White House Chronicle

News Analysis With a Sense of Humor

Europe and Its Slippery Energy Slope

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BRATISLAVA, Slovakia — Europe, at present the world's largest market and largest economic bloc, is decline and living standards are in danger. That was the sober message at an energy conference here, delivered by a battery of speakers from across eastern Europe.
 
The narrative is that energy is what is dragging Europe down – not low birthrates and pervasive social-safety networks, but increasing dependence on expensive energy imports and hopelessly tangled markets.
 
Although delegates gathered to discuss the particular problems of eastern Europe, many had comments about the energy dependence across Europe; its labyrinthine regulations in nearly all 28 countries, its inability to form capital for large projects like nuclear, and governments intruding into the market.
 
The result is a patchwork of contradictions, counterproductive regulations, political fiats and multiple objectives that leave Europeans paying more for energy than they need to and failing to develop indigenous sources, such as their own shale gas deposits in Ukraine and Poland. It also leaves countries dependent on capricious and expensive gas from Russia, unsure of whether they can build needed electric generating plant in the future and poorly interconnected, sometimes by both gas pipelines and electric lines.
 
Good intentions have also had their impact. The European Commission has pushed renewable energy and subsidized these at the cost of others. The result is imperfect markets and, more important, imperfectly engineered systems.
 
Germany and other countries are dealing with what is called “loop flow” – when the renewables aren't performing, either because the wind has dropped or the sun has set, fossil fuels plant has to be activated. This means that renewable systems are often shadowed by old-fashioned gas and coal generation that has to be built, but which isn't counted toward the cost of the renewable generation.
 
With increasing use of wind, which is the most advanced renewable, the problem of loop flow is increased, pushing up the price of electricity. Germany is badly affected and the problem is getting worse because it heavily committed to wind after abandoning nuclear, following the Fukusima-Daiichi accident in Japan.
 
Frank Umbach, associate director of the European Center for Energy and Resource Security at King's College, London, said energy costs in Germany are now driving manufacturing out of the country and to the United States.
 
Umbach said that as Britain de-industrialized 15 years ago, Germany was beginning to go the same way. He said Britain had been able to sustain itself through financial services and other service sector jobs, but that was not a prospect for Germany, the industrial mainstay of the European Union. Now Britain, with its new nuclear policy, is trying to re-industrialize, he said.
 
Umbach urged that Europe get serious about shale gas and even burning coal. His argument was that there are environment safeguards available and that more are being developed, such as the new less environmentally assaulting techniques in hydraulic fracturing (fracking) used to extract tightly bound natural gas from shale formations.
 
Several speakers said the region has to face the reality that it is no longer able to generate the capital it needs for liquefied natural gas terminals, nuclear power plants and unconventional gas recovery in Ukraine, Poland and in the Black Sea offshore Romania and Bulgaria.
 
Many countries, particularly in eastern Europe, still balk at foreign ownership of their energy infrastructure and have actively driven away investment. Poland, for example, has frightened off shale gas developers from the United States by insisting that as the resource is developed, 50 percent of the developing company must be ceded to the state. The companies left.
 
In other places, the Czech Republic, for example, landowners have no claim to the resource under their land; that remains the property of the government and, therefore, they are hostile to any development on their property, whether it is for oil, gas or minerals.
The United Kingdom, by contrast, declared a spokesman for its energy ministry, Hergen Haye, is open for business. That means if the Americans, the Chinese of the Middle Easterners want to “buy into” Britain's new nuclear undertaking, “they are welcome.”
 
Europe's sad energy situation was summed up by Iana Dreyer of the EU Institute for Security Studies. She said Europe is still the largest trading bloc in the world, the largest economic machine and the largest market, but that it is slipping. By 2030, she calculated, Europe will have slipped to No. 3, behind the China and the United States, unless it can untangle its energy Gordian knot.
 
Europeans here cite the United States as the way to go in energy. It makes a body feel good. — For the Hearst-New York Times Syndicate

Energy in the Time of Elections: Claims and Counterclaims

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Where there's oil and gas, there's milk and honey.

