Category Archives: Jobs

What Is The Future Of Offshore Oil Drilling in the United States?

BP has been under a lot of criticism lately from citizens, organizations and government officials because many feel that BP is to blame for the Gulf of Mexico oil well leak.  The oil well began leaking oil into the ocean over 40 days ago.  Since that time, BP has tried several different techniques to either control or halt the flow of crude oil into the Gulf of Mexico.  With government officials making comments like, “I think we’re now beginning to understand that we cannot trust BP…BP has lost all credibility, now the decisions will have to be made by others because it’s clear that they have been hiding the actual consequences of this spill”, Congressman Ed Markey.  I’ve began to wonder what will happen to future offshore drilling endeavors.  Do you think that BP wants or likes losing all of this oil into the ocean?

With quotes like that made by Congressman Ed Markey, it seems like we are going to see more government intrusion into the oil industry through regulations and/or the government trying to control aspects of the oil industry.  Do the ‘evil’ bankers ring a bell?

Suddenly, because of this one offshore oil drilling disaster, talks of putting offshore drilling to a halt have risen.  We have been drilling for oil in the Gulf of Mexico for over 70 years now and on top of that there are thousands of operating oil wells that have a good track record.  I know that the BP oil leak is major, but to consider stopping offshore oil drilling would be halting an important energy source for our nation.  Per President Obama during his BP press conference, “The government is running things…”; since when has the government micromanaged anything very successfully?

The federal government can not continue to attack BP both publicly and legally by launching a criminal investigation into BP.  The plans for this, and all oil wells are presented in detail to the federal government before drilling can begin; only after the approval by the federal government can drilling start.  BP got the plans for this oil well approved so blaming BP for this disaster seems ignorant.  This type of behavior has the potential to scare away companies and to stop future oil well development.

I would love to see the adoption of more renewable energies but we simply can not change the fact that we NEED oil and that finding sources of oil will require us to go offshore.  It is naive to think that government could/can solve this problem, that we should stop our search for oil, and that we have the ability to stop using oil.  Renewable sources have a ways to go before becoming a good replacement for oil, so until then we need to work on gathering more oil and perfecting renewables at the same time.

Sources:

BP Criminal Investigation Launched By Feds – Huffington Post

Obama under pressure on oil drilling ban – The Examiner

Dems:’We cannot trust BP’ – MSNBC

Federal Gulf Distribution by Production Rate Bracket – EIA

Offshore Oil and Gas in the US Gulf of Mexico – Wikipeda

What Caused The Deepwater Horizon Disaster? – The Oil Drum

Obama Defends Response to Gulf Oil Spill, Pledge to ‘Shut This Down’ – FoxNews

Global Warming, Peak Oil, and Economic Crisis

When Zach and I started this blog, we agreed that it should be in the technical domain, rather than the political one as much as possible. The hope was that with high quality information available to the political class and activists, the “solutions” would be forthcoming. As time goes on though, it seems that even as difficult as our energy challenges are, the political ones are tougher. This reality requires the Energy Strain blog to deal with issues that may be considered to be more in the political domain.

For the moment, the world seems focused on “Climate Change.” Climate change is the new term for what was originally termed “Global Warming.” It is difficult to figure out who changed “Global Warming” to “Climate Change.” I would argue that both of these names are actually very poor names for this problem. One thing that we know for sure is that the Earth’s climate has been changing for the entire time that it has existed. It seems to me that if you wanted to come up with a name to motivate people to action, you would not use a term that describes something that is “normal.”

Peak Oil is an equally poor name for the problems that people are using it to describe. Peak oil, when used in the M King Hubbert sense, is a perfectly correct term. Hopefully we all know of the work of M King Hubbert, and his curves describing how oil fields age. The problem with the way that “Peak Oil” is now used is that it now means hundreds of different things to different people. From the simplest and obviously correct meaning, that a mathematical curve can be applied to the theoretical extraction rate of an oil province, Peak Oil is now also being used as a substitute term for we’re running out of oil, Malthus was right, all problems are caused by running out of oil, and the end is coming.

Economic crisis is also a very poor name for a widely varied set of symptoms. Economists originally called it “Sub-Prime” Crisis, then “Recession,” and now their favorite seems to be “Economic Crisis.” The names are likely to change as the symptoms of the end of the Industrial Age present themselves.

After studying the end of the Industrial Age for about five years, it all seems quite simple to me. These problems are all related, and must be contemplated and solutions proposed for the actual problems, not just the symptoms, and not with solutions that “feel good,” but rather solutions that fit the physics of the problem.

The problem is simple.
Man found a substance in Earth’s “basement” that allowed him to temporarily overcome the normal limit of living on Earth, that limit being: living on the energy that comes from the Sun. Man used the energy from this substance to continuously increase the amount of energy available from this substance. He also created an economic system that automatically creates more interest debt as time passes, and thus requires economic growth in order that it remain plausible that the interest accumulation could be repaid. As he used this substance, he put the undesired components into the atmosphere, hoping that it would be OK.

