Engineering Carbon Out of Energy

• Because of the slow progress in displacing fossil fuels with renewables, carbon capture and sequestration should receive much more attention as a game-changing technology.
• The challenges that must be overcome for CCS to be deployed on a large scale remain significant.

Yesterday I ran across an excellent article in The Atlantic on the importance of carbon capture and sequestration (CCS).  In light of last week's warning from the International Energy Agency that efforts to reduce the carbon intensity of global energy have yielded minimal results over the last two decades, the authors' chosen title, "Learning to Live with Fossil Fuels", seems particularly apt. Although neither they nor the IEA are suggesting we abandon renewable energy, they do effectively question the conventional wisdom that climate change can only be addressed by abandoning coal, oil and natural gas within the next decade or two. 

I'm predisposed to their argument, because it aligns with my own view--the result of long and careful analysis--that the transition to a low-carbon economy is going to take a lot longer than optimists hope.  A speaker at yesterday's policy briefing on renewable energy from the Worldwatch Institute and REN21, marking the annual release of the latter group's always-useful Renewables Global Status Report, stated that long-term energy scenarios in which renewables don't significantly increase their market penetration are no longer credible, and that only scenarios including medium-to-high penetration rates by mid-century are credible today.  I had to wonder whether he had been looking at the same data as the IEA, even though he cited their "2DS" scenario in support of his view.  Sarewitz and Pielke, Jr. appear to take quite the opposite view in The Atlantic: We cannot ignore the potential of CCS, because it is not self-evident that renewables will sweep away carbon-based energy any time soon, for reasons of economics, politics, and "complex social arrangements." 

In their brief article, they do a good job of summing up the major options for capturing CO2, including some of the major challenges to be overcome, as well as how the captured CO2 might be used or disposed.  Underground storage, enhanced oil recovery, and conversion back into fuels are all technically feasible, despite significant obstacles of public acceptance, logistics, and cost. However, I believe they seriously underestimate the challenges of capturing CO2 from the air, instead of power plant smoke stacks. 

The desirability of doing so is clear; the atmosphere is everywhere, convenient to whatever use to which me might put the captured CO2, while power plants aren't always located near the oil fields, saline aquifers, or fuel markets that offer the best potential for storage or reuse. The problem is that, while 397 parts per million (ppm) of CO2 in the air is high enough to cause great concerns about global warming, it is still quite low in engineering terms.  Expressing it as a percentage it's 0.04%, or about 1/1000th the typical concentration of CO2 in flue gas.

Before writing this post I literally dusted off one of my old chemical engineering texts to look up the equations of mass transfer.  I was reminded that the flux, or flow, of molecules from one fluid into another--from air into the capture medium, for example--is proportional to the difference in their concentration in the two fluids.  What that means in practical terms is that extracting the same quantity of CO2 from the air as from flue gas will entail larger and more complex hardware, more energy, and probably a much higher cost per ton, barring a breakthrough that emulates green plants, which use chlorophyll, sunlight, water and nutrients to do this cheaply on a vast scale every second of the day during the growing season.

In any case, have a look at the article and give some thought to how CCS might, as the authors suggest, "transform the political debate" around mitigating climate change.

Will Water Limit Fracking in Arabia?

• Poor water availability could hamper efforts to develop Saudi Arabia's shale gas resources, in order to meet growing gas demand from Saudi industry.
• Water recycling and alternative fracking fluids could provide the solution.  

Recent comments by Saudi Arabia's oil minister, Ali Al-Naimi, indicated that Saudi Aramco would soon begin exploring the country's shale gas resources. As another means of reducing oil consumption in the Kingdom's electricity sector, in order to preserve oil exports, this appears to make both practical and economic sense. However, as noted by the Wall St. Journal, compared to the US Saudi Arabia has much less water available for the hydraulic fracturing of shale and tight gas reservoirs. Absent a reallocation of its substantial conventional gas production, Saudi shale gas could become a key factor in global energy security. However, the techniques employed to extract it might be different from those that currently dominate the US shale gas scene.

It must seem odd that Saudi Arabia would even be interested in shale gas, a resource that wasn't exploited in the US until conventional gas production was declining steadily. Saudi Arabia might still be the world's largest oil producer, at least for now, but it is not the "Saudi Arabia of natural gas". Although the country has proved gas reserves comparable to those of the US, it apparently didn't win nature's gas lottery on the Arabian Peninsula. Saudi gas reserves and production amount to only about 10% and 19%, respectively, of the Middle East's gas totals. Iran and Qatar are far ahead. And while Saudi gas production has doubled since 2000, output in neighboring Qatar has expanded by a factor of six in the same interval.

Much of the Kingdom's conventional gas reserves are associated with oil production and are often required to be reinjected to maintain reservoir pressure and oil output. Available Saudi gas has been preferentially allocated to industrial projects, such as petrochemicals expansion. As a result, little new gas was supplied for power generation, so the Saudi electricity sector has been burning large and increasing quantities of oil that could otherwise be exported. The need for additional gas has become acute, but exploration in the vast Empty Quarter has not yielded the expected gas bonanza, while the internal price of natural gas has been constrained at levels well below even recent low US natural gas prices--too low to make most new production attractive on its own merits.

As if the economics of shale gas development weren't challenging enough in such an environment, the key ingredient that has fueled the US shale revolution, water, is in short supply in Saudi Arabia. The needs of cities and industry in this arid country exceed the water supply from aquifers to such an extent as to require 27 desalination facilities, delivering nearly 300 billion gallons annually. At several million gallons of water per hydraulically fractured shale gas well, the logic of burning oil to desalinate water to produce gas looks questionable. Fortunately, there are multiple emerging pathways for reducing or eliminating net water consumption in "fracking".

For starters, many US producers now routinely recycle the 10-30% of injected water that typically flows back from the well after hydraulic fracturing, for use in subsequent wells. Recycling has become the standard in places like Pennsylvania's portion of the Marcellus shale, reducing the call on fresh water for fracking. The oil services industry offers various techniques for cleaning "flowback" water, and new ones are under development, including the use of algae.

Drillers can further reduce freshwater consumption through the use of nitrogen in foam or other forms. ERDA, a precursor of the US Department of Energy, conducted research on that technique in the 1970s, and it has been refined since then. Nitrogen is readily available from air separation plants and does not depend on water, though it does require energy.

Another approach for waterless fracking has been field-tested in Canada, using gelled propane. A blog post in Scientific American described some of the pros and cons of this method, which is more expensive where water is cheap but might fit the bill in dry regions where LPG is readily available. For that matter, it might make sense in New Mexico if the Mancos Shale of the San Juan Basin turns out to be another viable tight oil play.

The upshot is that a shortage of fresh water shouldn't constitute an insurmountable obstacle to exploiting Saudi Arabia's unconventional gas resources, which Mr. Al-Naimi cited at 600 trillion cubic feet. However, it remains to be seen whether shale gas development is the best answer to a problem that has been created by selling natural gas to industry for as little as $0.75 per million BTUs, while burning $100 oil ($17 per million BTU) to generate electricity. Whether the ultimate solution is shale gas or something else, resolving this gap in Saudi industrial policy could have a significant impact on future oil prices.

