The US military oil consumption

The US military oil consumption EnergyBulletin.net Peak Oil News Clearinghouse

The US Department of Defense (DoD) is the largest oil consuming government body in the US and in the world“Military fuel consumption makes the Department of Defense the single largest consumer of petroleum in the U.S” [1]“Military fuel consumption for aircraft, ships, ground vehicles and facilities makes the DoD the single largest consumer of petroleum in the U.S” [2]According to the US Defense Energy Support Center Fact Book 2004, in Fiscal Year 2004, the US military fuel consumption increased to 144 million barrels. This is about 40 million barrels more than the average peacetime military usage.By the way, 144 million barrels makes 395 000 barrels per day, almost as much as daily energy consumption of Greece.The US military is the biggest purchaser of oil in the world.In 1999 Almanac edition of the Defense Logistic Agency’s news magazine Dimensions it was stated that the DESC “purchases more light refined petroleum product than any other single organization or country in the world. With a $3.5 billion annual budget, DESC procures nearly 100 million barrels of petroleum products each year. That's enough fuel for 1,000 cars to drive around the world 4,620 times.”That budget increased a lot over the years. The US DoD spent $8.2 billion on energy in fiscal year 2004.“In fiscal 2005, DESC will buy about 128 million barrels of fuel at a cost of $8.5 billion, and Jet fuel constitutes nearly 70 percent of DoD's petroleum product purchases.” says American Forces Information Service News Article by G. J. Gilmore. [3]For some, this is not enough though. Here is what a report from Office of Under Secretary of Defense says “Because DOD’s consumption of oil represents the highest priority of all uses, there will be no fundamental limits to DOD’s fuel supply for many, many decades.” [4]American GI is the most energy-consuming soldier ever seen on the field of war“The Army calculated that it would burn 40 million gallons of fuel in three weeks of combat in Iraq, an amount equivalent to the gasoline consumed by all Allied armies combined during the four years of World War I.” [1]In May 2005 issue of The Atlantic Monthly, Robert Bryce gives another example; “The Third Army (of General Petton) had about 400,000 men and used about 400,000 gallons of gasoline a day. Today the Pentagon has about a third that number of troops in Iraq yet they use more than four times as much fuel.”The US military oil consumption overseas and the world oil demandAccording to the Defence Logistic Agency’s Web Site, as of November 2005 more than 2.1 billion gallons of fuel have been used in support of Operation Enduring Freedom (since October 2001; war on terrorism in Afghanistan).In the May 2005 issue of the Atlantic Monthly article Robert Bryce says that “The U.S. military now uses about 1.7 million gallons of fuel a day in Iraq. … each of the 150,000 soldiers on the ground consumes roughly nine gallons of fuel a day. And that figure has been rising.” This mean in Iraq each day 40 000 b/d of oil is consumed by the US military.Yes, something is wrong with that figure. Compare it with the one given by the Defense Logistics Agency spokeswoman Lana Hampton. Accroding to an American Forces Information Service News Article she said the U.S. military is using between 10 million and 11 million barrels of fuel each month to sustain operations in Afghanistan, Iraq and elsewhere. This makes 330 000 - 360 000 barrel per day.This is more than double the amount of oil used in the Gulf war!According to a Rand Corporation report “1.88 billion gallons of fuel were consumed within the U.S. Central Command’s area of responsibility during Operations Desert Shild and Desert Storm (ODS/S), between August 10, 1990 and May 31, 1991.” [5]. This makes 44.8 million barrels, or 150 000 barrels a day. Note that ODS/S lasted 295 days.Moreover, “during ODS/S Saudi Arabia and the UAE supplied fuels without charge (1.5 billion gallons), whereas Bahrain, Egypt, Oman and Qatar charged for the fuels,” adds the Rand report.Did Saudi Arabia and the UAE report that fuel as export? Did the US report it as import? Was it counted as Saudi or UAE domestic consumption? Or Was it counted as the US consumption?I am afraid the answers to those three questions are No, No, No and No!But that amount was surely counted in production.My experience with international oil statistics tell me that the US military oil consumption overseas disappears in world oil demand. Hence, demand is understated at least that much.Is about 350 000 barrel per day missing oil demand important?Sources cited:[1] Presentation by American Petroleum Institute President and CEO Red Cavaney held at the USAF/API Awards Banquet – Arlington, Virginia, July 15, 2004. See also National Defense Magazine article in 2002.[2] E. C. Aldbridge and D. M. Etter testimony before the U.S. Senate Armed Services Committee on June 5, 2001.[3] American Forces Information Service News Article by G. J. Gilmore, DoD Has Enough Petroleum Products for Anti-Terror War, August 11, 2005. The article is posted also on DCmilitary[4] More Capable Warfighting Through Reduced Fuel Burden, Office of the Under Secretary of Defense for Acquisition, Technology and Logistics, The Defense Science Board Task Force on Improving Fuel Efficiency of Weapons Platforms, January 2001,[5] J.P. Stucker, J.F. Schank and B. Dombey-Moore, Assessment of DoD Fuel Standardisation Policies, Rand Corporation, 1994.
~~~~~~~~~~~~~~~ Editorial Notes ~~~~~~~~~~~~~~~~~~~Dr. Sohbet Karbuz (a Turkish citizen), is former head of non-OECD energy statistics section of the International Energy Agency (Paris). Before joining the IEA he held academic positions in Germany and Austria.

US companies explore Wall St. for oil reserves

Reuters Recommends News Article Reuters.com

NEW YORK (Reuters) - Big U.S. oil and gas companies added more oil reserves in 2005 by using their checkbooks instead of their drill bits, and paid top dollar for the privilege, analysts said on Friday.
So far, it appears the major companies that replaced more than 100 percent of their production last year did so by buying fields rather than finding them -- a trend that could quietly usher in shrinking global reserves.
"Basically, (an oil field is) like beachfront property. It's very hard to come by," said Fadel Gheit, senior vice president for oil research at Oppenheimer & Co.
Oil prices sprang to a record high last year above $70 a barrel, due largely to a lack of global spare production capacity after years of robust demand growth.
Gheit said companies are facing higher exploration and development costs which has made the prospect of buying up smaller rivals or operations more appealing -- but there aren't many bargains left.
"Even the best in class are not replacing reserves as cheaply as they were a year ago. All the low-hanging fruit is gone," he said.
Chevron Corp. (CVX.N: Quote, Profile, Research), whose global reserves fell 6 percent in 2004 to 11.25 billion barrels of oil equivalent (boe), won U.S. independent oil and gas producer Unocal Corp. over Chinese National Oil Company and Italian group ENI (ENI.MI: Quote, Profile, Research).
Chevron paid $16.4 billion for Unocal, which pushed up its reserve replacement ratio to 175 percent of production. Without Unocal's oil and gas reserves, Chevron said its reserve replacement would have been low.
ELEPHANT DISCOVERY
"Part of the reason (companies are having trouble adding real reserves) is that there has not been an elephant discovery -- one over a billion barrels -- for 15 years," said Gheit.
Even the most recent big discoveries are found in areas that are difficult because of geology or other factors. So companies are forced to be creative in adding reserves as production declines.

"The U.S. oil production reached its peak in November 1970," said Charley Maxwell, oil analyst at Weeden Co.
Maxwell said that all the easy reserves -- those close to the surface with infrastructure for moving it out -- have been exhausted. "A lot of the world has been explored. Now all we have left are the trouble spots," he said.
ConocoPhillips' return to Libya after being ordered out by President Reagan almost 20 years ago helped it replace its production with more than twice as much in reserves.
Libyan reserves and a growing stake in Russian oil company Lukoil helped it replace 230 percent of its oil and gas production in 2005, adding 1.553 billion boe in 2005 to proved reserves.
The company will also close soon on its $36 billion purchase of U.S. independent Burlington Resources, adding about 2 billion boe to its reserve base.
Without these factors, ConocoPhillips said it would have replaced about 100 percent of production.
While the low-hanging fruit may be gone, the size of companies ripe for the picking is larger than ever, according to Gheit.
"Any company with a market capitalization of less than $50 billion is a target," he said.
NEW FIELDS DOWN THE ROAD?
While replacing reserves had a lot to do with mergers and acquisitions in 2005, some analysts say that companies may be locking in higher oil prices to fund new exploration projects that could spell real reserves in years to come.
"I expect companies to more than replace production as we see higher prices and higher activity," said Steve Enger, an oil analyst with Denver-based Petrie & Parkman.
He said that larger companies are increasing their 2006 exploration and development spending from the year earlier.
Enger said that while the lag time between oil prices rising and drilling increasing is less than a year in the United States, it can be far longer for reserves to be booked for some of the larger, foreign plays.
"Looking at some of the large increments of production outside of OPEC, offshore Africa, it could five to 10 years to production," he said.

Thinking seriously: about energy and oil's future

National Interest, The: Thinking seriously: about energy and oil's future

James Schlesinger
THE RUN-UP in gasoline and other energy prices--with its impact on consumers' purchasing power--has captured the public's attention after two decades of relative quiescence. Though energy mavens argue energy issues endlessly, it is only a sharp rise in price that captures the public's attention. A perfect storm--a combination of the near-exhaustion of OPEC's spare capacity, serious infrastructure problems (most notably insufficient refining capacity) and the battering that Hurricanes Katrina and Rita inflicted on the Gulf Coast have driven up the prices of oil and oil products beyond what OPEC can control--and beyond what responsible members of the cartel prefer. They, too, see the potential for worldwide recession and recognize that it runs counter to their interests. But the impact is not limited to economic effects. Those rising domestic energy prices and the costs of fixing the damage caused by Katrina have weakened public support for the task of stabilizing Iraq, thereby potentially having a major impact on our foreign policy.
