Chevron and Its Claim of Energy Efficiency

First, two caveats.

1. Just about every oil company in the world, including Chevron, is under attack for one reason or another. Sometimes the attacks have legitimate reasons behind them and sometimes the attacks are rhetorical overkill. My post is more in the category of simple reality check.

2. Chevron doesn't have the aggressive anti-environmental record of Exxon and it doesn't have the aggressively hypocritical reputation of British Petroleum (BP) which for some years touted its environmental record while not being so green behind the scenes. Chevron isn't as bad as some oil companies but it's still an oil company. And oil companies need good public relations these days no matter who they are.

I noticed an ad the other day in Technology Review, February 2010. The ad is on page 2 and part of it reads:

At Chevron, we've focused on energy efficiency for decades. Since 1992, we've improved the energy efficiency of our own global operations by 28%. And with Chevron Energy Solutions we help other businesses and governments do the same—from Colorado where we're upgrading municipal buildings to reduce energy costs by 24% to 30%—to Pennsylvania where we're helping schools reduce their energy bills by more than a million dollars a year.

I don't argue the basic honesty of what's being said except to say that it's incomplete and therefore misleading. Energy efficiency is real as well as important if you're installing LEDs or weather-proofing buildings. But such things are not the only energy efficiency games in town.

The truth is that it's getting harder and harder to drill for oil. It takes more money, people, equipment and, yes, energy to create energy. That's efficiency going in the wrong direction.

Also, as oil companies find less and less light sweet crude, they have to turn to heavy oil which is clearly less efficient to refine. To turn heavy oil into gasoline requires high heat and high pressure, both of which take more energy.

Finally, most of what an oil company produces is used to provide fossil fuels for transportation. But cars based on diesel and gasoline are not as efficient as cars that use—or mostly use—electricity from power companies. Fueling a battery by plugging into the power grid is far more efficient than fueling a car with gasoline.

Even when power grids get their energy from plants that burn fossil fuels, electric cars are still more efficient. In the long run, however, power plants are going to have to switch to sustainable forms of energy such as solar and wind.

The Chevron ad begin with the sentence: "Every dollar invested in energy efficiency today could return two dollars in energy savings." Again, energy efficiency of the kind Chevron is promoting happens to be important. But eighty years ago a dollar's worth of energy invested in an oil field produced a hundred dollars worth of energy.

Today, in Texas, some oil wells now use more energy than they produce. Why? Because arcane laws, subsidies and tax rules make it profitable. On the other hand, there are wind turbines that return 30-60 dollars of energy for every dollar of energy invested. Something needs to change.

Although there are plenty of oil wells in the world that return excellent net energy, the reality is that worldwide the net energy per barrel of oil drops yearly as more energy is required to produce that barrel. Oil is refined into many different products and we as consumers can't easily see how energy is used to make energy but let me offer a rough metaphor of sorts: for every 100 gallons of gasoline we put in our cars, we used to give the oil companies a gallon back to go out and find more oil, pump it, refine it and transport it to our gas tank. Now for every 100 gallons we put in our cars, we have to give back anywhere from 3 to 10 gallons depending on who's providing our oil (if you get your gas exclusively from those handful of inefficient Texas wells, you might as well get a horse!).

Oil companies are going to be in business for many years to come simply because it's going to take at least twenty years to build a truly efficient energy infrastructure that is sustainable and sensible, but the oil companies, Chevron included, are going to have to change.

The Age of "Cheap" Oil Is Over

In the United States, the production of oil in the lower 48 reached its maximum in the early 1970s. A few years later, there was a small upward bounce when production began on the North Slope of Alaska. Sometimes politicians play games with the extra oil we received from Alaska but the reality is that at no time did the production in the lower 48 plus production from the North Slope ever surpass the oil production of the early 1970s. We've been in decline ever since.

That means any additional oil for U.S. consumption has had to come from elsewhere, hence the huge payments we make to foreign countries who sell us oil. I've known since the 1970s that we have a problem. In retrospect, the oil from Alaska was a gift that was misunderstood and misused. Despite what any number of self-serving politicians have claimed, Alaska did not "solve" our energy crisis, but it might have given us time to build a proper energy infrastructure for the 21st century.

I'm very concerned about oil depletion but I'm not much of a Peak Oil buff, or at least as it is described sometimes in the media. I have no idea if world oil production has peaked for good or whether we might once again in the near future break the production record. I don't really care about the date of Peak Oil and given the manipulations of various politicians and oil companies, it easily morphs into vague redefinitions. Having said that, however, I'm very concerned about the politics of oil and the failure to start moving toward the actions we need to take if we are to have a reasonably bearable transition from an age of oil to something that is more sustainable.

