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Arctic Leaf

Optimist and pessimist, the Oil & Gas Journal and replacement fuels

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“The optimist proclaims that we live in the best of all possible worlds and the pessimist fears this is true” — James Branch Cabell. Or, as I once said in a presentation in China after Tiananmen Square, “a strategic optimist is a realist with brains.”

I live with the hope we can do better as nation with respect to the environment, our economy and the quality of life choices open to Americans, particularly low- and moderate-income Americans. But I worry that given the ideological and related political divisiveness among us, we may not.

In this context, after reading the recent article, “SAFE: Report’s ‘flash points’ emphasize US transportation fuel problem” in the Oil & Gas Journal, often seen by some as a mouthpiece for the oil industry, my thoughts reflected both optimism and pessimism. I concluded that I was a realist tempered by experience (and hopefully with a brain). Okay, what did the piece suggest that stimulated my mental and emotional adrenaline? Two or three quotes used by the author Nick Snow, respected Washington editor of OGJ, taken from a national conference convened by Securing America’s Future Energy (SAFE):

“A proliferation of global oil geopolitical ‘flash points’ (e.g., conflicts in countries or within countries that limit or could limit the supply of oil) makes it even more urgent for the U.S. to aggressively reduce its dependence on crude oil for transportation fuels…If we could be only 65% dependent on oil for our transportation fuels by 2025 instead of 90%, it would make a tremendous difference…We also need better politics developed by people who can find win-win situations so we can move forward…We all agree that we need to diversify our transportation sources away from oil.”

Nick Snow is no blazing liberal. According to his resume, Mr. Snow has spent 30 years or so as a journalist covering oil issues, many of those for media outlets friendly to oil interests (e.g., Oil Daily).

Have we reached nirvana? Did the article in the OGJ signal that big or small oil companies will soon announce their commitment to replacement fuels, like natural gas-based ethanol and methanol? Their support, given the fact that some oil companies already own significant natural gas fields, could be important from a public policy and an “on the ground production and distribution” perspective.

When I was a kid, older members of my family, if they wanted something but knew it was impossible to secure, would say, “I should live so long.” In some respects, while I’m surprised by the selected quotes used in the article by Mr. Snow, I doubt it heralds an epiphany by leaders of the oil industry or their companies.

Why am I a wannabe optimist but a realistic pessimist? Oil companies’ primary behavior over the past decade or more has been to oppose the development of most replacement fuels, FFVs and open fuel markets. Sometimes they have done this through other organizations that they influence or control, and sometimes directly. Clearly, gas station franchises granted by oil companies remain tied to a “just say no” position on replacement fuels, or a back- or side-of-the-station mandate concerning location of replacement-fuel pumps. For the most part, their reaction to “flash points” has been “drill, baby, drill,” and their battle cry has been that only more drilling will make the nation oil independent. This is a curious stance, since companies are simultaneously seeking to increase their ability to export globally. America still imports about a third of its oil, while retail prices for gasoline at most stations remain high.

I’m afraid that the OGJ piece by Snow is not a harbinger of good tidings concerning oil company endorsement of replacement fuels — at least any time soon. Rather, the article reflects a willingness of the author to honestly describe a major issue facing the nation, that is, the disproportionate share of oil in transportation fuels. Regrettably, excluded from the piece is a narrative about the fact that oil converted to gasoline has a significant negative effect on the environment, and that oil imports still take a toll on the economy. Replacement fuels would address security, environmental and economic issues, and related national objectives in a much more positive way.

I have a vested interest in remembering the famous Andrews Sisters. How many of you remember them? They played in my uncle’s band for a short time. So let me end, somewhat inappropriately, using the last stanza of one of their hit tunes “I Can Dream, Can’t I?” by composer Sammy Fain. I am sure neither the sisters nor Sammy would mind. With respect to the oil companies, “I am aware. My heart is a sad affair. There is much disillusion there. But I can dream, can’t I?”

Dreaming is about all you can do now, with respect to getting oil companies to develop, or support the development of, flexible replacement fuels. Maybe someday!

Arctic Leaf

The journey of a thousand miles, replacement fuels and FFVs

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The headlines recently have been terrible — a commercial plane was shot down over the Ukraine, there’s war in the Middle East and more. It makes you wonder, over and over again, about man and woman’s inhumanity to his or her fellow men and women.

While certainly not equal in impact on the world at the present time, I happened to run across one point of light concerning a set of innovations which, in the long run, could positively impact climate change, security and consumer choice issues. It was reflected in a couple of articles describing the partnership between the state of California’s Energy Commission and Cummins Engines to develop an E85-fueled engine that apparently cuts Co2 by up to 80 percent (read it in Fleets and Fuels) in medium-duty trucks.

According to Cummins Engines and the Commission, a relatively small 4-cylinder, 2.8-liter engine has been successfully subjected to 1,000 miles and 1,500 hours of testing. It is now going through validation tests in Sacramento.

The story is a welcome one. Cummins indicates that the engine can generate 250 horsepower and 450 pound-foot of torque using E85. “Using lignocellulosic-derived E85, the powertrain’s efficiency features 75 to 80 percent lower well-to-wheels carbon emissions than gas engines; depending on the drive cycle…Cellulosic E85 is not derived from tilling, fertilizing and harvesting corn…Using corn-derived E85, the high thermal efficiency and power-to-weight ratio of this engine results in 50 to 80 percent lower well-to-wheels carbon emissions compared with the gasoline engine.”