What is the cause of the run-up in energy prices? Is the cause short term (cyclical) or long term? Though the debate continues, the answer is both.
Clearly there have been substantial cyclical elements and "contradictions" at work. For several decades, there has been spare capacity in both oil production and refining. Volatile prices for oil and low margins in refining have discouraged investment. The International Energy Agency, which expresses confidence in the adequacy of oil reserves, urges substantially increased investment in new production capacity and has recently warned that, in the absence of such investment, oil prices will increase sharply. (1) Such an increase in investment clearly would be desirable, but it is more easily said than done.
In the preceding period of low activity, both the personnel and the physical capacity in the oil service industry have diminished--and it will take time to recruit and train personnel, to restore capacity and to produce equipment. It is interesting to note that the capacity of OPEC itself has shrunk in this last quarter-century from 38 million barrels per day (BPD) to 31 million BPD. The bulk of the shrinkage occurred in Iran, Iraq and Libya, which have been the targets of both U.S. and international sanctions. Though knowledgeable people were aware of the shrinkage of spare capacity, it was still thought to be adequate--until the recent surge of demand, especially from China and the United States, brought us to the point that it was insufficient to satisfy the growing demand at prevailing prices.
Three additional points should be kept in mind. First, crude oil production capacity has not been wholly exhausted. The minister of petroleum of Saudi Arabia, Ali Naimi, points to the unutilized 1.5 million BPD in his country and states that he stands ready to serve additional buyers. The minister is making something of a rhetorical point: For the moment, that additional crude oil production capacity is unusable. There is a mismatch between the types of crude available and what refiners are able to process. For many decades there has been a marked excess of refining capacity--and very low margins in refining. There has been only a modest incentive to invest in additional capacity. With sufficient light crude apparently available, there has been little incentive to invest in capacity to process the heavy, sour crudes of the sort still available in Saudi Arabia. That is not to say, however, that there has been no investment. Here in the United States, far too much of the investment has been channeled into the capacity to produce the numerous boutique blends of gasoline, some thirty at last count--a foolishness mandated by the different state regulatory bodies.
Second, it is the international oil companies (IOCs) that have lots of cash. Their inclination has been to invest in new production capacity, counting only on prices being in the range of $20 to $30 per barrel--and not necessarily expecting the current high prices to be sustained. But while the IOCs have the cash, it is basically the national oil companies (NOCs) that have the reserves. The IOCs seek equity oil, and for the most part, equity investment in reserves controlled by NOCs has not been permitted. So, there exists another mismatch between those who have the resources to invest and the availability of suitable places to invest.
Third, when gasoline prices are rising, public anger rises at least correspondingly. Public anger immediately draws the attention of politicians--and here in the United States it elicits a special type of political syndrome: wishful thinking. It is notable that in the last election both candidates talked about "energy independence", a phrase that traces back to the presidency of Richard Nixon and the reaction to the Arab oil embargo. One should not be beguiled by this forlorn hope--and this brings us to the real problem for the foreseeable future. What is the prospect for oil production in the long term? How does it bear on the prospects for "energy independence"?
The Day of Reckoning Draws Nigh
AT THE end of World War II came the period of the opening-up and rapid development of Middle East oil, notably in the Arabian Peninsula. Both Europe and the United States embraced the shift from coal to oil as their principal energy source. The beginning of flush production in the Middle East coincided with and fostered the tremendous expansion of world oil consumption. In the 1950s and 1960s, oil production and consumption more than doubled in each decade. Annual growth rates in consumption of 8, 9 or 10 percent were typical.
By contrast, no one, not even the most optimistic observers, expects a doubling of production in the decades ahead. The present expectation is markedly different. In increasing numbers, now approaching a consensus, knowledgeable analysts believe that the world will, over the next several decades, reach a peak--or plateau--in conventional oil production. (2) Timing varies among these observers, but generally there is agreement on the outcome. (3)
The implication is clear. Even present trends are unsustainable. Sometime in the decades ahead, the world will no longer be able to accommodate rising energy demand with increased production of conventional oil.
It should be emphasized that that would pose not a general "crisis in energy", but instead a "liquids crisis." Problems in energy other than oil are infrastructure problems, solvable through appropriate investment. To talk of a general "energy crisis" aside from oil is to divert attention from the central long-term problem. Advocating the construction of nuclear plants, for example, may be desirable, but it does not confront the critical issue of the liquids crisis. Basically, there is no inherent problem in generating and transmitting electric power, for which the resources are available. The intractable problem lies in liquid fuel for land, sea and air transportation.
We get clear indications regarding oil's future from those in the industry. Though the United States and other consuming nations seem to believe that Saudi Arabia can and should increase production as demand rises, when he was asked at a recent conference whether oil production would peak, Ali Naimi, the longtime head of Saudi Aramco, responded that it would reach a plateau. It is quite telling that when, in 2004, the Energy Information Administration (EIA) projected Saudi production in 2025 of some 25 million BPD to satisfy world demand, the Saudis demurred--and quite politely indicated that such figures were "unrealistic." The Saudis have never discussed a figure higher than 15 million BPD.
This is why David O'Reilly, CEO of Chevron, has stated that the "era of easy oil is over." Projections by Sheil and BP put that plateau several decades out. BP now says that its initials stand for "Beyond Petroleum." Others, more pessimistic, suggest that the peak is much closer at hand--in the next decade. It is interesting to note, in light of the recent discussion of Chinese ambitions in acquiring oil assets, that the Chinese seem to believe that world production will reach a peak around 2012. (4) So any indication of relative optimism is greeted with sighs of relief: The peak is not that near. For example, when Daniel Yergin of Cambridge Energy Research Associates recently stated that the peak will not come until after 2020, it was greeted with something approaching cries of elation: The threat is not that immediate!
What lies behind this now-changed view? In brief, most of the giant fields were found forty years or more ago. Only a few have been found since 1975. Even today the bulk of production comes from these old and now aging giant fields. The Ghawar oilfield in Saudi Arabia, discovered in the 1940s, is by itself still producing 7 percent of the world's oil. Would that there were more Ghawars, but, alas, that is probably not to be.
Moreover, the announcement by the Kuwait Oil Company in November that its Burgan field, the world's second largest, is now past its peak output caused considerable consternation. The field's optimal rate is now calculated at 1.7 million BPD, not the two million that had been forecast for decades ahead. In addition, that announcement has called into question the EIA's estimate in its reference case that Kuwait would be able to produce five million BPD; it now appears likely that the emirate will not be able to produce over three million BPD.
Recent discoveries have typically been relatively small with high decline rates--and have been exhausted relatively quickly. With respect to the United States, it has been observed: "In the old days, we found elephants--now we find prairie dogs."
A growing consensus accepts that the peak is not that far off. It was a geologist, M. King Hubbert, who outlined the theory of peaking in the middle of the last century, basing it on the experience that as an oilfield passes the halfway point in extracting its reserves, its production goes into decline. Hubbert correctly predicted that production in the United States itself would peak out around 1970. Dissenting from that view are the economists, who have a deep (and touching) faith in the market mechanism--and a belief that over time market forces can adequately cope with any limits on oil supply. (5) In the extreme, some economists have regarded oil supplies as almost inexhaustible.
The optimistic view is held by the Energy Information Administration of the Department of Energy, as well as the International Energy Agency. What lies behind it? While it is conceded that we have not been finding many new giants, it is contended that "additions and extensions" of existing fields will sustain growth. There is some truth in that contention--in that new technologies have been the basis of many of the additions to existing fields--and the hope is always there that we can increase overall recovery from the already discovered fields.
Optimists are buttressed in their views and are fond of pointing to the many earlier statements about "running out of oil." Perhaps the most notable example was one by the director of the U.S. Geological Survey, George Otis Smith, who suggested in 1920 that we had already used up 40 percent of the oil to be found here in this country. That was a decade before the discovery in 1930 of the vast East Texas field, a bonanza that made oil supply so available that it drove oil prices below a dollar a barrel during the 1930s. A recent Chevron advertisement makes this substantive point quite dramatically: "It took us 125 years to use the first trillion barrels of oil. We'll use the next trillion in 30."
Such past failed predictions are far less comforting than the journalists who cite them believe. The future may actually be different from the past. The optimists, mostly non-experts, seem unable to think quantitatively. Things are different now. In 1919 the world consumed a modest 386 million barrels of oil. Today the world is consuming some thirty billion barrels of oil each year. Statements like that of Director Smith were made before we had something approaching a billion automobiles worldwide, before we had aircraft and air transportation, before agriculture depended upon oil-powered farm machinery.
Hubbert's peaking theory, based on observation of individual oil fields, was static in that it abstracted from improvements in technology. It also dealt strictly with conventional oil supplies. One notes that today those who are challenging Hubbert's Peak are changing the rules of the game. They rightly point to dramatic improvements in technology, most notably deep-sea drilling. Somewhat less legitimately, they include in their projections all sorts of unconventional oil, like the Canadian tar sands and the prospects for shale oil. For example, of late, estimates of Canadian oil reserves have jumped by 180 billion barrels, now including the tar sands of Alberta. This is not a refutation of Hubbert's theory (though it is frequently treated as such); it is simply a change in the rules that does not gainsay the fear that we will reach a plateau in conventional oil production.