On The Oil Drum today, which is one of the best sources for understanding energy depletion, there is a post by Nate Hagens that carries a letter by Colin Campbell, one of the first oil experts to raise alarms about oil production. The letter is a response to an article in The Guardian about experts who work for the IEA who believe not enough attention is being given by the agency to the precarious energy situation the world now faces. Campbell writes:

I was most impressed that you should give such prominence in your issue of 10th November to the role of the International Energy Agency in assessing the status of oil depletion. It is one of the most important issues facing the modern world, given the current dependence on cheap oil-based energy.

Campbell's whole letter fills in some gaps in my own knowledge about Peak Oil. In some ways, the precise date of peak oil is far less important to me than the simple fact that "cheap" oil is no longer cheap. Oil that is easy to drill is pretty much gone. Developing other sources of oil is expensive, difficult and also dirty. Light sweet crude, the easiest to use oil and the basis of the world economy for almost a hundred years, is no longer found in sufficient supply to sustain the world's needs. We are keeping our heads above water by using difficult to process heavy oil, difficult to develop offshore and arctic oil, and expensive, tedious and dirty tar sands to make up the deficit. Other methods are also being used. All the new methods are not only expensive but require a great expenditure of energy to acquire. The net energy picture is poor and if we continue to rely on the oil paradigm, it will only get worse.

Campbell's letter is excellent, though I disagree with a couple of points. First, he argues that the high energy prices of 2008 were the cause of the economic meltdown. I would say they were a major contributing factor and that oil politics will play a major role in making economic recovery difficult. The main culprit, in my view, has been 30 years of deregulation, a reckless banking sector and a lack of political and economic vision that has increasingly hampered the United States.

The other point that Campbell makes is that nuclear energy and coal will have to fill the gap until more sustainable forms of energy come online. First, environmental and safety issues aside, nuclear energy is extremely expensive.

The bigger issue, though, is coal. The problem with coal is that it's the dirtiest form of energy out there and that's before we talk about the huge amount of carbon dioxide that burning coal gives off. I'm concerned that another problem is that coal, just like oil, is addictive. If there is to be a transitional form of energy, it should be natural gas. If the natural gas found in shale is economically feasible, what would actually make sense is to ramp up natural gas power plants while actually ramping down coal burning plants. None of this of course will make any sense unless we are aggressively converting to sustainable forms of energy.

Even before global warming entered public awareness in a big way, it was obvious for many reasons that we needed to switch to alternative energy sources that do not pollute on the scale of fossil fuels. Today, I have to take Global Warming seriously in addition to the other problems of fossil fuels.

Every year even more evidence accumulates on Global Warming. And every year we see more of the effects (see these National Geographic photos; they are only a fraction of the photos being taken all over the world that show evidence of warming). It's astounding that more than two decades ago it was fairly easy to get people to take the destruction of the ozone seriously. A cause and effect was established, a solution found and effective action was implemented. What is so different about Global Warming? And what is so different about oil depletion?

The Oil Accordion

Since at least 2005, the price of oil has been rolling up and down at least two or three times a year. Although summer seems to be a major period of rising prices for crude and winter sees the price for a barrel of oil falling to lower levels, other factors increasingly lead to uncertainty during other parts of the year. We are in an of energy turbulence and most of that turbulence is connected to oil.

In the comments section of The Oil Drum:Europe, Nate Hagens speaks of the "oil accordion." It's an apt image and here's what he says:

The bigger issue is the oil accordion.

Now the economy can afford $100, yet oil companies require $60.
In the future the economy will be able to afford $90 and oil companies will require $70.

Then, $85 vs $80 etc.

Someone suggested it be called the Oil Price Accordion but that's not entirely descriptive. As oil demand goes up, prices go up and make it possible to support expensive oil projects such as drilling in deep water, drilling in the arctic and drilling very deep. But as more oil comes online, the price begins to drop. Or the high price of oil—usually in addition to other problems—begins to have a dampening effect on the economy. This affects oil production which begins to drop. Oil projects cannot be turned on and off without serious costs being incurred (as hurricanes in the Gulf of Mexico have shown, oil can be turned off fairly quickly but starting the oil back up again is expensive and that has to be included in the cost of shutting down).

It's true that for twenty-five years, we assumed that occasional high oil prices didn't hurt the economy that much since the percentage of oil that affects the economy has dropped in that period. But the real cost of producing oil has been rising for some time. And the United States is finally paying additional economic costs for buying so much of its oil on the international market.

We're finding that market forces are not always efficient. It's disruptive when such things as oil prices or real estate prices dramatically rise or fall. The oil accordion is a descriptive name in this time of worldwide economic turbulence.

British Petroleum and Solar Roadways

These days it's not easy to know when an oil company is on the level and when they're just engaging in good public relations to keep those oil prices nice and high. The funny thing is I sort of believe in high oil prices. High prices keep everyone a little more honest. And high prices encourages alternative energy.