A slightly different version of this posting was previously published on the website of Pacific Energy Development Corporation.  

How Will Oil's Current Slide Affect Gasoline Prices?

• How far could crude oil prices fall, and what does it mean for US pump prices this summer?
• The broad trends behind oil's current weakness could persist for some time. 

We all carry assumptions around with us.  For many who follow energy one such assumption is that oil prices, and thus gasoline prices, generally rise over time.  In an otherwise fairly well-reasoned blog post I read yesterday, that logic underpinned the case for electric vehicles (EVs) becoming more attractive to consumers.  Yet if we review the history of oil prices, it becomes clear that they don't only rise.  Just recently, the price of Brent crude oil, the current world benchmark, has declined roughly 11% since the start of April, prompting speculation about where it's headed from here and what that might mean for motorists.  It's worth stepping back from the day-to-day volatility of the market to consider what's behind this drop, as well as how OPEC might respond if the recent trend continues.

Start with the fundamentals of demand and supply.  Demand in the developed world remains weak. Despite modest GDP growth in 2012, US oil demand fell by 2% last year and is now 11% below its 2005 high.  This year, the unemployment rate is down a bit, but economists see signs of another  "spring swoon." The outlook seems no better in the other big economies, including China, prompting the International Energy Agency last week to cut its estimate of annual oil demand growth to just below 800,000 barrels (bbl) per day, with the US government cutting its estimate even further.  Meanwhile, many refineries are either undergoing maintenance or about to, reducing the most direct element of demand, at least temporarily. 

On the supply side, US production growth remains the big story.  US crude oil output is currently 7 million bbl/day, up nearly a million bbl/day in just the last year, and projected to average at least 300,000 bbl/day more than that for 2013. Overall, the IEA anticipates non-OPEC oil supply to increase by 1.1 million bbl/day this year.  Whenever non-OPEC growth exceeds the growth of demand, while inventories and spare production capacity are adequate, that puts pressure on OPEC and oil prices tend to weaken.  North Korea, Iran and a few other hot spots provide ample geopolitical risk, but the market has already absorbed the loss of about half of Iran's exports due to sanctions, while some other problem areas, such as Sudan/South Sudan, are being resolved. 

Taking all this into account, the market seems to have concluded prices were too high.  This is the other face of speculation that is never subjected to Congressional investigations.  Yet it also seems premature to assume this is the start of a major move downward, or an imminent oil price collapse.  Nick Butler of the Financial Times suggested that normal economics would take us to around $70/bbl, though I think he underestimates OPEC's cohesion and their willingness to absorb pain to defend a crucial price threshold.  Their experience in 2008-9 provides a vivid recent reminder that selling 10% less oil at something close to the current price is a much better deal for them than selling all the oil they can at $35/bbl.

It's also not clear how quickly a sharp drop in prices would undermine the output of the Bakken, Eagle Ford and other big US shale oil plays. These reservoirs require more intensive drilling than conventional oil fields, and many of the drilling rigs in use there were redeployed from gas-rich opportunities after the US price of natural gas slid sharply in the last several years.  It also seems that some of the weakness in Brent is specific to its market. West Texas Intermediate (WTI) crude hasn't dropped as quickly, thus narrowing the gap between the two from $20/bbl as recently as February to about $11 today.  So those parts of the US where refiners still import significant quantities of foreign crude pegged to Brent, such as the east coast, might see more gasoline price relief than those where abundant supplies of cheaper, WTI-related crude have kept pump prices lower.

And that's what it boils down to for most Americans, who don't burn crude oil or invest in oil futures.  The Energy Information Administration (EIA) of the US Department of Energy recently issued its Summer Fuels Outlook, projecting that US gasoline prices would average $3.63 per gallon for the April-September "driving season", down from $3.69 last year and up just slightly from last week's $3.61/gal. However, that forecast was based on a July Brent crude price of $107/bbl.  Crude oil makes up around two-thirds of the retail cost of a gallon of gasoline in the US, where fuel taxes are relatively low compared to other developed economies. If Brent merely held where it is today we could see summer gasoline prices below $3.50/gal. for the first time in several years.

Longer-term, oil and gasoline prices remain as unpredictable as ever.  However, the trends combining to produce today's weaker prices could well have staying power.  It's still relatively early days in the US shale, or "tight oil" upsurge, with more growth expected, and new-car fuel economy continues to improve.  Those factors support the trend of falling US oil imports, which will take pressure off global markets, no matter what happens to demand in Asia.  At least until we see a different configuration of factors the argument for suspending our assumption of steadily rising future oil and motor fuel prices looks pretty robust.  That suggests that the case for EVs and alternative fuels must be made on the basis of other factors and, if anything, be prepared to weather another period of lower fuel prices should oil continue to weaken.

The White House 2014 Budget Energy Proposals: Stuck in A Timewarp

• The President's budget proposal would increase taxes on energy in ways that would harm US competitiveness and consumers.
• Presenting the Energy Security Trust as a zero-sum game undermines its potential effectiveness and bi-partisan appeal.

After spending some time going through the White House's proposed budget for 2014-23, several conclusions were inescapable.  First, this administration still hasn't thought through the implications of the energy revolution that's currently unfolding in the US, as a result of the technology to develop our enormous shale oil and gas resources, which grew even larger this week. Not satisfied to see tax revenues and royalties from oil and gas expand as production grows, they miss no opportunity to seek to slice more from the current pie. This failure of imagination extends to the proposed Energy Security Trust Fund, which sounded intriguing when President Obama mentioned it in this year's State of the Union speech, but now appears to be mainly an accounting gimmick based on a zero-sum mentality.  Meanwhile, the budget's proposals for renewable energy and advanced technology vehicles seem largely divorced from our experience of the last several years.

Let's start with the tax changes and quickly dismiss them, because they're mostly a rehash of provisions in the administration's last four budgets and stand no better chance of Congressional approval this side of comprehensive tax reform.  Once again, we see proposals to eliminate about $4 B per year worth of tax treatment for the oil and gas industry, including provisions like the Section 199 deduction enjoyed by all US manufacturers.  Now add proposed changes in the treatment of foreign taxes, which would subject this highly international industry to double taxation on its activities outside the US, under the misappropriated label of "reform."  (True reform would move toward the territorial system used by most advanced economies.) Finally, the President's budget would eliminate both the widely used last-in, first-out (LIFO) and lower-of-cost-or-market (LCM) methods of cost accounting for inventories.  I don't know how much of the $87 B of higher revenue over ten years ascribed to that shift would come from the oil and gas industry, but it would certainly be in the billions, if this weren't all dead on arrival.

