Energy Security

**Firn** · 01-21-2014

Some of the graphs from the Energy Security Dialogue were quite interesting, even if in some cases like the subsidies I would have like additional data like the development over time. Some thoughts:

1) The effect of the demographic boom of the OPEC countries, the overall lifesytle and some (stupid) policies have been discussed before. While you can understand how the idiotic energy policies of many a Gulf state developed you still have to shake your head about their gross stupidity which will have dire consequences for the long term wealth of the country.

Instead of selling the finite ressource at the high world prices you burn it at home as much as possible by pushing its price down low. You even use it to generate power for which you stimulate demand by reducing its price.

2) The fracking boom in the USA has certainly attracted a considerable amount of foreign captial, be it into the industry itself or sectors which profit greatly from low energy prices like European chemicals. I know too little to know about the business itself to comment on it, but if the fossil fuels in question are so important for the national security why do we not keep them in the ground when the need is far greater?

Personally I would advise most European countries to explore the issue but to leave the reserves where they are. Maybe I have read too much economic literature about WWII but from that angle and the environmental perspective it makes sense. If there is a supply shock it is quite likely that it could prove to be an highly valuable buffer.

**Rick M** · 01-22-2014

"if the fossil fuels in question are so important for the national security why do we not keep them in the ground when the need is far greater?"

I agree, Firn.

For over 40 years the US has wished for/aimed at a reduction in oil imports. In numerous War College theses, etc we see military analysts arguing for energy independence, freedom from dependence on MIddle East oil, etc.

But surely it would make better sense in the long term to maintain a reasonably viable domestic oil (& gas) industry while relying on oil imports as well. USA and Canada need a domestic industry which is available, competent and ready to expand should something interfere with our regular supply of affordable imports.
But the degree to which we can deplete someone else's finite supply while preserving our own oil & gas reserves should be to our long-term benefit, one would think.
But we rarely hear this view expressed, even among military analysts.

**Ulenspiegel** · 01-22-2014

Originally Posted by Rick M

"if the fossil fuels in question are so important for the national security why do we not keep them in the ground when the need is far greater?"

I agree, Firn.

For over 40 years the US has wished for/aimed at a reduction in oil imports. In numerous War College theses, etc we see military analysts arguing for energy independence, freedom from dependence on MIddle East oil, etc.

But surely it would make better sense in the long term to maintain a reasonably viable domestic oil (& gas) industry while relying on oil imports as well. USA and Canada need a domestic industry which is available, competent and ready to expand should something interfere with our regular supply of affordable imports.
But the degree to which we can deplete someone else's finite supply while preserving our own oil & gas reserves should be to our long-term benefit, one would think.
But we rarely hear this view expressed, even among military analysts.

The more pressing question for me is: If most pure shale gas companies in the USA do not make money with the production of methane, why should we copy this??

Hint: We have only shale gas in Europe, not meaningful volumes of shale oil or oil sands, the latter are highly profitable.

If shale gas operation requires subsidies then we can spend the same money with higher startegic impact on real REs.

**Firn** · 01-22-2014

Indeed, Rick, depleting the others reserves at a rather cheap rate and keep the own reserves for times of great need and high prices would seem wiser. This of course also a case in which capitalism does not work as the externalities are not taken into account by private agents. The state which did a fine job supporting the research should have been far stricter in regulating the market.

Ulenspiegel, I don't know on which guesstimates the business plan of many of those companies was founded and investement was comitted but I would be surprised to see the current prices of natural gas among the vast majority. A boom contains of course always the danger of overinvestment and the misallocation of capital. This might be half-bad if there is a good deal of sensible infrastructure as after the Railway Mania in the UK but it does not look as pretty for the current one...

It will be highly interesting to watch how the story goes on. In the meantime investments in other areas seem to be more promising in the long term.

I recently watched NASA | Regenerative Fuel Cells, Energy Storage Systems for Space Applications [HD] .

Great stuff, of course mostly about the things it says in the title.

**Ulenspiegel** · 01-23-2014

Originally Posted by Firn

Ulenspiegel, I don't know on which guesstimates the business plan of many of those companies was founded and investement was comitted but I would be surprised to see the current prices of natural gas among the vast majority. A boom contains of course always the danger of overinvestment and the misallocation of capital. This might be half-bad if there is a good deal of sensible infrastructure as after the Railway Mania in the UK but it does not look as pretty for the current one...

