Why oil (and helium) are still underpriced
Posted by Prof. Goose on December 1, 2005 - 12:34am
Topic: Supply/Production
Tags: helium, oil, peak oil [list all tags]
Economists often like to argue that the prices set by markets are simply right. In this way of thinking, it doesn't make sense to ever say that oil is ever overpriced or underpriced. The problem with this for human civilization is that capitalism is an optimization method that finds optimal behavior a short time into the future. Unfortunately, as we all witness the slow depletion of an obviously finite resource absolutely central to the operation of modern human industrial society, it is obvious to many that we need to pursue strategies that might not have an immediate payoff. Optimizing for results with a longer look-ahead window isn't rocket science, and it isn't unprecedented. The whole field of molecular biology was founded by decades of research paid for by taxes with no immediate payoff in sight. Capitalism had nothing to do with it.
To make an impact on the general public and to help them better deal with rogue economists and cornucopians, I think we should remind them of basic facts about the energy density and convenience of fossil fuels that used to be patently obvious to virtually everybody in 1900, but which have now been forgotten by all but a few engineers over the past 100 years in modern industrial cultures.
A useful, easy-to-remember aphorism is: ONE BARREL of oil is equivalent to ONE YEAR of very hard labor by a human. I tried it out on my scientific colleages here at UCSD, and to a person, they were astonished.
A barrel of oil contains 42 gallons. It can be made into about 20 gallons of gasoline (give or take, depending on the grade of the oil). Each gallon of gasoline contains about 36 kilowatt-hours of chemical energy (kilowatt-hours are the number of kilowatts, a measure of power, times the number of hours, yielding a measure of energy). An efficient internal combustion engine turns about one quarter of that energy into useful work, with the rest lost as heat. One horsepower is equivalent to about 3/4 of a kilowatt. However, one human working hard continuously can only put out about 1/10 to 1/5 of a kilowatt (compare the power output of a human to a one-horsepower horse). A recent article in Bicycling on the Tour de France showed that the average power output (during the several hours per day of the race) of a top-finishing bike racer, Floyd Landis, was 0.23 kilowatts, or about 1/3 horsepower, continuous. In a 75 minute time trial, the same cyclist was able to put out 0.38 kilowatts continuously -- a full 1/2 horsepower!
The 20 gallons of gasoline made from one barrel of oil contains about 180 useful kilowatt-hours. If we divide that by say, 1/8 of a kilowatt -- a generous continuous output for a fit person -- we get 1440 hours of hard human work. Let's assume that a person can put out this 1/8 of a kilowatt for 6 hours per day. That is, half of the output of a top Tour de France cyclist for a continuous 6 hours (not counting breaks) per day. This means that you would need 240 days to get 180 kilowatt-hours (or more, if you are a dimmer bulb), which is minimally equivalent to one year of 5-days-a-week very hard labor by a fit human. This boils down conveniently to: ONE BARREL of oil = ONE YEAR of hard human labor.
This calculation makes sense when you compare digging a foundation or grading a road by hand, Roman empire style, to doing the same thing with an oil-powered bulldozer, roadgrader, and backhoe. A barrel of oil currently costs $57. I think this price *waaaay* underestimates its true worth to us humans. Even in the poorest third world country, you currently have to pay a human more than that to do hard labor for a year. In the US, the minium legal wage is over $10,000 a year.
The hope is that scientists will help us to avoid the "garden show that never ends" -- and the construction methods of the Roman empire -- by inventing some new, convenient source of energy before fossil fuels are depleted. The problem with many of these alternatives is that they all now rely crucially on depleting fossil fuels and resources. Determining whether it is actually possible to manufacture, say, photoelectric cells using only renewable energy sources at every stage (mining, steel-making, furnaces for growing large silicon crystals, saw blades and saws to cut the ingots into wafers, transportation, assembly, installation, servicing) is a topic for another day. Here, let's just consider how resource limitations color the prospects for thermonuclear fusion for generating electricity.
The recent revival of the fusion research project, ITER, suggests that there may still be hope that we will be able to maintain energy-indulgent ways. However, current approaches to fusion are based on magnetically-confined plasmas. The enormous confinement fields needed are generated by superconducting magnets that are similar to those found in high-field MRI machines, but even more powerful, and arranged into a torus (doughnut) instead of a cylinder. All high-field superconducting magnets contain metal wires bathed in large amounts of liquid helium, the only substance that won't freeze at the temperatures required for low temperature superconductivity to appear. A little over 1/4 of all helium produced is used for cryogenics.
