Tag: Alternative Energy

OPEC’s inaction prompts Chinese action

Posted on by Carlos Enrique
Motorists fill their tanks at a China Petroleum & Chemical Corp. gas station in Beijing, China. The world’s second-biggest economy consumed the largest volume of oil on record in October, according to data compiled by Bloomberg. Photographer: Nelson Ching/Bloomberg

As the price war between the United States and OPEC begins in earnest, China stands to gain substantially. Developing at a still rapid 7.5%, China’s expansive development projects are necessary to keep unemployment numbers down and local economies thriving. Unfortunately, a lot of these projects are inefficient and necessarily energy intensive, so China will continue to purchase coal and petroleum wherever there is a cheap price to be had.

Interestingly, China is also taking in additional supplies of petroleum to expand their Strategic Petroleum Reserve. Current Chinese leadership aims to expand their reserves from 30 to 100 days. This is a significant increase, and this is an excellent time to buy lots of petrol at a bargain price. If demand from developing countries continues to increase, existing explored oil/shale/coal deposits are exhausted, and exploration for new deposits goes into geologically or politically dangerous regions, the prices China will purchase at today will seem like a bargain in a few years.

This development, along with the favorable energy deals China has struck with Russia within the last few months, will allow China to continue developing at a moderate cost. Whether this is is a good thing in the long-run is questionable. Loose fiscal discipline enabled by cheap credit and cheap energy allows for projects that, under normal circumstances, would not net a sufficient return on investment. Additionally, cheap fossil fuels slow the adoption of alternative energy sources, causing further environmental damage at a time when health and the environment are growing concerns with the Chinese citizenry.

P.S. It’s rather telling how much petroleum the United States consumes when comparing strategic reserves. 570 million barrels is equivalent to 100 days in China, where 691 million is equivalent to only 37 days in the United States.

—

China Winning in OPEC Price War

Climate Change: Environmental Risk, Security Risk

Posted on by Carlos Enrique
The Department of Defense has a plan for adapting to climate change. But will they be allowed to? Credit: Department of Defense

The Department of Defense (DoD) has issued a report detailing how it plans to adapt to climate change. Beyond impacting the logistics of moving military supplies and personnel around the world, the DoD expects that climate change will be an immediate threat to national security interests, causing “increased risks from terrorism, infectious disease, global poverty and food shortages.” (Davenport, 2014)

It is very telling when a reserved institution such as the DoD acknowledges the impact of climate change and is actively working to integrate the effects of climate change into its operations. Unfortunately, this is unlikely to sway the hearts and minds of the Republican leadership on Capitol Hill. The DoD’s opinions and decisions have minimal impact on elections, and there are considerable local and national interests that are invested in ignoring climate change.

There is one very bright spot, however. The DoD invests a considerable amount of money in the development and deployment of new technology, and so is a major driver of technological development in the United States. If it decides that alternative energy technologies are necessary to adapt to climate change, we can expect to see a significant boost for the alternative energy industry. This is more likely that it seems; transporting heavy liquid fuels around the world is both expensive and dangerous. There have been instances where American fuel trucks traveling through Pakistan were blocked by military leaders due to shifting sentiments between Pakistan and the United States.

Additionally, it is very telling that when removed from an elected position, even staunch Republicans like Hagel (at the time, Secretary of Defense) assert the importance of addressing climate change. Note that this is a particularly huge change in the case of Hagel, considering he was one of two Senators to block the United States from ratifying the Kyoto Protocol.

—

Pentagon Signals Security Risks of Climate Change 

The report is the latest in a series of studies highlighting the national security risks of climate change. But the Pentagon’s characterization of it as a present-day threat demanding immediate action represents a significant shift for the military, which has in the past focused on climate change as a future risk.

Before, the Pentagon’s response to climate change focused chiefly on preparing military installations to adapt to its effects, like protecting coastal naval bases from rising sea levels. The new report, however, calls on the military to incorporate climate change into broader strategic thinking about high-risk regions — for example, the ways in which drought and food shortages might set off political unrest in the Middle East and Africa.