We must bear in mind that earlier estimates suggested that there were some two trillion barrels of conventional oil in the earth's crust. Now the estimate has grown to around three trillion. We have now consumed over a trillion barrels of oil. As indicated, we are consuming oil at the rate of thirty billion barrels a year. If one accepts Department of Energy projections, worldwide we will be consuming forty billion barrels of oil by 2025.
At such rates of consumption, the world will soon have reached the halfway point--with all that implies--of all the conventional oil in the earth's crust. At that point, the plateau or the peak will be near. And such calculations presuppose what cannot be assumed, that all the nations with substantial oil reserves will be willing to develop those reserves and exploit them at the maximum efficient rate. Both the Russian Federation and Saudi Arabia seem to intend to reach a plateau that they can sustain for a long time--the Russians at around ten million BPD, the Saudis up to but no more than 15 million BPD.
In thinking about the problem, we need not more rhetoric but, instead, quantitative reasoning. We also need to add political wisdom. The inability readily to expand the supply of oil, given rising demand, will in the future impose a severe economic shock. Inevitably, such a shock will cause political unrest--and could impact political systems. To be sure, we cannot anticipate with any precision the year or even the decade that we will reach that plateau. Yet, as Justice Potter Stuart suggested, in seeking to define pornography, we shall know it when we see it.
That brings us to the question of the transition away from conventional oil as the principal source of energy for raising the living standards of the world's population. That transition will be the greatest challenge this country and the world will face--outside of war. The longer we delay, the greater will be the subsequent trauma. For this country, with its 4 percent of the world's population, using 25 percent of the world's oil, it will be especially severe. (6) The Day of Reckoning is coming, and we need to take measures earlier to cushion the shock. To reduce the shock, measures to ameliorate it should start ten years earlier at a minimum, given the length of time required to adjust the capital stock--and preferably much longer. The longer we delay, the greater the subsequent pain.
Both people and nations find it hard to deal with the inevitable. Even though it was long recognized that a Category 4 or Category 5 hurricane would inevitably strike New Orleans, a city substantially below sea level, Hurricane Katrina reminds us that political systems do not allocate much effort to dealing with distant threats--even when those threats have a probability of 100 percent.
We should heed a lesson from ancient Rome. In the towns of Pompeii and Herculaneum, scant attention was paid to that neighboring volcano, Vesuvius, smoking so near to them. It had always been there. Till then, it had caused little harm. The possibility of more terrible consequences was ignored--until those communities were buried in ten feet of ash.
(1) See World Energy Outlook 2005 (International Energy Agency, 2005).
(2) See, inter alia, Robert L. Hirsch, "The Inevitable Peaking of World Oil Production" (Atlantic Council of the United States, October 2005), which includes a range of different estimates for the peak year. For a more comprehensive analysis, see Robert L. Hirsch, Roger Bezdek and Robert Wendling, "Peaking of World Oil Production: Impacts, Mitigation and Risk Management" (National Energy Technology Laboratory, February 2005).
(3) One exception is a different view of oil's origins developed by Soviet scientists. Contrary to the standard view that oil, like coal, was laid down long ago and there is a finite amount available, the Russians argue that oil is a primordial product continuously produced deep in the earth's mantle. It comes to the surface when it can find a route to do so. Thus, there may be more oil to be found outside sedimentary basins. The theory remains highly conjectural. While this alternative view needs to be explored, it is notable that even the Russian Oil Ministry pays little attention to it in developing projections of Russian production.
(4) See Pang Xiongqi, et al., "The Challenge Brought by the Shortage of Oil and Gas in China and their Countermeasures", a presentation at an international seminar in Lisbon in 2004. One may assume that such presentations do not depart significantly from the views of the Chinese government.
(5) Many economists take great comfort from the conviction that there is always a price at which markets will clear, and that the outcome determined by supply and demand is not only inevitable, but is also politically workable and acceptable. An outcome in which the price of a crucial commodity like oil rises to a level causing widespread economic disruption, along with the political consequences that flow from such disruption, turns out to be a secondary consideration, if considered at all. One is reminded of the phrase used by Wesley Clair Mitchell and Arthur E Burns in their classic, Measuring Business Cycles (1946), in which they spoke scornfully of the "Dreamland of Equilibrium."
(6) The high percentage of world production consumed in the United States is used by critics to point to our presumed wastefulness. It is, however, misleading in that the United States also produces between 20 and 25 percent of the gross world product. Nonetheless, it does appropriately point to our greater vulnerability to a future period of oil stringency.
James Schlesinger is chairman of the Advisory Council of The National Interest. He has served as secretary of defense, secretary of energy and director of central intelligence. He is currently chairman of the MITRE Corporation.
COPYRIGHT 2005 The National Interest, Inc.COPYRIGHT 2006 Gale Group

Tapping Rocks For Power

The Impact of Emerging Technologies: Tapping Rocks For Power - Technology Review

A European consortium is drawing closer to building a megawatt-scale power plant that uses bedrock heat.
By Peter Fairley
Spend time in the French village of Soultz-sous-Forêts and you're likely to experience a manmade earthquake. The vibrations -- some as high as 2.87 on the Richter scale -- are the most conspicuous element of a renewable energy research program that may succeed where others have failed.
By fracturing granite bedrock located five kilometers below the surface and pumping in super-saline water, a team of French, German, and Swiss engineers are extracting the rock's thermal energy, and they plan to use it to produce pollution-free electricity. At least they will if the local residents put up with a little more shaking.
The project is the most advanced effort to date to deliver on the promise of so-called hot-rock mining. Since the 1970s, geothermal engineers have tried many times to push enough fluid through hot rocks to capture energy at a commercial scale. Now the Soultz project has achieved the highest flow rates in the world through some of the hottest rocks. By this time next year, they expect to be transforming this heat into at least 1.5 megawatts of renewable power for the grid.
The concept of hot-rock mining is deceptively simple. Two or more wells are drilled into hot bedrock, and the intervening bedrock is fractured with hydraulic blasts. Brine is then pumped into one or more injection wells, and it flows through the rock to one or more production wells, heating up as it travels. When the salty water reaches the surface of a production well, its heat is bled off to produce power or to be used for area heating, then returned to the injection wells.
Despite its simplicity, this concept has failed several times. In the 1970s, a pioneering project initiated by Los Alamos National Laboratory demonstrated that one could fracture rock and circulate brine to extract heat. But that project could never get enough brine in -- and therefore enough heat out -- to make the process competitive with conventional power plants burning fossil fuels such as coal or natural gas.
Gunnar Grecksch, a geophysicist and hot-rock fracturing expert at the Leibniz Institute for Applied Geosciences in Hanover, Germany, says follow-on efforts in the U.K. and Japan failed for the same reason: the fracturing of the rocks was never sufficient. "Flow resistance is still the key problem," he says. "In none of these projects were the flow rates in the range you need for a commercial system."
The Soultz project was initiated in 1987 and funded by the European Commission. Since 2001, it has been managed by a consortium of European energy companies, including Shell and Electricité de France. French, Germany, and Swiss research agencies support the science.


The key to its success to date has been painstaking geological analysis, which ensures they position their wells to hit the right rocks. In 1997, after ten years of work, the project demonstrated impressive flow rates, moving brine heated to 140 degrees Centigrade at a rate of 25 liters per second and a depth of 3.6 kilometers. And the resistance was less than half that encountered at Los Alamos.
That positive result emboldened the project's leaders to push their wells deeper, into 200-degree Centigrade granite five kilometers deep -- and last fall they finally turned on the taps. Daniel Fritsch, project coordinator, says the system "could probably do 40 to 50 liters per second" with the addition of pumps that will be installed in the wells this summer -- another kind of technological challenge given the punishing temperatures involved, which few pumps are capable of withstanding. Then the plan is to build a pilot electrical plant by early 2007 to generate 1.5 megawatts, about the same output as one of today's towering wind turbines. But the hot-rock plant won't go idle every time the wind dies down, and should produce about three times more energy per year.
Fritsch says that to cover the cost of its equipment and to generate a profit, however, the project should produce closer to five megawatts. To produce more power, however, they must more than double the flow rate, to around 100 liters/second, which could be a challenge due to the large amount of shaking their blasts cause on the surface. Lawsuits from some disgruntled citizens claiming property damage have limited Fritsch's willingness to use stronger hydraulic blasts. To many local people, though, it seems like much ado about nothing. Local journalist Bernard Stéphan, who lives two kilometers from the project's ground zero, says his home has not been affected by the blasts. And Soultz-sous-Fôrets mayor Alfred Schmitt says "There is no problem."
Nevertheless, instead of using stronger hydraulic blasts to open the rocks further, Fritsch plans to complement the blasting with a new method: pouring acid in the wells. The idea is to dissolve salt deposits in the fractures immediately surrounding the wells. Fritsch says that tests in Italy with acid have improved the functioning of some geothermal wells by a factor of 10.
Peter Fairley is a Technology Review contributing writer based in Paris.

