More on the role of fuel in the Mining Industry and an eye on Russia
Posted by Heading Out on March 30, 2006 - 1:40am
In my last post I commented that, while the mining industry was rejoicing in the increase in demand for coal, the impact of the underlying cause (Peak Oil) was not fully appreciated. I had lunch yesterday with an engineer who has some responsibility in the SME, as well as a corporate job. While I talked to him about the SME role in looking into ways of saving energy within the industry (where there are a number of processes that could be made more efficient) the answer was that the Mining Industry of the Future program at DoE had tried to do just that, and had just turned into toast. Thus it was not a really positive thing to push. So we talked some more, and after a while he switched to his company job role. And admitted that energy costs were the greatest current problem that he, his company, and the entire industry, are facing.
And yet he still, the Peabody speech not withstanding, did not see this as a long-term continuing problem, but still as a short-term phase to get through. The point being that it is short-term it's not worth the effort and cost to find alternative less-energy-intensive processes, if it is long-term, then you have to look at entire processes and make the investment (which can be high), to find lower-energy-cost alternative solutions. (We had a variant of this discussion earlier in the year in regard to the poor and heating bills. If the crisis is short-term you pay their bills, if it is long-term you are better to pay to insulate their houses - as a very crude summary of that debate and as an illustration of the point).
The tipping point has to come when it is not only the size of the problem, but the inexorability of decline and its sustainable presence are realized and accepted. Right now, for those facing the consequence of tightening supply, most look on it as a problem that will go away, and thus the solutions that we talk about are still not easily marketable because the scale of the problem is not understood. This was the problem with the CNN "We Were Warned" program. It did not explore beyond the original impact and give people a sense of what the world would turn into. We had a precursor back when President Carter first came into office and the problems that he, and the nation faced. An impact now either forgotten, or since it was almost 30 years ago, not memorably experienced by the commentators since they were either too young or not yet born.
I see that the Moscow Times is reporting that there is not enough investment to sustain oil and gas exploration.
"[Companies] only find money to invest in production but not for the [long-term] prospect," said Viktor Orlov, the chairman of the Federation Council's committee for natural resources.. There have been posts on this and articles written in the past, but I note the new story for some of the data that it contains. In the same vein, and from the same Moscow Times summaries comes the note that Gazprom is planning an increased investment in LNG.
He said only 507 oil deposits with estimated reserves of 5 billion metric tons, out of 1,850 licensed deposits, were waiting to be developed.
Under Russia's energy strategy until 2020, about $18-25 investment is to be contributed to the energy sector, Orlov said.
"According to our estimates, we are $10 billion short of the target," he said.
Under the plan, oil production is to grow of 1.8-1.9% annually in the next few years and gas 1.2%. "The development is restrained not only by shortage in investment but also by the poor reproduction of the mineral base," Orlov said.
In the past 14 years, Russia's oil base shrank by 1.3% annually against 1.5% growth in the rest of the world.
"For 14 years, oil and gas production has exceeded reproduction, or, in other words, geological prospecting only replenished 60-65% of extracted reserves," he said.
Gazprom plans to produce LNG for future deliveries to the North American market at the Kharasoveiskoye and Shtokman fields, while independent LNG producer Novatek is working on the Yamal Peninsula. Another liquefaction plant is slated to be built in Ust Luga in the Leningrad Region in cooperation with Petro-Canada. SG-Trans, Russia's biggest transporter of liquefied gas, plans to build a terminal for 0.6 million metric tons of LNG there.However the article also notes that
The development plans of the Shtokman field provide for the delivery of gas to the LNG plant, which should turn out about 20 million metric tons annually. About 90% of it is to be sold in the U.S. and Canada and in northern Europe. The Shtokman deposit has enough gas for 50 years of deliveries to the United States.
Russia's LNG projects in the Far East are meant to provide fuel to the country's East Asian neighbors, namely Japan, South Korea and China. The pipeline delivery plans there are lagging behind LNG prospects, primarily the Sakhalin projects organized by transnational companies. Two LNG production lines with the annual capacity of 9.6 million metric tons each are being built under the Sakhalin II project.
It is apparent that Russia, despite its unique gas resources, will be unable to simultaneously cope with both tasks -- build gas pipelines in all directions and create major LNG production facilities. However, the production of LNG is a highly promising sphere of development in the Russian gas sector that deserves close attention.It is also, one presumes, part of the Gazprom goal of increasing its share of the European gas market from 25% to 30%.
