then we might miss out on some accidental discoveries or spin-off technologies from the research?
Ulf Bossel: Well, the research can go on. I am not stopping the research. I just think that it is much more urgent to talk about the establishment of sustainable energy future. That includes implementation of wind energy, solar energy, plus all measures to improve the energy efficiency, i.e. technical advances, infrastructure and whatever else we need. All these issues have to be discussed in a broad sense by an international audience. That is much more important than talking about the details of a particular energy conversion technology and one type of energy conversion device.
Ben : Yeah.
Ulf Bossel: We have many different energy conversion devices. Fuel cells have to compete with the internal combustion engine, with gas turbines and so on. The problem with fuel cell that needs pure hydrogen, it is link to the hydrogen economy. The decision is not against fuel cells. Fuel cells are efficient energy conversion devices, but no new sources of energy. We just had a successful solid oxide fuel cell congress and we will continue this conference series two years from now. Next year we will feature the congress “Fuel Cells for a Sustainable World”. We will discuss molten carbonate fuel cells, phosphoric acid fuel cells and solid oxide fuel cells Some of these fuel cells have already run 60,000 hours and more and doing well and we should continue to support these successful technologies. However, we should not push solid polymer fuel cells because they have fundamental problem which apparently that cannot be solved. Even if these problems are overcome, it will remain a standalone technology, which cannot be put into the market because there is no hydrogen fuel.
Ben : Okay, so let us start talking about the sustainable energy path for us then. I know early in the discussion you were talking about the electron economy and I know that you have written papers talking about how today about 80% of our energy is derived from chemical energy and 20% from physical sources and the future will be pretty much exactly the opposite, so can you explain that a bit? What is chemical energy?
Ulf Bossel: Yes. What people need is physical energy. We need motion of vehicles, we need light, we need heat, and we need communication. These are all physical energy. People need chemical energy only for eating and drinking. Okay, that is what the people’s needs are. Now, to satisfy these needs, engineers of the 18th, 19th or 20th century have developed a fantastic technology for the conversion of chemical energy of fossil origin into physical energy needed by people: steam engines, gas turbines, internal combustion engines and so on. All these inventions are fantastic. It is a fantastic technology, but in the future this technology will run out of fuel because there is not enough of oil, gas and coal left to drive our economy. Also, we may have political issues restricting access to fossil resources. The use of fossil fuels may further be restricted to stop global warming. Anyway, the renewable energy from wind, solar and so on is mainly harvested as electricity. Therefore, as fossil resources become depleted, the chemical energy base vanishes. Electricity from wind, water, waves, solar and ground heat will become the new energy base. Once electricity has become our source energy, we should not make the mistake to convert it into chemical energy like hydrogen in order to continue with energy technologies which were developed to convert natural gas or fossil fuels to electricity or motion, but we should find the courage to say, “Goodbye steam engines. Goodbye Carnot cycles. Here we are with electricity. We don’t need you any longer.”
Ben : Yeah.
Ulf Bossel: This is what we should drive for. We have to accept that our energy base is being changed from chemical today to physical tomorrow and conceptually, we have to be prepared to make this change and not replace the dwindling resources of fossil fuels by synthetic chemical fuels. The worst you can think of is that hydrogen is made from natural gas, which it is supposed to replace.
Ben : Yeah.
Ulf Bossel: It is really strange to hear people say that they make hydrogen by reforming fossil fuels in order to replace fossil fuels. That does not make sense at all.
Ben : So, the future of the 80% of our energy will come from physical sources, wind, solar, geothermal type things, right?
Ulf Bossel: Well, the 80% is a number, which I think is practical. Wherever people live, we can recover up to 20% of the energy needs from organic waste produced by human and animal society. It could also be residues from farming and food industry, or agriculture-produced biomass. 20% is a realistic figure, but rest has to come from physical sources. We have to install wind generators, solar power plants, photovoltaic arrays, small hydropower installations etc. to make up the rest and the difference could be about 80% of the total energy needs.
Ben : Do you think that this will provide us enough energy for our future?
Ulf Bossel: Yes, it will because the efficiency of an all electric system is about three times higher than it is today. That means we can do the same, provide the same comfort, the same quality of life, the same living standard and the same energy services with one-third of today’s primary energy consumption.
Ben : Yeah, that is a good point.
Ulf Bossel: Today we derive most of our comfort from primary fossil energy with is converted to electricity or motion at fairly low efficiency. If the primary energy comes from sun, wind & Co., the efficiency is 90% between the renewable power source and people. The electricity has to pass through a number of transformers, but it is never converted across the physical-chemical boundary
Ben : And we will have to find a way to store electrons in an electron economy.
Ulf Bossel: Yes, this is right. Exactly.
Ben : And that will probably be done by, I mean it could be done by plugging vehicles, right? Just battery cars?
Ulf Bossel: Yeah. It is basically electricity has to be stored as physical energy. That can be easily done with batteries, but physical energy can also be stored with flywheels, compressed air, pumped hydro storage etc. The worst energy storage would be if we convert the physical energy “electricity” to the chemical energy “hydrogen” and then convert it back to electricity. This has a roundtrip efficiency of about 35-45% while compressed air has 75%, flywheels perhaps 80% and Lithium-ion batteries about 90%. Now, it seems to be best to store electrical energy in the form it will later be used. For instance, in a 48 Volt battery for a 48 Volt electric car. You could also run a refrigerator at night to make enough ice to keep the appliance cold for the entire next day. There are many things we can do. Electric cars will have the wonderful lithium ion batteries for high density electricity storage at low volume and weight. Roundtrip efficiency is above 90%. The batteries can be charged in very short time, i.e. in 10 minutes from 15-85% capacity given the needed power, of course. The expected lifetime is 10 years and one million cycles may be obtained. The final word has not been spoken because these batteries have not been around for 10 years. We now use them in cell phones and laptops. Five years ago it took hours to recharge the cell phone and one charge lasted only a few days. Now the batteries are recharged in a few minutes and last for a week.
Ben : Actually, the lifecycle of batteries is something that I am pretty interested in because I personally do not think that they can compete with a diesel engine, for instance, in terms of the lifetime.
Ulf Bossel: Well, they may have to last a lifetime of a car. We are used to replace car batteries every five years.
Ben : Yeah.
Ulf Bossel: And a car, you might say, is sitting there, on four wheels for 10 years, but it is actually driven for about only two hours a day. 3000 hours is the typical lifetime of a car. The question is do batteries deteriorate when the car is not driven? With the lead acid batteries, this was the case. It is no longer the case with lithium-ion batteries. Anyway, I can see that the energy storage problem can be solved by keeping electric cars grid-connected when they are not driven. Now, that sounds strange, but a car is normally driven two hours a day, so it is parked for 22 hours at home, at work or somewhere else. What we need is at home and at work are inductive power transfer platforms. While the car is parked, the battery is recharged. The meter is in the car. At the end of the month, the meter is read and you pay for electricity received from the grid. Such system would create a huge electricity storage capacity. Batteries are filled with surplus power at night, during windy days, on weekends etc. If the wind is not blowing strong, then batteries are charged to only 80%, but every car remains in a drivable condition at any time. You do not have to go to a gas station to fill up a battery. You park your car at home, turn off the key and then the batteries are charged automatically. Of all I have said, this is the only vision I have. All the rest is derived from physics, but this is a vision, is doable even today. It can be a bit more sophisticated in that the power company automatically recognize the car and does the bookkeeping for you. You do not have read a meter, but the power company is controlling the charging of your car and at the end of the month will send you a bill for the kilowatt-hours transferred to your car.
Ben : So, basically in conclusion then we are going to have to use a variety of renewable energy sources in the future because we are running out of fossil fuels. Fossil fuels will not be available in the quantities that they are today, so we are going to have to be using renewable energy sources. The organic fuels that are available will not be available in very large quantities and so we better find the most efficient way to use them.
Ulf Bossel: Yes.
Ben : And one of the most efficient ways of using the organic resources is actually through a fuel cell, like a high-temperature fuel cell.
