October 27, 2009

Is energy innovation slowing down?

I'd say no, judging from some new grants awarded by the Dept of Energy.

The DOE created a new section which is intended to do for energy what the DOD's DARPA did for many things, including the internet. These awards were the best of a much, much larger number of submissions. This is the first round of projects funded under ARPA-E, which is receiving $400 million under the American Recovery and Reinvestment Act.

If even a few are successful, the effect would be dramatic.

Take a look: http://www.energy.gov/news2009/documents2009/ARPA-E_Project_Selections.pdf

October 26, 2009

Which is better for energy - regulation or free markets?

I'd prefer free markets. For instance, if you want to reduce carbon emissions quickly and simply, use a simple carbon tax. Or, if you like things that are slower and more complex (and therefore easier to sell politically), go to cap and trade.

Why do I prefer free markets? Because they're easier. If you're going to run things by central planning instead of by free markets, then the central managers have to manage them. Command economies require a lot of good management in a small circle of bureaucrats. That requires a lot of local talent, and a lot of good luck. They have to stay on top of things, and adjust as they go, or things will fall apart.

Two examples.

First, the automobile Corporate Average Fuel Efficiency regulation. It originally contained a light truck loophole, which made sense because light trucks were working vehicles. Gradually, car makers moved to SUV's, because the lower MPG level allowed greater engine power. Detroit stymied an update to the regulations, as Detroit needed SUV's to compete with Asian manufacturers. That meant the growth of absurdly over-powered military vehicles, wasting gasoline and making the roads less safe overall (the occupants of SUVs are safer, but only because greater size means that when they hit a smaller vehicle, that smaller vehicle absorbs most of the kinetic energy, and therefore is much less safe).

Second, China mandated that utilities build wind power, but not that they use it, so they don't spend the extra money for transmission!

Also, China mandated "Buy Chinese", and the domestic manufacturers can't build turbines that can keep running!

Source http://www.forbes.com/2009/07/20/china-wind-power-business-energy-china.html

Just goes to show - you've got to keep on top of regulations...

October 25, 2009

Volt battery costs, part 6

How likely are large reductions in lithium-ion battery costs?

Highly likely, according to their manufacturers.

"During a panel discussion at a plug-in vehicle conference in Detroit, several speakers said dramatic cost cuts are possible once the advanced batteries reach high-volume production...

Johnson Controls-Saft Advanced Battery Systems aims to reduce the cost of a lithium-ion battery pack by 50 per cent, said Michael Andrew, the venture's director of government affairs and external communications for hybrid electric battery systems....

Ric Fulop, vice-president of business development for A123 Systems Inc, said he believes the cost of battery packs could come down 9 per cent per year as the industry matures....

Ramanathan...said initial costs may be too high because car manufacturers are over-engineering cars and battery packs to ensure there are no mechanical glitches that could sour consumers on the technology."


October 24, 2009

Will Chinese fossil fuel consumption grow? Part 3

As I've noted before - many are concerned that growing fossil fuel consumption in China will necessarily dramatically increase world CO2 emissions, while competing for oil with western importers, and setting the stage for economic volatility when it's coal runs out.

So, what's China doing?

"China has also begun to see energy efficiency and renewable energy as ingredients for the type of modern economy it wants to build, in part because it would make the nation's energy sources more secure.

"We think this is a new business for us, not a burden," said Gan Zhongxue, who left a job as a top U.S. scientist for the giant ABB Group to head up research and development at ENN, the Langfang company that made its fortune as the dominant natural gas distributor in 80 Chinese cities. "
"China has taken significant steps in the past five years. It removed subsidies for motor fuel, which now costs more than it does in the United States; its fuel-efficiency standard for new urban vehicles is 36.7 miles per gallon, a level the United States will not reach for seven years. It has set high efficiency standards for new coal plants; the United States has none. It has set new energy-efficiency standards for buildings. It has targeted its 1,000 top emitters of greenhouse gases to boost energy efficiency by 20 percent. And it has shut down many older, inefficient industrial boilers and power plants. "


October 23, 2009

Will Chinese oil demand grow? Part 2

The concern is often heard that growing oil consumption in China will necessarily cause demand for oil to skyrocket, regardless of supply or pricing, such that other countries will be forced to settle for a smaller share of the oil production pie. So, what does the Chinese history of oil consumption tell us?

Average oil consumption in China in 2007 was 7.29 million b/d. In 2008, when oil prices peaked, Chinese consumption fell to 6.92 b/d. When prices fell again in 2009, consumption rose to 7.84 b/d. Source: http://www.peakoil.nl/wp-content/uploads/2009/10/2009_October_Oilwatch_Monthly.pdf

So, we see that Chinese oil demand does indeed respond to supply and demand.