Helium is only found in useful concentrations in the 'fossil' gases emitted by relatively a small number of oil and natural gas wells with especially impermeable caps (in the US, mainly in Texas). The helium was trapped and concentrated there after it was generated by radioactive decay of uranium and thorium in the crust and mantle. Helium is on a depletion curve closely related to that of natural gas (data here and here). In 1996, the US helium reserve was privatised and is now in the process of being sold off (The Impact of the Selling of the Federal Helium Reserve, 2000, Openbook here). Helium production appears to have already peaked in the US. After helium boils out of the huge refrigerated thermos bottles around a superconducting magnet, it escapes into the atmosphere and then diffuses into space, where it is lost forever. Helium is an element and cannot be synthesized. The amount generated by a hypothetical working fusion reactor is negligible. After 20 years of high temperature superconductors, no one has come up with one that is both strong enough and capable of carrying enough current. Such a thing may not exist.
Tokamak-style fusion is predicted to become practical in a few decades. But by then, we may near to past the world peak in helium. Helium demand will soar and helium price will soar, too, but it will be too late. Perhaps it really is true that fusion is the power source of the future, and it always will be, as the joke goes. The New Scientist had an article this month (summary here) about ITER, explaining that new approaches to plasma stabilization just might solve some of the chronic problems that have made continuous confinement difficult. But the inconvenient facts about helium did not appear. Perhaps as yet hypothetical superstrong permanent magnets will save the day (although a permanent magnet fusion project was recently cancelled by NSF). Or perhaps a strong high-temperature superconductor will be found. Perhaps.
Economists often say they care little about energy considerations because markets and prices will motivate the discoveries that can solve any possible problem. Scientists, by contrast, try to find out how the world actually is. The world is not infinitely pliable. It may or may not be possible to manufacture strong high-temperature superconductors. It's an empirical question -- not something that will automatically be solved just by increasing the price of strong magnetic fields.
If us scientists fail to come up with a convenient portable energy source for digging up fields and house foundations (and unused pavement!), at least we can continue to discuss this with them -- while we each sweat out our 1/8 of kilowatt. To put off that day, we should all stop acting like spoiled kids and start planning further into the future now.
Martin Sereno
Professor, Cognitive Science
University of California, San Diego
(B.S. Geology)
For one thing, high temperature superconductors are starting to hit the market in a big way. These superconduct at liquid nitrogen temperatures so there's not much need for helium. Companies like American Superconductor are producing hundreds of kilometers a year and are ramping up production still further.
Also cryocoolers, essentially electronic refrigerators, allow you to keep your helium bath at 4K or below without any boiloff at all (and for any experiments can eliminate the need for helium entirely). This isn't in real common use yet but the price and performance of cryocoolers is improving fast. (For some reason they're very common in Japan, though.) Even at current cryocooler and helium prices, a lot of physicists are considering moving to cryocoolers since helium is a pain to work with for various reasons. If helium got even a little more expensive you'd see a pretty big shift. We designed an experiment recently and had a really hard time deciding between helium and cryocoolers. (We went with helium, because our experiment is extremely vibration sensitive, but that's not going to apply to most people.)
And exactly how much energy do these cryocoolers consume per hour? If your power plant is using NG to generate your electricity, then you're still on a depletion curve. If NG becomes difficult to get hold of, then you're looking at another problem, but that one too, is related to resource depletion.
One of the points made is that the inputs for many of our materials are fossil energy - steel alloys, stainless, magnets, ceramics, silicon... The question posed is: Can these materials be manufactured without NG. I think it is a very valid question. Heating with electricity has typically consumed more energy than heating with NG in manufacturing.
Replacing NG with electricity actually consumes more NG at the electricity generating end, and throws a very large load on the grid - that's why manufacturers have a special electric meter (called a demand meter) when they use large amounts of electricity. You get billed at the highest rate of consumption - if it's 10kw an hour for 2 minutes, then you get billed as if you are drawing 10kw an hour for everything you use. It definitely affects the bottom line, and it's there to discourage pulling a lot of juice.
These are the things a lot of us are thinking about and discussing - energy inputs and how to offset them or find alternative sources that are workable. The fossil fuel train is slowing down - we have to get off if we are to continue our journey forward.
