Lack of Foresight and Imagination in Washington

First things first: let's stop pretending that American business can still think about the future ten to twenty years down the road. One of the ironies in our era is that the oil industry is one of the few areas of the business sector that can think ten years down the road, at least sometimes.

If there is to be change, it has to come from our government. Capitalism, free enterprise, competition and all of that will continue to play a role for many years to come but our current economic structure simply cannot deal with problems that have a long timeline such as global warming, declining fossil fuel production and the long neglected problem of world population.

To deal with problems that will play out over the next decade or two, the American government has to get involved. Unfortunately, our government has been ineffective for the last thirty years. There is some hope that the Obama Administration can renew our capacity to make things happen again. Sometimes I feel that Obama is a little behind the growing understanding of the American public but, for the most part, it's a truism that the president cannot move too far out in front of public opinion. Public opinion, of course, has very little to do these days with the American people. Public opinion is largely a fiction of the media, particularly in Washington and New York.

In the last post I wrote how the Chinese seem to have an energy policy while we continue to pretend that Wall Street experts are on top of things. We have been deluding ourselves for thirty years that free enterprise someday, somewhere, in some magical manner, will somehow take care of our energy needs and invent dreamosol, the universal energy solver. The nation that for a hundred years showed what practical men and women can do is now engaging in fantasy.

Of course some people are beginning to notice that we just may have a problem. Tern Norris and Jesse Jenkins of the San Francisco Chronicle have some very useful figures that may startle business people who like to crunch numbers:

As Congress debates climate and energy legislation, Asian challengers are moving rapidly to win the clean-energy race. China alone is reportedly investing $440 billion to $660 billion in its clean-energy industries over 10 years. South Korea is investing a full 2 percent of its gross domestic product in a Green New Deal. And Japan is redoubling incentives for solar, aiming for a 20-fold expansion in installed solar energy by 2020.

In contrast, the United States would invest only about $1.2 billion annually in energy research and development and roughly $10 billion in the clean energy sector as a whole under the Waxman-Markey bill - less than 0.1 percent of U.S. GDP. A group of 34 Nobel laureates recently wrote a letter to President Obama decrying the lack of investment and calling on him to uphold his promise to invest $15 billion annually in clean-energy R&D.

The other guys get it. How is it that we don't?

It's a given that the current generation of Republicans sent to Washington have become useless know-nothings. The thing to keep in mind is that there are also machine Democrats in Congress. 'Machine Democrats' is my catchall phrase for both Democrats from conservative states who get nervous when the status quo is threatened and Democrats in blue states who are put up by various people who know a Republican can't win but who need someone who is likely to continue business as usual. These Democrats are nearly as useless as the Republicans. The only way for our nation to move forward is for more progressive Democrats to be elected. Republicans and machine Democrats are supposedly pro-business. What they actually are is pro-privilege, pro-insider and pro-monopoly. What we need are progressive Democrats who believe that free enterprise and real competition is important while also believing that capitalism needs to work for people and not against people. Until that happens, the economy and power of the United States will continue on what is obviously becoming a downward spiral.

Energy: China and U.S. Take Different Approaches

The Chinese seem to get it. It will take energy to convert to alternative energy. The Chinese are aggressively protecting their conventional energy supplies. The U.S., on the other hand, is largely just winging it without thinking through what needs to be done.

As one example we're still acting as if ethanol will be a major factor in alternative energy. Ethanol will be a factor in places but it's hardly a major solution. We simply burn too much fossil fuel to make ethanol. And the return on energy input is still very poor.

If anybody ought to be for ethanol, it's George Monbiot of The Guardian. But he writes:

The EPA has to decide whether or not to allow more ethanol to be blended with gasoline. At the moment the limit for ordinary motor gas (petrol) is 10%. The agency is inclined to raise this to 15%. The Alliance of Automobile Manufacturers is trying to prevent or postpone it. I'm with the car makers, though not for the reasons they cite.... Since 2004 I've been banging on about the impact of biofuels on the environment and global food supplies, and I've been horribly vindicated. In 2008 the expansion of biofuel production was directly responsible for the decline in global food stocks, which caused grain prices to rise, catalysing famines in many parts of the world.

(snip)

In almost all cases, biofuels made from grain or oil crops create more greenhouse emissions than petroleum. This is partly because they lead to an expansion in total crop production, which means that forests must be cut down, unploughed pastures must be tilled and wetlands must be drained to accommodate it. The carbon stored in both the vegetation and the soil is released and oxidised.

(snip)

But while other countries are starting to re-assess their biofuel programmes, the US is still ploughing ahead.

China on the other hand isn't doing much with corn ethanol. It's investing in different countries to grow biodiesel. Here's a story on China's strategy:

China for example, driven by the projected energy demand of more than a billion increasingly affluent people and the reality of (financial, technological and geological) constraints to future crude oil production has embarked on elaborate biofuels and renewable energy development programs.