Ulf Bossel: Yes. Right, right. Organic fuels derived from biomass or the last natural gas or oil flowing through pipelines, have to be converted with highest efficiency into electricity and heat by co-generation. For that, solid oxide fuel cells, high-temperature fuel cells, are the best because they can convert hydrocarbons directly without the need of a reformer. Because solid oxide fuel cells are always superior to PEM fuel cell and reformer. This is another reason why we should discontinued to push the hydrogen technology, because PEM fuel cells run on hydrocarbon fuels cannot beat solid oxide fuel cells with respect to overall system efficiency. Most of the waste heat from PEM fuel cells is too cold for practical use. So, I cannot see that the polymer fuel cell have a great future in today’s energy system. It makes sense in a hydrogen economy, but because of the physics a hydrogen economy may never be established. The future has to be built on renewable energy and energy efficiency.
Ben : Let me just read from one of the paragraphs of one of your papers in the conclusion. You wrote, “The key points is the transition from a chemical energy base built on fossil fuels to a physical energy base built mainly on electricity from renewable sources. The transition is predetermined by the laws of physics. It could not be avoided or significantly delayed by politics. However, the transition will proceed more smoothly if all players agreed to move in to the same direction.”
Ulf Bossel: It is my intent now, to provide some insight into the physics so that people can recognize the “light at the end of the tunnel.” Only then can we join forces and go together into one direction rather than trying find solutions by trail and error. At the moment, time and money is wastes, because the solutions are know and the technologies are available. We do not have to invest in research on technologies which cannot provide sustainable solutions to the energy problem. If one considers the overall mass and energy balances, ideas like “clean coal”, “nuclear fusion”, “oil from tar sands” etc. sound like bad jokes. One cannot solve the energy problem with processes whose energy input exceeds the energy output. The energy problem has to be solved soon by energy efficiency and energy from renewable sources. We have not much time to waste.
Ben : Just one last question. What type of responses have you been getting to your announcement?
Ulf Bossel: Positive. Very, very positive. People have told me that they will come to Lucerne next summer, because we are now talking about energy politics. Of course, there are some others who would like to present their good PEM solutions. Indeed, the advances in the PEM area are fantastic. I have highest respect for my fuel cell colleagues. But it does not make sense to develop fuel cells for which the fuel is not available and will not be available in the near future. I fear that all the wonderful PEM fuel cells and the PEM fuel cell vehicles will all end up in technical museums.
Ben : Okay, well, thank you so much Ulf for coming on the show. It is great to talk to you.
Ulf Bossel: Okay. Thank you and it was a pleasure.
Ben : Bye-bye.
Ulf Bossel: Thank you. Bye-bye
The ELM (and the WSJ article yesterday) makes Yahoo Finance:
Henry Blodget and Aaron Task. Well worth watching!! Here’s a link to the article (from which this video comes, that links to TOD in the last sentence).
TOD’s own Rembrandt Koppelaar, ASPO Netherlands President on Dutch Television Show NOVA 23 May 2008
Under the fold, more videos Matt Simmons, Bob Hirsch, Amory Lovins, Randy Udall, and others…
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Simmons on CNBC…
“What we need to worry about is not high prices, but shortages –
especially for diesel.”
“The economists ought to be embarrassed, and the energy economists are
the worst of the lot.”
***
Dr. Robert L. Hirsch, Sr. Energy Advisor at Management Information Systems, delivers a keynote speech at the 2008 AFVi Conference in Las Vegas.
***
Amory Lovins, Randy Udall, Marvin Odum (VP of E&P at Shell) at the first ever Aspen Environment Forum.
Now for some wise words from the readers of The Oil Drum…
Boston: MegaBus yesterday charged into the ultracheap bus wars with an offer hard to beat - a free ride to the Big Apple.
Like BoltBus, which rolled out service last month, MegaBus offers at least one seat per bus on its Boston-to-New York route for $1. Other seats cost up to $14 each way. Chinatown rival Lucky Star matched the fares.
QUEENSLAND’S sugar growers increasingly could diversify into more lucrative crops given fears global sugar prices are set to continue their slide as a prolonged supply glut is worsened by easing demand.
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Push for ethanol hits grain supplies
Farming industry leaders and analysts say the push by governments to ensure 10 per cent of petrol is made up of biofuels such as ethanol will leave the nation critically short of grain.
They claim that despite assurances by the NSW and Queensland governments and the biofuels industry that it would use only plant waste for ethanol, tens of thousands of tonnes of animal feed-quality grain and wheat starch are being used to make the taxpayer-subsidised fuel.
Amazing coal seam gas bubble may burst
Turning coal seam gas into liquefied natural gas is a promising technology — but nobody has actually produced large amounts from it so far and the projects now in focus will take several years to bear fruit.
Companies with strong LNG expertise might have the patience and resources to see their investments through. For ordinary shareholders, impatience — cashing out now to take advantage of the dizzying rise in the sector’s share prices over the past two days — would be smarter.
Tourism hit by fuel costs, economic downturn
The last time the tourism industry was hit by an economic downturn was after the Asian crisis in 2000.
But that will be just a blip compared to what operators are now facing, says Paul Yeo, head of the inbound tour operators council and the travel agents’ association. . . Yeo reckons the last time New Zealand’s tourism industry faced such strong headwinds as it does now was in the years after the 1987 sharemarket crash.
WoodMac: Climate bill would affect gas processors, cut production
WASHINGTON, DC, May 30 — Global climate change legislation due to reach the US Senate floor as soon as next week could reduce natural gas supplies and greatly increase prices, concluded a study by Wood Mackenzie Ltd., Edinburgh.
The study, commissioned by the American Exploration & Production Council (AXPC), examined consequences of a provision inserted into S. 2191 that would require gas processors to buy cap-and-trade program gas emission allowances for ultimate end-users (OGJ, Apr. 7, 2008, p. 80). Sens. Joseph I. Lieberman (I-Conn.) and John W. Warner (R-Va.) introduced the original bill Oct. 18, 2007.
US drilling dips below 22-year high
US drilling activity slipped below a 22-year high this week with 1,877 rotary rigs working, 12 less than the prior week but up from 1,774 units a year ago, said Baker Hughes Inc.
The decline was primarily in land drilling, down 11 to 1,788 active rigs. Inland waters activity dipped by 1 rig to 22. Offshore drilling increased by 1 rig to 65 in the Gulf of Mexico, but the total count in US waters was unchanged at 67.
Among the rigs still working, 1,479 were drilling for natural gas, 390 for oil, and 8 were unclassified. Directional drilling increased by 3 rigs to 388. Horizontal drilling declined by 11 to 533.
No respite with huge fuel hike
Johannesburg - The retail price of petrol will increase by 50c a litre on Wednesday next week, according to a statement from the Department of Minerals and Energy on Wednesday.
This follows the 55c a litre increase last month. The price of unleaded petrol in Gauteng thereby increases to 996c a litre and to 972c at the coast.
Govt to decide on fuel price hike today
Prime Minister Manmohan Singh, UPA Chairperson Sonia Gandhi, External Affairs Minister Pranab Mukherjee, Defence Minister AK Antony, Home Minister Shivraj Patil, Finance Minister P Chidambaram and Petroleum Minister Murli Deora deliberated over options for nearly two hours on Friday evening. None of them commented on the issue.
However, options that are believed to have been discussed are of raising petrol price by Rs 3, 4, 5 or 7 a litre and diesel by Rs 1, 2, 3 and 4 per litre. Besides, a Rs 20 per cylinder hike in domestic LPG price may also be proposed.
Global biofuel output to soar:
Paris • Global production of biofuels will rise rapidly over the next decade, helped by high government blending targets and subsidies, the OECD and the UN’s FAO food agency said in a report published yesterday.
These rises will boost already soaring world agricultural commodities prices and their availability for food and feed, the Organisation for Economic Co-operation and Development and the Food and Agriculture Organisation said in co-drafted report. “With a biofuel output that should more than double over the next 10 years, according to the most conservative estimates, the pressure on agriculture will flare up,†Jacques Diouf, head of the Rome-based FAO, said.