That brings me to the Energy Security Trust Fund, described in the State of the Union as a way to employ revenue from oil and gas development to fund R&D on reducing our dependence on oil.  That looked clever, if applied to incremental resource opportunities.  More production would fund more research, in an almost virtuous cycle.  Yet that's not how the idea would be implemented in this budget.  Instead of opening up new areas for drilling, and earmarking the royalties that would generate, the $2 B for the Trust would come mainly from diverting royalties from leases already in the budget, and from further "reform": higher royalties on US production and higher rentals and shorter lease terms to provide "incentives to diligently develop leases."  The latter echoes the "idle leases" canard we've heard since 2008, reflecting a continued misunderstanding of how the industry actually works, along with the real-world factors that often impede faster lease development, such as permitting delays and lawsuits.

So at least this part of the President's "all of the above" energy agenda is reduced to measures that, rather than "encouraging responsible domestic energy production", would make the US a much less attractive place to invest in developing oil and gas resources, and likely reverse our recent successes.  Yet if the new budget treats conventional energy as a slush fund to be raided, renewables and efficiency are treated to what would amount to a reprise of the 2009 stimulus.  I tallied $39.8 B through 2023 for programs such as alternative fuel vehicles, advanced technology vehicle manufacturing, advanced energy equipment manufacturing, bioenergy crop assistance, home energy efficiency retrofit credits, efficient buildings, and the Energy Security Trust Fund.  44% of the total would go to a single measure: making the production tax credit (PTC) for wind and other renewable energy permanent, instead of phasing it out, as even the American Wind Energy Association has suggested.  That's a bad idea for two reasons. 

First, it ignores a growing body of analysis pointing to the need for significant innovation in wind, solar and other renewable energy technologies, rather than continuing to pay project developers indefinitely to deploy the current technologies.  It also exposes a basic logical flaw in the argument for more subsidies: Renewables cannot simultaneously be approaching the point of becoming competitive with conventional energy, as they must if they are to capture significant shares of the energy market--wind accounted for 3.5% of US net electricity generation last year, and solar just 0.1%--while still needing permanent subsidies at rates orders of magnitude higher, on an energy-equivalent basis, than the tax breaks for oil & gas that the administration seeks to end.

After four years in office, it's reasonable to expect an administration to have learned what works and what doesn't. The President and his officials seldom miss an opportunity to brag about the enviable record of oil and gas production growth that has occurred since 2008, yet continue to propose and enact policies that, had they been in place in the previous decade--when the seeds of this growth were actually planted in an environment of rapidly rising energy prices--might well have nipped that growth in the bud. Nor do they seem to have learned much from the track record of business failures that has dogged their efforts in the renewable energy and advanced vehicles space--a record that extends well beyond the over-used example of Solyndra.  Taxing oil and gas much harder won't lead to more US production, nor will handing investors additional billions in taxpayer funds make renewables and electric vehicles competitive, without significant further improvements in the technologies.

Crude Oil Rides the Rails

Last month's publication of the State Department's latest environmental impact report on the Keystone XL pipeline project has sparked great interest in the logistics of shipping crude oil by rail. As described in a long article in the Washington Post, the availability of a rail option for oil sands crude could prove to be a crucial element in determining whether the pending decision to permit the pipeline to cross the US border would actually affect Canada's oil sands output, and thus its greenhouse gas emissions. As the article makes clear, however, oil's rail trend is already well underway , thanks to the surge of "tight oil" production from shale formations. Moving crude oil by train is experiencing a "Back to the Future" moment.

Oil shipments in rail cars are nothing new; the practice dates back to the earliest days of the oil industry. In fact, control of key railroad routes for oil and petroleum products was an important aspect of the US government's anti-trust case against the original Standard Oil a century ago. My first exposure to crude-by-rail was in the 1980s, when significant quantities of heavy crude from California's San Joaquin valley were routinely transported to Los Angeles refineries by dedicated "unit trains", because there wasn't sufficient pipeline capacity available.

The same dynamic applies today, with the rapid expansion of tight oil production in North Dakota's Bakken fields quickly outstripping the capacity of the state's few existing pipelines to transport the oil to market. A tank car loading rack requires much less time and money to build than a new pipeline or pipeline expansion. US railroads are also eager for the traffic, since coal deliveries, which accounted for 45% of US rail traffic in 2011, fell by nearly 11% last year as natural gas eroded coal's share of power generation. Meanwhile oil shipments by rail grew by 46% in 2012.

Precise data on just how much crude oil is currently moving by rail are hard to find. The American Association of Railroads doesn't differentiate between crude oil and refined petroleum products, which until recently accounted for most oil-related rail shipments. The US Energy Information Agency (EIA) reported last summer that crude oil had grown to roughly 30% of total petroleum rail deliveries, which would equate to around 300,000 barrels per day (bpd) on average for 2012. Yet EIA's analysis of recent trends suggested that crude-by-rail increased by nearly 250,000 bpd last year alone. The CEO of the Burlington Northern Santa Fe recently indicated that his railroad's total oil-related shipments alone could expand to around 1 million bpd, roughly double today's level.

It would be easy to conclude that all this growth reflects a temporary expedient, until North American pipeline capacity can be expanded and realigned to match rising output and the reversal of long-standing import trends. That view is clearly not shared by oil companies and traders who are lining up to purchase or lease new tank cars for this service. Perhaps that's because rail provides a degree of flexibility that would be nearly impossible to match by pipeline. For example, it creates an opportunity to supply domestic crude to East Coast refineries like Delta Airlines' Trainer, Pennsylvania facility, which had previously become uneconomical to operate on a diet of imported crude cargoes. Similarly, even if a pipeline from North Dakota to the San Francisco Bay Area could be justified economically, it would likely never receive the necessary permits. Yet Valero's Benicia refinery might soon receive up to 70,000 barrels per day of Bakken crude by rail.

Railroads are also surprisingly efficient. At an industry average of 480 ton-miles per gallon, my analysis indicates that shipping a barrel of crude from North Dakota to a refinery in either Houston or Philadelphia consumes a quantity of diesel fuel equivalent to just 1% of the energy content of the oil, while adding slightly over 1% to the typical well-to-wheels emissions for gasoline refined from it. That's higher than for pipelines, but not by enough to render the option unattractive.

Pipelines remain the preferred option for moving high volumes of oil safely over long distances and, when capacity exists, are usually cheaper for shippers. However, rapidly shifting sources of production and the high capital costs of new pipelines, combined with an increasingly challenging regulatory environment, could provide a durable opportunity for oil-by-rail, just as it has for moving petroleum products and ethanol by train. 

A slightly different version of this posting was previously published on the website of Pacific Energy Development Corporation.

Two Energy Revolutions Vie across the Atlantic

A front-page article in today's Washington Post reported on the trend of energy-related investments in the US by European companies.  This is another aspect of the competing energy revolutions I mentioned a few weeks ago, in my comments on President Obama's State of the Union speech.  Germany's 2000 Renewable Energy Law introduced feed-in tariffs for wind and solar power that have made that country a global leader in green energy implementation, yet it has also become increasingly apparent that this carefully planned transformation paid insufficient attention to the cost of the new energy sources it was embedding at the heart of the German economy.  The Post describes how leading German firms are looking across the Atlantic to invest where energy is cheaper, thanks to the unplanned, largely unanticipated extraction of hydrocarbons from shale. 