Now Industrial Man finds himself in the following situation.
1. The net energy (gross energy minus the energy used in the extraction) from fossil fuel is in decline.
2. His financial system is collapsing because repayment of the interest is not plausible, and the economy cannot grow enough without more energy to make it plausible.
3. The Earths formerly sequestered carbon is now in the atmosphere, and he is not sure exactly what it means. But most agree it’s probably not good.

So Global Warming, Peak Oil, and financial collapse are the same problem.
Maybe we should name the entire situation “DADESFFC” for Dying and Dysfunctional Energy System Feeding Financial Collapse. Ok, so maybe it’s not a sexy acronym. Or maybe it’s too complicated for some to understand. But the point is that without understanding the big picture, and without looking for solutions to the actual problems, we are left in the dark shooting at the symptoms.

Lately “Climate Change” has been in the news with the negotiations in Copenhagen, Denmark. Some of the activists seem to be advocating that we solve the problems with massive redistribution of wealth. Their solutions are simple–take money from the polluters and give it to the less fortunate. Problem Solved. If only it were anywhere near this easy.

The reality is that the technologies that are available to “replace” the current fossil fuel technologies are not drop-in replacements. A society created from alternative energy technologies will be profoundly different. Here are some of the technical challenges along with the implications of a post fossil fuel economy:

1. Renewable energy sources are powered by low density energy.
Low density means that the systems will be very large, and consume huge quantities of resources and labor in order to construct. In an economic sense, this by necessity means that the systems will be expensive.

2. Renewable energy sources have low energy return on energy investment (EROEI). Low EROEI means that renewable energy systems will have low profitability for their investors, and will take many years to return their initial investment. It also means that there is not room for mistakes in the implementation of these systems. Small mistakes in implementation that cause increased energy consumption, will convert low EROEI energy “production” systems into energy “sinks,” i.e., they cause consumption rather than provide energy.

3. Renewable energy systems are not a drop-in for fossil fuel technologies. This means that much of the most expensive equipment in our fossil fuel powered industrial economy must be replaced. A replacement society that is powered from renewable energy sources will be less wealthy, and have less complexity than a fossil fuel powered one. This may mean that there is no excess wealth to transfer from the former “wealthy” countries to the “developing” countries.

Simply transferring wealth from the “wealthy” fossil fuel consumers to the “developing” countries is very likely to aggravate the problems. It could leave the “wealthy” countries without enough surplus capital to develop renewable technologies, and it could just cause increased energy consumption in the “developing” countries.

Converting to a post fossil fuel era will not be easy. Resources will be scarce and financial systems very unstable. This means that in order to successfully accomplish it, we will have to understand what we are really up against, not choose one symptom and propose a “solution” for it that aggravates the real problem.

If we cannot solve the technical problems of operating a modern society from renewable energy, the only “deal” that we may be able to make is to lower our standard of living to their standard of living, if they agree not to try to raise theirs.

It goes without saying that this will be a difficult political sell, and I fear that those who are pushing these large redistributions aren’t as concerned about the environment as they claim, meaning that this would not be an acceptable solution, even though it may be the only one that is technically feasible with our current technology.

Understanding the Low Prices of Oil and Gasoline

Oil prices have fallen from over $147 per barrel (42 gallons) in July of 2008 to $64 during this Friday’s trading. I was in Houston at the end of the week and drove by some gas stations that were selling unleaded regular for under $2.26 per gallon. This price looked shocking to me as I have become accustomed to the price of motor gasoline costing at least $3.50 per gallon and even $4 plus per gallon like it was this summer. So the question becomes, what is causing these low gasoline prices?

There are dozens of factors that cause the price of motor gasoline to fluctuate, as we are aware. Let’s look at the most important factors in conjunction with the current news to see if we can figure out what is causing the low price of oil.

Long Term Factors:

  • Oil Supply
  • If new reserves of oil are found, and can be brought online at a rate faster than existing oil fields are being depleted, the supply of oil will increase and the price will fall. If new oil supplies are not found or new extraction technologies fail to offset the aging of the fields, oil production will fall and prices will increase.

    There hasn’t been much in the news about oil supplies in the last few years. There have been no new large supplies of oil brought online in recent months. There have been no new discoveries that will substantially increase supply in the next six years. There have been no substantial new innovations in production/extraction technologies. Government reports show oil supplies looking very flat since the summer of 2005.

  • Intensity of Oil Usage and Technology
  • If technology is invented that makes oil less useful or desirable at its current market prices, oil demand will drop as the other inventions take its place. If technology is invented that makes oil more useful to the economy, oil prices will rise.

    There have been no substantial changes to the oil technologies that are powering our economy. No new engine designs or significant agricultural breakthroughs have been reported. Even positive news on oil efficient technologies has been scarce. Boeing has been promising 787s that are supposed to save 20% fuel, but not one has been delivered.

Intermediate Factors:

  • Annual Cycles of Demand
  • Each year, the demand for oil changes as the year progresses. Demand for finished products is highest in the summer during driving season and demand for crude is usually highest while the heating oil inventories are being built up and there is still pre-winter driving demand.