October 20, 2009

Will Chinese oil demand grow?

The concern is often heard that growing vehicle sales in China will necessarily cause demand for oil to skyrocket. So, will Chinese oil demand grow?

No, not necessarily. According to the well -respected Industrial Engineering consulting firm McKinsey & Co.:

"China is quietly laying the foundation to become a global contender in the development of hybrid and electric vehicles....The Chinese government has been actively promoting the development of the electric vehicle industry..."

They estimate that EV market penetration will be roughly 3-4 as great in China, compared to the world market.*


*Their estimate of EV market penetration in 2030 are very conservative: 5-10% for the world, and 20-30% for China. They do not attempt to evaluate whether Chinese oil consumption can grow to the level found in simple growth projections, which they indicate is 17M bbl/day in 2030. I think we can expect EV market penetration to be much larger, based on growing shortfalls in oil production.

October 14, 2009

Will oil prices stay high?

No, not in the long-term, due to lower price of substitutes for oil. As I have discussed on this blog, the fundamentals here are quite clear.

Substitutes are roughly in the same cost range as oil currently: PHEVs like the Volt1 become economic at about $3.35/gallon gasoline ($90 oil?). In the longer-term (the time it takes to ramp up PHEVs) this also puts a cap on prices.

In roughly 5 years economies of scale will reduce the cost of PHEVs to the range of $80 oil, and we'll see a race between oil depletion and EV growth.


1Pure EVs are cheaper, but much less convenient.

Are battery prices really this predictable?

The price-performance improvement of batteries has been very consistent for quite some time, and it's accelerating. Those improvements are based in new tech (lower cost materials in newer chemistries), larger formats (which eliminate the overhead of packaging and controls per cell), improved manufacturing, and economies of scale.

I've been using such batteries on laptops for a long time - they're not very long-lived.

You're using out-dated battery chemistry, with inadequate temperature and charge-discharge management. Look into the newer li-ion chemistries being used by A123systems and LG (and many others).

If I'm so confident on price of substitutes for oil, why don't I get rich in the futures market?

I am quite confident about the price of substitutes - I called the oil price peak last year (as you can also see in earlier entries here) as did Richard Rainwater looking at much the same data.

I'm not so confident about the time before another price peak ends - the next peak is likely to be longer and lower. Things depend as much on the willingness of oil exporters to recycle petrodollars, and the willingness of oil importers like China and India to subsidize their price controls, as they do on the speed with which substitutes replace oil.

If exporters get as smart as China and Japan, they'll finance exports just as long as exports exist: that could support much higher prices for quite a while, if the US was stupid enough to continue borrowing to support it's addiction to oil. OTOH, if China, India and other importers with price controls wise up and eliminate price controls & subsidies (or, even better, replace them with taxes and import controls), the price could drop sharply.

EV/PHEV substitution will happen incrementally. Lifestyle substitution, especially carpooling, could happen quickly with the proper "victory-garden" promotion (although it's hard to see that kind of realism in US politics at the moment).

What if world oil production declines more than a few percent per year? Wouldn't balancing supply and demand be very difficult without a worldwide economic depression?

Not because of a lack of BTU's. See http://energyfaq.blogspot.com/2008/09/can-everything-be-electrified.html . OTOH, the trade imbalances it would create would indeed be very difficult to manage. I haven't seen a good model for what might happen - I would guess we'd see economic stagnation for a good 10 years. Eventually I would hope to see an aggressive response in the US, which could dramatically reduce oil consumption quickly.

Emergency measures could easily reduce consumption by 25% in 6 months by conservation (just make all highway lanes HOV, strictly enforced), and drilling (in ANWR and off the coasts) and large-scale CTL could both be done in 3 years under truly emergency conditions.

We have more than enough energy to build new electric vehicles. For that matter, we can carpool and telecommute during the transition. We really can. I'm often baffled by the lack of awareness of the potential of carpooling: the US could cut it's oil consumption by 25% in 3 months, if it chose to. It would be inconvenient, and require an emergency to do, but everyone would still get to work.

How important is the energy to manufacture vehicles?

Not as important as the fuel they use.

This is analyzed here ( http://www.scientificamerican.com/article.cfm?id=green-is-a-mirage ). It's an interesting article.

Here's the relevant quote for EVs:

"An LCA reveals that in terms of global warming effluents, for example, everything in the car's life cycle from manufacture to getting scrapped pales when compared to the emissions while it is driven."

So, it really is the fuel used for driving that matters.