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When Oil Rides High The Snakeoil Flows

Politics / Crude Oil Feb 28, 2012 - 06:02 AM GMT

By: Andrew_McKillop

Politics

Best Financial Markets Analysis ArticleThe US energy department’s Advanced Research Projects Agency (ARPA) launched its annual Energy Innovation Summit, 27 February, to a backdrop of oil price fear and a ritual bout of warnings on the economic dangers of spiralling oil prices, from media friendly economic gurus usually peddling the debt-deficit-and-doom storyline.


On the oil markets, prices are driven by a generous mix-and-mingle of factors, starting with gung-ho calls to bomb Iran, but soon extend to include the euro declining, even against the dollar, as G20 leaders rebuffed European leaders’ call for them to boost IMF resources which could be handed over PIIGS borrowers and limit the region’s debt crisis. The usual driver of higher oil prices - higher equity prices - was absent for once, underling the 'crisis nature' of present oil price rises. Calls for western oil-importer country leaders "to do something about oil" are multiplying.

ARPA, loosely modeled on a Defense Department program that more than 25 years ago developed the Internet for military communications on a no-limits cost basis, puts seed money behind what US Energy Secretary Chu calls "potentially revolutionary" energy projects. Doing something about oil is necessarily part of the Powerpoint material, but its real world connection is low.

Showing the Obama administration's close linkage with Silicon Valley's class of high profile geek billionaires, and Obama's eagerness to throw more US public money their way "to reinvent energy and save the planet", ARPA has again marshaledBill Gates, Vinod Khosla and other administration-friendly billionaires and power brokers, like Bill Clinton. This year, Gates and Clinton will be there in person to advise on how to throw public money at energy vanity tech and keep geeks happy.

These program supporters and beneficiaries say without blinking that some, even many of their pet projects will fail, but the critical need to save oil makes this spending more urgent than ever. The breakthroughs wanted are officially those which can reduce dependence on foreign oil, reduce carbon emissions, and keep the U.S. at the cutting edge of clean-energy technology.

This is a word-perfect repeat of the refrain the Obama administration, and its Silicon Valley "energy inventor" friends have peddled for more than a half-decade. Due to the old-style gramophone getting stuck in its groove, the USA's basic abandonment of any commitment to cutting carbon emissions at the December COP-17 Durban talks, its serial failures with a range of green energy vanity tech projects, and its massive waste of funding on these failed projects, are carefully ignored.

LOW CARBON INNOVATIVE

The double slogan Low Carbon and New Energy Tech is now thought of, at least by Obama and lookalike western leaders, especially in Europe, as an iconic symbol of progress able to deflect attention and funding from the claimed real goal: find some way to use less oil. The gap between the actual programmes and projects that are supposedly able to save or substitute oil, and their real results and potential for saving oil, even over timespans as far ahead as 15-20 years is now epic-sized.

Making this threat of failure and disappointment, and wasted funding much larger, the goal of saving or substituting oil is rarely placed on view as anything other than a ritual priority. Both in the US and Europe it is mixed and mingled with a growing and anarchic range of nice ideas and gee-whiz vanity tech "solutions", unlikely to address the oil problem in any rational future period. Obama's call to Silicon Valley, a repeat of previous calls he has made, comes on the back of its geek billionaires, headed by Bill Gates, taking a highly ambivalent stance on the role, scope and potential of low carbon, green, alternative or innovative "new energy" ideas.

One reason is simple. Geek appetites for big slabs of other peoples' money are awesome. Last year, Energy Secretary Chu was forced to cancel several ARPA projects, for a combined total of around $15 million, but this is an amount that Bill Gates, Vinod Khosla, Peter Thiel, Bill Joy and other geek billionaires "reinventing energy" lost almost monthly through 2007-2009 on their pet energy projects. And sometimes this loss concerned their own money !

Once bitten, twice shy. Losing their own money, not just Federal, bank, pension fund and private investors' money was a massive 'faux pas' for geek billionaires, causing them an inevitable loss of face. This made them beat a hasty retreat from their "state of the art" new energy tech projects which notably included ethanol and biodiesel fuel ventures that turned south, while doing nothing at all to reduce US dependence on oil, either foreign or domestic. Their herd attitude, today, is to save their own money but to always be available for Federal largesse.

Obama's largesse unfortunately has its own new Hard Times limits: - the total for ARPA funding available this year, which on paper has been bumped up 27% on last year, is $350 million - is enough only for a couple of Airbus-sized corporate planes, burning 5500 litres of kerosene per hour, to whirl the geeks from one urgent meeting to another. ARPA's call for Silicon Valley to reinvent ways to lose money is likely to only receive lip service support from the geeks, unless it concerns Federal funds.

SILICON VALLEY SAVES OIL ?

High-profile support from Clinton and Gates may be a political poke in the eye to US Republicans and others who criticize the whole ARPA programme, Chu’s energy budget, and its effectiveness. Critics can for example point out that Chu played "too little, too late" when cancelling clunker projects. Last year, on the near $15 million of cancelled ARPA projects, less than $4 million was ever recovered and restored to the Federal government. This of course, and unfortunately is loose change from overall waste of Energy Department and related Federal spending across the energy sector, for reasons that are clear to any unbiased observer - but are brushed aside by the carefully chosen ranks of feeders at the spending trough.

The most basic reason is exactly mirrored by European attempts to develop "clean energy". The EU attempts, to be sure, claim they will or may save oil - but oil saving and substitution is never set as the real priority. Instead, supposedly to panic the consumer public into changing their energy habits, the now shopsoiled and tired image of Global Warming catastrophe is ritually aired, still today in 2012, as the clincher reason why almost directionless, but massive public spending must urgently be thrown at ever less well-defined types and forms of "alternate energy".