Gazprom calculated that production cost of 1.000 cubic meters of gas at the Yamal peninsula equals to $91 compared with $7-10 at older large gas fields that the monopoly inherited from the Soviet Union. As to the Arctic shelf, these figures may double, or even triple. So, mining will be efficient only if energy carriers prices go up, which is hard to imagine now.
The yesterday’s meeting of TNK-BP BOD was aimed to decide on employment of CEO Robert Dudley and Executive Director German Khan but ended by a scandal. Russia’s holders left the meeting stripping it of required quorum. Formally, the third party is yet outside the conflict, but the RF government is forging an instrument already. A new criminal case is likely to be initiated to extent to both Russia’s and Britain’s managers of TNK-BP, including Robert Dudley.
Iceland is still shaking with aftershocks from the big quake
With Iceland being located on the junction of the Eurasian and North American Tectonic plates, large parts of the country are volcanically active. Some of the volcanoes even erupt with somewhat regular intervals. Consequently the Icelandic Meteorological Office keeps a close watch on all seismoligical activity in Iceland. The image from their website shows the current and last 48 hours’ level of activity with yesterday’s large earthquake, magnitude of 6.1 - 6.3, literally off the chart. The green stars on the map represent quakes over 3 on the Richter scale.
Shocked! How the oil crisis has hit the world
British pensioners who cannot afford to heat their homes. European hauliers and fishermen whose livelihoods are under threat. Palestinians forced to fill up their cars with olive oil. Americans asked to go down to a four-day week.
Oil price profiteering to be curbed at ICE Futures Europe and Nymex
Two of the world’s largest energy exchanges have forced traders to deposit significantly more money when investing to curb volatility in energy markets and drive out speculators.
Funding bonanza for oil-from-algae firm
Sapphire CEO and co-founder, Jason Pyle, is being cagey about revealing how much it costs to produce his algae-based product or how much it would cost at the petrol pump. In interviews, he indicated that production costs per barrel would be similar to petroleum-based fuel, which is very much a moving target at the moment.
Energy boss with the wind in his sails
But can he be happy that half his term has gone by and his industry is beginning to resemble a bunch of turbines becalmed by lack of wind at a time when traditional alternatives such as oil are more than $130 a barrel?
A four-cylinder solution to the mid-size crisis
As the cost of putting a tiger in the tank keeps going up, drivers are opting for a smaller cat under the hood.
Small-car sales have been a rare pocket of strength for the slumping auto industry in recent months as Americans sought relief from sky-high gasoline prices. But many buyers are sticking with mid-size or larger vehicles and choosing a smaller engine instead — saving money on the sticker price and at the pump without downsizing their ride.
A drop in oil, and a pall in Germany, give solar stocks a shiver
Crude futures slid more than $4 a barrel, and when anxiety about fossil fuel supply eases, alt-energy shares often wilt. The other issue has been less discussed. Despite its gray skies, Germany has used public-sector largesse to become a leader in solar installations. Here’s the worry: If lawmakers in Berlin quicken planned subsidy cuts, as they are contemplating, solar’s future gets cloudy in a key locale.
The Huge Hybrid: Few Takers for a New S.U.V. Twist
General Motors and Chrysler are betting that their 5,500-pound, eight-seat S.U.V.’s — long the scourge of environmentalists — can be reformed as hybrid models, albeit ones getting 20 miles to the gallon.
As Iowa Job Surplus Grows, Workers Call the Shots
Last year, the state added nearly 13,000 nonfarm jobs, in part because of growth in ethanol and wind energy, and lost 3,300 people from the workforce. With statewide unemployment at 3.5 percent, compared to a national rate of 5 percent, nearly everyone who wants to work and can work has a job. “We’re looking for ways to grow our population,†Ms. Buck said.
It’s Easier to Be Green if It Also Saves Money
One quick way to save gasoline is to drive less.
In normal times, the number of miles driven in the United States rises each year, as more people drive more cars and as rising housing costs force some commuters to move farther and farther from their jobs.
But the Federal Highway Administration estimates that in March — the most recent month for which data is available — vehicles traveled 246 billion miles. That is a lot of driving, but the figure is down 4.3 percent from the previous March.
Oil bubble could prove threat to pension funds
NEW YORK (Reuters) - Pension funds and other investors who rushed into oil through commodity indexes this year chasing big returns as other asset classes tanked could face steep losses if prices fall from record highs.
An avalanche of cash has rolled into commodities through simple long-only indexes this year, feeding the record-setting oil rally some experts say could be a bubble that is becoming more vulnerable to shifts in supply and demand fundamentals.
Crikey has a series of articles on “oil, the future and you“, with the first installment featuring Adam Grubb of Energy Bulletin (which has the full text for non-Crikey subscribers).
The high price of petrol today is causing discomfort among motorists. So much so that our federal politicians have spent almost a week haggling over whose scheme is best suited to knocking a few cents per litre from the pump price.
But in a world where oil is increasingly scarce, where the security of supply remains a problem, and where the environmental cost of using fossil fuels to power your car is soon to be factored into the pump price, is that the right response? What are the long terms solutions to our oil dependence? And is this the beginning of a new era of high-priced oil?
Crikey asked a panel of experts to answer questions on the good old days of cheap oil, what the politicians should really be arguing about, and how our economy will look when petrol costs many dollars per litre.
Today, Adam Grubb, the Australian editor of Energy Bulletin, answers Crikey’s questions.
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Have we entered a new energy era of high-priced oil? Are the days of $1/litre petrol gone for good?
Yes, the fundamentals would suggest so. We appear to have reached the peak in oil production. Global conventional oil production peaked in May 2005. Australia as a net importing nation is particularly vulnerable. Our internal oil production peaked in 2000.
Australian oil production
Most of the major countries we depend on for imports are themselves past their own peaks of production: Vietnam, PNG, Malaysia, New Zealand and Indonesia. Internal affluence and oil consumption is increasing in most of these countries such that exports are falling far more rapidly than actual oil production. Of the major countries we depend on, only the UAE has not been decreasing exports in recent years. (See this article on The Oil Drum.)
This is a trend we are seeing globally. Competition for increasingly scarce oil exports will make procuring replacement oil an expensive exercise, perhaps one sometimes resulting in conflict. Only a fairly severe global recession is likely to make oil a less scarce commodity, and then only temporarily. …
Sketch a picture of the Australian economy when petrol is $5/litre and rising, considering things like food, infrastructure, the family budget and inflation?
The McMansion suburbs are likely to fall into disrepair as the price of commuting and mortgage repayments cause many houses to be completely abandoned and stripped for copper wiring and other resources. Many formally middle class people who have lost their homes will be living out of their cars, perhaps even in gated car camps as are already being set up in the US. Many adult children won’t be able to afford moving out of home, and many households may take in boarders and relatives, creating larger households.
Repair and reuse industries will flourish, many based in garages and sheds. Urban and peri-urban food production will increase and vacant lots will be turned into food gardens. The streets will be more lively, with ad-hoc markets in used goods and home produce.
Use of foot transport, bicycles and public transport will increase. Street crime will not necessarily increase in direct proportion to economic hardships, as greater social use of the streets, due to less cars and the presence of walkers may provide a level of surveillance.
Some infrastructure and centralised social services may be slowly beginning to break down. Important phone lines will be left unanswered more often, unfilled potholes will be more prevalent. Many services of the welfare state may be withdrawn, depending on the political climate.
Restaurants, tourism, recreation, personal services and electronics are likely to be some of hardest hit industries. The cheap airline industry will collapse.
There may be food rationing of basic items.
Despite rapidly rising input prices, farmers, where the season is kind, will once again be making fair returns on their efforts, and will be able to employ some of those moving from the cities.
Those with strong community or family bonds will fare better than new immigrants and the otherwise socially isolated. Adaptability and resilience will be key personal strategies. Those too institutionalised by schooling and wage work, and those who consider high consumption lifestyles a birthright and the alternatives unthinkable will have a psychological struggle to adapt. Ecologically inspired strategies such as permaculture design will move from being an environmentalist hobby to a core economic strategy.