Based on the Cummins documentation, California’s Energy Commission indicates “that successful completion of the project may result in a new market for E85 fuel now dominated by gasoline and diesel in the 19,500 lb. step-van fleet market.” The agency estimates greenhouse-gas savings as great as 69 percent, or 10 to 20 percent using corn based ethanol.

Fortunately, the general principles guiding development of Cummins’ engine may help improve flex-fuel automobiles and grant Americans more confidence in the environmental, price and economic benefits associated with extended use of E85.

Lessons learned may increase the nation’s ability to reduce GHG emissions. Based on what Cummins has done, using smaller engines extends the benefit of E85. Diesel-like cylinder pressures are important. Ethanol’s high-octane rating generates more engine efficiency. Use of state-of-the art sensors for spark ignition and coordination of stop-and-start functions enhances efficiency and reduces emissions. E85 is clearly a safe fuel.

The knowledge gained from the Cummins effort could lead to better flex-fuel vehicles and could support the effort to use increased technology fixes for older, non-flex-fuel cars and FFV twins. Perhaps the biggest benefit from the partnership between California and Cummings relates to the boost it could give to the search for replacement fuels, as well as the myth-busting understanding it could provide consumers about the safety of E85. It is a safe fuel, assuming engine adaptation and software amendment.

Elon Musk’s proposal to share Tesla’s electric-car patents and ideas might at least encourage increased collaboration among FFV makers in Detroit and the potential players in the conversion industry that likely would emerge, subsequent to EPA testing and approval of older vehicles for conversion. Even improved cooperation at the margin would could expand production of new FFV vehicles and expand conversion of older vehicles. For automakers and makers of conversion kits, as well as developers of FFV software technology, successful collaboration would generate larger markets.

Increased use of E85 through conversion of existing cars and the increased production of new FFV vehicles would help meet national and local environmental objectives, reduce gasoline prices and provide consumers with lower fuel costs, apart from gasoline. Both would also reduce dependency on foreign oil. Paraphrasing the poet Robert Frost, while FFVs — new or converted — are on a road less traveled now, as John F. Kennedy indicated, the journey of a thousand miles must begin with one step. The road less traveled now has more replacement-fuel drivers and FFVs than ever. Because of this fact, the journey of a thousand miles toward alternative fuel choices has made progress and, hopefully soon, will move at a faster speed. Success will mean a better quality of life for us all. It’s good news!

Image credit: Wikimedia commons

Arctic Leaf

Take me shopping for eggs, copper and corn starch

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Good news for a world often filled with bad news has recently been generated by two major U.S. universities, both in regards to the efficacy of alternative fuels. Maybe the announcements will lend confidence that America can find a way to balance economic growth with environmental concerns. Increasing success over time will mean that (paraphrasing in part, the late Sen. Robert Kennedy) the nation will not have to accept “what is” with respect to the dominance of gasoline as a fuel, but can consider “what could be” concerning the use of alternative, cleaner, safer, environmental-better and cheaper fuels.

Stanford University professors, in a paper co-authored by Dr. Matthew Kanan, assistant professor of chemistry, announced that they have developed a copper catalyst that can efficiently convert carbon monoxide and water into ethanol. Quoting from a recent MIT Technology Review (April 2014), “while the work is still experimental, it’s significant because the group was able to synthesize ethanol and other desired products with so little energy input.” The Stanford researchers envision a “two-step process in which carbon dioxide is first converted into carbon monoxide using either existing processes or more energy-efficient ones that are currently under development. Then, the carbon monoxide would be converted to ethanol or other carbon-based compounds electrochemically. The key to the new catalyst is preparing the copper in a novel way that changes its molecular structure.”

How long will it take to get from idea to market? If the copper-based process survives further lab tests and evaluations, and if it is then converted into a prototype that is able to produce ethanol fuel, a big push to convert the prototype to real-world status from both the private sector and government would be warranted.

Stanford’s “breakthrough” — if the process becomes marketable and can generate lower-priced, environmentally-safe ethanol that is capable of fueling flex-fuel vehicles (FFVs) and older, converted FFVs — will be significant, even perhaps a disruptive technology. With the proper support, hopefully in the not-too-distant future, increased use of the copper catalyst will minimize and maybe even end the food vs. fuel and land-use allocation fights, as well as help resolve GHG emissions and other pollutant issues that have sometimes frustrated the use of corn-based ethanol and muted receptivity to natural-gas-based ethanol. Technological improvements concerning production reflected in recent life-cycle analysis of corn-based ethanol and reasonable assumptions concerning the cost and environmental benefits of natural-gas-based ethanol, combined with the success of Stanford’s copper catalyst approach, could offer owners of FFVs (both converted and new vehicles) a wider variety of alternatives to secure ethanol that, clearly, will be cheaper, safer and better for the environment.

Stanford’s good news was matched by Cornell’s. Dr. Yingchao You and Dr. Hao Chen announced that they had discovered that a component of corn starch and the yolk shell structure of eggs improve the durability and performance of lithium batteries. In this context, they note that lithium-sulfur batteries are a very solid alternative to lithium-ion batteries. Stabilization problems related to its capacity can be resolved by using amylopectin, a polysaccharide (mainly good old corn starch).