It will be highly interesting to watch how the story goes on. In the meantime investments in other areas seem to be more promising in the long term.

I recently watched NASA | Regenerative Fuel Cells, Energy Storage Systems for Space Applications [HD] .

Great stuff, of course mostly about the things it says in the title.

The business plan of most companies was very likely quite solid on paper, however, reality sucks. :-)

Pure shale gas companies need 4-6 USD/mcf to be profitable, the lack of infrastructure prevented and still prevents the selling of shale gas on the global market: the price dropped to 2 USD, now we are at 3-4 USD again, a price at which BTW utilities in the USA switch back to hard coal again.

As a typical shale gas well depletes very fast - usually in less than 7 years- it is very unlikely that pure shale gas companies made money with the production of methane in the USA. The whole affair is not sustainable in the current state and, therefore, a bad reference.

I do not dispute that in Europe the NG prices are (much) higher and shale companies may make profit under US conditions. However, with different ownership/production rights, less sophisticated technology, much smaller reserves and a much higher population density the overall picture is not clear and it does not help the proponents of shale gas to refer to the non sustainable US situation.

I support evaluation of shale gas production, but do not seee any need to support it in large scale. It is not a game changer, not in the USA, even less in Europe.

**Firn** · 01-23-2014

Changing the Game? : Emissions and Market Implications of New Natural Gas Supplies is a lecture by Hillard Huntington from the Energy Modeling Forum.

Hillard Huntington discusses a study that evaluates the channels through which shale formations and new natural gas supplies can change energy, economic and environmental opportunities within North America. He concludes that continued shale gas development within North America is likely to have more sweeping impacts on future energy prices than on the economy or the environment*.

Perhaps the most important graphic was one showing the minuscle percentage of jobs added as a result of the big boom and its minor impact on the GDP. This should of course come to no surprise to people informed about the general makeup of developed economy but it was still impressive to see. Compare that with the response in the media and the 'feeling' of a student who asked about it.

The regional price level of natural gas and the costs of transport were also nice.

*He focused on climate change and the respective emissions. The local impact was not discussed.

**Rick M** · 03-05-2014

Ron Patterson picks up on Steve Kopits' presentation and questions whether OPEC is capable of responding when called upon to produce more oil:

http://peakoilbarrel.com/can-depend-...c-opec-peaked/

**Firn** · 06-10-2014

I spent some time recently to inform me a bit more about electrified vehicles and was actually quite surprised by the recent numbers of sales. The 2013 outlook feels actually a bit dated as it is a (electric) field in flux...

Still market shares are mostly tiny...

Looking at the personal financial picture a buy looks far more attractive then I imagined, in this case as a second car for the family. I planned my next compact car purchase in 2016, we will see.

It is not that far-fetched anymore that in the long run electric cars will boost European utilities. Some oil imports might be substituted by an energy mix including other carbon. Used car batteries might indeed increasingly used for renewables. Still small numbers, still early days but it looks actually surprisingly good from my point of view...

**Firn** · 07-01-2014

Electric cars have been somewhat of a mirage but in the last years it is slowly, very slowly materializing.

However a vehicle with far more impact has been the eBike in various shapes and forms. The giant market driver is of course China, with 37 millions sold in 2013 pushing the fleet up to official 181 units. The EU sales are of course dwarfed, with only over a million hitting the streets.

The market growth has been very impressive indeed with China going in fifteen years from 60000 to those 37 million.

eBikes have become much more mature and are highly efficient means of transport for not that short distances. I tested recently a bit more expensive 29' hardtail pedalec with a central Bosch engine and was surprised by the 400W battery endurance and additional power. It worked great on a moderate gravel road but impressed me most up on really steep ramps in the forest. I would have prefered a bit wider tyres (2,5') and a little less pressure for more grip and a smoother ride.

But of course the vast majority in China uses still pretty cheap 'E-Scooters' with lead batteries for commuting, although lithium ones are growing over 40% compared to the 6% overall market growth there. They are having a huge impact on the way the Chinese move and are perhaps the brightest note in that terrible environmental mess.

**Dayuhan** · 07-29-2014

Originally Posted by novelist

My worry is that the NATO allies might not uphold their obligation if Putin turns their gas off.