Those who are looking for solutions which simultaneously tackle environmental impacts, build social bonds, save money and increase health and wellbeing, will find ideal solutions in local food production and a network of manufacture and repair microindustries.
At the SMH, the front page (and the business section) was filled with energy news, with the biggest splash (featuring ASPO Australia’s Garry Glazebrook) reporting on the surge of commuters onto public transport.
SOME rail passengers are being left behind on platforms and bus commuters are enduring long queues as motorists baulk at the soaring price of petrol and switch to public transport.
Morning peak-hour numbers on CityRail vastly exceed the State Government’s “high-growth” predictions, and bus corridors are suffering a commuter crush. There has even been a surge in demand for inter-city Greyhound coach services.
The rush for public transport comes as motorists begin to ration their petrol use. Sales of unleaded petrol fell by 4.4 per cent in the first three months of the year.
Garry Glazebrook, urban planning lecturer at the University of Technology, Sydney, said traffic growth was beginning to slow because fewer people could afford petrol. “In Sydney, the price of petrol and the tolls combine with interest rates and inflation, and there is less room in the budget,” he said. “Something has to give.”
It is possible that a huge proportion are shifting to rail. In the 12 months to February, there were almost 1.2 million new passengers on the Bankstown line, a growth rate of 8.4 per cent.
In 2001, the Government’s Transport Data Centre predicted a worst-case scenario in which the network was hit by 2 per cent yearly growth to 2021. In the year to February, that figure was more than 4.7 per cent. Patronage climbed 7.4 per cent on the Inner West Line, 6.3 per cent on the Western Line and 6.2 per cent on the East Hills Line. Trains are so full on the Bankstown and Western lines that some morning commuters are being left behind.
Meanwhile, patronage on the Hillsbus morning peak service to the city soared from 170,000-odd passengers in September 2005 to almost 300,000 in August 2007. “We had about 65 buses in 2005 operating on the M2. It is now closer to 140 buses coming out every morning,” said Hillsbus’s chief executive, Owen Eckford. “We have reason to believe that growth is likely to continue.”
“Alright!†says the Actress, “You’ve convinced me we have a problem with oil. So what’s the answer?†Well, actually I didn’t. Eloquent and persuasive though I might like to think that I am, what really convinced her was the price she had to pay to fill the gas tank in her car. And it is that way with most of the world. We can talk about the causes, and explain why the situation won’t get better, with graphs and projections and calculations, and most folk will, under the cynical guidance of most of the press, merely look for someone to blame. Oh, and there had better be an answer, pretty quick.
In my last post I tried to show that new solutions take time, more time than I believe that we have available. And because of this, if we are going to get through this evolving period we are largely going to be stuck with the solutions that are already either being introduced or are close to large-scale implementation. Though that is one of the things I tried to allude to in the earlier post about Camry mileage. The scale of the difference between likely supply and demand at a decent price is going to get quite large. If a solution does not provide supply levels that measure in millions of barrels a day (or significant fractions thereof) then it is not going to have enough impact to make much difference in the medium term.
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That doesn’t mean that we should stop work on fusion, after all, even to the next generation to be born, it is likely to be “a potential solution with the greatest promise.†But rather that we have to put more of an emphasis on finding ways to do more with what we have, in the way of solutions and resources. And that includes finding better and more efficient ways of getting oil out of the ground. It is where part of the immediate problem is most evident, and though it will not provide a long term solution, it can perhaps ease the pain over the next decade.
But even here there is likely not enough research being done on innovative ideas. I have, in a much earlier post quoted Michael Economides and Ronald Oligney from The Color of Oil in which they point out that the petroleum industry has been sadly lacking in funding research.
Many unique features distinguish the technology of the petroleum industry. First, there is little doubt that technology is crucial, and that deployment and integration of technology is essential to the industry’s success. Yet, this technology is highly diversified and applied to industry segments with different needs. The scope is wide. Seismic exploration and processing, enhanced oil recovery and the construction of deepwater production facilities have little in common.
Why is it, then that the petroleum industry, so technically dependent, is the industry with the smallest R & D spending? The healthcare sector leads all industries, with 11% of sales going into R&D; the electrical and electronics industry spends 5.5%, and the chemical industry spends 4.1%. In this light, the petroleum industry’s R & D spending of less than 0.5% of sales is striking.
It is not just the petroleum industry, the mining industry is equally lacking in funding research into innovative, and more effective ways of producing the minerals, including coal, that we need. If there is one thing that Congress could perhaps ask, it is why there is this lack of investment. So far it seems that there has been little investment other than in public relations.
Now, to be fair to them, I did partially answer that question in a comment I appended to that original post.
Grin - a history lesson (because I was there) - Scene Park City, Utah.
On the front row, representatives of all the big oil companies. We are meeting to talk about drilling research. Says the rep of a European oil company – “Why are the Feds doing research into drilling technology - don’t they know that we are working on this?â€
Says the rep of an oil company located in Houston – “What is your drilling R & D budget?â€
European “$x million.”

Houston guy ” This new Administration that they are forming has a budget in the billions.”

European “Oh, I guess if they are going to fund it there is no reason for us to.”

And so they largely stopped, but ERDA went on to fund other things instead of drilling research and, in time, became the Department of Energy.
Sic transit . . .
And then, in time, the Department of Energy reduced their programs, more and more, and less and less got done . . . .
And, as for the research in mining, well that was carried out by the U.S. Bureau of Mines. Among other things they pioneered coal bed methane (CBM) technology – this from 1978
The Bureau of Mines is conducting research to determine the effectiveness of long holes in degasifying an area of the Upper Split of the Lower Sunnyside coalbed at Kaiser Steel Co.’s Sunnyside No. 1 mine. These holes were drilled from the two outside entries of a section that was closed to mining because of excessive methane emissions. Two holes drilled to 430 and 450 feet produced initial gas flows of 160,000 and 127,000 cfd, respectively . Sixteen days after the completion of the second hole, the total gas production declined to just over 144,000 cfd.
In 9 months of degasification, over 35 MMcf of commercial-quality gas has been removed from the coalbed. The combined gas flows declined to 106,000 cfd in the 9-month period. The two holes have reduced face emissions by about 40%.
They also did some of the early work on horizontal wells, developed from a vertical bore, but those reports (such as USBM RI 8640) don’t appear available electronically. What happened to them? In March 1996 the Bureau of Mines was closed. It seems as though there is more than one dropped ball rolling around the floor.
As I mentioned in my last post I am an avid reader of science fiction and fantasy, as well as books on energy and related matters – sometimes it is hard to tell which is which (grin). But I remember a story (though not title or author) in which the protagonist noted, about a new breakthrough, that of the scientists that investigated it, at least half would be trying to prove that it didn’t work.
I bring that up because, as ideas develop towards being solutions to the fuel supply needs that we face, they invariably encounter problems. Ethanol from corn is likely one such, there are high energy input requirements and water demands that are raising voices of concern. But among the 2007 highest yields (pdf) was Sam Santini, who raised 313 bu/acre without irrigation. Some of the problems that are given as road-stoppers to application may only be hurdles that have to be crossed, and in such cases an overly negative climate really doesn’t help.
At the moment it still seems to me that each of us has his/her favorite solution, and in seeking to push its charms, feels it is still necessary to denigrate the chances of the others. (And yes, in that regard I will admit to a personal preference for algae). The reality is that we are going to need all the help that we can get, and no solution is going to be universal – there is no silver bullet. It is hard to see solar being very useful, for example, in Alaska in December. But, as I think Matt Simmons said, there are lots of silver bb’s out there. We need to be encouraging them all, because we will need them all. The scale of the problem that is developing, and the speed with which it will arrive, is largely not comprehended. And, unfortunately, at present, I don’t see that we have enough grasp on the questions that must be asked, if we are to find those answers, let alone knowing what those answers are.
Amid a sell-off, oil market may have to stop believing its PR
Did record oil prices just get talked to death — or at least into a short-term coma?