That is the thrust of the American Petroleum Institute's  report to the platform committees of the Republican and  Democratic parties. It was previewed in Washington on May 15 by API President and CEO Jack Gerard, the oil  industry's man on Earth, known for his tough attitudes to just about everything, but the Obama administration in particular.

In unveiling the report at the National Press Club,  Gerard declared that the recommendations were without political slant and were delivered to both parties’ platform committees without favor; although it is  generally known that the oil and gas industry — and Big Oil in particular — cares not a jot for the Democrats. In a slip, while reading a prepared statement, Gerard referred to the “Democrat Party,” which is a term used by conservative commentators and members of the Republican Party who cannot stand the thought of  Democrats having a monopoly on the word democratic.

As expected, and in line with other recent utterances, Gerard called for accelerated leasing on federal lands, demanded more sensitive regulation, and declared his belief that the United States is potentially the greatest energy producer on Earth.

The White House shot back at API almost immediately, claiming it is the oil the industry that is lagging not the government.

Not to be outshot, Gerard said, “Once again, the  administration is trotting out claims about idle leases to divert attention from the fact it has been restricting oil and natural gas development, leasing less often, shortening lease terms, and going slow on permit approvals—actions which have undermined public support for the administration on energy. It is also increasing or threatening to increase industry’s development costs through higher taxes, higher royalty rates, and higher minimum lease bids.”

Even if the administration is right this time, it has a hard sell ahead.

In the case of natural gas, there has been a giant windfall from shale seams; but that has been coming for some time, and the administration can take no particular credit. Similarly, oil imports are down from 57 percent to 45 percent, reflecting increased domestic production, something that helps more with the balance of  payments than the price at the pump.

Gerard admitted that while natural gas prices are at historic lows because of new recovery and drilling technology, oil is priced internationally and that is no help to American consumers. API and its chief tend to conflate oil and gas to make a point. Likewise, they like to include Canada in “North American” energy.

But the energy claims of the administration are even harder to follow and more dubious. It likes to confuse fossil fuels – coal, gas and oil — with electricity and, in particular, with alternative energy, like wind, solar and, in a manner of speaking, nuclear.

Most energy gurus see the dawning of a switch from oil to electricity for personal transportation, for buses and some trucks. But that dawn is breaking slowly with consumer indifference, battery life questions and other problems, including the availability of rare earths for motors and wind turbines.

Experience suggests that energy is a lousy political issue. It is complicated; each side has its own facts and there is some truth to both sides’ facts.

At the end of the day, the energy debate is reduced not to the amount of drilling taking place on federal lands, or to the virtues of natural gas over nuclear, but to the price of gasoline at election time. If that is lower than it is today, President Obama garners votes. If it is up, no matter why, all the GOP and Mitt Romney have to say is that it is Obama's fault.

The money vote is known already: With a very few exceptions the energy money is on the GOP. But that is not new. What is new is that environment is not on the agenda. Better wait until 2016.

Obama and Energy: What He Can and Can’t Do

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When the Obama administration seeks to explain its oil policy, it changes the subject mid-sentence.
 
The most frequent practitioner of this verbal contortion is the president's press secretary, Jay Carney. It is as though he's a magician who has promised to pull a live rabbit from his top hat. This conjurer stands before his audience, recites some incantations and, poof, retrieves not a live rabbit, but a dead chicken.
 
Carney, like others in the administration, starts talking about oil and switches to talking about "alternatives." The alternatives, with the exception of the nettlesome subject of biofuels (nettlesome because they produce little or no energy above what's invested in producing them), are ways of making electricity.
 
The administration is adept at confusing these almost unrelated subjects.
 
Oil is the stubborn problem. It affects every aspect of life and prosperity, from the balance of payments to war planning, from economic growth to our relationship with China. Worse, it may be in constrained supply for the rest of time, as the BRIC countries – Brazil, Russia, India, and China – continue to suck up the precious commodity.
 
New finds and technology relieve the gloom for a while, but as demand rises and supply struggles to adjust, the problem remains – even though conservative think tanks and trade groups fight the notion of structural shortage.
 