“I'd put my money on solar energy… I hope we don't have to wait til oil and coal run out before we tackle that.”
—Thomas Edison, in conversation with Henry Ford and Harvey Firestone, March 1931
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Heading Out - Reuters posted this story on the growing concern with imported energy. The root cause may not yet be fully understood but public concern is growing.
http://www.theaustralian.news.com.au/common/story_page/0,5744,18126887%255E++2702,00.html
The current plan is to create a 300km pipeline to the coast for a desal plant, powered by a yet to be announced non-nuclear energy source.
The costs are staggering, but customers for yellowcake are lining up. Everything is about energy these days.
Judging from what I have read about contemporary coal operations in this country, energy costs must be very much a concern. Take mountaintop removal or other large scale strip mining operations; moving that amount of overburden to get at a measly 2 to 4 foot seam must incur a huge energy cost. Lifting it a few hundred feet up from a deep mine cannot be energy thrifty either. Then the coal is sent off in vast trains (here in the US) which the last time I checked were diesel powered. The whole process must consume quite abit of (liquid) energy to provide us the amount of (solid) energy we are accustomed to using.
Given the fact that coal production here is already at the highest levels ever seen in the industry, how are we going to increase it further. The easily recovered fields must be mostly gone if we have to resort to buldozing entire mountains to get at the black stuff, or am I off on that assessment?
I guess what I am getting at is that, have we substituted human labor with petroleum energy in large amounts because we had no other means of increasing production OR did we do that because it was cheaper?
Powder River coal seams are closer to 100' thick (hence their attractiveness, plus low sulfer). Some of the overburden removal could (perhaps is) done with electricity.
But I think people are starting to get an inkling of EROEI. This Rigzone article, for example:
Canadian Tar Sands: The Good, The Bad, And The Ugly
i would not count on this.
there is A LOT on money to be made FROM INVESTORS in tar sand oil projects.
but you have to make the investment look credible
to attract pension fund-type investors.
these guys are good at putting up a credible front.
and money may be made. EARLY.
until eroei reality finally sets in.
let's hope we can make money from our legal project.
http://www.prosefights.org/nmlegal/nakamura/nakamura.htm#blair
all is a gamble.
http://www.prosefights.org/nmlegal/judicialraces2004/judicialraces2004.htm
http://www.prosefights.org/whitman/whitman.htm
eroei is likely beyond their comprehension and educational backgrounds.
Following is an excerpt from a different article. Note the reference to the possibility that oil production growth rates may be "close to zero." My prediction is that by the end of the year, Russia will be showing declining oil production. With production growth up only 1.5% year over year and with consumption booming (car sales are up 15% year over year), my bet is that net oil exports are already falling.
http://en.rian.ru/analysis/20060327/44852175.html
Excerpt:
Growth rates of production in the Russian oil and gas sector are declining. Last year, oil and gas condensate production increased by 2.2% (to 469.6 million tonnes) and gas production by 1% (to 640.6 billion cu m). In 2004, oil and gas condensate production increased by nearly 9%, and in 2003 by 11%. Sergei Oganesyan, head of the Federal Energy Agency, expects that this year's growth rates of oil production will stay at the 2005 level, or will be close to zero.
Gross oil production is important, but oil exports make the world go 'round. We have the perfect recipe for an export disaster. Rising torrents of cash flow into to the top exporters are causing domestic demand to increase while at the same time the top four net oil exporters are all very mature provinces--all at or past the 50% of Qt mark based on Hubbert Linearization.
I've been beating this oil drum for a while, but I think that we are headed for a ferocious net oil export capacity crisis.
I don't know if there is a name for this economic phenomena, but a rapid paradigm shift would seem to occur as a valuable and growth enabling commodity (oil of course) approaches parity between supply and demand.
Before we reach this point, the relatively low price of the commodity drives growth in the importing economies without stimulating much growth in the exporting economies. As we reach the point, the rising value of the commodity (cash flow becoming purchasing power) drives growth in the exporting economies. This in turn accelerates domestic consumption, making exports more scarce, driving prices even higher.
It is a self-reinforcing unstable system. Intuition tells me that if an equilibrium is reached, it is with low exports and high domestic consumption.