Crude oil futures slumped 3.4% today, the biggest decline in two months, after weeks of headlines suggesting that energy prices were in an unstoppable upward spiral.
“We do know that oil has been the most talked about thing recently, and that things often top or bottom when their moves have attracted a lot of attention,” said Brent Luce, a portfolio manager at investment firm CapitalWorks in Cleveland.
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Pulse racing ahead with Chinese energy projects
PULSE Energy has fewer than 10 full-time staff but that hasn’t stopped it securing a contract for one of the biggest renewable energy projects in the world. . . . .
About 90 per cent of Pulse’s activity is in China where, among about $3 billion of contracts, it is working on a 1000 megawatt wind farm in inner Mongolia.
SANTOS has confirmed that coal seam gas processing in Queensland will soon be a multibillion-dollar industry by selling oil and gas giant Petronas a 40 per cent stake in its CSG operations and planned Gladstone plant.
The $US2.5 billion ($A2.6 billion) deal, with Malaysian government-owned Petronas – the world’s third-largest LNG producer – includes an upfront payment of $US2 billion.
New Zealand services under scrutiny in Qantas operations review
Transtasman and New Zealand domestic services are part of a Qantas review of operations which has already seen sweeping cuts to help offset the extra $2 billion in fuel costs it faces this year.
Indonesia fuel price hike necessary to curb poverty: minister
JAKARTA (AFP) — The Indonesian government’s decision to hike the price of fuel by around 30 percent last week was necessary to tackle poverty and inflation, a minister said Thursday.
Information minister Mohammad Nuh defended the price rise amid nearly daily protests across the country and accusations that a cash transfer scheme aimed at softening the impact of the rise was not going to those in need.
US-made oil disaster has mileage
The short answer is that the US Federal Reserve was in large part responsible for the oil price explosion and its volatility, while two successive US administrations have created the oil supply shortfall, again adversely affecting oil prices.
CNOOC’s focus not international
CNOOC Ltd, China’s biggest offshore oil producer, said overseas acquisitions won’t be the main driver of future growth.
The company will rely on existing businesses as its growth engine while overseas asset purchases and takeovers are just one aspect of the overall strategy, Chairman Fu Chengyu said after the annual general meeting in Hong Kong yesterday.
New Lukoil, Gazprom Field Holds 100M Tons of Oil
The Caspian oil and gas field discovered jointly by Russia’s OAO Gazprom (GAZP.RS) and OAO Lukoil (LKOH.RS) could hold more than 100 million metric tons, or around 730 million barrels, of oil, a person familiar with the matter told Dow Jones Newswires Thursday.
Earlier the same day, the two companies said they had “discovered a large oil and gas condensate field” in the Caspian Sea’s central structure. The companies said they have started a feasibility study of the field, which is located 150 kilometers from Makhach-Kala on the border between Russia and Kazakhstan.
No rise in electricity exports
Cape Town - Public Enterprises Minister Alec Erwin has denied that South Africa increased its exports of electricity in the first three months of this year, saying that in fact exports fell by 8%.
At the same time, he said, imports also fell.
Eskom CEO: Crisis to last years
Johannesburg - The power shortage that has slowed South Africa’s growth and frightened investors will go on for years, the head of Eskom warned on Thursday.
Eskom, which produces about 95% of South Africa’s electricity, has rationed power through load-shedding since January, when the national grid virtually collapsed and millions were plunged into darkness.
Blackouts: Prepare for the worst
Johannesburg - South African power utility Eskom on Thursday warned that it could take about two weeks to bring South Africa’s power system back up if it were to collapse. . . . .
“I don’t want to be alarmist,” said Maroga, “but the consequence of a nationwide blackout is not fully understood.”
AZERBAIJAN SEES POSITIVE SIGNS FOR ENERGY PARTNERSHIP WITH TURKMENISTAN
Azerbaijani President Ilham Aliyev has recently stepped up his ongoing campaign to promote Azerbaijan as the key to Europe’s energy security at a recent energy summit in Kyiv. But this is a role in which Baku needs a supporting actor. Azerbaijani experts believe that the Aliyev administration now has agreements with Turkmenistan to play that part. . . . .
If that trend continues, Shaban believes, an agreement between Azerbaijan and Turkmenistan on delineation of their territorial lines could be forthcoming by the time of the summit of Caspian Sea littoral states (Azerbaijan, Iran, Kazakhstan, Russia, Turkmenistan) in Baku this September.
Petrobangla seems unable to supply gas to new PDB power projects
DHAKA: Petrobangla wants to sit with the Power Development Board (PDB) to review the gas-based power projects as it may fail to supply gas to the new PDB projects as per commitment. 
”After examining all possible ways to increase gas output from the existing fields’, we realise that we need to hold a meeting with the PDB to apprise it of the gas production scenario as we committed to supply gas to their new projects. But unfortunately we may not keep our promise”, a top official of Petrobangla told The Independent yesterday.
First licence for LPG auto-gas station issue
KARACHI: A Lahore-based LPG marketing company on Thursday received a licence for setting up an auto-gas station, the first to regularise the sale of this fuel, which is usually marketed by illegal decanters.
Subsidy on kerosene being pocketed by industrialists
SLAMABAD: Millions of rupees in government subsidy on kerosene for providing the poor with the fuel are actually pocketed either by paint manufacturers or adulterators.
Diesel shortage hits truckers again
Doha • Shortage of diesel has hit the local market again after almost a year of the first diesel crisis, says an Arabic daily. Truck drivers and salesmen at petrol stations across the country say there is a severe shortage of the fuel.
The crisis has caused serpentine queues of trucks to be formed in front of several filling stations. Some heavy vehicles are causing traffic jams in Doha and its suburbs as they roam around fuel stations in search of a few gallons of diesel.
Australia looks for power from hot rocks
Brisbane • A small bleak township in Australia’s Outback is sitting on a source of energy that could power the entire nation for thousands of years. Deep beneath the tiny community of Innamincka lie the earth’s hottest rocks and the prospect of endless supplies of geothermal energy is exciting investors as far afield as the UK.
The township in South Australia, not far from the fateful riverbank where the explorers Burke and Wills died of hunger and exposure in 1861, has attracted Geodynamics, one of Australia’s larger renewable energy producers, keen to exploit the hot rocks 4km below the surface.
Naryshkin Says Oil Could Slow Growth
Kremlin chief of staff Sergei Naryshkin warned on Thursday against economic complacency but said that if sensible policies were continued then Russia could be one of the world’s top five economies by 2020. Naryshkin, who was appointed President Dmitry Medvedev’s chief of staff earlier this month, told the ruling United Russia party that economic stability was not guaranteed forever. . . . .
Investment bank Goldman Sachs predicts that Russia’s economy will overtake Britain, France and Germany over the next few decades to become the biggest economy in Europe. Naryshkin said Russian per capita GDP would reach 70 percent of the equivalent level in the United States by 2030. At present, Russian per capita GDP is just 16 percent of the U.S. level.
Regulators Step Up Probes Of Trading in Oil Market
The CFTC’s announcement about its oil investigation suggested a single, broad probe that began in December 2007. But people familiar with its enforcement priorities say the agency is pursuing multiple oil investigations, and that many of them relate to one another. CFTC enforcement chief Gregory Mocek said the agency has about 60 manipulation investigations open in various commodity markets.
Platts.Com News Feature: North American Shale Gas
Although much of the industry’s attention to future domestic supply has focused on coalbed methane and the deepwater Gulf, shale is making a huge comeback - as evidenced by the surge in activity in Texas’ Barnett Shale, which has propelled Devon Energy to the Lone Star State’s largest gas producer. And shale formations in other parts of the country, from Wyoming to Arkansas to Appalachia, are attracting millions of dollars of new investment.
Estimates of how much gas is sandwiched between shallow layers of prehistoric mud now as hard as a chalkboard change constantly as more exploration-and-production companies plunk their bets on those quirky, unconventional plays - and have more success coaxing commercial quantities of gas out of them.