At any rate, a cryocooler that would have been much more than sufficient for our experiment would have used about 5 kW, which is comparable to central air conditioning for a large home in summer. A fusion plant would be a heck of a lot larger than our experiment, of course, so I'm not sure what their total consumption would be.
I'm actually not a big fan of fusion research, but for other reasons...
Let's not single out the market -- there is plenty of blame to go around.
On the other hand, I completely share your low opinion of the foresight of government in many cases. Obviously, an institution that operates on a 2 year or 4 year election cycle has very little incentive to take a long view. The funding of basic research is the exception, not the rule.
I share Prof Serreno's sense that the human race is acting in an obviously foolish manner when looked at on a decades-centuries time scale. We cannot possibly continue to grow exponentially on a finite world, and I think it's going to end in tears in my lifetime, and certainly in my kids and grandkids.
So the question is what kind of societal institutions could we create that would take a longer view. How do we learn to think about the seventh generation, in addition to this fiscal year and the next election.
It appears to me that if we are to stop governing ourselves like greedy kindergarteners, we need to add some kind of institution to the governmental system of checks and balances which has, as it's explicit mission, taking care of long term resource/environment/sustainability issues. I can imagine something a bit like the Supreme Court with the President making lifetime appointments of people with a range of appropriate qualifications for thinking about long term issues. Such a 7th Generation Council would need to have real power (eg the right to veto legislation), in order to do any good.
"I suspect that the post-peak era will be inflationary, and high interest rates reduce the time window with which a net-present value calculation looks forward"
now...that's what you'd think...increased scarcity of various commodities...same or more demand...prices go through the roof...bingo..inflation
i would have thought the same thing...but..the bond market is saying the opposite..no matter how much mr. greenspan and his minions push up short term rates..the only interest mechanism they control..long term rates have stubbornly stayed the same...and that in the face of fed funds increasing from 1% to 4%
now, you could argue that long term rates are being artificially depressed, because all those foreign governments like china , japan and saudi arabia are recycling their foreign exchange profits by buying the long bond...and that very well may be the case...
but i've been thinking..(if i can anthropomorphise a bit)...maybe the bond market is trying to tell us something..and they have been doing it for several years now...maybe what we're facing is deflationary recession ( or depression, if that's your flavor)
as alan g. said ...it's a conundrum
I've been thinking of why the Chinese are so willingful to grant us such a generous line of credit in spite of the obviuos tensions between our countries. Besides the obvious motivation of keeping WalMartism, and thus their own economy alive I suspect that they plan to use the dollar card to keep us under control. It is logical - it would be much cheaper and safer for them to beat us on the financial markets than to confront us on the military front.
Pretty soon the one-child policy will present younger Chinese workers with their own problem: how to care for their two ageing parents, and without any help from SS. There will come a time when they become net importers of finished goods, certainly including food and health products, and will convert their dollars into goods and services, completing the trade of goods that is one-sided today. When this period begins the inflation we exported to Asia will return along with our dollars to the US.
Just as a thought experiment, what exactly is to keep us from repudiating that mountain of debt, once they decide they want to start spending those dollars in a big way?
What you have in mind is, I think, less a U.S.-style Supreme Court and more a U.K.-style House of Lords. Ideally, the Lords are supposed to insure the long-term view is heard. Of course, the problem with Lords is that membersip was largely due to accident of birth (not counting the ecclesiastical Lords).
So, shall we prose amending the U.S. consitituion by transforming the Senate into such a 7th generation council? What powers do you all think this Senate should have, and how will its powers be balanced? How will its members be selected, and how long should they serve in office?
Another model is the Federal Reserve, where we have a piece of the government which exists fairly autonomously for a special function (managing the money supply), just as the Supreme Court has it's special function (interpreting the constitution). We (hopefully, most of the time) appoint highly talented economist/finance types to the Federal Reserve Board, and (hopefully, most of the time) highly qualified laywers/judges to the Supreme Court. We generally appoint roughly the right kind of people (political disagreements aside), just because we are aware of the specialized function of these institutions, and the importance of their doing a good job, and we get upset if less-than-stellar folks are proposed (as President Bush found out the hard way with the Mier's nomination).
The Supreme Court has lifetime appointments, as does the House of Lords, but the Federal Reserve has fixed terms. My gut feel is lifetime appointments is better (because doing the right thing for the long term sometimes involves having to do unpopular things in the short term).