Putin can't cut the gas off. He needs the money. At this point Putin is just as concerned with overdependence on Europe as a buyer as Europe is with overdependence on Russia as a seller.

Russia is dependent on pipelines for exports. That makes them vulnerable: a pipeline is not a tanker; it can't be diverted to another destination. It only goes to one place, which means Putin sells to Europe or to nobody. He can't sell to nobody, because his government depends almost entirely on energy revenue. Europe would hurt if the energy trade with Russia stops, but Russia will hurt more.

The Russians are pursuing new pipelines that will allow them to send more gas and oil to Asia, but it will be years before they are ready. Europe will probably be able to diversify supply faster than Russia can develop new outlets, but for now, Russia and Europe are stuck with each other.

**Maeda Toshiie** · 07-29-2014

Originally Posted by Dayuhan

Putin can't cut the gas off. He needs the money. At this point Putin is just as concerned with overdependence on Europe as a buyer as Europe is with overdependence on Russia as a seller.

Russia is dependent on pipelines for exports. That makes them vulnerable: a pipeline is not a tanker; it can't be diverted to another destination. It only goes to one place, which means Putin sells to Europe or to nobody. He can't sell to nobody, because his government depends almost entirely on energy revenue. Europe would hurt if the energy trade with Russia stops, but Russia will hurt more.

The Russians are pursuing new pipelines that will allow them to send more gas and oil to Asia, but it will be years before they are ready. Europe will probably be able to diversify supply faster than Russia can develop new outlets, but for now, Russia and Europe are stuck with each other.

I don't really want to derail this thread into one on energy, but there are claims that the US can replace Russia with gas from fracking to supply Europe. Do calculations actually bear out? (If this has been discussed before, link(s) to relevant thread(s) is/are appreciated)

**davidbfpo** · 07-29-2014

Maeda asked:

I don't really want to derail this thread into one on energy, but there are claims that the US can replace Russia with gas from fracking to supply Europe. Do calculations actually bear out? (If this has been discussed before, link(s) to relevant thread(s) is/are appreciated)

I thought Firn (our resident economics guru) had posted on this, but a search found fracking has been mentioned - though not an answer to your question.

What I have read elsewhere suggests that there is no capacity in the USA to export such amounts as Europe would require, nor the capacity to bring it ashore either.

There are threads on Energy Security and the economic aspects of the Ukrainian crisis, which have various posts on European reliance on Russian gas supplies.

**Dayuhan** · 07-30-2014

Originally Posted by Maeda Toshiie

I don't really want to derail this thread into one on energy, but there are claims that the US can replace Russia with gas from fracking to supply Europe. Do calculations actually bear out? (If this has been discussed before, link(s) to relevant thread(s) is/are appreciated)

Simple answer: no. There is a surplus, but it's not that large, and the US has no gas export facilities. There are several under construction but their output is already committed to Asian buyers (prices in Asia are much higher).

The real impact of US gas independence on Europe is in displacement: as the US becomes self sufficient, the considerable amount of gas that the US used to import becomes available for others, like Europe, to buy. Again, though, this is tanker-transported LNG, and Europe would need to build more regasification terminals in order to exploit it. Just as Russia needs to invest time and money in infrastructure in order to redirect its current European exports to Asia, Europe needs time and money to build the infrastructure to replace pipeline-delivered Russian gas and oil with tanker-delivered imports from other sources.

Not meaning to turn it into an energy thread, but the energy relationship is an integral part of EU-Russian relations and it's always going to be part of the discussion.

**Rick M** · 08-02-2014

"the considerable amount of gas that the US used to import becomes available for others"

Not really, for the same reasons that you gave re. inability of US to export its gas surplus overseas.
USA gas imports come almost exclusively from Canada via pipeline. These volumes have decreased during the past 8 years as US shale gas has swamped their market.

Continentally, there is a surplus, but Canada is no better equipped than USA to export large volumes of gas or oil overseas.

Returning to the issue of Russian leverage re. oil & gas 'weapon' I believe that Russia is better positioned to bear the pain of reduced exports than Ukraine, etc are able to cope with constricted supplies, esp. re. gas during the 4 winter months (Dec. 1 -March 31st). My guess is that Ukrainians are very worried about their ability to stay warm this winter.

