Why are oil prices so low and what does it mean for alt energy?

WTI Oil Prices 1986-2015

Haven’t been this low since the crash of 2008

Oil prices are lower than they have been in 4 years, but what has changed lately?  At first glance, not much in the big picture: no big new reserves have been found or really cheap ways to extract & process oil.  It is a matter of supply and demand, but why is the supply high (thus driving the price down)?  Well, it is an interesting business strategy that OPEC engaged last fall.  Mostly in response to this:

Yes, the rapid increase of US oil and gas production (mostly thanks to fracking) has OPEC worried.  Rather than cut their production, they hope to hurt other producers with cheap prices.  We’ll see how it turns out, but in the meantime, enjoy the cheap prices at the pump!

How does this affect nascent alternative energy technologies?  It really depends on whether they were directly targeting oil markets: so wind, solar, and other electricity producing technologies aren’t really affected.  However, technologies that are trying to produce liquid fuel for transportation usually depend on business models that allow production for similar prices as the current oil price (price parity).  If these technologies weren’t already struggling with political uncertainty, and a lack of progress on climate change mitigation (which favors low carbon technologies), now they might be.  However, the RFS could be their savor, since it almost guarantees them a market!  BUT NOT QUITE.  As pointed out here, there is an option to just pay ($1.45/gallon currently) instead of actually buying and blending the fuel.  So it is unclear what will happen with current producers, but the investment in new plants and technologies will likely suffer.

PS: Not everyone agrees with the analysis here, and other ideas exist.  However, what I discuss seems the most reasonable explanation and the Economist also believes it (also see the “dig deeper” links after that article).  Also this article has lots of pretty graphs :)

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BECCS keeps on truckin’ in IL

A quick update on ADM’s Illinois ethanol plant w/ carbon capture and storage (previously discussed here):

ADM Carbon Capture Reaches 1 Million Metric Tons

Apparently they’ve geologically sequestered 1,000,000 Mg CO2 fixed from the atmosphere by corn plants since 2011.  This is potentially a big step towards getting on the RPC2.6 trajectory shown above.  For some background information on the crazy world of IPCC Representative Concentration Pathways (and their Special Report on Emissions Scenarios, aka SRES, predecessors), check out this Guardian article, or this more detailed Skeptical Science primer

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New UT study pessimistic on future of US fracking boom

NG_predictions

Opinions differ on the size of the US non-conventional gas resource

This interesting recent Nature News Feature caught my eye:

Natural Gas:  the Fracking Fallacy

Researchers at the University of Texas recently conducted a study of the reserve size of the four most productive US shale gas formations, and came up with a much more pessimistic result than EIA and industry estimates.  According to Nature, the major methodological advancement in the new study was to increase the spatial resolution of analysis from county-scale down to to 1-square-mile pixels.  Since the most productive areas of a formation are the most profitable to extract and thus tend to get tapped first, extrapolating that performance across the rest of the landscape leads to systemic over-estimation of the resource; higher-resolution analysis is required to distinguish the productive from the marginal areas and get an accurate view of total formation productivity.  This really piqued my interest- my own research applies a similar idea to bioenergy crop production, where extrapolating yield results from prime farmlands on university research farms uniformly across landscapes with lots of marginal land may be equally problematic.

A couple of other tie-ins to the bioenergy world:

  • Note that the UT study leader has been active in the area of ethanol lifeyclce assessment in the past, collaborating with Cornell’s Dr. David Pimentel on some early, pessimistic studies (e.g. here) that are now considered well outside the mainstream bioenergy LCA thought (for example, see this prominent meta-analysis)
  • I can’t help but wonder if the wide-scale adoption of NG power plants coupled with the future feedstock price instability the article suggests might create a market opportunity for synthetic renewable gas from biomass gasification…

Estimating fossil fuel reserves is a tough game littered with overly-pessemistic estimates of ‘peak oil’ and ‘peak gas’, so I’m wary of reading too much into any one study.  Still, wherever someone uses a more sophisticated approach and gets a different result, it’s worth paying attention.

CORRECTION (3/26/15)- In the first ‘bioenergy tie-in’ point above, the researcher with crossover in bioenergy LCA (Tad Patzek) was a contributor to the new reserve estimates, but authors Tinker and Ikonnikova were the study leads.  Thanks to author Mason Inman for bringing this to our attention!