The country has acquired on long leases, vast tracts of land for cultivation of biodiesel feedstock: a record 2.8 million hectares in the Congo for oil palm and 2 million in Zambia for jatropha among others.

Now there are things I don't like about the Chinese strategy. I suspect, for example, that countries growing biodiesel for China may find their soil depleted in twenty or thirty years and then what? China will have gotten it's money back on the investment while protecting itself as the world transitions towards other alternative energy forms. Of course the other issue is geopolitical: China is going after countries at the equator with high sun concentration. This could mean something of a monopoly for China (and maybe a new form of colonialism) while everyone else tries to recover from the current economic mess. But it's a clear sign that China recognizes the energy problem facing the world. There are two part parts to the problem: The need for conventional energy sources and the need to use those energy sources to fund the infrastructure and transition to alternative energies. China is working on both parts (see the second half of the above article).

And the U.S.? Well, here's another example of wasting time. Energy Secretary Chu wanted to cut funding for hydrogen research but Congress wants to restore it. Here's the story from the New York Times:

Congress appears close to restoring the $100 million in funding for hydrogen research that Steven Chu, the energy secretary, had cut from his budget in May.

The House of Representatives voted 320-97 last Friday to approve $26.9 billion for the Energy Department, including $153 million for hydrogen and fuel cells in the Energy Efficiency and Renewable Energy program, plus $40.45 million for hydrogen from coal.

Notice the last three words: hydrogen from coal. It's simply a waste of time. It takes energy to create hydrogen. Creating hydrogen from coal does nothing for our energy future. I'm sure the coal companies love it and I'm sure politicians from coal producing states love it. And I'm sure the Chinese are shaking their heads and chuckling at our increasing stupidity. There is probably a future for hydrogen but only after we start creating true alternative energy. Hydrogen technology does not, in no manner or form, create surplus energy. Some day hydrogen may become a convenient carrier of energy but that's all. We don't get energy from power lines but power lines can carry energy from coal plants and gas plants as well as from hydroelectric dams, wind turbines and solar cells. Hydrogen would serve a similar function.

Okay, last story but it has two parts. The first part is from Platts but I've been reading about the problems of small energy companies for several months:

Small and medium-sized energy companies' ability to raise capital is shrinking as banks consolidate their lending on established customers with large asset bases. (See related chart: Banks' shrinking market optimization ($ billion).)

It's largely small and medium-sized American companies that are having trouble raising loans for energy projects. One place American companies have been working in is Canada but that appears to be dropping from lack of loans. Yes, oil and gas consumption is down. But this puts the Chinese in position to take advantage of market conditions. Here's a story from The Globe and Mail about Chinese involvement in Canada's energy sector:

It's being driven by two or three outlooks on behalf of the Chinese. The first, and most obvious, is energy security. On a comparative basis, relative to the size of their economy, they are not blessed with that many natural resources themselves, so they want to get access themselves to the physical barrels, if possible.

The second thing, which drives the importance to the Chinese, is their own view that the industry is running short of natural resources and so it would be a good long-term investment, in and of itself.

The third thing that is really driving the importance of the Chinese market is the fact that that they've got the money They can finance these deals and, particularly in today's marketplace where raising capital is more difficult than it was a year ago, this ends up being a critical factor in deciding if you're a seller that we want to do business with.

They've got the money. Ouch. The people in Washington and on Wall Street need to get real. For that matter, the know-nothing wing of the Republican Party and the business-as-usual wing of the Democratic Party both need to sit down. If they still exist, it's time for the adults to return to the table. Given the condition the world is in and what the solutions are likely to be, those adults had better have a progressive view of things. We need change and it isn't happening fast enough.

"Kite Energy" Might Not Be As Bad As It Sounds

There's a lot of hype in the alternative energy field. It's not always easy to determine what has real potential and what doesn't. To be honest, all one needs is an idea and a good graphics program and maybe a real photo or two and you're new technology. In a moment, I'm going to talk about kite technology which is an intriquing development out of Turin, Italy.

But first, I'm going to talk about Bourne Energy. For all I know, it's a legitimate company with big plans. Here's their website. If you go there, you'll notice some nice graphics (even back in the 1960s, magazines like Popular Science had some of the best graphic artists for systems that never came to be). I tried to find more information on the company and all I found was a P.O. box in Malibu, CA. Malibu is obviously not a manufacturing area, though it has few nice boutique type offices for architects, etc. If you scroll down, or click on RS Portable, you'll see a portable energy generator that can be carried on the back and used to pull in energy from a river. There's nothing about the price but I suspect such a unit would be expensive. Actually, a friend of mine built a simple device from parts found in an electronics store and one or two parts found in his storage unit. The device didn't generate much power but it was sufficient for his purposes. He took it up to a mountain cabin that lacks electricity but there's a small creek there, only a foot or two wide, and he simply set up his device, ran the wiring to his cabin and he was able to use his computer. It was cheap, easy to fix up and reasonably efficient. I know, we need robust systems that work and last, but I still find myself rooting for simpler solutions. Such simpler solutions exist wherever the imagination and some experience combine to get something operating. But of course it's unavoidable that we'll also need robust solutions—if they can be made to work at a reasonable cost.