**Firn** · 08-07-2014

Ulenspiegel and I discussed the issue of coal vs NG before. To some extent the European LNG terminals are already there as simple container ports which handle goal.

Some companies want already to reduce the competivness of coal.

A shale boom in the U.S. led to a collapse in gas prices that’s helped consumers and stimulated industries, forcing cheaper, more-polluting coal to be shipped to Europe for use in power stations. The U.S. doesn’t have environmental obligations placed on companies, unlike in Europe, where staying competitive is a concern.

**Firn** · 08-07-2014

....those container ports handle of course coal, not goals.

I have followed intermittentdly the market for electric vehicles of all sort. As written before in quantitative terms of electric bike demand, pedal-assisted or not, China is absolutely dominating the world market The growth there has been spectacular, aided in part by laws aimed at curbing the massive emission problem in Chinese cities.

In Vietnam eBikes have greatly increased their market share, by the looks and the facts.

You’d have to be living under a rock not to notice the rising number of electric bicycles now zipping their way around Vietnam’s bustling streets, particularly in Hanoi. With the post-Tet buying stampede now in full flow, bike dealers are lining the pavements with the latest imports from around Asia. What follows is the inside word on the e-bike craze.

Everybody who has been recently in the region knows that bikes with ICE keep a large part of it's economy moving. Gas is relatively expensive which can be observed by the special type of tank used there. Quite a few people take it home so that nobody gets any strange ideas

On average, one electric bike rider who commute urban distance is estimated to pay only 50,000 Vietnamese dong (nearly 2.4 U.S. dollars) more in their monthly electricity bill.

Meanwhile, a scooter will cost around 500,000 Vietnamese dong ( 24 U.S. dollars).

...

In a recent interview with online newspaper VTC News, Nguyen Trong Thai, chief of the National Traffic Safety Committee, said that the number of electric bikes in Vietnam increased sharply in 2013 and 2014.

With IIRC around 80% of the world's production of motorbikes going to Asia trends there will have a huge impact on the global market.

**Firn** · 08-12-2014

As one can see to some degree from my recent posts I became interested into electric mobility both from a technological point and in relations to the topic of 'energy security'. I also had a blast on ebike tours, so in that case the theoretical research was matched by practical experience.

e-mobility is increasingly making inroads into fields formerly occupied by ICE*, think bikes or drones, transforming them considerably in some cases. So while an electric scooter substitutes almost perfectly an ICE one a modern pedelec is a new, far lighter hybrid form. Arguably the biggest hurdle for many applications of e-mobility, for example larger vehicles are the weight and cost of the battery. Nobody knows how quickly the technology will progress
but it is good to take the past trends into account:

Still a very long way to go to achieve density parity, even if in other areas of the powertrain electric vehicles weight considerably less.

The Price per Watt has also gone down considerably. I'm not that sure about the break-even point of the total ownership costs but it gives a good perspective.

Once again the past development is no (sure) guide for the future but it offers a perspective on the present. Today the research into battery technology is a massive topic because there is just so much of importance which gets powered by them. The economies of scales in some industries are truly gigantic with knock-off effects into smaller fields. For example small drone technology was driven to a large extent by the increasingly more capable cheaper and smaller sensors employed by smartphones. In the case of batteries the tech spread was so far quicker and wider.

*internal combustion engine

**Firn** · 08-12-2014

A side show of energy security are direct military applications. It is important to point out that the energy cosumption of military forces is overall tiny compared to one of the civil world. While 'green' initiatives by the military can have merit they should arguably closely linked to military capability and not global sustainability. For a country facing a big war effort saving in civilian consumption has just so much more scope and arguably efficiency then doing so in the military itself. This doesn't of course mean that the armed forces shouldn't try to identify the lower-hanging fruits and sensible targets and picking those.

Military e-mobility is of course a diverse topic and it's application depends, like in the civilian world, on the specific circumstances. An electric MBT for example would be right now a lot of steps backwards in key areas like march speed, range and 'refueling'. On the other side of of the spectrum are micro drones which give the soldiers an eye up in the sky. In that case electric power has no competitor.

Staff like the Velocopter are highly interesting, but there much will depend on the development of battery price and density in the next decades. More on it's homepage.