But the United States isn't short of electricity and has no need ever to be. The electricity problem, if there is one, is environmental. Do we continue to burn coal on a massive scale while we search for an environmental fix? Or do we go wholeheartedly for nuclear – even though the Obama administration has abandoned the Yucca Mountain nuclear-waste repository in Nevada?
 
Solar, wind, geothermal, wave, and even biomass energy come under the rubric of "alternatives" – and they're all electricity technologies.
Then there's natural gas, thought to be exhausted in the United States, but now in abundance as a result of sophisticated technologies. That's another electricity fuel.
 
It's enthusiasm for alternatives (a longtime love affair on the left) that has encouraged the confusing White House utterances about a policy of "all of the above." It's this that has spread the public perception that the president can do something about the price of gasoline. And it's this that makes him vulnerable to scorn over debacles like the loan guarantees to the solar-array manufacturer Solyndra.
 
If Obama's reelection hopes aren't to be extinguished at the gas pump this November, he needs to separate oil from electricity – and the future from the present. He can't affect world oil prices, and he can't drill enough holes in the United States to change the world oil market.
 
But he can change the debate, and push down the price somewhat, by taking up arms not against the oil producers, but rather against the oil traders, who are the market movers. They are concentrated in the New York Mercantile Exchange, where they daily bid up the price in a spiral that is unrelated to cost. The price of oil is set by traders, who use rumor, fear, and the knowledge that producers will be silent partners to jack it up.
 
They aren't phantoms. They are real, flesh-and-blood people who manipulate the markets daily. What's happening to oil in the New York Mercantile Exchange is what happened to electricity prices in California when Enron's traders were running wild.
 
There have even been shenanigans at the Cushing tank farm in Oklahoma, the installation that President Obama toured on Thursday. He might do well to read Leah McGrath Goodman's Fortune magazine article this month, on how ConocoPhillips warehoused oil at Cushing. That oil came in by the same pipeline that the new owners have now reversed, she writes, and it's now flowing to refineries by the very route it came in, but at higher prices.
 
Goodman knows what she's talking about. The former Wall Street Journal reporter wrote The Asylum, the definitive book about the New York Mercantile Exchange and the madness of oil trading.
 
Obama could jawbone the traders while providing more resources and moral support to the Commodity Futures Trading Commission – the poodle trying to do a pit bull's work.

Disruptive Technologies and the Agenda They Set

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The copper-wire telephone is in danger, traditional advertising is drying up and health care costs are through the roof and rising. What is the villain? Well, it’s technology; particularly, “disruptive technology.”

Disruptive technologies are devastating to established order. And they underlie Congress’s consideration the most wide-ranging legislative challenges it has faced since the New Deal: health care and energy.

Hugely effective but expensive new medical technologies, like magnetic resonance imaging, nuclear therapies and artificial joints, threaten to bankrupt the nation’s health care system. At the heart of the health care debate lie the escalating costs for these new technologies and how to shoulder and control them. The rudimentary solution is to get the well to pay for the sick, in the way that Social Security seeks to get the young to pay for the old.

After health care, Congress has to consider energy and its leitmotif, climate remediation. Here, too, it is faced with new technology forcing the issue. Even as the Senate contemplates taking up the House-passed bill, with its heavy emphasis on renewables, new drilling and discovery technologies are tipping the energy balance towards natural gas and away from other competitors like wind and nuclear power. Ironically, at one time, nuclear power was a disruptive technology that threatened to elbow out coal.

In electricity, Congress can force the market away from the disruptive technology toward something it favors for social and political reasons, like solar or wave power. The cost is simply passed on to the consumer.

As for transportation, the energy imperatives are dictated by the forces of infrastructure and sunk cost. In the long term, there are four options that will keep the wheels turning:

1.plug-in hybrids leading to full electric-powered vehicles;

2. hydrogen fuel-cell vehicles;

3. ethanol-powered vehicles and;

4. compressed natural gas-powered vehicles

These options are not created equal. Hybrids are here but the batteries are expensive, and the plug-in option dictates that the car sits in a garage or a parking lot that is equipped with plugs for charging. Also, the batteries decline with time and cannot be used after they lose about 30 percent of their design capacity. If you live in a high-rise, plugging in your vehicle is not yet an option. Ditto pure electric vehicles.