Enveloping the battery’s lithium sulfur cathodes, with an encasing resembling the shell of an egg yolk (sulfur coated with an inexpensive polymer) also apparently improves the battery’s durability and performance.

Cornell has initiated a startup company to take the new and improved starch, egg-yolk shell battery to market. Maybe sometime soon, moderate and middle-income owners of electric cars that are less expensive than what is now available will be able to reduce their fear of driving long distances and feel confident about the life and efficiency of the batteries in their vehicles.

I avoided chemistry, physics and engineering in college. I knew I was not destined to become neither city planner nor designer at MIT when my first student-planned bridge went under water instead of over it. While my efforts were applauded by the Malthusians among my colleagues, they were not regarded highly by professors. Since graduation, unless supported by respected colleagues with a background in relevant sciences and engineering, I have been hesitant to suggest approval of science-driven energy innovations. I am a policy and program person. However, after review and discussions with trusted experts, I believe the Stanford and Cornell initiatives have a good chance to see the light of day, or, more appropriate, see the light in the market place. If one or both do, we will all be better off and the number of feasible alternative transportation fuels available to the consumer will grow. Hooray for copper, starch and eggs.

Arctic Leaf

Drill Baby Drill and Increase US Exports of Oil: A Conundrum

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Over the last year or so, many in the media have commented on the Saudization of America. Readers and viewers have been told that drilling for tight oil will lead to reduced imports and energy “independence.” Luck, or perhaps because of good ole American ingenuity in developing fracking technology, America, the Saudization folks indicate, will no longer be tethered to Middle East petroleum. “Amen” said a chorus of readers and viewers to the “drill baby drill crowd” during recent previous Presidential elections. What good red-blooded American could be against accessing America’s apparent ample supply of oil from dense rock formations or shale? Another popular win for “manifest destiny,” particularly when promises are made by the oil industry and believed by consumers that we will soon be blessed with oil independence as well as stable and ultimately lower gas prices. Who could ask for anything more?

I do not want to get into the “drill baby drill” debate– at least at this juncture. Nor, for the purposes of this piece, do I want to dwell on the opportunities and yes the problems related to fracking.  What I do want to focus on is the impact of the so-called Saudization of America on consumer prices for gasoline.

Since for most of us, gas is an inelastic good and, although we express anger or dismay at its costs, we will pay the price. No doubt, you, your wife, or significant other must get gas to get to work, to shop, to take kids to school or play, to go to a doctor, and to vacation. For folks with low and moderate incomes, the costs of fuel often constrains the purchase of basic goods and services and even job choices and access to decent housing because of limited transportation budgets. Happily, Americans are getting some relief from recently sky rocketing fuel prices during this holiday season.

But think about it: Even at today’s “low” national average price of “only” about $3.25 (I paid $3.63 for regular gas this morning), the price remains relatively high. Further, the recent drop in prices probably had relatively little to do with increased production. More important in setting prices were likely lower demand, the continued slow growth of the U.S. economy, the reduction of tension in the Middle East, wall street banker and speculative behavior, monopolistic type conditions limiting consumer choices at the pump set by the oil industry as well as oil company decisions concerning market management. (It would be interesting if some independent qualified think tank or government agency undertook an in-depth factor analysis concerning variables affecting gas prices.)

Increased oil production and refinement in America likely will not have a major impact on price or price stability. Despite being produced here, oil is traded globally. Understandably and legitimately from their perspective, the behavior of producers, refiners and investors is not governed by patriotism or security interests but by return on investment (ROI). Their voices often seem bi polar. They argue for more drilling here to benefit U.S. consumers, but they often, less than transparently, translate drilling and new production into dollars stimulated by new exports or relaxation of export regulations into pleas for new drilling.

Clearly, a good share of the oil produced in the U.S. — unlike Las Vegas stories– will not stay in the U.S. It will be sold to other nations. While the oil export train (or in this case the boat) has not yet left the station, political pressure from the oil industry and its friends is beginning to generate a Washington buzz that current federal restrictions on oil exports, in place since the Arab Boycott, soon will be reduced significantly. When big oil speaks, many in Washington listen! Yet, right now production per year meets only about 50 percent of demand in the nation–

According to CNBC, “oil companies are securing licenses to export U.S. crude at the fastest rate since records began, as the shale boom leads to swelling supplies along the Gulf of Mexico. The U.S. government granted 103 licenses to ship crude oil abroad in the latest fiscal year, up by more than half from the 66 approved in fiscal 2012 and the highest since at least 2006…”

Bloomberg News notes that the surge in U.S. oil production has made the nation the world’s largest fuel exporter. Exports to Brazil grew by almost 60 percent and Venezuelan imports from the U.S. grew by more than 55 percent; So much for the cold war between the U.S. and Venezuela.  As Bloomberg reports, U.S. exports of refined productions, such as gasoline and diesel, have reached new highs and increased by 130 percent since 2007.

Interestingly, Canada, despite the fact that it is the largest exporter of oil to the U. S. and has ample shale oil resources, has been the primary beneficiary of increased licenses for exports in the U.S.  Less expensive U.S. gulf oil crude is a good deal for Canadians, particularly from eastern Canada. It’s cheaper than the Canadian alternative.