Now to the kite system. The Oil Drum: Europe has a post on a kite system that would utilize the high winds at an altitude of some 800 to 1,000 meters. They claim that they may be able to get an energy return on energy invested of over a hundred. If true, that would be a number not seen since the early days of oil fields in Texas and Saudi Arabia. The system depends on a kite shaped like a narrow paraglider controlled by two lines. The energy would come from a pumping or piston action, with minimal energy pulling the kite in a short distance with one line before the wind pulls the kite back up (here's the website of the company, Kite Gen; both Kite Gen and The Oil drum: Europe have some videos worth seeing).

The problem with the kite system is obviously in the details. Can the problems be ironed out? Where can such a system be used? What happens with the lines break? How often do parts have to be replaced? What kind of area density can be used for each kite? Can the energy be smoothed out? What happens during storms and lightning? The builders of the system claim that they have most of the problems licked and are aiming for a bigger test of the system with proprietary software to control the functions.

The kite system would be an exciting breakthrough, if true. But I wonder where these things can be placed? If they're somewhat dangerous, they will have to be built in unpopulated area (or at least in very low density areas). They might be compatible with cattle ranches or remote areas. Offshore facilities in unused sea lanes would be useful. Obviously, the more distant these facilities are from populated areas, the more infrastructure that will have to be built to get electricity to market. But the idea and the potential for return on energy invested is stunning.

But the idea is not original as one of the promoters pointed out. See this wikipedia article on an early 19th century pioneer of kite power. If kite energy lives up to its potential, there will still be an enormous need for many other systems. And maybe that's the key to the new era: flexibility and diversity.

China Now More Dependent on Foreign Oil Than US

If there is one rule in 2009 that applies, it's this: the old rules no longer apply. We're in a strange new political and economic era that is largely the result of 30 years of Republican shortsightedness. For thirty years, the US drifted without a significant energy policy. For thirty years, the US allowed good paying jobs to disappear overseas. From time to time, Republicans of course had help from a few dim Democrats. Nevertheless, Republicans were the driving force behind the economic policies of the era now ending.

Here's an article in The Globe and Mail about China's growing dependence on foreign oil:

China's dependence on foreign oil has surpassed that of the United States, as consumers race to the pumps to fill their new cars with gas and the country feverishly stockpiles supplies to take advantage of weak markets.

The country's increasing appetite has driven it to spend billions to acquire foreign oil producers and construct vast storage facilities to safeguard future needs. It also helps explain a rapid rise in oil prices this year, which many attribute to speculators gambling on an economic recovery.

Whatever one may think of China's domestic politics about such issues as Tibet and human rights, the Chinese are thinking about the future. The more oil China stores, the more it can ride out the ups and downs of the markets. And the more time it has to convert to alternative energy sources, both clean and dirty.

Of course oil was cheap seven years ago. At that time Bush and Cheney could have pushed for building up the Strategic Oil Reserve. Instead, they both opted for a war in Iraq. Given that both Cheney and Bush were oil men, many people, with good reason, believe the war in Iraq was about acquiring new oil assets. It's ironic then that we're seeing articles like this one in The New York Times:

Oil companies from China, the world’s second-largest and fastest-growing consumer of oil, bid aggressively on Tuesday as Iraq began auctioning licenses in six large oil fields.

A partnership of BP and the China National Petroleum Corporation, or C.N.P.C., won the first contract awarded, in the latest indication of Chinese interest in Iraq, a country that has until recently seemed to be firmly in the American sphere of influence for natural resources.

Republicans, and many other Americans for that matter, have still not come to terms with the enormous damage that Bush and Cheney have done to our nation. There are consequences to cowboy diplomacy and it's hitting us in the pocketbook. Here's a story from Reuter's:

Sinopec's $7.2 billion bid for oil explorer Addax Petroleum (AXC.TO) is a sign that China's energy giants find it easier to secure reserves in parts of the world where there are fewer hang-ups about Beijing owning local natural resources.

Africa and the Middle East, where Swiss-based Addax has its main assets, are more politically disposed to China than are developed nations such as the United States, where local politicians blocked CNOOC's (CEO.N) $18.5 billion bid for oil company Unocal in 2005, analysts say.

China is and will remain a cipher to many nations for many years to come. For some time, that will give an advantage to China over the US. But ironies are never at an end in this new era. As China drives up the price of oil, we can expect two things. First, the higher price will make it easier for many expensive and sometimes marginal oil projects to move forward. And the higher price will also make it more likely that many people, corporations and nations will continue to push alternative energy projects.

If we are lucky, more oil will be available to help the transition to alternative energy. And high oil prices will provide the motivation to make the transition. If American government officials, business leaders and consumers understand the new paradigm, our economy may enter the new era with reasonable stability and opportunity. If they do not understand how much things have changed, the American economy will sputter from crisis to crisis for many years to come.