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Tuesday, July 04, 2006

Old King Coal

Martin Wolf on energy security:

The best hope for energy security, by Martin Wolf, Financial Times: ...Thomas Malthus, the early 19th century forefather of environmental doomsayers, ... remark[ed] that: “The power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or other visit the human race.” Malthus was wrong: the world’s population has risen six-fold since his day, while life expectancy has doubled. So will contemporary Malthusians prove right about energy?

The answer is: no. Moreover, ... the future lies with oil, gas and, above all, “old king coal”, the fuel with which the industrial revolution began. This must concern another group of Malthusians – those concerned with global warming. That, however, is a subject for next week. The theme of today is how humanity might meet its demand for commercial energy. A recent survey from the Organisation for Economic Co-operation and Development suggests that demand for commercial energy might double by 2050. If anything, this is a conservative assumption...

Now consider whence – and at what prices – this additional energy might come. ... Taken together, fossil fuels now provide 86 per cent of the world’s commercial energy. Is the world about to run out of these fuels? “No” is the answer or at least not in the next half century and almost certainly far longer.

Published oil reserves do, it is true, cover only about 40 years of current consumption. If consumption rises, as seems inevitable, that does not seem to provide much of a cushion. Moreover, believers in the theory of “peak oil” argue that the world has already reached peak production. ... Their analysis is based on ... the pattern of discovery. Peakists argue that the world has used up about half the available supply and global production is in irreversible decline.

Against this, most analysts argue that reserves tell one little about available supplies, that higher prices and innovation generate greater extraction from existing fields, that discovery of new (if smaller) fields is continuing and, most important, that unconventional oil resources are still to be exploited ... So even if production of conventional oil were to peak, the oil era would not be over. The question is rather one of price. The potential at a price of $70 a barrel seems huge. Many argue that the price needed to bring forward additional supply is much lower.

Nor does the end of oil mean the end of fossil fuels. Gas and, above all, coal are even more plentiful. Some would counter that petroleum is a unique source of high quality energy for transportation... But it is possible to convert coal and natural gas into “syngas” (synthesis gas) and then into liquid fuels. The question is one of cost. The answer is that this would be more expensive than conventional oil, but not prohibitively so.

What role then might be played by nuclear and renewables in such a “business as usual” scenario? “Marginal” seems to be the answer. The big points are that renewable energy is expensive, nuclear energy is controversial...

Renewables have problems of usability, scalability or cost. To generate half of all current energy consumption we would need 100m windmills.... Use of large proportions of the earth’s surface for bio-mass runs into the constraints imposed by alternative uses (food production and natural habitat). In principle, solar energy should be more than adequate: the quantity falling on the earth’s surface is more than 6,000 times current commercial energy consumption. The hurdle is the difficulty and cost of collecting solar energy...

Does this scenario – of a world in which fossil fuels generate the bulk of commercial energy over the next half century – generate worrying security problems? If one focuses on oil or gas alone, the answer might be yes. In both these cases, the reserves are not located where most of the consumption takes place. The gap is particularly large for conventional oil... But coal is widely distributed, with much of it in the large consuming regions. The best solutions then for governments concerned with security are diversity of sources and open and flexible world markets. Attempts by any power to seize valuable resources for exclusive use would create serious global insecurity and even war...

Remember that this argument ignores the question of climate change. It asks whether the Malthusians who argue that the world will soon run out of fossil fuels allow the Malthusians who worry about the damage to the atmosphere to cheer up. The answer is an unambiguous no. It will be perfectly possible to run a fossil fuel economy for many decades at prices that are likely to be substantially lower than those of recent times. Even if they remain at current levels, the world economy will almost certainly cope, as its recent performance suggests. The world can afford quite expensive energy. The big question is, instead, whether the environment on which our lives depend can cope with the results.

Update: This is from The New York Times, It examines the coversion of coal to either diesel or natural gas:

Search for New Oil Sources Leads to Processed Coal, by Matthew L. Wald, NY Times: The coal in the ground in Illinois alone has more energy than all the oil in Saudi Arabia. The technology to turn that coal into fuel for cars, homes and factories is proven. And at current prices, that process could be at the vanguard of a big, new industry. ...

But there is a big catch. Producing fuels from coal generates far more carbon dioxide, which contributes to global warming, than producing vehicle fuel from oil or using ordinary natural gas. And the projects now moving forward have no incentive to capture carbon dioxide beyond the limited amount that they can sell for industrial use.