Solar Silicon Squeeze - Technology Review

The Impact of Emerging Technologies: Solar Silicon Squeeze - Technology Review

The rise in solar-panel use is tightening the market for silicon.
By Associated Press
HONOLULU (AP) -- In a state where tropical sunshine is near constant and electricity costs twice the national average, solar power seems an easy answer.
But with the panels that produce the electricity already popular abroad and a batch of new domestic tax credits just kicking in, solar suppliers locally and around the globe are scrambling for stock.
''Those of us with a long vision here aren't jumping up and down,'' said Rick Reed, who has witnessed the fickleness of government incentives for his industry for 25 years. ''But we're sure happy business is good.''
The problem is that while demand for solar panels is increasing, the ability to meet that demand has not caught up, said Reed, president of the Hawaii Solar Energy Association.
The pressure could soon become even tougher in Hawaii as state politicians push for bigger incentives for residents to install the panels. Governor Linda Lingle has proposed boosting the caps on credits for single family homes from the current $1,750 (euro1,475) to $10,000 (euro8,429). The caps for businesses would double to $500,000 (euro421,478).
With a growth rate of almost 40 percent per year over the past five years, the solar panel industry is today worth $15 billion (euro12.6 billion) globally, said Rhone Resch, president of the Solar Energy Industries Association.
And the United States is beginning to catch on.
Citing soaring oil prices and the need for a more reliable and environmentally friendly fuel sources, a number of states and the federal government are pushing rebates and tax credits to encourage people to install solar panels on their roofs.
In a plan detailed earlier this month, President George W. Bush outlined a strategy to increase domestic solar power from its current 175 megawatts to up to 10,000 megawatts in the next decade.
Homeowners in January could begin claiming federal tax credits for installing solar power for the first time in 20 years. And in a bold move earlier this month, California energy regulators approved a plan to provide $2.9 billion (euro2.4 billion) in rebates for solar panels between 2007 and 2016.
Add to that, major government programs in Germany and Japan have already got those countries' markets humming -- and demand has quickly outstripped supply.
At the same time, however, the solar panel industry is being forced to slow down. That is because popularity has put a squeeze on the supply of the silicon, the key ingredient in the panels -- as well as the brains of computers and other high-tech gizmos.
In 2006 the solar industry is on track to use more of the silicon, known as polysilicon, than the entire semiconductor industry, Resch said.
''We've grown to such a point that there is no available polysilicon feedstock to continue to put into the solar industry so that we can grow at that rate,'' he said.
Historically solar was only a third of the market for the polysilicon also used in microchips, said Lara Chamness, senior market analyst for the trade group Semiconductor Equipment and Material International.


''But the solar guys are using more and more of the polysilicon than ever before. So that's causing a really tight supply situation and prices are going up accordingly,'' she said.
Contract prices are coming in at $70 (euro59) per kilogram, up from $30 (euro25) per kilogram just two years ago, she said.
The big players on the microchip market, such as IBM and Intel, are aware of the problem, but they are not showing any fear, she said. A spokesman for high-tech giant Intel said his company has long-term contracts with its suppliers.
And those companies use very little of the precious material in each of their products, so they can easily pass on the higher prices to customers, Chamness said. By contrast, polysilicon is the main ingredient covering the coffee table-size solar panels.
So with stocks scarce and raw material prices high, the prices for solar panels have yet to drop.
Polysilicon makers are moving to boost their supply.
Hemlock Semiconductor Corp., which is majority-owned by Dow Corning Corp., is the top supplier of polysilicon to the solar market. It is now working to double its capacity in the next two years with a $500 million (euro421 million) expansion at its Michigan facility.
The unforeseen government incentives for solar as well as the microchip industry's recovery after the dot-com bubble burst added to the unpredictability, said Marie Eckstein, vice president of advance technology and venture business at Dow Corning.
She said that for now the shortage is compelling the solar industry, which is still striving toward maturity, to find different ways to use silicon -- including less of it.
''I think we're just in startup pains,'' she said.
Reed said he's seen excitement for solar before. He's also seen it quickly fade when oil prices drop or when the White House changes hands.
But there are signs that the industry is maturing, he said, and the ups and downs aren't what matters anyway.
''At the end of the day, we're saving the world one roof at a time,'' he said.
On the Net:
Hawaii Solar Energy Association: http://www.hsea.org/
Solar Energy Industries Association: http://www.seia.org/
Semiconductor Equipment and Material International: http://www.semi.org/
Hemlock Semiconductor Corp.: http://www.hscpoly.com/

Switchgrass to Gas?

The Impact of Emerging Technologies: Switchgrass to Gas? - Technology Review

A biotech startup says its genetic engineering method could turn plants into cheap ethanol producers within five years.
By Neil Savage
When President Bush spoke during his State of the Union address about turning something called "switchgrass" into a future source of ethanol, thus reducing the United States' dependence on oil, it certainly caught R. Michael Raab's attention.
Raab is president and founder of Agrivida, a Cambridge, MA-based biotech startup that wants to add genes to plants to make it cheaper and easier to process them into ethanol. He hopes the technology his company is developing will make ethanol derived from plants, including switchgrass, a viable alternative to gasoline.
For now, the company is focusing its efforts on corn, already a source of ethanol. But standard ethanol production uses just the kernels. Ethanol manufacturers process the kernels using enzymes that break down the starch into simple sugars. The sugars are then fed into a fermentation tank, where yeast digests them and produces ethanol. But in this process the corn stalks and leaves -- about half of the plant mass -- are thrown away.
Using the whole plant would produce much more ethanol -- but the sugars in the stalks and leaves are in the form of cellulose, which is a much more complex chain of sugar molecules. To break down cellulose into simple sugars for the yeast requires a preconditioning process that includes heat, high pressure, and acids. Today, that process is too expensive to be worthwhile -- as it would also be for switchgrass, a woody grass native to North America that can grow to nine feet tall (and which now no one uses for ethanol).
Agrivida proposes to add genes to the corn plants that will produce enzymes for breaking down the cellulose. This makes it much easier to process the cellulose into sugar, reducing production costs to a point where it's feasible to use the whole plant, Raab says. He predicts the process will be about 50 percent cheaper than current processes once it matures. And it could be adapted to switchgrass, he says.
However, enzymes that break down a corn's structural elements could also result in weakened stalks. So Agrivida has redesigned the enzymes to remain inactive during the plant's life. Only when they encounter the conditions of processing, such as increased temperature or pressure or a change in pH level, are the enzymes activated. (Raab won't explain the process in detail because it's part of a patent application.)
Clearly, there's a great deal of potential energy to be tapped. A study at Argonne National Laboratory estimates that a gallon of ethanol produced from kernels of corn in today's processes provides about 20,000 BTUs more energy than the energy that went into making it. The study projects that using cellulose from switchgrass would triple that net gain, to about 60,000 BTUs per gallon, mostly because little fossil fuel would be used in farming the grass. But costs need to come down to make this practical.


It was this "cellulosic" ethanol that President Bush spoke about when he proposed adding $150 million to next year's federal budget for research into using switchgrass. Raab says switchgrass is appealing; for one thing, an acre of land can produce four times the mass of switchgrass as of corn. And switchgrass is far hardier and easier to grow than corn. "The energy balance for ethanol from switchgrass is tremendously better," he says. "It doesn't require all the fertilizer, all the irrigation, all the energy intensity that corn does."
Scientists estimate that ethanol could replace about 30 percent of the demand for gasoline without affecting food production. Right now, ethanol, mixed with gasoline, accounts for only about 2 percent of fuel in U.S. cars. Switchgrass can be grown on marginal land that couldn't support food farming. And experiments have shown that an acre of land can produce from 6 to 15 tons of switchgrass, yielding about 100 gallons of ethanol per ton.
Edenspace Systems of Virginia is also trying to genetically engineer corn and switchgrass to be better sources of ethanol. "It's clearly an idea that has been kicking around," says Ken Keegstra, director of the Department of Energy Plant Research Laboratory at Michigan State University, who recently became an advisor to Agrivida. "I think whoever gets it implemented in a practical way has a real winner on their hands."
It will take time before anyone is putting switchgrass-derived gas in their car, though. So far, Agrivida has designed enzymes on the computer and grown them in bacteria, but they still have to test how the enzymes act in plants. Raab hopes to begin field trials in late 2007, in order to get approval from the U.S. Department of Agriculture to start marketing his corn in 2010. Adapting the method to switchgrass would require an additional two or three years of academic research, Raab says.

U.S. Royalty Plan to Give Windfall to Oil Companies - New York Times

U.S. Royalty Plan to Give Windfall to Oil Companies - New York Times

By EDMUND L. ANDREWS
WASHINGTON, Feb. 13 — The federal government is on the verge of one of the biggest giveaways of oil and gas in American history, worth an estimated $7 billion over five years.
New projections, buried in the Interior Department's just-published budget plan, anticipate that the government will let companies pump about $65 billion worth of oil and natural gas from federal territory over the next five years without paying any royalties to the government.
Based on the administration figures, the government will give up more than $7 billion in payments between now and 2011. The companies are expected to get the largess, known as royalty relief, even though the administration assumes that oil prices will remain above $50 a barrel throughout that period.
Administration officials say that the benefits are dictated by laws and regulations that date back to 1996, when energy prices were relatively low and Congress wanted to encourage more exploration and drilling in the high-cost, high-risk deep waters of the Gulf of Mexico.