The Ludwigshafen, Germany dateline of the article caught my eye immediately.  Having just returned from a family trip to California with a packet of letters I wrote to my parents during a temporary work assignment in Germany in the early 1980s, I had only yesterday re-read the account of my visit to BASF's sprawling petrochemicals complex there.  I recall being greatly impressed by the site, which dwarfed the Los Angeles refinery at which I worked at the time. The BASF facility was part of the post-war boom--the Wirtschaftswunder--that made Germany the economic and industrial center of Europe, where it remains today two decades after reunification and a decade after relinquishing its cherished Deutchmark for the Euro.  Now the company apparently wonders whether Ludwigshafen can remain competitive in a global market dominated by US shale gas.

The divergence of energy prices that worries German industrialists is the result of conscious choices made by that country's government and a set of developments that occurred here largely out of sight of the US government, while its attention was focused elsewhere. In the same decade in which production from shale gas deposits in Arkansas, Louisiana, Oklahoma, Pennsylvania and Texas--output that now sets the price of both gas and electricity in much of the US--was gathering momentum, the German government was negotiating for more imported natural gas from Russia, via a pipeline built by a company led by a former German Chancellor.  It also set up a mechanism for consumers of electricity to fund the payment of up to $0.70 per kilowatt-hour that was necessary to support the initial solar power installations in one of the world's least sunny countries.

German solar tariffs have declined significantly since then, thanks in part to ruinous competition with China-based solar manufacturers.  However, in the aftermath of the nuclear accident at Fukushima, the German government agreed to retire the country's nuclear power plants, which supplied 22% of its electricity in  2010.  New solar might soon be cheaper than new nuclear capacity, but there aren't many energy sources cheaper than an existing, fully-depreciated nuclear reactor, even after allowing for waste disposal and site cleanup.  As a consequence of these policies, German managers such as those at BASF face natural gas prices that are a multiple of those here, along with the prospect of steadily rising electricity rates.  The option to offshore production must seem as obvious for them as it did for US companies in 2005, when US natural gas prices reached $10 per million BTUs.

Of course this comparison is just a snapshot in time; the competition between these two energy revolutions will likely ebb and flow for years.  However, the current energy divergence between Germany and the US should remind us that the cost of energy remains a very important economic parameter, even in highly developed countries.  Measures that inevitably raise it are very likely to bring adverse consequences, no matter how well-intended or carefully justified they might seem.  That's worth considering here, as well, when Congress debates new energy taxes and the administration proposes new rules that could raise energy costs or constrain output. 

Natural Gas Vehicles Already Big in Italy, Iran

The sudden abundance of natural gas in the US triggered a startling divergence of crude oil and natural gas prices that, in turn, has energized the advocates of using more gas in transportation. Yet despite the availability of wholesale natural gas at less than $0.60 per gasoline gallon equivalent (GGE), and with retail compressed natural gas (CNG) prices under $2.00/GGE in many locations, natural gas accounted for less than 3% of US transportation energy consumption in 2011--most of it attributable to pipeline compressors. The picture is very different in countries like Italy and Pakistan, where CNG has a significant market share in motor fuels. As the US looks ahead to greater reliance on secure domestic gas for road transport, it's worth considering why other countries have such a big head start.

The obstacles to greater market penetration by natural gas in transportation are well known. CNG and LNG (liquefied natural gas) require new infrastructure. Many more retail gas facilities would be needed to assure motorists of convenient access at service stations. CNG takes a separate dispenser and compressor on the forecourt, while LNG requires both a new pump and insulated storage. Where pipeline gas is unavailable, such as in parts of the northeast, additional investments in the local "gas grid" may also be necessary.

Vehicle conversion costs represent another significant barrier. Engine modifications and crash-resistant fuel tanks add significant costs for both new vehicles and retrofits. Even with gas priced well below gasoline or diesel fuel, the payback for these costs can be lengthy. That's one reason that gas has made greater strides in bus, truck and delivery fleets in the US than for personal cars, since the more intensive use of such vehicles substantially shortens the resulting payout periods. Countries with high gas-vehicle penetration typically have government policies and incentives in place to promote the use of gas by mitigating these obstacles.

Italy leads the EU in CNG vehicle adoption, with more than 11% of new passenger cars equipped for natural gas last year. That compares to 0.01% for the US in 2012, where only one CNG model, a Honda, was sold. The Italian government promotes natural gas use in vehicles both directly and indirectly. The country provides a subsidy of €700 ($945) to purchasers of CNG automobiles, while manufacturers like Fiat offer discounts to expand their market for CNG cars. Incentives were even larger a few years ago. The government also makes retail petroleum products extraordinarily expensive with high taxes. So even though Italy is a large net importer of natural gas, CNG is much cheaper than gasoline or diesel at the pump.

Fuel availability may also have something to do with the disparity in adoption rates. Despite having an 83% smaller overall vehicle population , Italy has over 40% more CNG or "Autogas" refueling stations than the entire US, at around 900. This is due in part to state-level incentives, with 50-70% of the cost of a new CNG filling station reimbursed by regions such as Liguria, Lombardy, and Piemonte.

In terms of market penetration, Pakistan, which appears to be self-sufficient in gas, leads the world in natural gas vehicles, at 80%. That translates into over 2 million CNG vehicles, the result of a determined effort on the part of the government to reduce imports of petroleum by shifting to domestic fuels, with gas as its best option. This is a common theme in the non-oil-exporting developing world, where oil imports impose a large drag on national trade balances. CNG use in Iran is even higher than in Pakistan, as an unintended consequence of protracted international sanctions.

For the US, where oil production is increasing and oil imports declining, a shift to natural gas for transportation is likely to remain an opportunity, rather than a matter of necessity. The "NATGAS Act", a bill proposing incentives for CNG and LNG along the lines of the Italian model has languished in the US Congress for several years. It remains to be seen whether this will become a higher priority in the new Congress, which has shown early signs of interest in breaking the recent logjam on energy legislation.

In the meantime, adoption of natural gas vehicles in the US will proceed based on market forces, supported by a small advantage in the way CNG cars are counted in manufacturers' fleets under the stringent federal fuel economy regulations issued last summer. That could lead to natural gas fueling 3% of US vehicles --mostly trucks--by 2020, based on the analysis of a partner at McKinsey & Co. Much like the case for energy efficiency investments, the available savings indicate a much larger potential, but funds for CNG/LNG transport must compete with other priorities.

A slightly different version of this posting was previously published on the website of Pacific Energy Development Corporation.

Is Small Nuclear Reactor R&D Fleecing the Public?