So despite all the noise, we still have a long way to go before we reach oil independence, a truism in part because U.S. oil will soon constitute a relatively and historically a large share of the global oil market.

Clearly, a less exuberant goal than achieving oil independence would be reducing oil dependency. Advocates of alternative fuels like natural gas and natural gas based ethanol and methanol have a strong case. Do you remember when Ronald Reagan strongly urged Mikhail Gorbachev to tear down the Berlin wall?  President Obama, paraphrasing Reagan, should urge oil companies to tear down the barriers to competition at the pump and allow in alternative, safe and environmentally sound alternative fuels. Unlike other Presidents before him, the President, courageously, has already asked the nation to wean itself off of oil.

Offering consumers more choices than gasoline at “gas” stations will help reduce and stabilize fuel prices for consumers.  A double win for the nation and its residents: reduced dependency and stable as well as lower costs– Happy New Year!

Arctic Leaf

What Happened to Saudization? Bipolar Fuel Projections!

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Just a few short months ago, newspapers, led by the WSJ, trumpeted, many on their front pages, the Saudization of America and the end of America’s and OECD’s reliance on Middle East oil. Do you remember?   Well maybe you don’t have to– at least after 2025. The IEA’s World Energy Outlook for 2013, published Nov 12, indicates that the “Middle East, the only large source of low-cost oil, remains at the center of the longer-term oil outlook.” Within about 10 years or so, it will provide the largest share of the world’s expanded oil supply.

I realize the fragility of projections and have in the past criticized the IEA and the EIA and other makers of global energy projections. At times, projection makers are more artists than scientists. The good artists, sometimes, come close to what actually happens. The not so good ones either get lucky or appear to mute their “over or under” reality numbers. They either provide ranges, permitting them to say they were right in the future, or they complain, perhaps over a good bottle of wine, about the complexity of the variables.

I believe it is important to read the IEA report because it lends a bit of skepticism to the idea that America and its friends are entering the golden era of energy abundance. Indeed, The New York Times on Nov 13 ran the IEA story under the headline, “Shale’s Effect on Oil Supply Is Forecast to Be Brief.”

Here is what the IEA said in their Executive Summary:

“The role of OPEC countries in quenching the world’s thirst for oil is reduced temporarily over the next 10 years by rising output from the U.S., from oil sands in Canada, from deep water production in Brazil and from natural gas liquids from all around the world.  However, by mid-2020, non-OPEC production starts to fall back and countries in the Middle East provide most of the increase in global supply. Overall national oil companies and their host governments control some 80 percent of the world’s proven-plus-probable oil reserves.”

America’s likely surplus combined with a slowdown in the increase of demand will not affect costs of oil and gasoline in a major way.  Escalating demand for both will be reflected in Asia and will place a floor under prices. America’s oil companies function in a global market and are not governed to a great extent by the laws of supply and demand in this country.  They will sell to the highest bidder worldwide.

IEA indicates that “the need to compensate for declining output from existing oil fields is the major driver for upstream oil investment to 2035…conventional crude output from existing fields is set to fall by more than 40 mb/d by 2035.Of the 790 billion barrels of total production required to meet our projections for demand to 2035, more than half is needed just to offset declining production. According to the NY Times, IEA conclusions are generally shared by the EIA; that is, today’s rapid oil production from shale will continue for a relatively short time and then slow rapidly. IEA indicated the slowdown will occur in the mid-twenties, EIA by the late teens.

IEA’s and EIA’s analysis should not generate a bipolar response or create a need for a regimen of pills to cure projection related manic depression. It’s only a projection. Take a deep breath and count to ten.  Next year it will likely change because of “complex variables ” including but not limited to changing world demand, Middle East tension, new technology and the use of alternative fuels.

Until we get better at projection, let’s applaud IEA and EIA’s professionals.  At a minimum, they are honestly and artistically responding to lots of unknowns.  Paraphrasing the comedian Ilka Chase (and changing a word or two) projectionist’s minds are cleaner because they change them so often…

Just kidding!

Their efforts should at least reinforce the need to think through transportation fuel strategies and act with all reasonable speed on what I would consider, at least, low hanging fruit. For example, a coordinated campaign by the public, nonprofit and private sector to encourage the federal government to approve methanol as a fuel would be a good first step.  Federal acquiescence, if combined with simultaneous certification of low cost kits to convert existing vehicles to flex fuel cars could provide the framework for an effective transitional fuel strategy.

It, likely, will take from five to ten years before electric and or hydrogen powered vehicles will be able to reach the budgets and driving needs of most low, and moderate income Americans.  Even when renewable fuel powered new vehicles reach a mass market, the technology will not be able to change the gasoline dependent older vehicles. In this context, alternative transitional fuels could, with the addition of an increased number of conveniently located fuel stations and stimulated by new demand, offer competition to oil company restricted gas-only stations and consumers a choice of fuels.  America would be better off economically and environmentally.  Consumers would secure a more predictable, probably lower price for fuel at competitive pumps and charging stations.  The nation would be less dependent on imported oil.