Here in East Dubuque, Rentech Inc., a research-and-development company ... recently bought a plant that has been turning natural gas into fertilizer for forty years. ... In an important test case for those in the industry, it will take a plunge and revive a technology that exploits America's cheap, abundant coal and converts it to expensive truck fuel. ...

There are drawbacks; the technology requires a large capital investment, and a plant could be rendered useless by a collapse in oil prices. ... Lately ... the price of diesel fuel, which determines the value of this coal-based fuel, also called synfuel, has soared, as has the price of natural gas, which made plants like the one at East Dubuque ripe for change.

Most of the interest is in making diesel using a technology known as Fischer-Tropsch, for the German chemists who demonstrated it in the 1920's. ... The technology was used during World War II in Germany and then during the 1980's by South Africa when the world shunned the apartheid regime there. Now Rentech is preparing to use an updated version. ...

Other projects are in various stages of planning in this country... But people who think this technology will find wide use presume some kind of environmental controls, which the Rentech plant, thus far, does not have. Some environment and energy experts doubt that the method is compatible with a world worried about global warming. Unless the factory captures the carbon dioxide created during the process of turning coal into diesel fuel, the global warming impact of driving a mile would double. ...

But the Energy Department sees potential. In March, the Energy Secretary, Samuel K. Bodman, said ... that making diesel fuel or jet fuel from coal was "one of the most exciting areas" of research and could be crucial to the President's goal of cutting oil imports. He said that loan guarantees enacted in last summer's energy bill might be used for Fischer-Tropsch diesel fuel.

In Des Plaines, Ill., near Chicago, a new company called GreatPoint Energy has developed, on a laboratory scale, a vastly improved process for turning coal into natural gas.

The promise and the pitfalls are similar for both GreatPoint and Rentech. ... [T]urning coal into natural gas or diesel fuel means ... carbon emissions, which causes concern to environmentalists. Carbon is released in converting coal into an energy-rich gas made up of carbon monoxide and hydrogen, and then converting the gas into something more useful. Rentech wants to turn it into liquid fuel. GreatPoint wants to rearrange the molecules into natural gas. ...

Robert Williams, a senior research scientist at Princeton, said "it's a step backward" to operate a plant like Rentech's without capturing the carbon. "It almost doubles the emission rate," he said.

Mr. Ramsbottom also sees the carbon dioxide problem. "The worldwide production of Fischer-Tropsch fuels is going to ramp up dramatically, and carbon sequestration is on everybody's mind," he said. But the geology of this part of Illinois is not suitable for sequestering the carbon dioxide from these plants. Building a pipeline would be expensive and difficult to justify while carbon emissions are not taxed, experts say.

GreatPoint has a different plan: move the plant where it can sell the carbon.

Andrew Perlman, the company's chief executive, thinks it has value. "Not only is it capturable, one of biggest advantages of the system is, we can locate our plant near a natural gas pipeline, in places where we can sell that carbon dioxide for a profit, using existing technology," he said. Oil producers inject carbon dioxide into old oil fields, to force oil to the surface.

Backers also hope that methanization, the process GreatPoint uses, will succeed in part because it fits in with existing energy infrastructures, like gas pipelines and coal mines. If it did, it could have a profound impact on the balance of natural gas imports... Like Fischer-Tropsch diesel, methanization is not a new idea; one plant in North Dakota does it now... But GreatPoint is going about it in a new way, in which far less energy is lost in the transition. ...

Robert Williams, a senior research scientist at Princeton University, points out that crop wastes and wood chips can also be gasified, producing carbon monoxide and hydrogen. Normally, biomass is thought of as carbon-neutral, because for each plant cut down for gasification, another grows and absorbs carbon from the atmosphere. But if biomass is gasified and the carbon dioxide sequestered by being pumped into the ground in the expectation that it will stay there, then atmospheric carbon actually declines for every gallon produced.

From a greenhouse perspective, that is more attractive than what Rentech does now with the carbon dioxide from its plant here. It is sold to soft-drink bottlers. That keeps the gas sequestered until someone burps.

    Posted by on Tuesday, July 4, 2006 at 03:32 PM in Economics, Oil | Permalink  TrackBack (0)  Comments (14)


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