Two weeks ago I received an email announcing that Taxpayers for Common Sense (TCS), a D.C.-based watchdog organization, had awarded this year's Golden Fleece for wasting tax dollars to the federal government's efforts to promote the development of small, modular nuclear reactors (SMRs).  My quick perusal of the award's justification left me with distinctly mixed reactions, before I filed it away with the other announcements I received that day.  Since then, every time I ran across a reference to SMRs I was drawn back to the group's assertions about the technology, while questioning whether my opinion of the award would have been different had they singled out the renewable energy loan guarantee program, renewable energy cash grants, or some other example of recent federal generosity toward emerging energy technologies. 

The Golden Fleece awards were started in the mid-1970s by Senator William Proxmire (D-WI).  He had a knack for highlighting egregious examples of government waste and bureaucratic excess, though he also periodically skewered legitimate scientific research.  My view at the time was that he possessed a genuine passion against waste but a poor understanding of how science benefits society. TCS apparently revived the award in 2000.  Its targets since then have included projects such as Alaska's infamous Bridge to Nowhere.  Fair enough.  Yet as I reread the group's claims about the government's support for this technology, it came across less as a balanced critique and more like a one-sided attack that misinterprets the concepts involved, thus falling into the same trap that the late Senator occasionally did. 

Let's set aside the question of cost for a moment.  The US is exiting an era in which government could unquestioningly pay for any idea that anyone in the administration or Congress could think up.  Programs and projects like this should indeed have to vie with each other for scarce funding, guided by a clearly articulated list of our national priorities, a consensus on which is long overdue.  However, that's not the argument TCS is making.  It rests instead on four points specific to SMRs:

First, they treat SMRs as an entirely unproven technology with no cost-performance track record, despite having reminded us a few paragraphs earlier that at least some SMR designs are an outgrowth of extremely successful naval reactor programs.  Their contention that "no one is clamoring to buy an SMR because there is no assurance that the electricity will be remotely competitive with power from other sources" could have been made about any early-stage energy technology.  That raises basic questions about the legitimate role of all federal energy R&D spending, but in the context of a single technology that happens to be at the starting blocks today.  Moreover, disqualifying SMRs on the basis of today's low natural gas prices conflates a genuinely challenging commercial environment with a standard that, if applied consistently, would soon leave us 100% reliant on natural gas for electricity generation.  Not even the most ardent supporters of shale gas would advocate that.  The better question to ask is how nuclear--small or large--fits into a diverse future energy mix.

Next TCS states that the case for SMRs contradicts the logic behind large-scale nuclear power--implying that both can't be valid--rather than viewing them as distinct and different models for nuclear generation.  If anything, the real contradiction lies in saddling SMRs with the history of cost overruns in large-scale nuclear, much of which has resulted from protracted permitting delays and lawsuits, or on-site construction problems that SMRs are specifically intended to circumvent. 

I agree with TCS when they say, "There is no assurance that SMRs would pass regulatory muster."  Yet when has any new energy technology arrived with such a guarantee?  Their concerns about the organizational challenges that the Nuclear Regulatory Commission (NRC) would face if SMRs progressed strike me as a better argument for reviewing the funding, structure and processes of the NRC, than one against SMRs.

Finally, the award text evokes unmanaged nuclear waste and terrorist attacks on SMRs emplaced in suburban locations.  There's little I can add to the decades-long debate on nuclear waste other than to observe that the challenges involved fall more into the realm of politics than science and engineering.  As for SMRs in suburbs, although that might be the vision of some nuclear entrepreneurs it seems realistic now only if we define "suburb"--a word that TCS went out of its way to repeat-- as any part of the country not within some urban zone.  The likeliest locations for at least the first generation of SMRs are within the site boundaries of operating or retired large-scale nuclear power plants: locations already well-protected against terrorism and other threats.  SMRs are not coming to a neighborhood near you any time soon, with or without federal funding.

Returning to my discomfort with my initial, somewhat reflexive reaction to the award, Taxpayers for Common Sense raised some concerns about federal support for small modular reactors that could fairly be aimed at a wide array of programs within the roughly $10 billion per year portion of the Department of Energy's budget that isn't related to nuclear weapons, along with the recent federal stimulus.  Despite that, SMRs have significant potential as a future source of low-emission electricity on a scale that could prove more compatible with the current capital budgets of the power industry, and with an emerging, renewables-intensive, smart-grid-enabled energy mix.  Without singling out this technology, I agree that in a post-sequestration world of limited budgets we should be asking more of the kind of hard questions that TCS raises about "market-distorting subsidies."   However, if their intention was to stimulate that kind of debate across the whole energy space, their cause might have been better served by taking it on directly, rather than targeting a concept that enjoys wide support as a legitimate focus of federal R&D spending.  

A Secretary of Energy for a Leaner DOE?

I've read a number of stories on President Obama's nomination of MIT physicist Ernest Moniz to be the next Secretary of Energy.  This overview of his background from the Washington Post is as good a place as any to start.  Although I haven't met Dr. Moniz, I've seen him on various panels and am familiar with some of his department's work, such as MIT's reports on the Future of Natural Gas, Future of Coal and Future of Nuclear Power.  As many comments since his announcement have suggested, it would be hard to find a more ideal steward of an all-of-the-above energy strategy. At the same time, this choice also reflects many of the key challenges facing the Department of Energy at this moment, not least the preservation of its R&D activities and other capabilities in a post-sequestration environment.  This is likely to be a different Department of Energy (DOE) than the one that Dr. Chu guided for the last four years. 

If I thought it likely that the DOE would continue to pursue large-scale industrial policy, such as the expanded energy loan guarantee program and other renewable energy deployment-focused activities that originated in the 2009 stimulus bill, I would be a lot more concerned that the President has selected another scientist and academic administrator to lead the DOE, instead of someone who has actually run a large energy business.  Lack of commercial experience was arguably a key factor in the DOE's decision to fund Solyndra even as its main business proposition was unraveling, along with promoting a premature and excessive expansion of US electric vehicle battery manufacturing capacity. 

However, the federal budget sequester is now in place and Congress has little appetite for expensive new programs.  Business acumen seem less critical for a department that must make do with less for the foreseeable future while remaining relevant in an administration focused on advancing renewable energy and reducing greenhouse gas emissions.  From the relatively little I know of Dr. Moniz, his prior experience in government--including a stint as an undersecretary of energy--and prominent role in a first-class research institution should equip him well for this task.

Dr. Moniz faces criticism from environmentalists for his views on nuclear power, natural gas and hydraulic fracturing ("fracking.")  It's hard to imagine any nominee for this job who wouldn't spark some level of controversy, given the conflicting energy goals we've pursued over the years.  I don't give much credence to the Post's inclusion of the views of Professor Howarth of Cornell on the Moniz nomination, considering that much of Dr. Howarth's widely-disseminated analysis of shale gas emissions has subsequently failed to withstand scrutiny.  In any case I prefer the choice of a Secretary of Energy who has some appreciation of the importance of the energy sources that still supply roughly 90% of our energy needs, and possesses a clear understanding of the complexities of the long transition to cleaner sources, rather than one exclusively focused on the latter. 