Arctic Leaf

Building the Natural Gas Highway: The Journey of Thousands of Miles Begins in Newport Beach

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California still is seen as the state that exports innovation, despite the fact that it has seen some tough economic times of late. In this context, I was pleased to see the recognition granted by the Orange County Register (Nov 6) to the Clean Energy Fuel Corporation, and its efforts to build the Natural Gas Highway. I was even more surprised to find out that the corporate offices were located near my own office. Clearly, the popularity of natural gas and its derivatives, ethanol and methanol, are on the uptake since the President’s State of the Union address indicating the nation’s economy and environment  would benefit if it weaned itself off oil and by implication gasoline. Even before Obama’s speech, there was a growing recognition among many Americans– including environmental and business leaders– that natural gas could become the core of a strategy aimed at reducing greenhouse gas (GHG) and other pollutants, lowering the costs of vehicular fuel, and reducing dependency on oil imports, thus providing funds for investment in the U.S. Clean Energy Fuels Corporation, located in Newport Beach, is making it easier for consumers to access natural gas for their vehicles. According to the story in the Register, it has invested more than $300 million in the last two years on natural gas fuel stations across the nation. Most of the more than 400 stations that they have developed and  offer only compressed natural gas (CNG), a fuel that works better for comparatively short trips ( e.g. buses, taxis, garbage trucks, short hall trucks, local consumers ). Current and future placement of stations will increasingly offer liquid natural gas (LNG). LNG works better than CNG for long distance trips. Are the leaders of the Clean Energy Fuel Corporation nuts?  Maybe they are…but I don’t believe so.  While, the Corporation has yet to turn a profit (apparently after 15 or 16 years), since going public in 2007, their market value is now more than 1 billion dollars. Their phones are ringing. Large retailing companies relying on trucks, long distance trucking companies, bus manufacturers, taxis and bus companies seem to be gravitating toward use of cheaper natural gas as a fuel. But these users and potential users need assurances that natural gas fuel stations will be reasonably accessible. Clean Energy Fuel aims to provide such assurances. Many respected financial analysts believe that the Clean Energy Fuel Corporation is on the cusp of and will benefit financially from the increased acceptance and growth of alternative transportation fuels, particularly natural gas. Assuming both the sizable price gap between oil and natural gas remains and the corresponding price gap between natural gas fuel and gasoline as well as between natural gas and diesel fuel stays relatively large; Clean Energy Fuel Corporation’s future looks bright. Yes, it will have rivals. Shell Oil, according to the Register article, apparently is going to start selling LNG at existing truck stops. Soundings that I have picked up from natural gas leaders, CEOS of businesses dependent on trucking and diverse investors suggest an evolving interest in developing both CNG and LNG fuel stations and the Natural Gas Highway. In this context, 22 states, under the bipartisan leadership of Governor John Hickenlooper (D) of Colorado and Governor Mary Fallin (R) of Oklahoma, have initiated a collaborative project to buy CNG outfitted cars from Detroit to replace old state vehicles, when their time passes. Detroit in turn has promised to develop a less expensive CNG vehicle for the participating states which could ultimately benefit consumers. Given recent projections of the market for natural gas fuel by government and reputable private and nonprofit groups and increased advocacy for alternative fuels by a coalition of environmental, nonprofit and business groups, I wouldn’t bet against Clean Energy Fuel’s future health. My hope, however, is that it and, indeed, its competitors add room for natural gas derivatives such as ethanol and methanol in their planned natural gas stations.  Apart from generating use by owners of flex fuel cars now in existence, their agreement to do so would encourage (the relatively inexpensive and easy) conversion of existing vehicles to flex fuel vehicles. Significantly, EPA has certified the use of E10 in all vehicles, E15 in vehicles after 2001 and E85 in approved flex fuel vehicles. Hopefully, EPA will soon certify methanol as well as approve an expanded list of conversion kits for existing older vehicles. These approvals are possible, if not probable, given the environmental, economic and consumer benefits of alternative fuels and the evolving politics of fuel. Allowing oil companies to sustain the very restrictive rules now governing the vehicular fuel market will continue to prop up America’s dependency on imported oil as well as support relatively high fuel costs and increased environmental degradation.   President and CEO Andrew Littlefair of Clean Energy Fuel indicated, “With cheaper, abundant fuel, a network of stations, [and] redesigned engines …the time for natural gas transportation has arrived.” I would add, the time for natural gas based ethanol and methanol has also arrived. I commend Clean Energy Fuel for its initiative in developing the Natural Gas Highway. The Company, borrowing from President John Kennedy, has begun an important journey of thousands of miles in Newport Beach. Contrary to (and paraphrasing) the poet Robert Frost, hopefully the road they are building will be very well travelled.  Maybe a couple of leisurely  lunches near the ocean in beautiful Newport Beach could convince my colleagues at Clean Energy Fuel  to consider working with producers of natural gas based ethanol and methanol as well as interested states and localities to  extend  the Natural Gas Highway to ethanol and methanol. It would be good for traffic and their bottom line, good for development of related commercial activities and, most important, good for America

Arctic Leaf

Natural Gas Demand Causes the EU to Invite Russia to Join…

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Hold the presses, stop the cable and network news shows, break away from Twitter, and forget for a moment about Facebook… Why? Read the latest wire from The Associated Press! Many European nations, including Great Britain, have signed a multibillion dollar long term contract for Russian natural gas. The signing was accompanied by a decision by the European Community to integrate Russia into the community’s governance– NATO officials expressed anger and disappointment. Great Britain’s ambassador to America gently, but affirmatively, responded to the New York Time’s question concerning “what does this do to America and Great Britain’s special relationship? Well, it isn’t so special anymore.” She went on, “the world is evolving and Europe, as well as Great Britain, is evolving also. . . The alliance, and indeed NATO, is a relic of the past. I am sorry but that’s just how it is!”