"We need to remember the primary reason that incentives are given," said Johnnie M. Burton, director of the federal Minerals Management Service. "It's not to make more money, necessarily. It's to make more oil, more gas, because production of fuel for our nation is essential to our economy and essential to our people."
But what seemed like modest incentives 10 years ago have ballooned to levels that have alarmed even ardent supporters of the oil and gas industry, partly because of added sweeteners approved during the Clinton administration but also because of ambiguities in the law that energy companies have successfully exploited in court.
Short of imposing new taxes on the industry, there may be little Congress can do to reverse its earlier giveaways. The new projections come at a moment when President Bush and Republican leaders are on the defensive about record-high energy prices, soaring profits at major oil companies and big cuts in domestic spending.
Indeed, Mr. Bush and House Republicans are trying to kill a one-year, $5 billion windfall profits tax for oil companies that the Senate passed last fall.
Moreover, the projected largess could be just the start. Last week, Kerr-McGee Exploration and Development, a major industry player, began a brash but utterly serious court challenge that could, if it succeeds, cost the government another $28 billion in royalties over the next five years.
In what administration officials and industry executives alike view as a major test case, Kerr-McGee told the Interior Department last week that it planned to challenge one of the government's biggest limitations on royalty relief if it could not work out an acceptable deal in its favor. If Kerr-McGee is successful, administration projections indicate that about 80 percent of all oil and gas from federal waters in the Gulf of Mexico would be royalty-free.
"It's one of the greatest train robberies in the history of the world," said Representative George Miller, a California Democrat who has fought royalty concessions on oil and gas for more than a decade. "It's the gift that keeps on giving."
Republican lawmakers are also concerned about how the royalty relief program is working out.
"I don't think there is a single member of Congress who thinks you should get royalty relief at $70 a barrel" for oil, said Representative Richard W. Pombo, Republican of California and chairman of the House Resources Committee.
"It was Congress's intent," Mr. Pombo said in an interview on Friday, "that if oil was at $10 a barrel, there should be royalty relief so companies could have some kind of incentive to invest capital. But at $70 a barrel, don't expect royalty relief."
Tina Kreisher, a spokeswoman for the Interior Department, said Monday that the giveaways might turn out to be less than the basic forecasts indicate because of "certain variables."
The government does not disclose how much individual companies benefit from the incentives, and most companies refuse to disclose either how much they pay in royalties or how much they are allowed to avoid.
But the benefits are almost entirely for gas and oil produced in the Gulf of Mexico.
The biggest producers include Shell, BP, Chevron and Exxon Mobil as well as smaller independent companies like Anadarko and Devon Energy.
Executives at some companies, including Exxon Mobil, said they had already stopped claiming royalty relief because they knew market prices had exceeded the government's price triggers.
About one-quarter of all oil and gas produced in the United States comes from federal lands and federal waters in the Gulf of Mexico.
As it happens, oil and gas royalties to the government have climbed much more slowly than market prices over the last five years.
The New York Times reported last month that one major reason for the lag appeared to be a widening gap between the average sales prices that companies are reporting to the government when paying royalties and average spot market prices on the open market.
Industry executives and administration officials contend that the disparity mainly reflects different rules for defining sales prices. Administration officials also contend that the disparity is illusory, because the government's annual statistics are muddled up with big corrections from previous years.
Both House and Senate lawmakers are now investigating the issue, as is the Government Accountability Office, Congress's watchdog arm.
But the much bigger issue for the years ahead is royalty relief for deepwater drilling.
The original law, known as the Deep Water Royalty Relief Act, had bipartisan support and was intended to promote exploration and production in deep waters of the outer continental shelf.
At the time, oil and gas prices were comparatively low and few companies were interested in the high costs and high risks of drilling in water thousands of feet deep.
The law authorized the Interior Department, which leases out tens of millions of acres in the Gulf of Mexico, to forgo its normal 12 percent royalty for much of the oil and gas produced in very deep waters.
Because it take years to explore and then build the huge offshore platforms, most of the oil and gas from the new leases is just beginning to flow.
The Minerals Management Service of the Interior Department, which oversees the leases and collects the royalties, estimates that the amount of royalty-free oil will quadruple by 2011, to 112 million barrels. The volume of royalty-free natural gas is expected to climb by almost half, to about 1.2 trillion cubic feet.
Based on the government's assumptions about future prices — that oil will hover at about $50 a barrel and natural gas will average about $7 per thousand cubic feet — the total value of the free oil and gas over the next five years would be about $65 billion and the forgone royalties would total more than $7 billion.
Administration officials say the issue is out of their hands, adding that they opposed provisions in last year's energy bill that added new royalty relief for deep drilling in shallow waters.
"We did not think we needed any more legislation, because we already have incentives, but we obviously did not prevail," said Ms. Burton, director of the Minerals Management Service.
But the Bush administration did not put up a big fight. It strongly supported the overall energy bill, and merely noted its opposition to additional royalty relief in its official statement on the bill.
By contrast, the White House bluntly promised to veto the Senate's $60 billion tax cut bill because it contained a one-year tax of $5 billion on profits of major oil companies.
The House and Senate have yet to agree on a final tax bill.
The big issue going forward is whether companies should be exempted from paying royalties even when energy prices are at historic highs.
In general, the Interior Department has always insisted that companies would not be entitled to royalty relief if market prices for oil and gas climbed above certain trigger points.
Those trigger points — currently about $35 a barrel for oil and $4 per thousand cubic feet of natural gas — have been exceeded for the last several years and are likely to stay that way for the rest of the decade.
So why is the amount of royalty-free gas and oil expected to double over the next five years?
The biggest reason is that the Clinton administration, apparently worried about the continued lack of interest in new drilling, waived the price triggers for all leases awarded in 1998 and 1999.
At the same time, many oil and gas companies contend that Congress never authorized the Interior Department to set price thresholds for any deepwater leases awarded between 1996 and 2000.
The dispute has been simmering for months, with some industry executives warning the Bush administration that they would sue the government if it tried to demand royalties.
Last week, the fight broke out into the open. The Interior Department announced that 41 oil companies had improperly claimed more than $500 million in royalty relief for 2004.
Most of the companies agreed to pay up in January, but Kerr-McGee said it would fight the issue in court.
The fight is not simply about one company. Interior officials said last week that Kerr-McGee presented itself in December as a "test case" for the entire industry. It also offered a "compromise," but Interior officials rejected it and issued a formal order in January demanding that Kerr-McGee pay its back royalties.
On Feb. 6, according to administration officials, Kerr-McGee formally notified the Minerals Management Service that it would challenge its order in court.
Industry lawyers contend they have a strong case, because Congress never mentioned price thresholds when it authorized royalty relief for all deepwater leases awarded from 1996 through 2000.
"Congress offered those deepwater leases with royalty relief as an incentive," said Jonathan Hunter, a lawyer in New Orleans who represented oil companies in a similar lawsuit two years ago that knocked out another major federal restriction on royalty relief.
"The M.M.S. only has the authority that Congress gives it," Mr. Hunter said. "The legislation said that royalty relief for these leases is automatic."
If that view prevails, the government said it would lose a total of nearly $35 billion in royalties to taxpayers by 2011 — about the same amount that Mr. Bush is proposing to cut from Medicare, Medicaid and child support enforcement programs over the same period.

G-8 Ministers Warn of Wider Risks From Tight Oil Supply - New York Times

G-8 Ministers Warn of Wider Risks From Tight Oil Supply - New York Times

By ANDREW E. KRAMER
Published: February 12, 2006
MOSCOW, Feb. 11 — Finance ministers from the world's richest countries and Russia said Saturday that "high and volatile" energy prices posed a risk to global economic growth that otherwise appeared solid.
With booming growth in China and India absorbing oil, attention has been focused on the effect of rising demand in pushing up oil prices. The Group of 8, a club of the world's richest capitalist democracies and Russia, meeting Saturday in an icy, mist-covered Moscow, focused instead on the extremely tight supply around the world.
"We're all concerned about the risk of rising energy prices and what they do to global growth," John W. Snow, the United States treasury secretary, said after the meeting at a hotel.
The solution for a world parched for oil, he said, would come in market mechanisms to open oil producing regions to investment and more transparent energy deals, and improving ties between producing and consuming countries.
The ministers called for greater accuracy on the part of oil exporting nations in reporting reserves and production figures, according to a statement by the ministers. They also called for greater investment in exploration and pipelines.
Yet the one-day meeting, the first under the chairmanship of Russia, which is pushing the theme of energy security, ended without setting any major new agenda for world energy trading.
The ministers issued a statement that made vague promises about "enhancing the global energy policy dialogue between oil producing and consuming countries and the private sector."
The ministers met in the National Hotel, a shimmering white and gold Art Nouveau landmark a few hundred yards from the Kremlin.
Overshadowing the meeting was European alarm over a brief natural gas embargo Russia imposed on Ukraine early this year, ostensibly because of a dispute over pricing and transit fees. The embargo raised the threat of shortages in Europe.
Peter Westin, the chief economist at MDM Bank in Moscow, said Russia's economic officials were in a defensive mood going into the meeting because of the Ukraine energy dispute, undermining Moscow's proposals on debt and energy security.
"Russia started off the year on a very bad foot," Mr. Westin said.
Oil-importing countries, including the United States, would like to see producing nations increase supplies on world markets, easing prices even as China and other quickly developing economies burn more oil.