Energy and the Federal Budget Sequester

Barring a last-second deal to avert it, the federal government's budget will be cut on Friday by $85 billion for the current fiscal year, which ends in September.  These cuts will be applied across the board to every cabinet department and agency of the federal government, though at different rates for defense and non-defense activities, and with some functions exempted by the legislation that set the sequester in place.  Energy is no exception, and some of the cuts there may seem surprising, given the President's emphasis on promoting new energy sources.  It's worth putting all this into perspective.

Much of the discussion I'm hearing about sequestration, including efforts to replace it with a mix of smaller, more-surgical spending cuts and new tax revenue, seems to miss the bigger picture.  Sequestration was devised by the White House and agreed to by Congress as an intentionally repulsive fallback to the $1.2 trillion of detailed spending reductions that were to have been negotiated in exchange for raising the federal debt ceiling by what ended up being $2.1 trillion--already spent in the meantime.  There were certainly political reasons why that deal focused on spending cuts, rather than a mix of cuts and new revenue.  However, after reviewing the White House's own data on federal revenues and expenditures for the last five years, it would be hard to avoid the conclusion that the US government has a serious spending problem, irrespective of any revenue concerns. 

Specifically, the Office of Management and Budget (OMB) expects combined federal revenue for fiscal year 2013 to come in at $2.9 trillion, or 13% higher than the previous all-time, pre-recession peak in 2007.  Yet 2013 expenditures of $3.8 trillion would be 40% higher than the 2007 level--a trillion dollars more, in fact.  Some of that increase reflects carry-overs from the 2009 stimulus bill, most of which was spent in 2010-12. Even after factoring out expenditures related to the higher unemployment resulting from our weaker economy, federal spending has grown rapidly.

What does sequestration mean for federal energy programs?  Before the cuts were postponed for two months, OMB identified annual reductions totaling $2.4 billion from non-exempted programs within the Department of Energy.  That included cuts of about 8% to the department's science budget, the Office of Energy Efficiency and Renewable Energy (EERE), ARPA-E, the Strategic Petroleum Reserve, innovative technology loan guarantees, and other activities.  Around a billion would be cut from the DOE's nuclear weapons and defense-related work.  Yet when applied to the DOE's 2013 budget request, it appears the department would still receive about a billion dollars more after sequestration than it spent in 2008.

DOE isn't the only place that energy spending would be cut.  I was surprised when I was alerted by a friend in the renewable energy practice of the Akin Gump law firm that Treasury renewable energy grants in lieu of future tax credits would also be subject to sequestration. The federal low-income heating energy subsidy (LIHEAP) would be cut, too, along with the budget for the Bureau of Ocean Energy Management, which administers offshore oil, gas and renewable energy leases. Together they amount to just over $3 billion in reductions from the roughly $44 billion appropriated for energy-related activities this year.

Across-the-board cuts should never be management's first choice for reducing expenses, because they hack away at necessary and useful functions along with the wasteful ones.  However, these cuts are occurring because the administration and Congress couldn't agree on setting priorities for where to cut. After seeing the reactions to the threat of cuts from almost every interest group in America, are we in any position to blame them?  When everything is a priority, nothing is a priority. That's what the sequester reflects, nor is it without precedent.

Because of where I live, some of my relatives, friends and neighbors will feel the direct impact of sequestration.  They have my sympathy. I'm sure it would be little consolation to them to know that  I spent several stretches of my own corporate career under various across-the-board budget cuts, pay freezes, and similar programs that frustrated me, too, because I saw so much muscle cut along with the fat. Parts of the private sector have been through their own versions of sequestration numerous times, some quite recently.  It's never ideal, but sometimes it's the only workable option to rein in spending.

With respect to energy the numbers above suggest that, if given some flexibility in how to allocate cuts on this scale, the government should be able to fund all the core functions of the Department of Energy in promoting energy security and helping to develop new technology, while preserving its key organizational capabilities.  That might not be true of the department's recent efforts in industrial policy. It remains to be seen whether the Congress and White House can agree on providing that kind of flexibility in the execution of a sequestration policy that now looks virtually certain to go into effect this weekend.

The Keystone XL Pipeline: Pyrrhic Victory Ahead?

Last weekend thousands came to Washington, DC to protest against the Keystone XL pipeline project, just a few days after a smaller protest in front of the White House resulted in a batch of arrested celebrities.   The State Department's decision on the cross-border permit is expected within a few months.  However, unless the President devises an unexpectedly Solomonic solution, one side or the other will come up short. That much is obvious, but I'd suggest that it's also worth considering the possible unintended consequences for the winning side.  Keystone could prove a Pyrrhic victory for either environmentalists or the energy industry.

That assessment starts with the fact that both sides have contributed to exaggerating the stakes out of all proportion, especially on the part of those concerned about the climate impacts of a new pipeline to carry crude derived from Canada's oil sands, or "tar sands."  With Nebraska having signed off on a new route avoiding the Sand Hills, the entire question now hinges on its global greenhouse gas (GHG) emissions, which would be far less than some claim. Without belaboring this point--not the aim of this posting--you needn't take the word of Transcanada, the pipeline's owner on this.  It's straightforward to demonstrate that any expansion of oil sands production would still account for a small share of Canada's GHG emissions, which are in turn a thin sliver of global emissions.  Such facts are easily overshadowed by pronouncements such as the oft-cited "game over" assertion from NASA's James Hansen, reminding us that even Ph.D.'s should be cautious when straying so far beyond their expertise.

Likewise, supporters of the pipeline have made numerous expansive claims about its potential economic and employment benefits.  Even if those are accurate, they're a lot less relevant at this stage of the debate than they were a year or two ago.  This issue has grown far beyond an argument about the facts, or even about a pipeline.  It has become a battle over a symbol, and the responsibility for that development rests with the administration, which declined multiple opportunities to issue a simple up-or-down decision, even when the Congress attempted to force the President's hand in late 2011.  Blame it on the election cycle, or unwillingness to disappoint one or another important constituency.  But extended this long, indecision turned the project into a giant version of Schrödinger's Cat, existing in a sort of limbo that compels attention.

When the pipeline's fate is finally revealed, the consequences could match its inflated, symbolic stature, rather than its actual importance as an energy project. The possible blowback is probably easier to imagine if the pipeline were approved.  Outraged environmentalists would be unlikely simply to pack up their signs and go home.  Aside from seeking new ways to impede the project, they might turn their attention to other energy projects that are currently uncontroversial, or at least less so than Keystone XL.  They might also choose to vent their anger on an administration they were counting on to see this argument their way.  The resulting fallout in lost voter enthusiasm might hinder Democratic candidates in the 2014 mid-term elections. 

Now imagine what might happen if the pipeline were rejected.  As I understand the process, that would require the new Secretary of State to rule that the project is not in the US national interest.  That would constitute a serious snub to our largest trading partner and largest source of imported crude oil.  Canada won't cut us off, but its government and industry would certainly intensify their efforts to diversify their oil export destinations, by means of other options headed either west or east, by pipeline or by rail.  The oil would still get through, but the relationship between the US and Canada would suffer, and environmentalists would be seen as responsible.  In any case, what won't happen is the shutdown of oil sands development. If anything, making this oil harder to bring to market could lend further support to high oil prices, and paradoxically preserve the incentive to produce more of it or gain access to these supplies.