A critical point to keep in mind is that an exporter can only export what is left after domestic consumption is satisfied. Consider a simple example, a country producing 2.0 mbpd, consuming 1.0 mbpd and therefore exporting 1.0 mbpd. Let's assume a 25% drop in production over a six year period (which we have seen in the North Sea, which by the way peaked at 52% of Qt) and let's assume a 10% increase in domestic consumption. Production would be 1.5 mbpd. Consumption would be 1.1 mbpd. Net exports would be production (1.5 mbpd) less consumption (1.1 mbpd) = 0.4 mbpd. Therefore, because of a 25% drop in production and because of a 10% increase in domestic consumption, net oil exports from our hypothetical net exporter dropped by 60%, from 1.0 mbpd to 0.4 mbpd, over a six year period.
The first oil that "disapears" is global excess capacity - and that's happening right now. The second category of oil that disapears is export oil. And that is when the pain really hits importers, especially the US. So when world production slips 2%, exportable oil will slip at a much faster rate.
As you have pointed out, as prices rise this transition accelerates - as the exporting economies boom and consume more and more of their own resource.
In fact this is independent of Peak Oil, it is caused by a supply-constrained market, Valuable Oil. Peak Oil is just piling onto an already dire situation for importers.
on the contrary, the requirement that US consumption drop by 2% would be a huge deal. we can't even achieve zero growth, much less a real decline.
-pop
When Peak occurs, the global economy may be looking at stagnant growth. OK. When Peak occurs, importing countries will be faced with an accelerating reduction in availability. Oh shit.
The US is already exporting huge amounts of wealth, see the trade deficit and budget defecit. That is just the beginning. Peak Oil will cause unprecedented transfer of wealth to exporting countries.
Norway (in oil decline but gas production increase BTW) is unlikely to see any significant increase in domestic oil demand. Unlike any other oil exporter, it has VERY high gasoline taxes* and is a renewable energy exporter as well (hydroelectricity with good wind potential).
*Others claim highest gas taxes in the world for one of the top four oil exporters.
This is going to worldwide phenomenon--all the way from the North Texas Barnett Shale Play to Russia to Alberta to Saudi Arabia.
The common connection is a widening gulf between the fortunes of the energy producers and the energy consumers. Increasingly, economic activity will be focused on the net energy producing regions, which will accelerate the rate of energy consumption in the net energy producing regions, especially as population increases in the net energy producing regions.
I am almost running out of different ways to say how desperate the problem is going to be for major net oil importers.
Personally, I'm sceptical about how wise this policy of de-industrialization and massive de-skilling of the population, really was, seen in longer perspective. Only being "skilled" at operating a phone or a computer, may not really be something one can sell in a post peak oil society. The recent history of the U.K. has also relevance for the U.S. I realise the economists on TOD are already sharpening their knives ready to skin me alive for venturing into their territory, but what the hell.
How was such a short-sighted policy ever possible in the U.K.? It's big subject to get into. A few things are worth mentioning. It was possible to disquise the real state of the economy for years, because of the oil money streaming into the country, massive transfers of wealth from the poor to the middle-class and the rich, and an enormous growth in property sector prices and a subsequent explosion in personal debt. It's hard to believe, but according to some statistics the U.K. has more personal debt than the rest of Western Europe put together! The economy can apparently continue to grow indefinitely, providing one can still borrow enough.
But even the British who have gone on this incrdible spending spree are apparently beginning to get cold feet about the huge amount of debt people have burdened themselves with. More and more people are defaulting on their debt repayments. The reply one hears from most mainstream economists and the banks is pretty much the following. It dosen't really matter because most people can afford their debts and manage the monthly repayments, only a minority are in trouble. There is nothing really to worry about.
This may be true, in the short term. But what happens if the U.K. is hit by a recession or rising unemployment? More and more people are defaulting on their loans. Fewer and fewer people have any real savings for a rainy day or any kind of finacial buffer for hard times should they return. IMO the U.K. has been partying hard for years with no thought of tomorrow, now the time is coming when one is going to have to pay the bartab.
Don't fall into the trap of thinking end of oil is the same as end of electricity. A phone call (using that operator) is more efficient than a drive to visit. A movie download (using that computer) is more efficient than driving to Blockbuster.