A recent jump in Russian oil production — by 10 percent or more a year at some companies — compensated for growth in Chinese demand early this decade. But overall supply is expected to grow only about 2 percent next year.
Still, Aleksei L. Kudrin, Russia's finance minister, said he pushed Moscow's approach to global energy policy, which calls for consuming countries to diversify supply away from the Middle East, in part by leaning more heavily on Russia's reserves in the Arctic and Siberia. He said this would lower prices by reducing the cartel power of OPEC members.
The ministers agreed to work though international groups to bring "necessary investments in exploration, production, transportation and refining capacity, as well as to improve energy efficiency," according to a statement signed by ministers from the eight countries — Japan, Germany, Italy, France, Britain, Canada, the United States and Russia.

Are Big Oil�s tanks running dry? ( Economist Article)

energyresources : Message: Are Big Oil�s tanks running dry? ( Economist Article): "Feb 7, 2006
From The Economist Global Agenda

Feb 7, 2006 From The Economist Global AgendaAre Big Oil’s tanks running dry?The world’s big private oil companies arereporting record profits on the back of high oilprices. They should enjoy it while it lasts, forthey are struggling to find new reserves to replace the stuff they are pumpingOIL companies are little loved at the best oftimes. But woe betide those firms that announcerecord profits. They can expect to be showeredwith vilification, spewed from the mouths ofpoliticians, media and the public like black goldfrom a freshly-struck gusher. Such was thereaction on Monday January 30th to the news thatExxon Mobil, the world’s biggest privately ownedoil and gas company, had enjoyed the largest netprofit of any American company ever in 2005­aneye-watering $36 billion. A couple of days later,Royal Dutch Shell reported annual net profit of£13 billion ($23 billion), a record for a listedBritish company. The week before, America’sConocoPhillips and Chevron reported big jumps inearnings too. And on Tuesday February 7th,Britain's BP also reported bumper profits, £11billion for the year, though analysts hadexpected even more. The firm pledged to return upto $65 billion to shareholders over the next fewyears if the oil price stays high.The happy news for Exxon’s shareholders wasgreeted in Washington, DC, with furious callsfrom both Democrats and Republicans for awindfall tax on the perfidious oil industry, formany years the customary reaction to news of thatsort. Exxon’s announcement of recordthird-quarter profits in October had promptedCongress to ask representatives of “Big Oil” toanswer charges of profiteering. In Britain, Shellfaced similar ire. Consumer groups wailed andtrade-union leaders called for one-off taxes topay for assistance to pensioners.President George Bush used his state-of-the-unionaddress this week to admonish Americans for their“addiction” to oil. But he was moved to defendExxon. He pointed out that the bumper earningswere a result of its operating in themarketplace: high oil profits are a directconsequence of high oil prices. Booming demand,particularly from India and China, has driven thecost of a barrel up from around $10-15 in 1998 tonearly $70 today. With so much of the world’s oilcoming from state-owned producers in the MiddleEast, the big private oil companies of Americaand Europe have little control over prices.Even the Organisation of the Petroleum ExportingCountries (OPEC), which this week decided toleave its production quotas unchanged, can dolittle to alter prices. The oil cartel iscurrently pumping some 30m barrels a day, itshighest output for 25 years. It could not producemuch more, even if it wanted to. Meanwhile, oilconsumption increased in 2005 and is set to riseagain in 2006, according to the InternationalEnergy Agency. It seems that high oil prices, andthe consequent breathtaking profits for Big Oil, are not about to melt away.When the wells run dryThe big oil companies are probably less worriedabout riding out public opinion than they areabout operational challenges that threaten theirfuture. Executives may be popping champagne corksnow, but the oil wells that generate the bigbucks are drying up. Behind the headline figures,less enticing numbers lurk. Shell’s profits camedespite a decline in its oil production comparedwith the year before; Exxon also suffered a smalldecline (see chart). And Shell replaced only70-80% of the oil it pumped with new reserves. In2004 the replacement rate was even lower­under50%­and the firm suffered a scandal over themisreporting of its reserves. BP replaced ahealthier 95% in 2005 according to a formula setby America's Securities and Exchange Commission.Exxon replaced 83% by the same measure (or 112%,according to its own less conservative calculations).Replacing reserves is one of the most pressingproblems facing the world’s leading oil firms.Production from fields that the big westerncompanies have relied on since the 1970s­in theNorth Sea, the Gulf of Mexico and Alaska­is indecline. As a result, the companies have had tosearch further afield. Most of the world’s oil islocated around the Persian Gulf, but this is thepreserve of giant state-run producers. Westernoil firms are largely excluded from exploration and development there.They have instead explored West Africa, theCaspian and other out-of-the-way places. This hasproved trickier than exploiting reserves close tohome. Shell has had to contend with campaigns byhuman-rights activists over its involvement inNigeria. It is denounced for having too cosy arelationship with a government accused ofrepressing political opposition in oil-producingregions. And its output has been hit by thekidnap of oil workers and by pipeline explosionsblamed on local groups who feel they have notbenefited from the oil wealth. Furthermore,extracting oil in far-flung places, such as thatsitting under the deep waters off Brazil,requires costly technology and capital expense.Russia, which sits on 5% of the world’s estimatedoil reserves, was once touted as a place wherethe big oil firms could do business. ButPresident Vladimir Putin’s ugly dismemberment ofYukos, a home-grown oil firm run by a politicalopponent, led to a cooling of relations withwestern oil companies, which are now all but shutout of the country. Mr Putin has overseenconsolidation of the country’s oil and gas firmsas he tries to build a national champion out of Gazprom.The big oil firms are also suffering fromincreasing competition for assets in otherregions. Chinese and Indian oil firms aresnapping up smaller rivals around the world tosatisfy their economies’ seemingly ever-growingdemand for energy. This has led to a politicalbacklash in some western countries. Last yearCNOOC, a Chinese state-controlled oil firm, lostout to Chevron in the battle to buy Unocal, amid-sized American producer, thanks to strong opposition in America’s Congress.The state-backed oil firms of India and Chinastand accused of paying over the odds for assetsin their quest to boost their share of globalreserves. Unlike Exxon, Shell and the like, theydon’t have to answer to inquisitive shareholders.In January, India and China agreed to make jointoffers for some energy assets to avoid pushing upprices too far by bidding against each other.Their national oil companies are also moreinclined to deal with regimes that western firmsmay shun. India has made deals with Myanmar and Iran, for example.The western oil firms do still have someadvantages over the competition. Thetechnological advances forced upon them as theyseek out oil in difficult places may help withthe exploitation of “unconventional”hydrocarbons, such as Canada’s tar sands. Andthey also have the capital and know-how needed toextract and transport natural gas in liquefiedform. But if the big western firms lose thebattle to replace reserves, the era ofmega-profits will come to end however high the price of oil climbs.http://tinyurl.com/9kpmr (requires subscription)Copyright © 2006 The Economist Newspaper and TheEconomist Group. All rights reserved

The Permanent Energy Crisis - MIchael Klare

ZNet Ecology The Permanent Energy Crisis


President Bush's State of the Union comment that the United States is "addicted to oil" can be read as pure political opportunism. With ever more Americans expressing anxiety about high oil prices, freakish weather patterns, and abiding American ties to unsavory foreign oil potentates, it is hardly surprising that Bush sought to portray himself as an advocate of the development of alternative energy systems. But there is another, more ominous way to read his comments: that top officials have come to realize that the United States and the rest of the world face a new and growing danger -- a permanent energy crisis that imperils the health and well-being of every society on earth.

To be sure, the United States has experienced severe energy crises before: the 1973-74 "oil shock" with its mile-long gas lines; the 1979-80 crisis following the fall of the Shah of Iran; the 2000-01 electricity blackouts in California, among others. But the crisis taking shape in 2006 has a new look to it. First of all, it is likely to last for decades, not just months or a handful of years; second, it will engulf the entire planet, not just a few countries; and finally, it will do more than just cripple the global economy -- its political, military, and environmental effects will be equally severe.

If you had to date it, you could say that our permanent energy crisis began, appropriately enough, on New Year's Day, 2006, when Russia's state-owned natural gas monopoly, Gazprom, cut off gas deliveries to Ukraine in punishment for that country's pro-Western leanings. Although Gazprom has since resumed some deliveries, it is now evident that Moscow is fully prepared to employ its abundant energy reserves as a political weapon at a time of looming natural gas shortages worldwide. It won't be the last country to do so in the years to come. In just the few weeks since then, the world has experienced a series of similar energy-related disturbances:

* The sabotage of natural gas pipelines to the former Soviet republic of Georgia, producing widespread public discomfort at a time of unusually frigid temperatures;

* An eruption of oil-related ethnic violence in Nigeria, resulting in a sharp reduction in that country's petroleum output;

* Threats by Iran to cut off exports of oil and gas in retaliation for any sanctions imposed by the U.N. Security Council over its suspect nuclear enrichment activities;

* And as result of such developments, a series of mini-spikes in crude oil prices as well as reports in the business press that, if this pattern of instability continues, such prices could easily rise beyond $80 per barrel to hit the once unimaginable $100 per barrel range.