Look, it's a fact that oil is a finite resource. It is fact established long before global warming that oil is a major source of pollution. It is also a fact that natural gas pollutes less than light sweet crude which pollutes less than heavy crude which pollutes less than tar sands and coal. In the 1970s, long before the evidence for global warming became overwhelming, it was already a good policy to start thinking about alternative energy. That during the 1980s the United States chose to party on as if everything is fine has a great deal to do with our current economic difficulties and the continuing decline of American wages and the loss of jobs overseas. An economy as large as that of the United States cannot be sustained while paying a higher and higher premium for foreign oil.

Now the irony is that I cheer when large oil deposits are found. Why? Because the transition to alternative fuels is going to take time and it's going to require major investment of the energy that now exists.

So it's actually encouraging news that British Petroleum has found a good-size reserve of oil as reported by the Associated Press:

Nearly seven miles below the Gulf of Mexico, oil company BP has tapped into a vast pool of crude after digging the deepest oil well in the world. The Tiber Prospect is expected to rank among the largest petroleum discoveries in the United States, potentially producing half as much crude in a day as Alaska's famous North Slope oil field.

The company's chief of exploration on Wednesday estimated that the Tiber deposit holds between 4 billion and 6 billion barrels of oil equivalent, which includes natural gas. That would be enough to satisfy U.S. demand for crude for nearly one year.

But notice the caveat. It would satisfy U.S. needs for almost a year. Back in the 1930s, geological experts were talking about oil deposits that would last for a few hundred years. Natural gas, alone, was expected to last 500 years.

Those optimistic numbers of long ago have long since faded, partly because the population grew, partly because the uses of oil and natural gas expanded, and partly because the rate of discovery was never sustained over the decades. A year's worth of oil does not mean our oil problems have been exaggerated and that our refineries will soon be awash in oil for decades to come. It means we are acquiring expensive oil off our coasts that will hopefully help with our transition to new energy sources. The new find is in 4,000 feet of water and then down another 35,000 feet through rock. One good hurricane can undo a lot of hard work or at least shut things down for weeks at a time. It's good news but it requires hard-headed thinking to understand what it all means.

The thing people need to understand is that our transition was always going to come. What the early engineers were hoping is that we would use the oil age to find the next generation of energy sources. For a long time we thought fission-based nuclear energy or perhaps fusion energy would be our next big energy source. But that has not come to pass. We know now that there will be no single source of virtually inexhaustible energy. We will need multiple solutions and we will need time to figure what works and time to put various infrastructures in place. Discovering more oil gives us that time.

So it's a bit irritating to read silly articles like this (in the Guardian of all places):

BP has reopened the debate on when the "peak oil" supply will be reached by announcing a big new discovery in the Gulf of Mexico which some believe could be as large as the Forties, the biggest field ever found in the North Sea.

What the people of the industrialized world need to understand is this: if we had not been discovering new oil in the last thirty years, oil production would be dropping like a rock. At the same time, the disturbing trend for decades has been smaller and smaller oil discoveries around the world. The two exceptions, which were not easily accessible forty years ago, have been deep offshore oil rigs and exploration in the arctic. Both areas are hard to get to and expensive to develop. Depending on them is not good economic policy or good social policy. While I celebrate the extra time such discoveries give us, it is time that should not be wasted on profoundly dysfunctional public relations games.

Of course alternative energy is sometimes responsible for hype that goes in the other direction. An outfit in San Diego promises a home based contraption that can produce ethanol if you'll pluck down a nice $10,000 and take delivery of winery and brewery wastes, etc., etc. Robert Rapier of The Oil Drum has written a skeptical article.

Here's another idea that technically is feasible. The real question is whether solar roadways makes economic sense:

The Solar Roadway™ is a series of structurally-engineered solar panels that are driven upon. The idea is to replace all current petroleum-based asphalt roads, parking lots, and driveways with Solar Road Panels™ that collect and store solar energy to be used by our homes and businesses. This renewable energy replaces the need for the current fossil fuels used for the generation of electricity. This, in turn, cuts greenhouse gases literally in half.

I have no idea if a road system made of tough and rigorous solar panels makes any sense. The price tag is a little sobering: $48/sq. foot. The idea of making our highways serve a second function as solar panels has been around at least since the 1970s. But these guys are either really good con artists, delusional or brilliant. But I hope they at least get some seed money to show us what they really are or what they really can do.

Now I can visualize all kinds of problems with alternative energy. We've already seen the U.S. government blunder by underwriting too much corn ethanol which almost takes as much energy to produce as it gives us. We don't really have the right cars yet to use ethanol and we saw a sharp spike in food prices around the world. Clearly we have to think about these things. And clearly, if we are being honest with ourselves, we're going to hit dead ends at the research level.

But we've been doing research for almost 300 years, since the beginning of the industrial revolution. Research is fairly cheap. If things begin to work, you move forward. If too many problems develop, you look for alternatives. So I hope someone pays for a few parking lots made of the solar roadways material. Let's see if it works.