South Africa: Power Cuts Trouble Mining Industry
How much of our economic "efficiency" was due to outsourcing high-energy manufacturing overseas, where energy was cheaper?
Not to mention cheaper labor, cheaper litigation costs, cheaper compliance with environmental laws, cheaper "access" to decision makers ... why bother making anything in the USA?
It isn't only a question of the savings one can make by moving closer to primary energy sources, it's also important to factor in stability of energy supply, which I think may prove to be of equal importance.
In the U.K. there is evidence that companies are seriously considering moving production to countries which have a net surplus of energy. In the U.K. the government has stated that it will have to cut gas supplies to industry first rather than to domestic consumers. They have just about got through the winter without having to impose large scale cuts on industry, but the scenario it worrying. If there is one thing industry doesn't like it's all this uncertainty about energy supplies, and what will the future bring, considering the rapid decline of U.K. gas and oil production?
This whole question of the consequences of production and jobs following energy is going to grow in importance in the coming decades, and as yet it hasn't received enough attention.
Electricity cannot be a panecea if the grid cannot already handle the current load. Moving one ton of overburden one hundred feet is going to exact an energetic price regardless whether the invested energy is human, petroleum or electrical in nature. (somewhere out there someone must have calculated EROEI ratios for this)
The US has seen the closure of chemical plants that use NG as a feedstock and a migration of those facilites closer to the source of supply.
Saudia Arabia is also reported to be reviewing the development of refining capacity. They can then capture the higher value of the finished product exports and also generate domestic employment.
(XM Channel 127; I think that you can now access XM on the web).
It will be very interesting to see if Mr. Pickens again discusses the idea of reducing the Payroll Tax and increasing the Liquid Transportation Fuel Tax.
Some background. After initiating the idea for the Simmons/Kunstler event in Dallas last year, I put myself in charge in fundraising, and at my request, Mr. Pickens was one of the leading financial sponsors for the event. I have briefed Mr. Pickens' staff on the Hubbert Linearization (HL) method, and Mr. Pickens also has a copy of the Energy Bulletin article that Khebab and I coauthored. Recently, the AP quoted Mr. Pickens as suggesting to a congressman that Congress should consider cutting the Payroll Tax and increasing the gas tax.
It will be interesting to see what Mr. Pickens has to say on Powerlunch.
I've heard some posters here are 'growing their own', biking, using some solar, etc, and I'm certainly glad to hear it. I'm just looking at how many households (including my own, my Mom's, lots of neighbors), ARE aware, and are 'hoping' to find a way and the impetus to start prepping and investing in alternatives to the status-quo, but that it takes a huge surge of (no surprise) energy to make both the mental and the physical leap into action, and into changing established patterns.
It sounds whiney, but of course I look at the lack of enough leadership out there pointing us in the direction that acknowledges that this change is coming and we need to steele ourselves to the fact and get started. But I am also inclined to say 'Don't wait to be told, you know what to do.' Well yes, I do, but there are ways that our habits have made us resistant to adopting the changes, not just me, but many, many of us, and that we would be wise to take that part on, as we try to tell our towns, our families.. just what we're expecting to see.
I think mainly, I believe in people's Imitatative Instincts, and if we start seeing enough examples of homes that have started getting smarter with energy and food and transportation preparations, that others will be intrigued, curious and eventually see the sense and success in it, and do likewise.
Same should go with business, as long as the Real Practicality and Long-Term Economics of it can outweigh the Inertia, the Conformity and Business school assumptions that were formed in a time of unquestioned access to cheap power.
This is the growing consensus view in industry. They admit that there is a problem but it is a matter of what Tertzakian calls rebalancing which is a decade long problem or thereabouts.
The first time I look at a book, I don't look inside it. I look at the back of the jacket sleeve to see who endorsed it. Here are the people who praised the book.
- Gwyn Morgan, President & CEO of EnCana
- Peter Gaffney, Senior Partner in Gaffney, Cline & Associates
- Congressman Charles Bass (R-NH), sits on the House Energy and Commerce Comittee
- Gregory Jansen, Managing Director, Commonfund Capital
- Dave Liniger, Chairman of RE/MAX
- Phil Harkins, CEO, Linkage, Inc
After the magical rebalancing of energy sources and usage in the economy, the problem disappears. And now HO states that Peabody, who ought to know better than the chairman of RE/MAX, takes the same view.