Vectors of Crisis

Events like these will certainly spread economic pain and hardship globally, especially to those who cannot afford higher transportation and heating-fuel costs. As it happens, though, these are not isolated, unrelated events. Think of them as expressions of a deeper crisis. Like the tremors before a major earthquake, they suggest the dangerous accumulation of powerful energy forces that will roil the planet for years to come.

Although we cannot hope to foresee all the ways such forces will affect the global human community, the primary vectors of the permanent energy crisis can be identified and charted. Three such vectors, in particular, demand attention: a slowing in the growth of energy supplies at a time of accelerating worldwide demand; rising political instability provoked by geopolitical competition for those supplies; and mounting environmental woes produced by our continuing addiction to oil, natural gas, and coal. Each of these would be cause enough for worry, but it is their intersection that we need to fear above all.

Energy experts have long warned that global oil and gas supplies are not likely to be sufficiently expandable to meet anticipated demand. As far back as the mid-1990s, peak-oil theorists like Kenneth Deffeyes of Princeton University and Colin Campbell of the Association for the Study of Peak Oil (ASPO) insisted that the world was heading for a peak-oil moment and would soon face declining petroleum output. At first, most mainstream experts dismissed these claims as simplistic and erroneous, while government officials and representatives of the big oil companies derided them. Recently, however, a sea-change in elite opinion has been evident. First Matthew Simmons, the chairman of Simmons and Company International of Houston, America's leading energy-industry investment bank, and then David O'Reilly, CEO of Chevron, the country's second largest oil firm, broke ranks with their fellow oil magnates and embraced the peak-oil thesis. O'Reilly has been particularly outspoken, taking full-page ads in the New York Times and other papers to declare, "One thing is clear: the era of easy oil is over."

The exact moment of peak oil's arrival is not as important as the fact that world oil output will almost certainly fall short of global demand, given the fossil-fuel voraciousness of the older industrialized nations, especially the United States, and soaring demand from China, India, and other rapidly growing countries. The U.S. Department of Energy (DoE) projects global oil demand to grow by 35% between 2004 and 2025 -- from 82 million to 111 million barrels per day. The DoE predicts that daily oil output will rise by a conveniently similar amount -- from 83 million to 111 million barrels. Voilá! -- the problem of oil sufficiency disappears. But even a cursory glance at the calculations made by the DoE's experts is enough to raise suspicions: Behind such estimates lies the assumption that key oil producers like Iran, Iraq, Nigeria, and Saudi Arabia can double or triple their oil production -- unlikely in the extreme, according to most sober analysts. On top of this, the DoE has been lowering its own oil-production estimates: In 2003, it predicted that global oil output would reach 123 million barrels per day by 2025; by the end of 2005, that number had already dropped by12 million barrels, reflecting a growing pessimism even among the globe's great oil optimists.

This is not to say that oil will disappear in the years ahead: There will still be adequate supplies for well-heeled consumers who can afford higher fuel bills. But much of the world's easy-to-acquire petroleum has already been extracted and significant portions of what remains can only be found in places that present significant drilling challenges like the hurricane-prone Gulf of Mexico or the iceberg-infested waters of the North Atlantic -- or in perennially conflict-ridden and sabotage-vulnerable areas of Africa, Central Asia, and the Middle East.

No Escape from Scarcity

To make the energy picture grimmer, "spare" or "surge" capacity seems to be disappearing in the major oil-producing regions. At one time, key producers like Saudi Arabia retained an excess production capacity, allowing them to rapidly boost their output in times of potential energy crisis like the 1990-91 Gulf War. But Saudi Arabia, like the other big suppliers, is now producing at full tilt and so possesses zero capacity to increase output. In other words, any politically inspired (or sabotage related) cutoff in oil exports from countries like Russia or Iran will produce instant energy shock on a global scale and send oil prices soaring to, or through, that $100 a barrel barrier.

A chronic shortage of oil would be hard enough for the world community to cope with even if other sources of energy were in great supply. But this is not the case. Natural gas -- the world's second leading source of energy -- is also at risk of future shortages. While there are still major deposits of gas in Russia and Iran (potentially the world's number one and two suppliers) waiting to be tapped, obstacles to their exploitation loom large. The United States is doing everything it can to prevent Iran from exporting its gas (for example, by strong-arming India into abandoning a proposed gas pipeline from Iran), while Moscow has actively discouraged Europe from increasing its reliance on Russian gas through its recent cutoff of supplies to Ukraine and other worrisome actions.

In North America, the supply of natural gas is rapidly disappearing. In a reflection of our desperate (and demented) condition, Canada is now starting to divert some of its remaining natural gas to the manufacture of synthetic oil from tar sands, so as to ease the pressure on supplies of conventional petroleum. Given the prohibitive cost of building gas pipelines from Asia and Africa, the only practical way to get more gas supplies to North America would be to spend several hundred billion dollars (or more) on facilities for converting foreign sources of gas into liquified natural gas (LNG), shipping the LNG in giant doubled-hulled vessels across the Atlantic and Pacific, and then converting it back into a gas in "regasification" plants in American harbors. Although favored by the Bush administration, plans to construct such plants have provoked opposition in many coastal communities because of the risk of accidental explosion as well as the potential for inviting terrorist attacks.

As for renewables -- wind, solar, and biomass -- these are still at a relatively early stage of development. With a trillion dollars or so of added investment they could indeed ease some of the strain on fossil fuels in decades to come; however, at present rates of investment, this is not likely to occur. The same can be said of "safe" nuclear power and "clean" coal -- even if the severe problems associated with both of these energy options could be overcome, it would take several decades and a few trillion dollars before they could possibly replace existing energy systems. The only source of energy that can compensate for a shortage of oil and gas at this time is conventional (unclean) coal, and a rise in its consumption would increase the risk of catastrophic climate change.

The New "Great Game"

With looming energy shortages, the risk of conflict over energy access (and the wealth fossil fuels generate) is certain to grow. Throughout history, competition over the control of key supplies of vital raw materials has been a source of friction between major powers and there is every reason to assume that this will continue to be the case. "Just at it did when the Great Game was played out in the decades leading up to the First World War, ongoing industrialization is setting off a scramble for natural resources," John Gray of the London School of Economics observed in a recent article in the New York Review of Books. "The coming century could be marked by recurrent resource wars, as the great powers struggle for control of the world's hydrocarbons."

As in the Great Game, such conflicts most likely would not arise from head-on clashes between the great powers, but rather through the escalation of local conflicts sustained by great power involvement, as was the case in the Balkans prior to World War I. In their competitive pursuit of assured energy supplies, today's great powers -- led by the United States and China -- are developing or cementing close ties with favored suppliers in the Middle East, Central Asia, and Africa. In many cases, this entails the delivery of large quantities of advanced weaponry, advisors, and military technology -- as the United States has long been doing with Saudi Arabia, Kuwait, and the United Arab Emirates, and China is now doing with Iran and Sudan.

Nor should the possibility of a direct clash over oil and gas between great powers be ruled out. In the East China Sea, for example, China and Japan have both laid claim to an undersea natural gas field that lies in an offshore area also claimed by both of them. In recent months, Chinese and Japanese combat ships and planes deployed in the area have made threatening moves toward one another; so far no shots have been fired, but neither Beijing nor Tokyo have displayed any willingness to compromise on the matter and the risk of escalation is growing with each new encounter.

The likelihood of internal conflict in oil-producing countries is also destined to grow in tandem with the steady rise of energy prices. The higher the price of petroleum, the greater the potential to reap mammoth profits from control of a nation's oil exports -- and so the greater the incentive to seize power in such states or, for those already in power, to prevent the loss of control to a rival clique by any means necessary. Hence the rise of authoritarian petro-regimes in many of the oil-producing countries and the persistence of ethnic conflict between various groups seeking control over state-oil revenues -- a phenomenon notable today in Iraq (where Shiites, Sunnis, and Kurds are battling over the allocation of future oil revenues) and in Nigeria (where competing tribes in the oil-rich Delta region are fighting over measly "development grants" handed out by the major foreign oil firms).

"Up to this point," Senator Richard G. Lugar told the Senate Foreign Relations Committee on November 16, "the main issues surrounding oil have been how much we have to pay for it and whether we will experience supply disruptions. But in the decades to come, the issue may be whether the world's supply of oil is abundant and accessible enough to support continued economic growth.... When we reach the point where the world's oil-hungry economies are competing for insufficient supplies of energy, oil will become an even stronger magnet for conflict than it already is."

Averting Environmental Catastrophe

In addition to this danger, we face the entire range of environmental perils associated with our continuing reliance on fossil fuels. Consider this: The DoE predicted in July 2005 that worldwide emissions of carbon dioxide (the principal source of the "greenhouse gases" responsible for global warming) will rise by nearly 60% between 2002 and 2025 -- with virtually all of this increase, about 15 billion metric tons of CO2, coming from the consumption of oil, gas, and coal. If this projection proves accurate, the world will probably pass the threshold at which it will be possible to avert significant global heating, a substantial rise in sea-levels, and all the resulting environmental damage.

