The Oil Drum

Wind power is currently the fastest growing renewable energy source (in terms of capacity - solar has a faster percentage growth rate), and looks like remaining so into the next decade. While most attention is focussed on the mainstream approach of generating power using large wind turbines - both onshore and, as Jerome recently looked at, offshore - there are a wide range of alternatives being considered for harvesting energy from the winds. In this post I'll look at 2 approaches that have received some attention in the press recently - attaching kite sails to ships and airborne wind turbines.

Lord Ron Oxburgh, former non-executive chairman, Shell UK; chairman, House of Lords select committee on science and technology; honorary professor, Cambridge University

The morning began with a Keynote address by Lord Oxburgh former non-executive chairman of Shell, who spoke on “Out of Oil, into Hot Water.” He began by noting the economic difficulties that are coming as demand continues to exceed supply. We are not, after all, making oil any more. (Ed comment – well let’s not forget biofuels – and it turned out he did not). Because these problems will arise around the time of peaking they will likely be precursors to it, and these economic consequences will come sooner than expected.

The problems, however, are not that we are running out of oil, rather it is that we are running out of cheap oil. When oil fields are abandoned there may be 60% of the original oil (OOIP) that is left in the rock. At present this is just too expensive to extract, but it leaves us with a problem since most transportation requires a liquid fuel. To work effectively the vehicle must have a small, relatively light engine, together with a storage reservoir full of fuel, that must in turn, be as light, yet energy dense, as possible. The Internal Combustion Engine (ICE) has filled that need for the past century or so. The fuels that power it are among the most energy dense of those commonly available. That alone, however, is not the problem.

The energy gap left by declining fossil Solar fuels may be filled by alternative sources of energy. In short, the Earth has ample supplies of energy to sustain human population and economic growth. Discuss....

This post is intended to provide a structured background to energy matters for new readers and hopefully to provide a provocative debate with seasoned Oil Drum veterans. A listing of over 50 links to Oil Drum articles from the past year is provided which combined provide a comprehensive overview of the issues surrounding peak oil and energy decline. If you are new to the site or have been lurking and want to ask a question then all you have to do is sign up and post your query. The Oil Drum is here to educate--and we are here to help.

Income trust imbroglio

On April 9, The Globe and Mail reported that Flaherty's tax changes, which were supposed to have brought Ottawa more revenue, are having the opposite effect. Not only is revenue lost instead of gained, Canada is losing ownership of its resources in the process, and investment in the energy sector is decreasing. "It would only take slightly more than 15 per cent of the trust sector to be bought out by foreign private equity, and non-Canadian firms, before Ottawa was losing annual tax revenue equivalent to what it said eluded its grasp before the trust tax."

In other words, Ottawa could lose $5- to $6-billion annually. The article quotes Sandy McIntyre of Sentry Select Capital Corporation: "If so-called tax fairness was intended to accelerate the sale of Canadian companies to foreign entities, then it is a success. If it was intended to increase Canadian tax revenues, it is a failure."

Canadian rebirth for wind power

Inside an unremarkable office building on the outskirts of Vancouver, a small team of engineers and marketers is building a technology that will tame the wind.

It is a high-tech battery that looks like a pair of hot-water tanks linked by a twisting network of plastic piping. Each tank is filled with vanadium, an element named after a Norse fertility goddess that could give birth to new possibilities in alternative energy by making wind turbines nearly as reliable as coal-fired electric plants.

First designed by NASA and developed by Vancouver-based VRB Power Systems Inc., the vanadium battery took a major step toward commercial success yesterday after the Irish government released a study showing it could substantially boost profitability at wind farms when the Emerald Isle is looking to inject some of its famous green into its power supply.

Arctic Gas projects put on ice

New cost estimates that pushed up the price of the Mackenzie gas pipeline to $16.2- billion make Canada's Arctic natural gas among the most expensive on the continent, top explorers in the area said yesterday.

Executives at Devon Canada Corp. and Apache Canada Ltd. said they're putting exploration plans on ice until the project becomes a reality.