    Currently we are at the low point of demand. Driving season is over and heating season has not really started.

  • Amount of Economic Activity
  • Oil demand is a direct result of economic activity. As long as there is no new technology to supplant oil for many necessary parts of our economy, oil will be required in direct proportion to the economic activity. Think of a small business. If delivering $100 worth of pizza requires $10 of gasoline, delivering $90 of pizza will only require $9 of gasoline. If business picks up to $110 worth of pizza, about $11 of gas will be required to deliver it.

    Consider some recent news:

    “Feds to slash interest rates as recession looms”
    “Chrysler to cut 25% of salaried workers”
    “NorthWest Airlines loses 317 Million dollars, announced schedule cuts”
    “Trading in Austrian Airlines halted”
    “Airlines see load factors drop despite capacity cuts”
    “Southwest loses $120,000,000 first loss in 17 years, will cut unpopular flights”
    “Gainey Trucking can’t pay owner”
    “Canadian truckers face losses from diesel fuel shortage”
    “UPS faces precipitous declines on overnight shipping”

Short Range Factors:

  • Speculation
  • Speculation tends to increase the volatility or the size of the price cycles; it also therefore increases the height of the highs and the depth of the lows. The reason for this is simple. If a speculator sees that each day for a year the price of gasoline is $3.00, there is no way for him or her to make any money from buying or selling it. He would just end up buying it, sitting on it, and selling it again at the same price, making no money and wasting his time. The speculator makes his money when the price deviations increase. If the price is dropping, he sells what he has and increases the market supply, causing the price to go down further. If the price is going up, he buys more to sell at a later time. Deferred selling shrinks the available market supply and raises prices.

    Consider this quote from www.marketwatch.com in an article about how OPEC is on its own as investors flee from oil speculation:

    “This time, however, OPEC is on its own. With speculators fleeing, the cartel is going to have to build a floor under oil prices through disciplined production cuts. This isn’t a group known for discipline, however. And given the wheezing global economy, OPEC has only an outside chance of pushing prices back up to $100 a barrel even if they manage to significantly slash output.”

    From this and similar articles, it is clear that investors are selling oil positions due to both the oversupply and subsequent price drop, as well as the fact that they need money to cover losses in other areas of the falling market. This causes the price of oil to drop even further, but can only continue until investors sell off all of their positions. After this, the price of oil will begin to rise even if speculators do not buy again.

  • Weather
  • The weather can affect both the supply and the demand of oil. Unusual weather events can be things like extreme cold snaps in the Northeast Unites States, resulting in the demand for heating oil to increase substantially. Conversely, very mild winters cause decreased heating oil demand. On the supply side, weather can decrease supply by preventing the transportation of oil from the point of production to the consumer or refiner.

    Searching the news about the weather, it looks as though the weather has been very friendly to the price of oil. There have been no weather-related reasons for declines in supply or evidence that demand has strayed from the seasonal norms in the last few months.

  • Accidents and/or Malicious Destruction
  • Accidents or malicious destruction of petroleum equipment that is necessary for petroleum production can cause oil supplies to drop and prices to increase.

    There has been no substantial accidental or malicious damage to the petroleum infrastructure in the last few months.

Conclusion:
The current low price of oil is caused primarily by what economists call “demand destruction.” That is, as economic activity winds down, the demand for oil drops and the market verges on a glut in supply. The price will stay low and most likely go lower as long as the following continues:

The weather stays good.
There are no accidents or attacks on the petroleum infrastructure.
The speculators continue to sell.
The economy continues to decline.

The last one is the most important because the health of our currently configured industrial economy is directly related to how much oil is being consumed–much like your car requires fuel in proportion to how much work it does. Let’s hope that we can get the economy going well enough again to bring on some unprecedented high prices. If not, we will be dealing with more economic disaster and unemployment.

Daniel J Swanson
dswanson@danswanson.com

“Green Collar” Jobs

Report: $100 billion would foster 2 million green jobs

According to the above cnet news article if the government would invest 100 billion in creating green tech jobs we would be able to create roughly 2 million jobs. Here is how the 100 billion dollar investment would be broken down: about 50 billion would be tax credits to businesses and homeowners, 46 billion would be in direct federal spending and about 4 billion would be in loan guarantees. All of this investment would equal to about the same amount spent on the recent economic stimulus package, according to the cnet article. This would have been money better spent. It could give people something they actually want and need, a job, instead of a “stimulus” check that probably wouldn’t even last a month.

The jobs created from an investment like this would range from generating new technologies to progress the use of biofuels, alternative energy sources, etc.. to jobs that would update current infrastructures like buildings, the power grid, rail, etc… to be more energy efficient.

Now I am not sure if all of this job creation would truly happen but our country has to invest into this stuff eventually if we want to avoid economic collapse so doing this now should help. Plus maybe we can get at least some of those 2 million jobs at the same time. I just fear that this investment would go to technologies that have little or no hope, like ethanol or a hydrogen vehicle. Now hydrogen potentially has a spot in our future as an energy storage source but we will save hydrogen for a future post.