Ukrainian Leaders Found Themselves on the Opposite Sides of the Pipeline
According to the information of Kommersant, Ukraine’s President Victor Yushchenko and Prime Minister Yuliya Tymoshenko have delivered two competing energy plans for the country. Friday, speaking at the Energy Summit in Kiev, Victor Yushchenko suggested creating a gas transporting OPEC, which will transport energy resources omitting Russia. In her turn, Yuliya Tymoshenko intends to settle the gas dispute with Russia promising Russia to prolong the treaty on its Black Sea Fleet deployment and suspend Ukraine’s NATO plans.
Tax windfall enough to cover fuel duty freeze, says IFS
Windfall gains made by the Government from taxes on North Sea oil would more than pay for a postponement of the 2p rise in fuel duty scheduled for this October.
Oil prices to be probed by US regulator CFTC
America’s leading commodities regulator has launched an unprecedented investigation into possible market manipulation in the US crude oil market amid record prices which continue to cripple various parts of the global economy.
Burning food: why oil is the real villain in the food crisis
The rising cost of foods is widely being blamed on the use of grains for biofuels, and the case for the prosecution is simply made. About 100m tonnes of maize from this year’s US crop will be diverted into ethanol refineries, an increase of a third on 2007’s figure. This means one in 20 of all cereal grains produced in the world this year will end up in the petrol tank of US cars, the country that is most aggressively increasing the use of food for fuel.
UK power giant says energy industry on the brink of radical change
Britain’s second biggest gas and electricity supplier, Scottish and Southern Energy, warned today the industry stood on the brink of radical change.
Centralised fossil fuel fired generation would have to give way to a combination of energy efficiency and diversity of generation.
“The days of meeting an unchecked demand for energy through monolithic carbon intensive power stations are coming to an end. Increasingly the emphasis will be on energy efficiency, renewables, cleaned up fossil fuel plant and micro generation,” the company said in a statement accompanying its full-year results.
Fuel prices spark holiday crunch as air surcharges soar
Families are facing holiday misery this summer after big airlines sharply increased fuel surcharges on their flights, bringing the era of cheap air travel to an end.
Virgin Atlantic is imposing new charges today and, from Tuesday, British Airways long-haul passengers will have to pay £218 on top of the ticket price simply to cover the cost of fuel.
Darkness at noon as National Grid and E.ON dispute price
A rescue plan to avert blackouts that hit 500,000 homes this week was undermined by demands of E.ON, the German energy group, that National Grid pay double the usual price for an emergency electricity boost, The Times has learnt.
New surges in energy bills imminent, says power boss
The chief executive of one of Britain’s largest power companies issued a warning yesterday that further energy price rises were imminent.
AIan Marchant, the chief executive of Scottish & Southern Energy (SSE), which supplies power to 8.45 million UK customers, said that an unprecedented rise in oil prices in recent months meant that the outlook for consumers was not good.
Mounting costs slow the push for clean coal
WASHINGTON: For years, scientists have had a straightforward idea for taming global warming. They want to take the carbon dioxide that spews from coal-burning power plants and pump it back into the ground.
President George W. Bush is for it, and indeed has spent years talking up the virtues of “clean coal.” All three candidates to succeed him favor the approach. So do many other members of Congress. Coal companies are for it. Many environmentalists favor it. Utility executives are practically begging for the technology. But it has become clear in recent months that the nation’s effort to develop the technique is lagging badly.
Social pain of rising fuel costs spreads in Europe
PARIS: When it comes to transportation, Marie Schneberger has always tried to be thrifty. As an airline employee earning a middle-income paycheck, the price of gasoline in France, like elsewhere in Europe, has made it prohibitively expensive for her to ever own anything bigger than a Fiat Panda.
But now that gasoline prices have surged past €1.40 a liter, or the equivalent of $8.21 a gallon, on much of the Continent, she has cut back even more. Recently, Schneberger started taking the Métro to work. Now, she shares her subcompact car with two other women to split fuel costs.
Patrick signs bill to manage ocean resources
Governor Deval Patrick yesterday signed the nation’s first comprehensive ocean planning law to guide where pipelines should be laid, areas should be protected, and energy projects built. . . .
The plan will not affect the Nantucket wind farm, nor the new liquefied natural gas port off Gloucester, both of which are in federal waters.
As Oil Prices Soar, Restaurant Grease Thefts Rise
The bandit pulled his truck to the back of a Burger King in Northern California one afternoon last month armed with a hose and a tank. After rummaging around assorted restaurant rubbish, he dunked a tube into a smelly storage bin and, the police said, vacuumed out about 300 gallons of grease.
How Abu Dhabi Differs From Exxon
Abu Dhabi, the largest of seven sheikhdoms in the United Arab Emirates, is swimming in oil revenue - and it’s investing some of that money in solar power. That’s more than can be said for Exxon Mobil Corp., which rebuffed a Rockefeller initiative at yesterday’s annual meeting to nudge the company toward renewable energy. A shareholder resolution sponsored by the company’s founding family was easily defeated.
Coal seam gas seen as Asia’s next hot energy play
PERTH (Reuters) - Surging gas prices are increasingly drawing new investors to Asia’s nascent coalbed methane (CBM) seams, an underutilized energy source that analysts say could meet a sizeable part of the region’s gas needs in coming years.
Ken Deffeyes: Oil Production, Oil Price
In 2005, world oil production stopped growing and oil prices shot up uncontrollably. My graph of production versus price is now two weeks old and the price is already off the top of the paper. This morning, West Texas Intermediate is $130 per barrel. In Econ 101, they taught us that increasing prices would enlarge the supply. The economists may have envisioned a large inventory of oil wells, temporarily shut down because of low oil prices.
Under normal circumstances, the surge in ridership would be a boon to the agencies, which have long argued that public transit is one of the best ways to combat social ills such as traffic congestion and global warming.
But at the very moment they should be investing to expand their services, the same driver that is ballooning ridership is crippling transit budgets: steep fuel bills. As record numbers of people board buses and trains, higher costs are forcing public transit agencies to scale back on services, further straining capacity. Local transit agencies fret that the capacity problems may squander the opportunity to convert more Americans to public transportation.
Lehman Bros warns of oil dot.com
“Summer market tightness could, under these circumstances, continue to propel oil prices upward to untested levels. But when peak prices hit, we believe they are also likely to fall precipitously.
“That is the way cyclical turning points tend to occur-in the midst of a market trend, turning points can be sudden, unexpected, and severe. If history is a guide, the turning point will come, getting the timing right is the difficult part.â€
Global Total Liquids production and oil price, January 2002 to present. Production data from the IEA, data files supplied by Rembrandt Koppelaar. Monthly average WTI oil prices from Economagic.
With oil reaching $135 / barrel, Oil Drum readership exceeding 30,000 unique visitors per day and many wild stories circulating in the MSM as to why oil prices are so high this post strives to explain why oil prices are rising exponentially.
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Production and demand
The most significant feature of the chart up top is the dog leg in production growth in 2004. Prior to then the flow of new oil field projects combined with increasing utilisation of spare capacity allowed global oil production to grow and to meet much of the growth in demand.
In 2004, OPEC spare capacity fell close to zero (see below) and the world struggled for a number of reasons to bring on new supply to compensate for decline (see below). The slowing of production growth has meant new supplies are insufficient to meet growing demand and the price has gone up to balance the books. Higher prices stimulate conservation that may take the form of fuel efficiency (driving a smaller car) or abstinence (poor people being priced out of the energy market).
Every year a large number of new oil fields are brought on line. However, this does not directly translate to growth in supplies since amongst other things the production decline in existing fields needs to be replaced first:
new annual production capacity = consumption growth + annual decline + spare capacity growth
Decline
All oil wells, oil fields and oil provinces are exposed to a phenomenon called decline. Producing oil depressurises the sub-surface reservoirs and uses up the reserves. With time the proportion of water to oil that is produced in any well increases (increasing water cut) and this combined with depressurisation leads to declining oil flow rates.