"When I see the welders show up and start welding pipe, that's when exploration will ramp up again," said Chris Seasons, president of Devon Canada, a subsidiary of Oklahoma City-based Devon Energy Corp., which spent more than $300-million looking for natural gas in the North this decade. "Certainly the delay to 2014, assuming the project goes ahead, is not helpful, and while we haven't seen any tolls on the mainline, just looking at the costs, it's going to make it amongst the most expensive gas in North America," he said.

Venture capitalists look at alternative energy

Investors in start-ups are expected to pump even more money into energy ventures in 2007 after doubling their bets last year amid shifting politics and global-warming worries.

Venture-capital firms poured $536 million into biofuel and other energy ventures in the first three quarters last year vs. $224 million in all of 2005, said industry tracker Dow Jones VentureOne.

Last year's gain came as overall VC investing rose a smaller 9.7 percent, to $19.5 billion, from 2005's comparable three quarters. The rise also dwarfed the figure five years before, when investors flocked to energy during California's electricity crisis, only to cut back after the crisis passed.

Now, VCs are returning to the sector, following a "sea change" of interest in alternatives to conventional energy sources, said John Denniston, a partner at Kleiner Perkins Caufield & Byers.

Man greatly extended his domain by learning to consume energy he did not create. In financial terms, he has accomplished a similar thing. He has learned how to consume income not yet earned. When a man (or woman) signs on the dotted line for a 30-, 40-, or even 50-year mortgage (thank you California), he is committing a stream of future earnings to a purchase. The money to be paid usually has not yet been earned; for all intents and purposes, it does not yet exist. Financial leverage, like fire, allows man to access a power source external to himself. The fact that homeowners all across the Western world can do this, and think little of it, is a great testament to the power of innovation. The invention and explosive proliferation of the mortgage, in its own way, is as meaningful an advance as England's transition from wood to coal in the High Middle Ages.

Unfortunately, we are on track to relearn a painful lesson: Financial disasters can be just as ugly as environmental ones. The first may be caused by careless use of leverage, the second by careless exploitation of resources on a grand scale; depending on how you look at it, these are two sides of the same coin. In both cases, lax attitudes, lolling complacency, and rampant greed are often to blame.

As early as 1984, Canadian companies began merging into much larger trusts, taking advantage of trust-friendly Canadian regulations.

In a Canadian Energy Trust, operating companies are acquired by the trust, usually through equity offerings, using third-party debt and funds in exchange for grants of royalties, debt and shares. The operating company's cash flow from sales (from oil, natural gas, etc.) is transferred to the Trust as distributable cash flow.

This means that the majority of the revenue is able to be paid out as monthly dividends to the Trust's shareholders.

But there's a catch there, if you look hard enough.

The characteristics of the companies these trusts acquire are pretty interesting. Due to the need to provide their investors with a constant cash flow, Canadian Energy Trusts purchase only assets that are mature, low-exploration-risk properties and toll-based energy infrastructure with predictable operational profiles and minimal or at least low capital expenditures.

This assures the trust of a higher drilling success rate than is typical of exploration and production companies.

So companies find themselves in a predicament.

They can either continue to actively spend their incoming money on exploring for new oil or organize into these Canadian Energy Trusts, thereby giving their shareholders bigger dividends.

In light of the argument by some that there is no easy and cheap oil left to find, it's interesting to note that many of these companies have chosen the latter option.

Perhaps they know something about the reality of Peak Oil that we don't.

Canadian oil and gas trusts will lose up to $2-billion in net present value over the life of their assets because of the federal government's tax changes to trusts, a Scottish consultancy said in a report released Friday.

Anger, relief over tax move

Ottawa's decision to start taxing income trusts has opened up a sharp fault line in the executive suites of Corporate Canada.

The ruling has emerged as a divisive issue, pitting those who run trusts against those in non-trust businesses, according to a new survey of top executives.

The quarterly survey of 175 chief executive officers, chief financial officers and chief operating officers shows a dramatic split among those who back Ottawa's move and those who dislike it. The quarterly C-Suite survey was conducted by the Gandalf Group for Report on Business and ROB-TV.

About 58 per cent of those surveyed support or strongly support the decision, while 40 per cent oppose or strongly oppose it.