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Guest Post: reducing paper waste in university settings

Today’s post comes from Nikunj Sharma, a 4th year student at Amity University in India.  He is working on biodiesel from microalgae and is also interested in energy economics and sustainable development.  His post highlights issues of paper waste with some useful calculations of how many trees could be conserved and proposes a solution for university situations.

A centralized unit should be proposed in every educational institute where the students donate their lecture notes and class notes. The official one sided sheets are also collected. The one sided sheets on which the content is not reused is used to prepare rough notes and to be sold back to the students at low cost. The lecture notes could then be distributed to the students on a first come first serve basis. The students will earn credit points depending on the quality and quantity of the lecture notes.  Photocopies of the question papers and the assignment sheets submitted. This will enable the students to reduce the cost of photocopying and enable the maximum utilization of the study material from the senior students. In turn, paper is saved because it avoids the photocopying of the same stuff which is already available.

Considering some general information regarding data getting photocopied are:

No of Students in one class – Approximately 250

No of Subjects – 7

Approximate No. of Notes getting photocopied- 7*40*250 = 70,000 pages

This is a rough approximation for one semester and one batch.

Considering the life cycle analysis of trees used for paper making. Assuming pine trees are 60 feet tall and 1 foot in diameter which approximately weigh 1700 pounds. Assume 50% of the tree content is not suitable for paper making: it is used for some other purposes. So  850 pounds of paper will be produced by one pine tree. In a stock of paper used for photocopied there are 500 pages which weighs around 20 pounds. So according to these figures, the number of pages produced by 850 pounds of wood will be :-

850/5*500 = 85,000

You can get more details from here –

http://science.howstuffworks.com/environmental/green-science/question16.htm

The conclusion is that we are using nearly one tree for completing one semester of studies. Therefore if we have eight semesters of study in total:

That will be more or less 6 to 7 trees. This calls for some urgent green action in universities where students are dependent on lots of photocopies.

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Hints of major changes in 2014 RFS mandates

As the election season winds down, we expect the Obama administration to release the long awaited volumes of renewable fuel that should be blended for 2014 (which the RFS law specifies EPA should have released November 2013).  A recent article linked below hints at what changes might exist in soon to be released mandates – and it is probably not good news for bioenergy.  But in reality, since it is so delayed, it would be hard to hold anyone to mandates on what they “should have done” over the past year..

As you may know, we keep track of what has been happening with these volumes over the years.  What is important to recognize in those charts the difference between the original and revised RFS targets (the blue lines).  The question is, what will EPA propose for 2014?

Here is the post: http://www.biofuelsdigest.com/bdigest/2014/10/28/obama-unintentionally-reengineering-the-rfs-for-big-oil/

Most would expect that due to various factors, they would propose a slight increase to 2013 volumes, but in the article linked above, they hint that the EPA might allow waivers that include:

“the full range of constraints that could result in an inadequate supply of renewable fuel to the ultimate consumers, including fuel infrastructure and other constraints.”

and what does this mean?

Well, it sounds like allowing waivers based on distribution capacity would give oil companies (that blend and distribute gasoline) the power to say that they are unable to blend more biofuel, thus crippling the market and basically the entire RFS.  Are they able to blend more?  I think that is the what the RFS is meant to do – provide incentives to figure out how to blend more (innovation!) instead of doing the same things we’ve done for decades.

Much more detail on questions regarding whether EPA has the authority to do something like this can be found in this post by Jonathan Coppess at Farmdocdaily.

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BD agrees- EISA targets were realistic, but timelines were crazy

DuPont's Nevada IA plant.  This project is under construction and scheduled to reach mechanical completion at the end of the year; it was not one of the original 2007 DoE-supported projects.

DuPont’s 30 MGY Nevada, IA plant is scheduled to reach mechanical completion by the end of the year; it was not one of the original 2007 DoE-supported projects.