The outcome that should worry environmentalists most about that scenario is the prospect of up to 800,000 barrels per day of crude oil loaded onto rail cars--roughly 1,000 a day of them--and moving all over North America.  Aside from the increased emissions associated with that mode of transport, compared to pipelines, the risks of a serious accident or spill would multiply.  If such an event occurred, it would attract significant attention from media that wouldn't be shy about reminding viewers why this oil was in rail cars in the first place.  But even without an accident, opponents of the pipeline are placing an implicit bet that oil prices will stay flat or decline if the pipeline isn't built.  If they go up instead, they stand to bear part of the blame, whether accurately or not. 

Stopping the Keystone XL pipeline won't result in appreciably lower US or global oil consumption, or a material change in global GHG emissions.  The key to oil's emissions lies on the consumption side, where most of them occur, and thus in focusing on the hundreds of billions of dollars per year spent by developing and transitional countries on sheltering their industries and consumers from the price of oil, along with countries that still generate significant amounts of electricity from oil.  Nor would approving the pipeline restore the US economy to its pre-financial-crisis growth rate.  The energy security benefits that it would bring, like the climate benefits opponents seek, are more about reducing risk.  Yet whether or not you agree with the editors of Bloomberg that keeping "Canadian oil flowing to U.S. refineries in the most efficient way, within the bounds of safety" is the principle that should guide Secretary of State Kerry, no one has benefited from dragging the decision out this long.  The winners might end up regretting that as much as the losers. 

The State of the Union's Two Energy Revolutions

It was no surprise that energy and climate change featured prominently in last night's State of the Union speech, giving me plenty to discuss in my on-camera interview with Reuters this morning. The President devoted an entire section of his address to these topics, leading into it in a very upbeat way: "Now is the time to reach a level of research and development not seen since the height of the Space Race.  And today, no area holds more promise than our investments in American energy."  You'd never guess from that introduction that this president faces a strikingly different energy challenge than his seven most recent predecessors. There are two energy revolutions underway in the US, and the unplanned one is racing ahead of the one to which he devoted most of his remarks--and most of his efforts on energy for the last four years.

Let's start with the positives.  Even more than in last year's speech, President Obama presented energy as a bigger opportunity than a problem. He described our impressive recent progress in oil and natural gas production, renewable energy generation, and the reduction of greenhouse gas emissions.  As fact-checkers have pointed out, he stepped into aspiration when he claimed credit for doubling automobile fuel economy--a goal that might or might not be attained by 2025--but even this fits within a broad set of energy trends that are all finally moving in the right direction.

The President also endorsed a very good idea that has been floating around for a long time, but has never been seized upon.  He suggested funding R&D for electric and natural gas vehicles and biofuels with the revenue from federal oil and gas lease bid premiums and royalties.  This "Energy Security Trust" would yoke the success of future energy technology to the enormous cash cow represented by the vast oil and gas resources beneath public lands and waters.  He'll have to sort out the allocation of revenues with the states, who surely won't want the new set-aside to come from their share.  If he can work that out, the government will have an even bigger vested interest in ensuring that responsible oil and gas development on these lands proceeds, in order to advance energy innovation.

Yet as pleased as I was with those aspects of his remarks, I couldn't help noticing that he still speaks about renewable energy in much the same way he did four years ago, as though we've learned nothing in the meantime.  He wants us to out-China China in investing in solar energy, despite the fact that many of China's leading solar manufacturers are struggling with the same low margins that have led to a string of solar bankruptcies in Europe and the US, as rampant global over-capacity fuels cutthroat competition.  He also apparently wants to make the wind Production Tax Credit permanent, rather than reforming and phasing it out, as even the leading US wind energy trade association has suggested.  The fact remains that no government on earth can afford to subsidize renewables at the current generous rates all the way up to full-scale deployment.  They need to be encouraged to become fully competitive with conventional energy as soon as possible and then set free. 

Nor has the President lost his enthusiasm for citing statistics like the doubling of the energy that "we generate from sources like wind and solar."  Yet increasing wind power from 1.3% of US electricity generation to 3%, and solar from 0.02% to 0.1%, are not what has set the stage for the US to become a significant net exporter of various forms of energy, and possibly even energy independent.  He spoke strongly in favor of natural gas last night and briefly noted oil's gains, but it's not clear that he sees them as the engines of economic growth that they could be for the next decade and beyond. 

Perhaps that's because after a long stretch in which US efforts on climate change and energy security seemed perfectly aligned, they are now moving out of sync. The 12% reduction in energy-related CO2 emissions since 2007 is largely attributable to fuel switching from coal to gas in the power sector, along with reduced oil demand in a lethargic economy.  There's additional scope for both; however, if all the present trends continue it will become harder to fit the reality of surging oil production and looming natural gas exports into a constrained emissions box. 

In that context, the President's call for a new, "bipartisan, market-based solution to climate change," and his threat to act via executive order if Congress fails, left enormous gaps of necessary detail.  Does President Obama really want another bitter contest over cap-and-trade, as one might conclude from his reference to the McCain-Lieberman efforts of 2003-5, or is "market-based" to be interpreted as a carbon tax, which is coming back into favor in some circles?  What was entirely missing was the necessary admonition to Congress to avoid larding any future climate bill with the kind of distortions and pork-barrel spending that turned its most recent effort, the bill by Reps. Waxman and Markey--both of whom were presumably in the room last night and deserve to feel slighted--into a 1427 page monstrosity.

Judging by my inbox this morning, many people liked what they heard last night concerning energy and climate.  Groups as diverse as the Blue-Green Alliance and the American Petroleum Institute cited portions of the address in support of their agendas.  And at least in the Energy Security Trust idea there were hints of the revitalized energy vision I was hoping for, in which the US rides the wave of shale-driven energy transformation while innovating the technologies of renewable energy, transportation and energy efficiency to the levels necessary to take over from oil and gas by mid-century.  There's always next year.

Comparing US Energy Growth in 2012

2012 was a remarkable year for energy in the US, with domestic output of oil, gas, wind and solar energy all advancing strongly.  This was the result of an unfolding revolution in unconventional oil and gas, along with federal, state and local incentives and regulations promoting renewable energy.  Yet despite extensive media coverage and vocal constituencies for each of these energy sources, I haven't seen any recent efforts to compare their respective contributions to US energy supplies. 

That may be due in part to the confusing array of energy units involved. It's daunting to match up oil in 42-gallon barrels (bbl), gas in cubic feet or British Thermal Units (BTUs), and wind and solar in kilowatts (kW) or Megawatts (MW) of capacity, or kilowatt-hours (kWh) or Megawatt-hours (MWh) of actual generation.  Conversion factors among these various units are easy to find on the internet.  However,  meaningful equivalencies are complicated by important distinctions between liquid or gaseous fuels and grid electricity, and the fact that these energy sources compete with each other only in specific situations.