Hydrogen is a darling technology of the green community, which marvels that it is emission-free except for water. Trouble is, there is hydrogen aplenty in nature but not free-standing; it has to be extracted from hydrocarbons, like natural gas, or from water, with huge electrical input. Why not use the gas or the electricity directly?

General Motors markets a duel-use vehicle that can run on E85 (85-percent corn-derived ethanol). This fuel was a favorite of President George W. Bush; but the environmental impact of putting so much farmland down to corn for fuel and the effect on corn prices has taken the bloom off ethanol.

Natural gas–which can be used in a modified gasoline engine and has been made more abundant by revolutionary horizontal drilling technology–is advocated by T. Boone Pickens and others. It has come late to the transportation fuel wars because of fears of shortage, now proved groundless. Natural gas is not without emissions, but these are about half of those of gasoline. And it may be the big energy disrupter.

Congress, reluctant to pick winners for fear of also creating losers, intends to throw cash at every option in the hope that the market can make the choice later. But the market is not immaculate–and less so in energy than almost any other commodity. Electricity has to move down a finite number of power lines, and transportation fuels depend on the nation’s 160,000 gas stations for market entry. You can expect the gas station infrastructure to, say, provide replacement batteries, charging points, hydrogen terminals or natural gas compressors. But can you expect it to provide all of these?

Maybe the gas station, rather than being the vital element in the new energy regime, will be rendered obsolete by disruptive new technologies that allow gas compressing and electric charging in home garages and commercial parking lots. Maybe the hybrid of the future will have a compressed-gas engine and plug-in capacity, and all this will be achieved without the traditional gas station. Technology enhances, modifies and improves, but it is hell on established order.

Leon Trotsky said: “You may not be interested in war, but war is interested in you.” Congress ought to know that technology, disruptive technology, is interested in it. –For the Hearst/New York Times syndicate

 

The Pickens and Obama Energy Plans: How Smart Are They?

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The billionaire T. Boone Pickens and President Barack Obama have something in common: a plan for saving us from imported energy. In doing so they hope to reduce air pollution, create jobs and head the country towards a more sustainable energy future.

But Pickens and Obama do not have the same plan. In fact, Pickens has been critical of Obama’s plan; and Obama has been silent on Pickens’ plan.

Where both plans converge is on the billions of tax dollars that will be needed to upgrade the now ramshackle transmission system. This is often called the grid. The fact is it is not a grid at all, but a series of local grids that are sometimes interconnected. Texas is not connected to the rest of the U.S. system, for example.

The first problem with the two plans is that they are aimed specifically at foreign oil but deal with electricity, which we import in small quantities from Canada. Electric imports are not a problem. Both have ideas about how a greener, smarter electric grid will help toward cutting the astonishing amount of oil–20 million barrels a day–we consume in the U.S., 70 percent of it from overseas.

The Pickens plan is fairly straightforward. He wants to build wind farms up the spine of the United States, from Texas to Canada–hundreds of thousands of windmills in the best wind belt in the country. This electricity will be transported from the relatively underpopulated Intermountain West to the heavily populated coastal cities of the East and West.

This electricity would be moved on the new smart grid that everyone is sure is desirable, and on the way if the government foots the bill and there is enough use of eminent domain to force the new lines across private property. One of the reasons the grid is not larger and more flexible today is that it often takes as long as 20 years to overcome the local protest and litigation. Even the abusive use of eminent domain does not block lawsuits over issues like the health effects of large power lines.

To Pickens, this electricity will make it possible to back out the 30 percent of natural gas now being used to generate electricity; and that resource will substitute for oil in large trucks and eventually domestic autos, after the new filling stations are built.

Neat, huh? Maybe in 25 years?