As in Europe, US energy plans have no need for real accountability, simple cost-benefit numbers, or even a clear direction for pumping what in total are massive funds into uncertain new energy projects. One simple example in both the US and Europe is continuing, at least apparent commitment to ramping up electric car fleets - at proposed subsidy levels in the US as high as $ 10 000 of tax credits for each EV that is purchased. Both Chu and Obama have talked about 1.5 million EVs on US roads by 2015.

Letting their new energy rhetoric take command, they have indicated that as much as 10 times that number being both desirable and possible "by about 2022". Both Sarkozy and Merkel, in Europe, run the same rhetoric through their teleprompter feeds on a regular basis, in the Sarkozy case coming with a supposed outright state grant of 7000 euro for every buyer of a 35 000 euro Nissan Leaf.

Making sure the left hand ignores what the right is doing, Chu's agency will this year award $30 million for projects to develop lightweight fuel tanks for natural gas-powered vehicles, with no admission this technology is totally mature and able to be applied, at low cost, right now, for city and urban region car and light vehicle fleets. Already applied in several Emerging economies on a far wider scale than in the US or Europe, low emission and low cost CNG (compressed natural gas) buses, taxis, cars and light vans operate today in cities like New Delhi and Beijing. The difference with the US and Europe is total.

Schizophrenia and lack of direction in both the US and Europe is shown by Chu's ARPA committing itself to $155 million for 60 projects only in the sector of electrical energy storage and electric power grid capacity and efficiency raising. Recipients are surely illustrious, including the Massachusetts Institute of Technology, related research institutes and corporate heavyweights like General Electric, but the basic target is the renewable electricity-electric car cluster "circa 2025" that has no relation to the simple need to heavily downsize current appetites for, and habits of oil dependence.

Silicon Valley's flirt with electric cars went straight to vanity tech extremes with the ultra expensive two-seater Tesla Roadster, a good example of energy profligacy and waste, through its fast mode battery recharger sucking 50 kilowatts. Exactly the same energy illiteracy affects the designers, builders and promoters of supposed "middle class EVs" like the Nissan Leaf, also taking 50 kW for a half-hour fast mode recharge, instead of the 5-hour normal rate. One million cars like these, on fast charge, means 50 000 MW of additional power capacity needed for EV owners to use a few hours a day, in what the advertising tells them will help "save the planet". The combined US and EU27 car fleet numbers 415 million cars, making fleet size reduction the real and simplest alternative energy strategy.

SAVING OIL AND THE ENVIRONMENT

The Silicon Valley geek answer, backed by Chu at the same time he backs sane alternatives like CNG vehicles, is that massive spending must proceed on almost-no-hope utility scale electricity storage and mythical super grids.

This will supposedly protect the environment and climate, but all talk of electricity saving and electricity substitution is kept way down the teleprompter. This is because the real goal is simple: extreme spending on projects unlikely to deliver any consumer benefits, but surely able to drive up the mining and metals consumption that will be needed for multi hundred-billion dollar and euro projects for extending power grids, in the European case over a proposed 42 000 kilometres.

Again showing the critical lack of direction or certainty in setting "urgent energy goals", the US legal system is at this time examining demands for repeal of the Environmental Protection Agency's 2009 finding that greenhouse gases, starting with CO2 are "threats to public health". While it is predictable these calls for repeal come from metals and energy mining companies led by Peabody Energy Corp., they also come from the US Chamber of Commerce and the American Farm Bureau Federation.

In all cases, the driver for these "strange coalitions" is the costs of effective new energy taxes and obligatory carbon reductions, loaded on to an increasing range of energy intensive and energy dependent industries, which all face a confused economic and financial future. Energy saving in agriculture is a case in point: taking a small fraction of all oil consumption in the US and Europe, no more than about 2%, forcing a high cost attempt at rapidly moving to green energy will be bad for the economy and will surely raise food prices.

In the US, the massive confusion of timescales, real problems, and unrealistic or harmful answers is now stark: the Obama administration, unlike the majority of EU27 political leaderships has rallied to the promises of shale fracture gas and slow-growing, high cost shale oil production. It has encouraged both US and European energy companies to crowd into US shale gas production, and big ticket gas projects outside the US, racking up a frenetic lease and concession-bidding war at a time when US gas prices are around 75% less than non-US pipeline gas and LNG. Also at this time, for a host of factors including the approach to peak oil, oil sector investing and spending has plateau'd despite record high prices, while both the Obama team and EU27 leaderships claim, and proclaim they must "save the planet" through massive spending on renewable energy projects that, if they matured, will only deliver serious quantities of energy in 10 or 15 years from now. The near-term oil saving potential is close to zero. The feared takeoff in oil prices on a 5-year horizon is made even more sure and certain.

The environment is likely the real loser in all this, again for a host of reasons. Some are perhaps unexpected, such as the environmental impacts of radically expanding global REE (rare earths) supply for a large range of green energy and energy saving technologies. Others, more basic, concern the water needs for biofuels, shale gas and shale oil production. Even apparent energy-and-climate savers like hybrid cars are on deeper analysis weak or negative performers, reflected by the massive fall in US government and other government purchases of hybrids. In the US, its GSA's buying of hybrid and electric models fell 59% in fiscal 2011 due not only to their cost - but unavailability of E85 maize based biofuel a fuel that’s 85% fuel alcohol, due to factors including water limits and farmers' crop strategy. Global biofuels output, an apparent 'silver bullet' for oil substitution, has stagnated in major part because of environmental limits on further scaling output, underlining again that oil demand side management will be the real and final solution.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2012 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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