Please don’t respond like many in America did to the late 1930s broadcast of H.G. Well’s War of the Worlds, narrated by Orson Wells. Don’t fear! don’t run out to the street! No deal with Russia for natural gas has yet been signed, NATO is still intact. The European Commission and European Union are still alive, if not well, given the economic problems plaguing many of its members and the continent as well as Great Britain.

While not factual, my flight into hyperbole and negative fantasy could become a reality sometime in the future. What got me thinking about the possibilities was an interesting article in the Oct. 31 Financial Times (coincidentally, on Halloween) by Paolo Scaroni, Chief Executive of Eni, Europe’s largest natural gas dealer.

Scaroni’s thoughts were not offered to trick or treat us. They were meant to make us think seriously about opportunity costing and risk analysis sure to be undertaken by European countries because of their increased need for natural gas and other energy sources.

Scaroni suggests that Europe’s present energy policies and related energy costs impede economic growth, and do not reduce Greenhouse Gas (GHG) emissions. Of note, he indicates that “the problem is that we have so far failed to grasp the implications of the U.S. shale revolution for Europe. Thanks to the rapid increase in efficient non-conventional gas production, U.S. companies pay about $3.50 per million British Thermal Units (BTUs) for their natural gas…That is about a third of what Europeans pay. “

Apart from high gas feedstock costs, Europeans also pay a hefty set of charges to sustain incentives to invest in renewables. As a result, Europe’s electricity is “twice as expensive as America’s” and gives the U.S. a clear competitive advantage with investors around the world, including investors from Europe. Why invest, build or expand in Europe if your company is energy intensive?  The U.S. has the Red Sox, Lady Gaga, Madonna and, most importantly, relatively cheap natural gas fuel.

Because natural gas in the U.S. now crowds out coal, Europe gets a lot of its surplus coal for power plants. So while natural gas use has declined, it is increasingly hostage to dirty U.S. coal- sort of a negative equilibrium for our friends on the other side of the Atlantic. Rising carbon emissions from coal have come close to netting out the carbon benefits from investment in renewables, natural gas and the economic downturn.

What are Europe’s generally intelligent public and private sector leaders to do?  Sounds obvious!  Increase imports of shale gas from the U.S.!  No, says Scaroni. By the time transport costs are added and subject to liquefaction in the U.S. for shipping and regasification for use in Europe, shale gas exported from the U.S. is twice as expensive as gas in the U.S. While likely a bit exaggerated, the author indicates that buying U.S. natural gas would be economically disastrous.

It is also not a good political move. Besides the costs for U.S. natural gas, many Europeans still view the U.S. as “that” upstart nation, once defined by old Europe as the “colonies.” Heck, it was only near 325 years ago; it’s too early to pay reparations.

Scaroni thinks the answer is to explore home grown shale oil assets and nuclear energy, as well as increasing the efficiency of conventional fuels. To secure the first two, however, will be tough given the opposition of environmentalists and people who would like to keep Europe just as it is. Further, high density wall to wall development throughout Europe and Great Britain creates even more fear concerning despoiling the remaining open space and breeds an intense “not in my neighborhood” attitude in many areas. Efficiency is praised by most, because it is often used devoid of real meaning in political rhetoric. Who can be against it, until specifics and likely mandates, costs, and its impact are put on the table?

Scaroni, realizing the obstacles to lowering the costs of gas to U.S. benchmark prices, suggests strengthening commercial and political ties with Russia and perhaps other traditional non U.S. energy partners.  Reading between the lines of the author’s words, he seems to be saying, “let’s milk Russia for all the comparably inexpensive gas we can get.”  WOW!  Communist! Reprobate!  Misanthrope!  No.  Probably just a good analyst and business person.

Without access to NSA data or James Bond, I still almost can hear the buzz at the Pentagon and State Department.  I can see the dour faces at NATO offices in Brussels. I can visualize the depression in the EC and EU. Sure, Russia may soon find a welcome mat in Europe. Its entrance price will be relatively cheap natural gas. New alliances, new travel patterns for diplomats, better food in Russia in the future, new political fun and games as well as new problems for the U.S.

Russia’s natural gas exports to Europe are likely to increase, but Russia’s natural gas dominance is probably not around the corner. The West can take a deep breath.  Use of fracking, governed by strong environmental regulations, likely will increase and result in expanded natural gas supplies in Europe and Great Britain.  While exports from Russia will increase, they will reflect a measured increase at least in the short term.

Russian exports to Europe and Great Britain will not have a major impact on the U.S. We can manage any uncertain political changes and the European price of natural gas will not have a major effect on the U.S. price of the same.

What’s the U.S. going to do with its natural gas? While LNG exports from the U.S. may increase to Great Britain and Europe (as well as Asia), the increase will be moderate, given the continued absence of sufficient port capacity, the cost and the slow pace of government approvals. Pressure, in light of predicted surpluses and the advocacy of alternative fuel supporters, may help open up the almost monopolistic U.S. vehicular fuel markets and increase natural gas demand.