Obama’s plan is more ambitious, but less specific. It seeks a huge increase in wind generation; the use of solar panels in cities; and, of course, the building of a really smart grid, which will give consumers the option to turn off their appliances when electricity is expensive and back on when it is cheap, mostly late at night and early in the morning–midnight suppers and 3 a.m. showers. The relief from imported oil comes in the use of electric cars, hybrid cars and possibly the electrification of some rail lines, where high-speed trains are envisaged.

Under the Obama plan and with his grid, your house will be monitored 24 hours a day for energy usage and it will get helpful directions on energy conservation. Ergo if you are growing plants in the basement, you might not want to sign up. Privacy is an issue. Also, will we go smart? Those who cannot program their VCR might want to dodge the smart grid.

There will be winners and losers. The winners will be the equipment manufacturers (lines, poles, meters, wire, insulators, turbines), civil engineers and, of course, lawyers and consultants. The losers? If the scheme collapses under its own grandeur, it will be taxpayers; job-seekers and ultimately the environment, if the utilities keep burning coal for more than half of their production. If the windmills are built under either scheme, birds and bats will get it. Both species are already slaughtered by the tens of thousands by flying into wind turbine blades.

While gasoline is cheap, the lights are on and the thermostat is set either too low or too high, it is going to be hard to tell people they have to change–and pay for it.

Bad Energy Vibes from Obama, Odd Ones from McCain

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Memo To Sen. Barack Obama: Beware of your friends and their opinions.

For example, Rep. Edward Markey was on a Sunday talk show allegedly defending your position on offshore drilling. But, in fact, the Massachusetts Democrat was defending his own long-held and irrelevant views. You just had an epiphany on campaign finance. Now, you need to have one on energy. At this point, the world needs oil and will need it for many decades. True, the United States will not get any new oil from the outer continental shelf for 10 years, and it will only account for about 4 percent of our needs as long as it lasts. But even that is essential.

Memo To The Friends Of Sen. John McCain: Just when you thought your candidate had settled down to be George W. Bush Lite, he up and proved that old mavericks cannot change their ways. McCain split the difference on oil by reversing himself on outer continental shelf drilling and remaining adamant on not drilling in the Arctic National Wildlife Refuge (ANWR). This put Tom Ridge, the former homeland security chief, on the spot on a Sunday talk show. Ridge simply could not explain the inconsistency of McCain, whose presidential bid he supports.

No matter what you believe should be done, the irrefutable fact is that the world is in a terrible energy bind–and all the indications are that the world energy situation may get worse.

Politicians of the left want to believe that there are technologies ready to come on line, and they are being squeezed out by old-line energy companies. They place their faith in what are referred loosely as “alternatives,” which include solar, wind and geothermal power. These they see as being the equivalent of low-impact aerobics. Painless and environmentally neutral. These politicians oppose the burning of coal and have no coherent policy on oil and gas. They choose to believe that the current high price of oil is a combination of oil company greed, Wall Street speculation, and the Bush administration’s appeasement of the Saudi royal family.

Conservative politicians have as much problem facing reality as their liberal colleagues. They have an inordinate faith that current off-limits drilling areas, both in the ocean and on land, will produce untold quantities of energy for the United States. They have considerable faith in new technologies that will clean up coal, find oil at ever-greater depths, and exploit gas hydrates on the ocean floor. They also believe that oil shale in the West, abandoned in the 1970s because of the environmental consequences of mining and the shortage of water, will replace Saudi Arabia.

One thing the left and the right do agree on is that plug-in hybrid vehicles are going to help a lot. The theory is that they will make a big dent in the 20 million barrels of oil that the United States gulps down every day; that is 10,000 gallons of gasoline every second, according to John Hofmeister, president of Shell Oil Company.