For purposes of comparison, since wind and solar routinely compete with gas-fired generation, let's assume that the output of wind turbines and solar panels can be equated to the power from a natural gas turbine with an effective heat rate of 7,000 BTU/kWh.  That recognizes the efficiency losses in fossil generation and the premium value of electricity to end users.  Gas and gas-equivalent renewables can be further equated to oil using the standard conversion factor of 5.8 million BTU/bbl.  So even though wind and solar rarely compete with oil in the real world, because less than 0.6% of US electricity is now generated from petroleum products or byproducts, we can still assess their relative contributions to America's energy economy in familiar terms.  Please note that Energy Information Administration (EIA) data on production and generation for the full year won't be available until the end of the month, so the figures below are based on published data for the most recent available 12-month periods.

Through November oil production posted impressive gains last year , as noted several times in the presidential campaign and debates. Thanks to surging tight oil (shale oil) production in North Dakota, Texas and elsewhere, US crude oil output increased by 748,000 bbl/day on a December-November basis, or around 13%. In fact, November's production of 6.9 million bbl/day was the highest for any month since November 1993. Recent production looks even higher.

Natural gas also grew rapidly in 2012, with "marketed gas production", including gas liquids like ethane, propane and butane, growing by 1.4 trillion cubic feet for the 12 months ending in November 2012, compared to the same period a year earlier.  That's equivalent to adding at least 650,000 bbl/day of oil.  US gas production appears to have set an all-time record last October.

Wind power also had a banner year, with developers installing a record 13,124 MW of new capacity in the US.   Much of that growth was attributable to companies accelerating projects in anticipation of the scheduled December 31, 2012 expiration of the federal Production Tax Credit, or PTC, the main US tax incentive for wind energy. As it turned out, the Congress extended the PTC for another year as part of the recent "fiscal cliff" deal. On the basis of the most recent 12-month comparisons from the EIA, US wind farms generated 18 billion kWh more last year than the previous year.  That equates to 126 billion cubic feet (BCF) of natural gas, or around 59,000 bbl/day of oil.

That brings us to solar, which was on pace to set a record of around 3,200 MW of new installations in the US in 2012.  On a December-November basis new solar panels added roughly 2.5 billion kWh of reported generation last year, equivalent to 17 BCF of gas or 8,100 bbl/day of oil. This probably doesn't capture the contribution of all grid-independent installations, but it's unlikely to be off by more than a factor of 2.

Although the above chart shows that wind and solar power have a long way to go to match the recent energy contributions of new fossil fuel production, both have earned credibility by advancing to the point of being measurable on the same scale as oil and gas.  Both also contribute to reducing emissions. At the same time, the significance of developments in US unconventional hydrocarbons leaps off the page.  In just the last year, for the second year in a row, shale gas has added domestic energy production roughly equivalent to the entire current output of all US non-hydro renewable electricity generation: wind, solar, geothermal, biomass and waste power. Tight oil added a like amount in 2012.  We're clearly in the midst of an energy transformation, but it doesn't much resemble the one that was anticipated just a few years ago.  

This is an updated version of a posting that was previously published on the website of Pacific Energy Development Corporation.

Green Car Tech: Workhorses Trump Thoroughbreds?

Fisker Karma at 2013 DC Auto Show

Yesterday I made my annual trek to the Washington Auto Show, which hosts a media day before opening to the public.  Between the show's focus on policy--a natural draw inside the Beltway--and the opportunity to connect with OEM contacts, it's always worthwhile.  Besides, the cars never look the same on a screen or printed page as they do in person.  Yet despite all of that, this year's show left me with what I regard as a healthy form of disappointment: Unlike past years, which provided my first opportunities to see--and sometimes drive--cutting-edge cleantech cars like the Chevy Volt and Nissan Leaf, I saw ample signs of evolutionary change but no new revolutions in the offing. 

A few data points to support that conclusion: First, the Fisker Karma, undeniably sleek and reminiscent of my favorite Hot Wheels® car of long ago, was arguably the most exotic car there.  It sat unattended and largely ignored.  More significantly, the 2013 Green Car Technology Award announced at the show by Green Car Journal went to Mazda's "SkyACTIV" suite of technologies.  These include improvements in engines, transmissions and chassis that Mazda plans to roll out across its fleet, along with the North American launch of a clean diesel version of its Mazda6 sedan later this year.  Among the other finalists were Ford's stop-start and EcoBoost technologies, Fisker's "EVer" plug-in hybrid powertrain, and Fiat's Multi-Air gasoline engine efficiency package.  Half the candidate technologies related to EVs and hybrids, while the other half focused on making conventional cars incrementally more efficient--in the process raising the bar that EVs and hybrids must vault.   

Yesterday's policy day also provided a chance to meet with the team from Robert Bosch, LLC, which among its many business lines supplies under-the-hood gear for clean diesels and efficient gasoline cars, as well as hybrids.  Our conversation focused on clean diesel, which remains the least-appreciated big-bang fuel efficiency option in the US, despite its wide adoption in Europe, where diesels enjoy about a 50% share in "take rate", reflecting consumers' choices when more than one fuel option is available in a given model.  Diesel take rates range from 30-60+% here, too, but with only 20 diesel models available in the US last year--many of them German luxury models--overall diesel penetration in new cars was just under 1%.  That could start to change this year. Bosch's Andreas Sambel, Director of Diesel Marketing and Business Excellence, indicated 22 new models slated for 2013 introduction, with the total increasing to 54 models by 2017. 

We also discussed future improvements in diesel passenger car technology.  Bosch sees ample opportunities to maintain diesel's edge over steadily improving gasoline-engine efficiency.  Possible enhancements include engine downsizing, higher injection pressures (already 29,000 psi), the addition of stop-start, and combustion improvement via something called "digital rate shaping"--my jargon takeaway of the day.  I was surprised to hear that diesel-hybrid models are already available in Europe, since conventional wisdom holds that doubling down on two expensive efficiency strategies can't be cost-effective.  Mr.Sambel offered the view that hybrids are becoming a distinct market segment, and that fuel choice within that segment will appeal to some buyers.  I'll have to watch for further signs of this intriguing development.  I certainly concur with his take that there is unlikely to be a one-size-fits-all solution.  Don't expect an imminent winner among the proliferating powertrain and fuel choices available to motorists, including biofuels and CNG/LNG.

This year's DC Auto Show includes a wide selection of nicely sculpted steel and glass, but at least from a "green car" perspective the technologies that made such a big splash a few years ago are becoming a bit mundane.  That's just as well.  EVs still haven't taken off, yet, with only 53,000 sold in the US last year out of a much-recovered 14.4 million car total, despite lavish tax incentives.  However, with oil prices stubbornly high and US gasoline prices on the verge of setting new records for this time of year, the evolutionary improvements in fuel economy that were honored and displayed at the DC Convention Center will find plenty of takers.  For the near-term they'll contribute far more to saving oil and reducing emissions than a few more EVs could.