The surest way to slow the increase in global carbon emissions is to reduce our consumption of fossil fuels and accelerate the transition to alternative forms of energy. But because such alternatives are not currently capable of replacing oil, gas, and coal on a significant scale (and won't be, at present rates of investment, for another few decades), the temptation to increase reliance on fossil fuels is likely to remain strong. We are, in fact, caught in a conundrum: the world needs more energy to satisfy rising global demand, and the only way to accomplish this at present is to squeeze out more oil, gas, and coal from the Earth, thereby hastening the onset of catastrophic climate change. In turn, the only way to avert such change is to consume less oil, gas, and coal, which would involve severe economic costs of a sort that most national leaders would be reluctant to consider. Hence, we will be trapped in a permanent crisis brought on by our collective addiction to cheap energy.

The sole way out of this trap is to bite the bullet and adopt heroic measures to curb our fossil-fuel consumption while embarking upon a massive program to develop alternative energy systems -- an effort comparable to, and in some sense a reversal of, the coal-and-oil-fueled industrial revolution of the nineteenth and twentieth centuries. In the United States, this would, at an utter minimum, entail the imposition of a hefty tax on gasoline consumption, with the resulting proceeds used to fund the rapid development of renewable energy systems. All funds now slated for highway construction should instead be devoted to public transit and high-speed inter-city rail lines and all new cars sold in America after 2010 should have minimum average fuel efficiencies of 50 MPG or higher. This will prove costly and disruptive -- but what other choice is there if we want to have some hope of exiting the permanent global energy crisis before the global economy collapses or the planet becomes uninhabitable by humans.


Michael T. Klare is the Professor of Peace and World Security Studies at Hampshire College and the author, most recently, of Blood and Oil: The Dangers and Consequences of America's Growing Dependence on Imported Petroleum (Owl Books) as well as Resource Wars, The New Landscape of Global Conflict.

The hard truth about oil

Plugged in: The hard truth about oil - Feb. 9, 2006

The hard truth about oil
No matter what the president says, conservation is America's only route to energy independence.

By Nelson D. Schwartz, FORTUNE Europe editor
February 9, 2006: 11:31 AM EST
NEW YORK (FORTUNE) - Presidents going back to Richard Nixon have been talking about energy independence. It's one of those vote-getting platforms that no one could possibly be against -- like world peace, mom and apple pie. It gives us the illusion of control over our energy destiny, which we don't have, at least in a fossil-fuel based economy.
But it's a lost cause.
The only way we're ever going to be able to boost oil supplies here at home is through conservation, and that's something the government is going to have push aggressively, at least until technological advances like cellulosic ethanol, hydrogen and other alternative energy forms become available.
Don't take my word for it. Just listen to what Big Oil has to say.
It's not every day that an industry best known for keeping its head down takes issue with the President of the United States on the subject of ending our dependence on foreign oil. But that's exactly what happened on Tuesday when an Exxon Mobil (Research) exec had the courage to say aloud what every oil insider in the world knows -- America isn't going to be 'energy independent' anytime soon, if ever.
"Realistically, it is simply not feasible in any period relevant to our discussion today," Exxon Senior V.P. Stuart McGill told the crowd at a Houston energy conference, according to Reuters.
Referring to the gap between imports and domestic production -- which is about 10 million barrels, or half our daily consumption, McGill said, "Americans depend upon imports to fill the gap. No combination of conservation measures, alternative energy sources and technological advances could realistically and economically provide a way to completely replace those imports in the short or medium term."
McGill's remarks got top billing on the popular Drudge Report Web site on Wednesday, which suggests they're shocking, or at least surprising. They shouldn't be.
A declining oil province
Nearly five years ago, then-CEO Lee Raymond of Exxon told FORTUNE that finding all the oil we need here at home "was a failed notion under Richard Nixon, and it's certainly a failed notion today." Raymond, who retired at the end of last year, was the most successful oilman of his generation, as Exxon's record $36 billion in profits last year shows. But he had no illusions about the United States as an oil producer. "We're a declining oil province and have been for 25 years," he said.
To be fair, President Bush did take some very valuable-and significant steps forward in his State of the Union address. Like noting the high cost of depending on the Middle East and other volatile regions for our crude, and being bold enough to actually use the word addiction, which many politicians have studiously avoided. And talking up the potential of cellulosic ethanol, which FORTUNE recently wrote about (click here to read that story), but needs much greater investment and support.
Getting OPEC's attention
Ironically, conservation is the one way we can have some say over our energy security. While OPEC leaders may know better than to take our talk of energy independence seriously, a serious push for conservation would get the attention of the energy markets and drive prices lower.
If you don't believe me, just look at how oil prices have dipped from near $68 a barrel a few weeks ago to $63 now. Natural gas prices have come down even more. This is because warm weather in the U.S. has meant that we've consumed less energy than anticipated, leading to a surge in supplies.
But this episode was a matter of good luck, with perhaps a little help from global warming. Imagine if through conservation, we could achieve the same kind of reduction in energy consumption. Or if the government began pushing Detroit and foreign automakers to increase fuel efficiency. We'd get a lot more oil that way than by drilling in Alaska. And while conservation won't end the need for imports, it could ultimately get us a lot closer to energy independence than any of the President's other suggestions.

Hydrogen bugs

"So, We Need $50,000...." :: AO

Tom Byers continues his discussion with MIT's Alice Gast and Stanford's Jim Plummer, who provide a fascinating glimpse into a real-world research project that could satisfy our need for energy.
Jim Plummer [Stanford University] POSTED: 02.03.06 @07:00
Jim Plummer: So here is another example. About three years ago, two faculty walked into my office. One of them was actually Jim Swartz, this guy in chemical engineering again. And the other one was Alfred Spormann, who is in civil engineering. They said to me, "So, we need $50,000," which is something faculty say to me all the time. And so my next question is, "Why?" And they said, "Well, we've got this idea that's going to solve the energy crisis or energy problem." And I said, "Really, that's interesting. So, what is it?" And they said, "Well, a lot of people are thinking about the hydrogen in the economy and the ability to run cars on fuel cells and hydrogen and things like that. But one of the fundamental issues, here, is where are we going to get the hydrogen to do this? You can flip water, but it takes energy to do that. You can reform methane, which is a little bit better, but doesn't solve the CO2 problem." So Alfred said, "You know, what I do in my day job is study micro bugs in the soil." He studies some of these bugs that eat oil spills and things like that. And he said, "You know, we've found a particular one of these naturally occurring bugs that has the ability to take photons, light, as its energy source and use that energy, rather than growing, which is what bugs normally do, to split water molecules into hydrogen and oxygen. I said, "Boy, that's pretty interesting, a naturally occurring microbe that can do this." And I said, "So what do you need $50,000 for?" And he said, "Well the problem is that this little bug is an anaerobic bug, which means that it's very sensitive to oxygen. It ends up killing itself when it does this. So, it seems like it is a no-win situation."So, he said, "We have this idea that if we work on this and use some of the techniques against scaling, techniques from chemical engineering, and so on, that will allow us..." I mean—I'll explain this in my simple electrical-engineering perspective; I'm sure a chemical engineer can do a better job: You take a population of these bugs that reproduce every few minutes, and you expose the population to a low concentration of oxygen. The tail on the distribution survives. Then, you use that tail as the parents of the next generation, and so on. You do this multiple times, and you eventually mutate it into a form of this bug that is much less oxygen sensitive. So they said, "We think we can do this and create a version of this microbe that actually could scale up and create hydrogen efficiently from simply sunlight." So, the division is sunlight shining on these big bio reactor beds; these bugs are sitting there enough, and you pump in water and out comes hydrogen and oxygen." So this is pretty interesting, and I said, "What do you need the $50,000 for?" They said, "Well, we want to hire a postdoc to begin doing some experiments." And so, we did. And that turned into a project that is looking actually very interesting. And it has since become funded by major agencies, and you know, it just started as a crazy idea. And it may not ever scale up to the state where it can have a huge impact on the world's energy problem, but then again, it might. And it's the kind of thing that university labs try and experiment with; we just explore crazy ideas.Tom Byers: Wow! Do you have another one off the top of your head?

Ritter: Iran Only Wants Peaceful Nuclear Power

ThreatsWatch.Org: RapidRecon: Ritter: Iran Only Wants Peaceful Nuclear Power

Steve
Former UN Weapons Inspector Scott Ritter, promoting his book in New Mexico, said that Iran simply wants peaceful nuclear power, not nuclear weapons, and that US Ambassador to the UN, John Bolton, already has a speech written for the coming US nuclear bombing of Iran.
“We just don’t know when, but it’s going to happen,” Scott Ritter said to a crowd of about 150 at the James A. Little Theater on Sunday night.
Ritter described how the U.S. government might justify war with Iran in a scenario similar to the buildup to the Iraq invasion. He also argued that Iran wants a nuclear energy program, and not nuclear weapons. But the Bush administration, he said, refuses to believe Iran is telling the truth.
He predicted the matter will wind up before the U.N. Security Council, which will determine there is no evidence of a weapons program. Then, he said, John Bolton, the U.S. ambassador to the United Nations, “will deliver a speech that has already been written. It says America cannot allow Iran to threaten the United States and we must unilaterally defend ourselves.”
“How do I know this? I’ve talked to Bolton’s speechwriter,” Ritter said.
Remember that Ritter also declared early in 2005 that the US would invade Iran in June of that year.
How is it that Ritter understands the intentions of Iran’s government, Rafsanjani, Khatamei, and Ahmadinejad so well? From where does he gain an insight that eludes expert analysts who have paid so much attention to the words and deeds of those men who’ve vowed to see the destruction of Israel and the coming of judgement day?