Natural gas prices in the U.S. will remain subject by and large to U.S. production and related costs, as well as regional market behavior and investor speculation. Contrary to oil, natural gas produced in the U.S. likely will not play a major role for at least the next several years in global markets

Is this good for U.S. and U.S. consumers?  On balance, yes. The gap between demand and production as well as production potential will remain visible. ROI in natural gas wells and rigs will probably be sufficient to secure modest production increases. Natural gas prices will likely go up over time but remain well under the price of oil when both are converted to vehicular fuels. Assuming positive government rule-making and the increased use of natural gas derivatives, ethanol and methanol as alternative transitional vehicular fuels, consumers at the pump will benefit from the continued differential and the U.S. will benefit security-wise as well as environmentally and economically.

Arctic Leaf

The New York Times and Natural Gas- Is it the Moment?

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The venerable Gray Lady, the NY Times, has in the recent past treated the possible use of natural gas and its derivatives (methanol and ethanol) as transportation fuels warily. Their primary focus has seemed to be on the environmental problems and economic opportunities related to fracking and the increased production of natural gas. Rarely did the Times cover or note in its editorials the increasing acceptance of natural gas, methanol and ethanol as a fuel to power vehicles. The importance of alternative fuels as part of national energy and environmental policies has not been granted significant visibility in the Times. The Times is still my favorite read over a cup of coffee.

But, surprise! Borrowing and taking liberty to amend the lyrics from the musical Jekyll and Hyde,   “this may almost be the moment…when The New York Times begins to send many of its doubts and demons concerning alternative transportation fuels on their way… this could be the beginning. The momentum and the moment may be coming together soon in rhyme.”

Paul Stenquist, a respected, frequent writer for the Times automobile section, wrote an Oct. 29 article titled, Natural Gas Waits for its Moment. The content of the piece was, in reality, not as ambiguous or speculative. Read it!  According to Stenquist, natural gas has arrived and this is its moment, or at least its soon-to-be moment. Sure there are problems to overcome, but to Stenquist, they seem relatively puny given where he thinks we are, and where he suggests we can be soon.

Stenquist opens his upbeat piece by indicating that “cars and trucks powered by natural gas make up a significant portion of the vehicle fleet in many parts of the world (Iran, Argentina, Italy, Brazil, and Germany).”  After noting the almost 2,000 natural gas stations in Argentina, he asks, “Is America next?”

Based on Department of Energy (DOE) information, Steinquist indicates that natural gas is about $1.50 cheaper than gasoline and diesel fuels for the same mileage, and that because natural gas burns clean, it requires less oil changes, and vehicle exhaust systems last longer.

Sure, the author notes that the initial cost of natural gas vehicles are significantly higher now than gasoline vehicles. But based on an apparent positive interview with a fleet manager from Ford, he indicates that increased sales or leasing volume could bring the vehicle price comparable to today’s conventional vehicles. The key issue Stenquist does not address, is when this will happen, and how long will it take?  But still he and his Ford colleague seem optimistic– perhaps a bit too optimistic, unless Detroit pulls a Steve Jobs; that is, just as Jobs did with the  iPhone, convince the public through marketing and technological innovation that cheaper cleaner natural gas vehicles are a “must” for consumers.

But wait, there’s more!  Stenquist, quoting from the Energy Department’s website, suggests that the environmental benefits of natural gas as a fuel appear to be immediate and important. Succinctly, natural gas vehicles have a much smaller carbon footprint than gasoline or diesel.

What remains, then, for the nation to benefit in a major way from use of natural gas as an alternative fuel?  Well for one, reducing carbon leakage during natural gas production and distribution. Progress is being made. Stopping or cutting back leakage has become a priority for both involved companies, and federal as well as state regulatory authorities.

Second, both car companies and the government acknowledge that using compressed natural gas in a conventional engine would result in degrading engine performance. However, retrofitting engines to use natural gas would increase the octane advantage of natural gas and lessen the density advantage of gasoline-reducing performance issues. Fully designed natural gas cars are still relatively rare and are, at this moment, significantly more costly than conventional cars. But with increased demand, as noted earlier, the costs would likely come down and make household purchase decisions easier. Interestingly, Governor Hickenlooper of Colorado(D) and Governor Fallin of Oklahoma(R) have put together a 22 state coalition. The group has committed to purchasing new natural gas cars to replace old cars in their respective fleets. Detroit has committed in turn to work on developing a less expensive natural gas car, given the market pool or demand created by the states. This effort deserves watching and will, if successful, hopefully, provide a path to cheaper natural gas vehicles for consumers.

Stenquist, correctly, points to the lack of natural gas fuel stations as a key obstacle to increased popularity of natural gas. But he is optimistic that technology now in place (or soon to be in place) will be able to link available natural gas pipelines to in home fuel machines. I, also, would hope that these fuel stations would be placed in parking garages and that they would be much cheaper than currently existing home refueling equipment.

I suspect that the natural gas movement will require more than a few moments; that is, it may take a bit longer to gain traction than implicit in Stenquist’s piece. But it’s nice to see a journalist link natural gas to transportation fuel in such an aggressive way as Stenquist. Now if the Times could only follow in the content of its editorial and op-ed pages.