Combined, these processes result in naturally declining production. It has been estimated that the global average decline rate is 4.5% per annum. (personal communication, Peter Jackson, CERA). What this means is that every year the global oil industry must bring on stream 3.8 million barrels per day new production just to compensate for decline (4.5% of 85 mmbpd). If less than 3.8 million bpd are commissioned then global oil production will fall and vice versa.
The higher global oil production rises, so rises the amount of new annual capacity required to compensate for decline.
As global oil production has risen, the annual new capacity required to offset decline has gone up too. Bearing in mind that all the best fields have already been produced, annual decline must be offset using second and third class oil fields. This task eventually becomes impossible and a production plateau is attained. That is where we are right now.
Net energy and energy density
The world has already used up a large proportion of its best oil reserves. These are the light sweet crude oil reserves produced on shore from first class reservoirs.
The proportion of low ERoEI liquids and low energy density liquids is growing exponentially. Source EIA and Oil Watch Monthly.
This chart shows that a growing proportion of world total liquid fuels production comprises second generation liquids - e.g. natural gas liquids, syncrude from tar sands and biofuels.. These are essentially synthetic liquids that need to be created and the process of creation uses energy. The term used to describe this concept is Energy Return on Energy Invested (ERoEI) and while historic oil production may have had large ERoEI numbers greater than 100, these synthetic liquids have low ERoEI. Around 1.2 in the case of temperate latitude ethanol and 5.0 in the case of syncrude produced from tar sand. The main point is that a steadily growing proportion of the global total liquids production is being used to produce these liquids leaving less for society to use than the bare figures may suggest.
ERoEI = (energy contained in fuel) / (energy used to produce fuel)
When the energy used to produce a fuel is larger than the fuel itself contains the ERoEI will be less than 1 and the whole exercise is rather pointless apart from in exceptional circumstances where energy quality is very important, e.g. in food production.
A second and equally serious issue lies in the energy density of the new liquids being produced. In energy terms, 1 barrel of ethanol or a barrel of liquefied natural gas is not the same as a barrel of crude oil. The latter contains significantly more energy. Hence measuring energy production by the volumes produced (barrels) is misleading and presents an over-optimistic picture.
As a rough approximation, the energy equivalence by volume of ethanol and LNG are as follows:
1 barrel of ethanol = 0.61 barrels of crude oil
1 barrel of LNG = 0.73 barrels of crude oil
In summary, the picture of rising liquids volume production up top is deceptive. With the passage of time the energy content of those liquids is falling steadily and the amount of energy used to produce them is rising. This means less energy for society to use at a higher cost.
31.8 billion barrels per year
The world now consumes 31.8 billion barrels of oil per year. 1978 was the last year that this volume of oil was discovered and more recently discovery has been running at less than 10 billion barrels per year. It is an utterly forlorn hope that exploration and new discoveries may alleviate the current supply crisis.
Mega projects
The inventory of past discoveries has not yet been used up and a list of new oil mega-projects first complied by Chris Skrebowski has been expanded and maintained by The OIl Drum in Wiki format.
Global crude + condensate + NGL + syncrude scenario based on TOD mega-projects database as of 27 May 2008. This is not a definitive forecast since there is uncertainty over decline rate, project slippage and there is no allowance made for small projects. Beyond 2012 there is a planning horizon for projects and so beyond that date is pure speculation based on 10% per annum decline in new production capacity - and this may contribute to the apparent peak at that time. The 4.5% per annum decline rate is based on a personal communication with Peter Jackson (CERA) who conducted a comprehensive study of oil field decline last year. This decline is applied also to new production.
At face value, these mega-projects should be sufficient to ensure some production growth in the coming years.
However, the pattern of recent years has been project slippage owing to global shortages of materials, manpower and rampant oil service sector inflation. The pattern of slippage may continue and the promise of an increase in new supplies may remain just that – a promise.
Spare production capacity and OPEC
It is a feature of natural resource depletion that there is either a glut or a shortage. Managing this during the early years of resource exploitation causes all sorts of problems. On planet Earth we need to be thankful to OPEC for trying to manage this problem via their production-sharing cartel. For much of the period since OPEC formed in 1960, the world had excess productive capacity, i.e. production potential was higher than was utilised. Withholding this reserve capacity helped bolster prices and reduce demand. But with erratic additions of non-OPEC supply and a tendency for certain OPEC members to cheat on their quota, oil prices tended to swing in an unpredictable manner through the period 1960 to 2000.
Since 2000 this situation has changed. Global demand for oil has continued to increase and to meet this demand much of the OPEC spare capacity has been switched on so that all but Saudi Arabia are now producing flat out.
Global spare production capacity from this presentation by Lawrence Eagles of the IEA (link lost). Note how 8mmbpd spare capacity in 2002 had all but disappeared by 2004. It has since then grown slightly but is once again in decline.
This more detailed and up-to-date picture from Rembrandt Koppelaar’s excellent May edition of oil watch monthly shows spare capacity in sharp decline. Despite a healthy inventory of mega-projects, the world is quite simply not managing to bring on new supply fast enough to compensate for decline.
In order to grow spare capacity, the world each year must commission new capacity to compensate for decline and to accommodate increased demand:
spare capacity growth = new annual production capacity - (annual decline + consumption growth)
As demand continues to rise against static supply, the only solution is for prices to rise and to price poor people out of the oil consuming economy.
Much of the spare capacity held in Saudi Arabia is heavy sour crude oil and the world currently lacks capacity in specialised refineries to handle this crude.
Peak exports
Another important concept is to consider is oil exports as described here by Westexas and Khebab. Oil exporting countries have increasing wealth and are attracting massive inward investment and migration resulting in steadily rising oil consumption. Indonesia provides a classic example of a former export land whose rising consumption has totally consumed their oil exports. Indonesia, once part of the oil supply solution has become part of the oil demand problem and has just left OPEC.
Rising demand and falling production has totally consumed Indonesia’s oil exports in the space of 40 years. Indonesia’s passion for bio-fuels is explained by this chart.
In 2006 Luis de Sousa produced this analysis of global oil exports. Those seeking an explanation for why oil now costs over $120 per barrel need look no further than this chart.
Luis de Sousa’s analysis of net oil exports shows a peak in global oil exports in 2004/5 followed by a period of gradual decline until 2010. Net export decline then accelerates. If this analysis is correct then the current oil price / oil supply crisis will shortly get much worse. However, note that 4 important exporting countries - Iraq, Nigeria, Azebaijan and Kazakhstan - are not yet included in this analysis.
Oil is still cheap
At $2 per liter bottled spring water costs $318 per barrel.
Oil is still very cheap. Bottled spring water at $2 per litre works out at $318 per barrel. Oil is fundamental to our lives for transportation and a myriad products ranging from plastic to pesticides. Unlike spring water, oil is finite and costs significantly more to find and produce. The price of oil will continue to rise until the world as a whole decides it can do with less or until meaningful volumes of energy substitution take root.
Subsidies and taxation distort the market
Many of the world’s oil consumers do not pay the market price paid by the OECD. In Russia, the Middle East and China and many other countries oil and gasoline prices are subsidised. So the thirst of those consumers is not abated by current high spot price. Taxation in Europe and Japan also de-gears the impact of high oil price in those regions where high tax means that gasoline is already expensive. The impact of rising prices is felt less in these countries - though it is now beginning to bite.
Secondary factors and excuses
There are a range of secondary factors impacting the day to day fluctuations in oil price such as:
- Speculation
- Political unrest in producing countries
- The depreciation of the $US
- Prime exploration acreage that is off limits to OECD corporations
Speculation
Financial speculation in oil futures is being offered increasingly as the reason for high oil prices. True, speculation is rife. However, the futures market is a zero sum game. For every long position there is a short position and the price is ultimately struck by the individual who takes delivery of the oil - which is then refined and purchased by a consumer. For so long as consumers keep demanding oil at ever higher prices, the price will continue to rise.
The only way speculation could impact the oil price is under accumulation. Inventories of crude oil and refined products have been falling for a year (see figures 14 to 17).