There is an energy establishment, and it is of one mind on energy challenges. This is the thrust of its thinking:

l Energy conservation is essential

l The outer continental shelf should be explored aggressively, along with federal lands

l ANWR should be drilled immediately, and a natural gas pipeline from Alaska should have priority

l Nuclear power is the best substitute for the coal now being burned and to replace geriatric plant

l Coal gasification is the best way to burn coal

l Wind power works and should be encouraged; in particular, storing wind energy as compressed air needs research

l Liquefied natural gas imports need to be boosted

l The search for new technologies needs to be relentless

l Energy producers, from oil companies to wind farms to electric utilities, need consistency in public policy

The unsaid addendum to the establishment thinking is that Obama needs to get some energy advisers who have a solid purchase on the Earth, and that McCain needs to listen to his advisers. In 1974, governments fell like ninepins as the global economy was battered by high energy prices. The battering next time may be much worse.

 

The Pity of Earth Day–It Brings Out the Crazies

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The trouble with Earth Day, which we mark this week (April 22), is that it has a powerful hold on crazies. Crazies on the left and crazies on the right.

That certainly is not what Sen. Gaylord Nelson had in mind when he inaugurated the first Earth Day in 1970. The senator, and others, hoped that Earth Day would attract a serious examination of the stresses on the Earth. Instead, it seems to attract stressed people.

From the left come the neo-agrarians, the anti-capitalists, the no-growth proselytizers, and the blame-America-first crowd. From the right come the supporters of the Competitive Enterprise Institute, a pro-business phalanx that is in deep denial about man’s impact on the environment, and libertarians who refuse to believe that governments can ever get anything right, or that government standards can be beneficial.

The fact is that a great majority of Americans are deeply concerned about the environment and maintaining the quality of life that has been a hallmark of progress in the 20th and 21st centuries. This majority includes electric utility executives, oil company CEOs, and the trade associations to which these industrial captains belong.

It is notable the extent to which the energy industries have signed onto the concept of global warming and other environmental degradation. They know that their activities often collide directly with the environment and they are, often to the surprise of the environmental community, keen to help. British Petroleum is pouring millions of dollars into solar power and hydrogen. John Hofmeister, president of Shell Oil Company, the U.S. division of Royal Dutch Shell, is retiring early to devote himself to the task of alerting Americans to their energy vulnerability and to the environmental story.

Sure, it took industry a long time to get on the environmental bandwagon. It is the way of industry that it initially resists any innovation that might cost money or involve difficulty. Later it buys television advertising, pointing to its own virtue when it has capitulated.

The introduction of double-hulled oil tankers in domestic waters is a clear example of this: conversion in the face of necessity. After the Exxon Valdez disaster in 1989, the government mandated double-hulling, the tanker industry moaned, and oil spills in domestic waters declined by 70 percent. The cost of double-hulling is balanced out by the lack of payouts for spills. Double-hulling ships, like removing lead from gasoline, introducing the catalytic converter, and banning hydrofluorocarbons in propellants and refrigerants, are major American environmental successes. We led the world.

But if you listen to the critics, you would think that the United States was always on the wrong side of the environmental ledger.

The problem is we live well and we consumer a lot of energy and a lot of goods in our routine lives. There are about 21 gallons of gasoline in a 42-gallon barrel of oil. If you calculate your own daily gasoline usage, you will come up with a pretty frightening number over your lifetime. Likewise, coal burned for lighting, heating and cooling. Residents of New York City, who live on top of each other and do not drive very much, use about half of the energy of suburban households.

For a serious improvement in the environment, just from an energy consumption standpoint, we need to generate electricity by means other than burning fossil fuels (nuclear and wind), introduce more electric-powered public transportation, and substitute electric vehicles for hydrocarbon-powered vehicles. The technology is in sight for all of these. The problem is that the political will is distracted by the pressure groups on the left and the right.

Human impact on the environment can be disastrous or benign, and even beneficial. The towpath along the Chesapeake & Ohio Canal in Washington, D.C. started out as a purely commercial intrusion on a river bank, but now it is a recreational magnet. The dams along the Colorado River have boosted growth in the West, but the river has paid a price. Seattle City Light, the utility that serves the Seattle area, is now carbon-neutral because of the large amount of generation it gets from wind and hydro. There is a debate whether damming rivers is justified; but compared with other ways of producing large quantities of electricity, it is relatively benign.

Farming is an intrusion into nature—a constructive one. The challenge for the Earth Day advocates is to find other constructive intrusions.