It is hard to be critical of Stenquist’s piece since it’s almost a first for the NY Times. However, I am puzzled by the absence of any discussion of natural gas based ethanol and methanol as alternative fuels in his article. Both, likely, would be cheaper per gallon and per miles traveled than gasoline. Both would record more environmental benefits than gasoline, and both, if they are accepted in the market, would reduce dependency on imported oil. Perhaps most significantly, both, assuming appropriate government approvals, could be used almost immediately to fuel existing vehicles with relatively simple and cheap engine conversion kits. Think of it!  If we could add the trifecta: natural gas, ethanol and methanol –to fuel stations throughout America, it would provide needed competition to gasoline. Consumers would benefit by having access to lower cost fuel. The nation would benefit from improved environmental and Greenhouse Gas (GHG) conditions. America’s security and economy would be enhanced significantly. It would be a major win for the public interest and for America and Americans.

Arctic Leaf

What do Grover Norquist and Edmund Burke have to do with Natural Gas?

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I don’t like the idea of advance pledges by candidates concerning how they would vote, if they were elected by us. I believe it is contrary to representative democratic government and denies the fact that economic, security, social and environmental conditions change, often rapidly, and must be responded to with studied intelligence and common sense, not constant polling or focus groups.

I guess I am, at least, part Burkian.  Although it departs from present reality, as the great philosopher and British MP, Edmund Burke indicated, our elected leaders , should use their “…unbiased opinion…mature judgment…enlightened conscience…(our) representative(s) owe …not (their) industry only, but (their) judgment; and (they) betray, instead of serving (us), if they sacrifice ( judgment) to (our often fleeting ) opinion(s).” Voters can, at least in theory if not always in practice, dismiss their representatives at the next election. I am not sure Burke won again after he made his plea for more thinking and less pandering.

I am suffering emotionally (not too significantly) by being tempted by  a Kaplan analogue to Grover Norquist’s “no new taxes” pledge, required of  candidates for office.  While the tax pledge, I believe, is responsible for at least some of the dysfunction in Washington, there is a certain romantic, almost utopian appeal to it with respect to frustrated advocates for more and better fuel choices at the pump than just gasoline. As Emerson wisely indicated, perhaps, “a foolish consistency is the hobgoblin of little minds.”

The new Kaplan analogue to the Norquist pledge would acknowledge that the natural gas train has left the station. Indeed, it has! One has only to look at the number of wells/rigs now in place compared to just a few short years ago and the relatively rapid escalation in gas production.

The natural gas sector has become, and likely will remain, an economic and political powerhouse. In this context, advocates of a “renewable transportation fuel only” approach, risk, implicitly, supporting a short and intermediate term future dependent on oil and gasoline. As a result, their success would likely result in increased environmental degradation, more greenhouse gas (GHG), higher costs for consumers, increased security problems and restricted economic growth. Clearly, the enemy of a short term good would become a distant perfect.

The Kaplan pledge would commit candidates to help secure reasonable and effective federal and state regulations to protect and enhance the environment and significantly reduce GHG production during production, distribution and sales of natural gas-from wellhead to automobile.

The pledge would commit candidates, once elected, to help foster a collaborative public, nonprofit and private sector effort to wean the country off dirty oil and gasoline. It would require them to develop and support initiatives that open up the now almost closed transportation fuel market to safe, environmentally sound, cheaper alternative transition fuels. Finally, it would commit candidates, should they take office, to support the development of renewable fuels and vehicles that would reflect competitive costs and mileage capacity that match the budget and occupation as well as life-style needs of low, moderate and middle income Americans.

I feel sinful in departing from the philosophy of Edmund Burke. I need to contemplate my fall from philosophical grace. I apologize!  I hope I am treated with grace and redemption. My excuse in proposing a Congressional pledge was only a temporary errant fantasy. It “ain’t” going to happen. It is a flight from reality.

But, was it all bad? Perhaps, the Kaplan pledge points the way to an alternative that is not antithetical to Edmund Burke. What if, instead of trying the impossible with elected officials, many  of whom try to fit their views to the, often of the moment, views of their constituents, advocates of a free fuel market and alternative transitional transportation fuels worked to form  a coalition of nonpartisan or bipartisan groups: business, labor, environment, government, academic and community . Each group would join because they are consistent in heart and mind with the Kaplan fuel freedom pledge. Each would accept the intent explicit in the pledge; that is the nation’s need for a comprehensive fuels strategy that would bridge the gap between renewable and natural gas advocates, between environmentalists and the natural gas industry, between liberals and conservatives.

Free market business and conservative adherents would put muscle behind their ideology in seeking a more open fuel market. Liberals would put meaning behind their desire to aid the needy who suffer from the high cost of gasoline and limited job opportunities because budget constraints limit driving. Environmentalists would match their concern for the environment with support for natural gas, ethanol and methanol as transitional fuels — fuels that would reduce GHG and other gasoline generated pollutants. The nation would be better able to secure the stimulus now required to improve economic growth because of the reduced dependency on foreign imports. Every one of us would benefit from success in assuring research and development of renewable fuels. The coalition would inform and increase Congressional understanding of the need for an integrated coherent national fuel strategy. The payoff to elected leaders:  The Coalition would promise to help voters comprehend the nation’s need for alternative fuels and a comprehensive fuel freedom strategy. It would meet with measured success. Sign me up! The best of all possible worlds! Oh Happy Day!  I can dream can’t I?