Political unrest
True, political unrest in exporting countries such as Iraq and Nigeria means that less oil is being produced. But this situation has prevailed for many years now and is likely to get worse as energy poverty begins to bite.
The depreciation of the $US
True, the depreciation of the US$ has contributed to the rise in oil prices. But the oil price has risen in € too.
From Countdown to €100 oil by Jerome a Paris.
Off limits exploration
True, there are vast tracts of the USA that are under-explored in the ANWR and off the east and west coasts where the US has placed a high price on protecting their own environment. But it is not true that the Middle East and Russia are under-explored and that greater access to these areas by OECD companies would transform the current situation.
In summary these secondary factors touted by the MSM, politicians and oil companies are nothing more than an excuse and a distraction from the core problem which is demand growth running ahead of supply growth for over three years now. If the USA, Russia or Saudi Arabia could turn on the taps and produce an additional 3 mmbpd, the oil price would fall tomorrow. But they can’t and the only way the oil price will come down is by reduced demand brought about by pricing poor people out of the energy market and by deepening recession.
Conclusion
We are now in the early stages of a full blown energy crisis that was predictable if not wholly avoidable. Politicians are awaking to the crisis now that escalating energy costs make its existence plain to see. It is highly unlikely that politicians will now grasp the gravity of the situation that the OECD and rest of the world faces and the responses will likely be ineffectual and too little too late.
The principal reason for current high oil price is the proximity of a peak in global oil production. Politicians must understand this and then grasp that natural gas and coal supplies will follow oil down by mid century. Reducing taxes on energy consumption right now is the wrong thing to do. Taxation structure needs to be adjusted to oblige energy producing companies to re-invest wind fall profits in alternative energy sources on a truly massive scale.
Energy efficiency should be the guiding beacon of all policy decisions and this must apply equally to energy production and energy consumption.
This is a post by Richard Heinberg, Senior Fellow of The Post Carbon Institute and author of Peak Everything, The Party’s Over: Oil, War and the Fate of Industrial Societies, Powerdown: Options and Actions for a Post-Carbon World, and The Oil Depletion Protocol. A special thanks to Global Public Media for facilitating publication of Heinberg’s work; GPM is a wonderful resource and plays an important role in peak oil activism. This article is a draft chapter from a forthcoming book, currently titled Coal’s Future/Earth’s Fate.
With oil and natural gas prices rising and coal prices still relatively low, the return of the US to a greater reliance on coal might seem inevitable. However, several recent reports suggest that coal reserves, which have shrunk dramatically during the past century, may still be overstated. Coal prices are likely to rise precipitously during the next two decades due to transport bottlenecks and higher transport costs, falling production trends in many current producing regions, and the lack of suitable new coalfields. This information should give pause to any agency planning new coal power plants today.
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Because the US has the world’s largest coal reserves, it has sometimes been called "the Saudi Arabia of coal." It is the world’s second-largest coal producer, after China, but surpasses both the number three and four producer nations (India and Australia) by nearly a factor of three.
Wood was this nation’s primary fuel until the mid-1880s, when deforestation necessitated greater reliance on abundant coal resources. Coal then remained America’s main energy source until the 1930s, when it was overtaken by oil. Today coal fuels about 50 percent of US electricity production and provides about a quarter of the country’s total energy.
The US currently produces over a billion tons of coal per year, with quantities increasing annually. This is well over double the amount produced in 1960. However, due to a decline in the average amount of energy contained in each ton of coal produced (i.e., declining resource quality), the total amount of energy flowing into the US economy from coal is now falling, having peaked in 1998. This decline in energy content per unit of weight (also known as "heating value") amounts to more than 30 percent since 1955. It can partly be explained by the depletion of anthracite reserves and the nation’s increasing reliance on sub-bituminous coal and even lignite, a trend that began in the 1970s. But resource quality is declining even within each coal class.
While there are coal resources in many states, the main concentrations are in Appalachia, Illinois, Wyoming, and Montana (see map below). The 53 largest coalmines in the US, located in just a few states, account for almost 60 percent of total production.
Three states (Pennsylvania, Kentucky, and West Virginia) produce 52 percent of the higher-quality coal in the US. All three of these states seem to be in decline or plateau. Since the Northeast was the area of the nation earliest settled and was long a primary center for industrial manufacture, it is not surprising that the coal of this region was exploited preferentially. Today, Pennsylvania’s anthracite is almost gone. Mining companies there are now exploiting seams as thin as 28 inches. West Virginia, the second largest coal-producing state (after Wyoming), where much coal is surface mined in an environmentally ruinous practice known as mountaintop removal, is nearing its maximum production rate and will see declines commence within the next few years, according to a recent USGS report. (www.byronwine.com/files/coal.pdf)
The interior region—consisting of Illinois, Arkansas, Indiana, Kansas, Western Kentucky, Louisiana, Mississippi, Missouri, Oklahoma, and Texas—is the smallest coal producer of the three main producing regions. The Illinois basin boasts large reserves of bituminous coal, but production has fallen there since the mid-1990s. Its coal generally has a high sulfur content (3 to 7 percent), which runs afoul of US environmental laws, especially the Clean Air Act of 1990. Prior to this legislation, power plants burning high-sulfur coal released emissions resulting in acid rain that decimated forests throughout much of the nation. The lignite steam coal of Louisiana is an exception within the region: its sulfur content is low and so production has risen substantially in recent years. After 2018, sulfur scrubbers will be mandatory for coal-fired power plants in the US, perhaps facilitating a move to increase production of coal from the Illinois Basin.
Wyoming has some bituminous coal, but most of its reserves consist of sub-bituminous and lignite. Production from the state (primarily from the Powder River Basin) has increased sharply since 1970, because its coal is abundant, cheaply surface-mined, and low in sulfur. Wyoming is currently responsible for 80 percent of coal production west of the Mississippi.
Montana also has large deposits of lower-quality coal (sub-bituminous and lignite), but these have not been tapped. The current state governor, Brian Schweitzer, is pushing for development of these resources using gasification and carbon sequestration technologies, but there are reasons to doubt whether this will occur soon or on a meaningful scale. Montana’s coal contains salts that will almost inevitably find their way into the environment if widespread surface mining occurs, contaminating rivers and creating problems for cattle ranching—the state’s economic engine and a locus of considerable political clout.
For the nation as a whole, future supply hinges on the question of how long rising production of lower-quality coal from Wyoming—supplemented in the future perhaps by coal from Montana and the Illinois Basin—can continue to compensate for declining amounts of high-quality coal from the East. Clearly, the US has the potential to produce enormous quantities of coal. But the gradual depletion of coal with higher heating value is already necessitating the mining of larger quantities of lower-quality coal to yield an equivalent amount of energy, and as coal is sourced more from Montana and the Illinois this will require the building of more rail transport infrastructure and the overcoming of environmental problems and regulatory hurdles.
Over sixty percent of coal mined in the US is dug from the surface. This is a higher percentage than in most nations, and it is largely due to the contribution of Wyoming. In the eastern states, most coal still comes from deep mines, which are moving toward the recovery of ever-thinner seams. Highwall mining systems and new technologies for longwall mining may lead, ultimately, to remote-control mining involving few or no personnel working underground. These new and more efficient technologies will enable some coal to be mined that would otherwise be left behind, but they are unlikely to be applied throughout the entire industry due to high up-front investment costs.
In surface mining, the largest extraction cost is often incurred in removing overburden (soil and rock). Over the years, the coal industry has introduced ever-larger earth-moving machines for this purpose. However, truck size has probably reached a practical maximum, as the biggest vehicles cannot be maneuvered on roads.
However coal is mined, the industry must always confront the bottom line: the cost of getting coal out of the ground cannot exceed the market price for produced coal. Thus the current price determines whether marginal coals will be mined profitably, or simply left in the ground. On the other hand, however, as the costs of bringing coal to market rise, this can cause the price of coal to increase—unless and until higher prices suppress demand. Given that demand for electricity continues to expand, and that cheap alternatives to coal for power generation do not exist in sufficient quantity in the short run, there seems to be no near-term cap to coal prices. As a result, marginal coalfields are now more