Perhaps a more important question might be what kind of qualifications would we want for the members of a 7th generation council. I am of course tempted to say "eminent scientists!", since so many of these long term issues are complex and scientific, and parsing the science and deciding how much accord to give it is critical. But I also think most scientists have lived their lives entirely inside academia and have a dangerously limited view of how the rest of the world works.
I would keep it smaller than the senate, but bigger than the Supreme Court. Maybe 24 people. Enough that it can represent a diverse group of expertises, but small enough to be cohesive.
Maybe have a council with assigned seats for three groups: eminent scientists, retired business leaders and economists, and religious leaders. President proposes, Senate confirms. 7th generation council can veto legislation with a 2/3 vote. Can propose new legislation to the lower houses. Can hold hearings and subpoena people.
I think just having an institution with a name and a mission that said "Long Term" all over it, and some real power would make a huge difference. When they held hearings about world population projections for 2100, the media would have to cover it. It would put the rest of the century on the political agenda, instead of leaving it completely up to chance.
I'm all for listening to on-point criticism whatever the source, but giving religion a binding vote is dangerous to government and corrupting to religion.
I would rather pick 50% scientists (ones having as versatile background as possible) and 50% of retired businessmen. Generally in society women are the keepers of the long-term so maybe women should be preferred for the job.
My concern is: how do you prevent the inevitable war between this institution and just about anybody else?
Second, would it help to veto something? You really need dictatorial powers to divert large resources to something else, particularly when the budget is already drowning. There would be enormous resistance whether you cut other programs or raised taxes.
Third, it might not be needed. Remember that no planning was used to prepare for WWII, yet gm shifted from cars to tanks on a dime. (GM maybe not a good example - seems they cant shift from suv's to prius type care in time to stave off bankruptcy.) The market will move resources all by itself as soon as prices rise.
"If the American peole ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks...will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered...The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
-Thomas Jefferson
Whether we are in the public or private arena an increasing number of people chasing a decreasing sum of resources bodes ill for us all. People demand. More people demand more. Few Peak Oilers want to really address the REAL issue. Those that do have no actionable solutions.
Ammond
"It was the government that destoyed our walkable urban landscape and enabled the construction of the "edge cities" that will make it particularly difficult for the U.S. to transition to a post-peak future."
As to peak oil having "no actionable solutions": I can't prove you're wrong, Ammond, but I hope you're wrong. I don't relish simply sitting around waiting for the big die-off.
In the fifties when our suburban nightmare was being created, these peak oil issues were very remote and starting then, as especially now, there was little difference between private interests and those of our elected government.
Yes, the people have "demanded" these SUV's and McMansions but they've been pushed a bit by the power of advertising that creates that demand.
Marketers figured out what Freud and others were telling them, that people by and large are pretty malleable. When you combine that "insight" with the Age of Television and throw in cheap fossil fuels, you get the horrible mess that we see all around us today. Yes, there's pleny of blame to go around.
Also, at least in the case of the Philadelphia light rail system, it was bought out by GM in the 1950's. They then ripped up much of the rail network and bought GM buses to replace the trolley cars.
I don't think most companies really look 10-20 years down the road in any serious manner. Those plans all seem to be pie in the sky, unrealistic projections. They seem for the most part to only be interested in the next quarters earnings. This is how we wound up with a company like Enron. They weren't looking to build the business over the next twenty years, but just wanted to pump up the stock enough for the next three months so they could make a huge profit for themselves.
There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.
Henry Ford
Suburbia is:
- Most cost-effective to build. Development of land and infrastrucure in an uniform manner using cheap, less labor intensive materials (wood) is the easiest and cheapest path to go.
- Most consumerist oriented. One word: economy of scale. Suburbia allowed the large big-box stores and the wide spreadness of car culture which by itself became another major growing businesses driving others behind.
I guess nobody ever though when making the assumptions allowing Suburbia that someday energy will become expensive. Or more probably they thought the same most people think even now: "We'll think of something when the time comes".This, for those of us who trace our thinking about cities to Jane Jacobs is one of the great early sins. There was no reason why the G.I. Bill, the FHA, the VA and other federal programs couldn't have been dedicated to builing cities instead of suburbs, except for the fact that the U.S. government wanted to build suburbs, not cities. Why is this? With reference to Dave's point about advertising, imagine the marketing dollars that General Motors poured into this.