Milking a Dead Cow: Argentina’s Vaca Muerta

Posted on by Carlos Enrique
An oil rig in Argentina. Credit: Nestor Galina, 2007

Argentina is having serious difficulties developing a massive oil and gas deposit in it’s famed Vaca Muerta (Dead Cow) formation. While the region is geologically difficult to access and process, it is not geology alone that stands in the way. Argentina’s continuous flouting of international capital markets (defaulted twice in 12 years!) and penchant for nationalizing major assets after significant foreign investment all serve to keep potential investors away.

This may all become irrelevant, however. Vaca Muerta is said to rival Eagle Ford, one of the largest deposits in production in the United States. It is production enabled by the likes of Eagle Ford and the regulatory and business environment created by the American government that may stifle any ambitions the Argentine government may have. So long as gas and oil prices remain low, American civil institutions are more reliable than Argentine institutions, and capital costs remain high, there may be little reason for foreign investors to spend significant amounts of time and money into developing Vaca Muerta.

—

Argentina’s Brilliant, Terrible, Very Unclear Energy Future

Meanwhile, the boom in U.S. and Canadian production has given oil companies safe, attractive places to invest. At the same time, oil prices are slumping, which means that expensive, hard-to-develop projects like Vaca Muerta risk becoming uneconomical — even if the government maintains a stable energy policy for years to come.

“The biggest impediment could simply be the cost of doing business there,” said Walter Molano, managing partner at BCP Securities and author of In the Land of Silver, a history of Argentina’s economic development. Argentina lacks many of the advantages that drove the U.S. fracking boom, from private mineral rights and a stable legal regime to a spate of small, nimble oil companies and plentiful energy infrastructure.

The Winds Shift and the Sun Rises

Posted on by Carlos Enrique
A wind farm in Weatherford, Okla. In a study, the cost of wind power came in as low as 1.4 cents a kilowatt-hour. Credit: Paul Hellstern for The New York Times

Solar and wind generated electricity have reached price levels that are comparable, if not superior, to that of conventional fuels such as coal and natural gas. This is a wonderful and significant event, particularly because they are now price competitive without continued government support.

While continued government support would certainly be a boon to the industry and speed its adoption, the removal of government support would not be a death knell for the alternative energy industry. Unfortunately, the alternative energy industry has been stuck in a boom-and-bust cycle for the previous 44 years, mostly due to intermittent government support for both research and development, and deployment of alternative energy technologies. The fact that these technologies are finally commercially competitive sans government support means that, while the growth of the industry is impacted by government involvement, the industry is certainly not the risky investment it was before.

There is still one major issue to tackle, however. The current intermittent nature of solar and wind electrical power generation means that it is still very expensive for utilities (and individuals, but particularly utilities) to adopt alternative energy technologies wholesale. There are instances of utilities investing in large scale alternative energy power plants, but it is still necessary for utilities to have back-up, on-demand power plants based on coal or gas in order to smooth out the power generation curve. This is a very expensive set up, and so long as alternative energy generation has the intermittency issue, cost will remain a prohibitive barrier to the full-scale implementation of alternative energy around the country.

The solution? Utility-scale battery grids capable of storing and distributing the power generated by solar and wind. This would allow for solar and wind farms to smooth out their energy curve on their own, eliminating the need for expensive, massive back-up power plants.

—

Solar and Wind Energy Start to Win on Price vs. Conventional Fuels

According to a study by the investment banking firm Lazard, the cost of utility-scale solar energy is as low as 5.6 cents a kilowatt-hour, and wind is as low as 1.4 cents. In comparison, natural gas comes at 6.1 cents a kilowatt-hour on the low end and coal at 6.6 cents. Without subsidies, the firm’s analysis shows, solar costs about 7.2 cents a kilowatt-hour at the low end, with wind at 3.7 cents.