In the wake of one commercial-scale facility (POET-DSM Project Liberty) having come on line, and just days before the grand opening of the next one (Abengoa’s Hugoton facility) Biofuels Digest has posted the first part of a two-part review of the nascent industry:

http://www.biofuelsdigest.com/bdigest/2014/10/09/earth-to-cellulosic-ethanol-glad-youre-here-buddy-what-took-so-long/

My hobby horse lately has been that we’re finally seeing the exponential growth of cellulosic biofuel production capacity called for in the 2007 EISA legislation, only 5ish years behind the initial schedule.  Having tens of millions of gallons per year worth of production capacity being put in the ground is a HUGE policy achievement considering where the industry was just a few years ago, but the downside inherent in the math of the exponential growth called for in EISA is that we’ll still be playing catch-up to those original targets for the foreseeable future.  The BD review is also pretty harsh on the structure and initial targets of EISA, pointing out that:

  • The way the cellulosic ‘mandate’ was written – a highly-ambitious target timeline with a mechanism for annual re-adjustment based on projected industry capacity – was a perfect recipe for obstructionism from the policy’s opponents
  • The original cellulosic roll out timeline assumed that all planned projects would be financed fully and technologically successful, and did not recognize the time required to go from groundbreaking to mechanical completion to commissioning to full production -

The absence of a proven demonstration at scale of the technologies would prove to be, in some cases — fatal to projects which proceeding to jump to scale prematurely — and a delaying factor in financing for the rest.

– Biofuels Digest editors

Despite these challenges, and despite the intervening 2009 financial crisis, the article points out that 3 of the 6 original biorefinery projects supported by DoE in 2007 have actually been constructed (Abengoa/Hugoton KS, INEOS/Vero Beach FL, and POET/Emmetsburg IA), though often with changes in facility size, location, and ownership along the way.  In addition, the industry has produced another commercial-scale facility in the US beyond the original DoE program, as well as others in Canada, Italy, and Brazil.  So while EISA’s flaws have given the industry’s detractors ammunition for years to come, it has in fact succeeded in the goal of propelling the step up from pilot-scale projects to commercial-scale facilities.

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3.5 M new cellulosic RINs in August?!? Or did EPA just sink the 2nd-gen biofuel market?

"I'm happy to be making a contribution to US bioenergy goals."

“I’m happy to be making a contribution to US bioenergy goals.”

What drove the registration of 3.5 million new cellulosic RINs in August, after less than 5,000 the month before??  Looks like EPA recently changed the rules in a huge way:

http://bakken.com/news/id/218997/new-biogas-rules-renewable-fuel-standards/

Now, bio-methane produced from all sorts of sources (wastewater treatment plants, landfill gas, anaerobic digestion of animal waste, etc.) is eligible for cellulosic RINs if bottled up and used as compressed natural gas (CNG) in vehicles that can use that fuel, which in the US is mostly buses, fleet vehicles, and the occasional odd CNG Civic from California.  The credits apparently still stand if the methane is used to generate electricity to power electric cars.

While the move probably takes some of the political pressure off the Renewable Fuel Standard in the short term and improves the economic viability of bio-methane projects in the face of the fracking boom, I’m worried that it might pull the rug out from under the nascent cellulosic ethanol industry at a critical time.  If the cellulosic RIN market gets flooded with cheap gas, it seems like the incentive to invest in cellulosic biofuels, the original goal of the EISA legislation, evaporates overnight.

On the plus side, in addition to this huge influx of biogas-derived RINs, the latest EPA numbers show that the production of actual cellulosic biofuels has re-bounded from its summer lull, with ~77,000 gallons of cellulosic ethanol and drop-in fuels produced in August.  I’ve updated the Cellulosic RINs page to differentiate between biogas RINs and biofuel RINs, and will keep doing so as long as detailed data is available.

In related news, now that Italy has apparently already beaten the US to commercial-scale cellulosic ethanol production with their Beta Renewable’s Crescentino facility, is GranBio’s Bioflex 1 plant in Brazil poised to do the same?  These folks are apparently licensing Beta’s pretreatment technology (which according to their website is accomplished through a high-temperatures and pressures, without acid) to process sugarcane straw and baggasse into ethanol and electricity at 21 MGY scale – very similar to the Italian plant, and the Poet/Dupont/Abengoa trio in the US.

It’s a very exciting time to be studying bioenergy…

Posted in biofuels, energy | Tagged , | 2 Comments