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DRILL-BABY-DRILL is not an economic policy - Sept 2008- Peter Bell

Drilling for oil uses more capital and gets the US off foreign sources of oil more slowly than investments made in converting the US vehicle fleet to electric drive and developing bio-fuels for vehicle range extension.

If America chooses to divert capital from oil drilling and puts that money to work converting the US vehicle fleet to hybrid and plug-in hybrid cars, with range extension provided by US grown bio-fuels, the nation can very quickly eliminate its oil import requirement.

If drill baby drill is the order of the day and the US chooses to invest its' capital in drilling, we are unlikely to ever wean the nation off foreign oil.

Drilling in ANWR for example, the nation would only see approximately 800,000 barrels of oil per day coming onto the market by 2018. This does not even make a dent in the 20 million barrels the US consumes every day. The United States Department of Energy estimates that the ANWR supply would last until 2030 , with the production between 2018 and 2030 supplying only 2.6 billion barrels of oil in total.

The same goes for offshore drilling. The cost of renting an offshore drilling rig is $500,000 per day. In April of 2008, Brazilian Petrobras awarded Norway’s SeaDrill with contracts for three deepwater rigs worth up to $4.1 billion with rates approaching $600,000 per day.

Drilling costs account for one-third of total finding/developing costs for new onshore gas resources and about 40% of the cost of new offshore resources.

Why does it cost so much to drill?

Take for example the Kizomba B shown in the photograph. This machine is an ExxonMobil production vessel that cost approximately $3.4 billion. There are two of these massive vessels working off the coast of Angola. Each vessel is 3 football fields long, can hold 2 million barrels of oil and has 100 workers on-board to run it, who commute to work in helicopters. These are not a low cost pieces of machinery and the consumer pays for this equipment a gallon at a time every time they go to the pump.

Electric drive solutions are a far better investment

Electric drive is a much more cost effective way to power a consumer's vehicle and electricity comes at an equivalent of 75cents per gallon. In Europe the price contrast is even more pronounced as gasoline is $10 per gallon compared to electric at 75 cents per gallon equivalent. This comparison highlights the stark contrast between electricity and oil derived liquid fuels as a transportation energy source.

We get a much better return on our money by ramping up the number of new hybrids that hit US roads every month rather than investing more capital in drilling for oil. The same amount of money that is spent on drilling for oil with 3 offshore rigs can be used instead to incentivize the ramping up the number of new hybrids that hit US roads every month from 30,000 to 90,000 per month.

Diverting billions of dollars away from drilling for oil and in its place investing that capital in vehicles that get twice the mileage of the average vehicle currently in the US fleet, is a much more efficient use of the nations capital.

A further bonus can be gained by investing that oil drilling capital into doubling the vehicle mileage of the 1 million hybrid vehicles currently on US roads by converting them to plug-in hybrids.

The Drill Baby Drill policy looks even more foolish if you attempt to look out 10 years from now as the price of oil by then is likely to render these new drilling ventures unprofitable. At $30 per barrel or lower, drilling in ANWR and offshore look very different ventures than when penciled out with an oil price at $100 a barrel.

The price of oil is likely to plummet over the 10 year time horizon as supply and demand trends intersect, resulting in a market oversupply picture. Millions of new barrels will be coming on-line from the latest waves of discovery at the very same time demand will be reducing as the the efficiency gains all over the world start to work on a large scale. The two trends of more supply and greater efficiency will in all likely hood mean that the price of oil will return to fundamental pricing over the next 10 years, rather than remain at elevated levels. 

This same scenario happened in 80's right after the last oil shock and oil prices were so low that new oil discovery activity all but dried up. The lowest cost producers, like the Saudi's who are operating under a $5 to $10 cost structure to produce their oil, will keep pumping just as they did in the 80's, as they need to pay their population.

At $30 per barrel or lower, the nation would have invested billions of dollars in drilling ANWR and offshore, but will likely end up taking a loss on that investment when production finally comes on-line in 2018.

Let's not get diverted with this "DRILL BABY DRILL" political rhetoric and have to wait till 2018 to start reducing our dependence on foreign oil.

All of the above

Some of the politicians of the day are saying lets do "all of the above"...this may sound great but is just not possible, even for a country with the resources of the US.

The "all of the above" approach has been tried over the last 20 years and we have not succeeded in reducing the amount of oil the US imports. In fact the actual volume and the percent of US oil consumption satisfied by imports has steadily increased since the 70's.

All we have succeed by "doing all of the above" is spreading what little capital we do spend across many small projects that have made very little impact on reducing the level of oil imports.

This lack of success at reducing oil imports has resulted in an annual US oil trade deficit of $600 billion dollars. Spending more than the country earns has caused massive financial disruption, inflation all around the world as the dollar devalues and a drop in US standards of living for the first time in living memory. 

Putting investment dollars to work increasing the US vehicle fleet's overall energy efficiency, rather than going down the route of drill baby drill, results in much more foreign oil demand coming off the trade balance by 2030 than a "drill baby drill" approach can ever hope to accomplish.

Combining this efficiency drive with replacing foreign oil imports with electricity and bio-fuels can close the oil trade import gap completely...how fast we choose to close the oil import trade gap is up to us.

How will the energy trade gap will be closed and how long will it take?

The scene depicted in the image below is helpful to get a visual picture of how much money we really are talking about...how many aircraft full of money we want to continue sending overseas each day stuffed with suitcases full of money and the speed we choose to close this oil import gap is up to us...  

 

We can let OPEC and other oil exporting countries force US consumers to change behavior by making the nation incur massive debts, slowly extracting trillions of dollars from the economy and maximizing the amount of money sent overseas until there is no more money to send...

...or America can choose to change energy consumption patterns on its own schedule...

This change in oil consumption patterns will have to be government lead if we want to do it on our own schedule. Whether we choose government incentives, mandates or taxes, or a combination of the three does not really matter. What does matter is that the measures we do take to change consumer behavior need to be technology agnostic, the government cannot be in the business of picking winners.

Let's set the targets for oil import reduction now, get the policy right and let the market go to work eliminating this trade gap. We do not have $6 trillion dollars to spend on importing oil while we wait until 2018 for a Drill Baby Drill policy to come to our rescue.    

Let's not get diverted with this "DRILL BABY DRILL" political rhetoric and have to wait till 2018 to start reducing our dependence on foreign oil.

Fuel efficient vehicles are available today

Mercedes-Benz E320 CDI

We do not have to wait for new technology to come to market as fuel efficient vehicles are available today. A great example of one of these vehicles is the diesel powered Mercedes-Benz E320 CDI. This diesel powered, luxury car can zoom from 0 to 60mph in 6.6 seconds, yet still return 37mpg on the highway. The engine is so smooth you don’t know you are driving a diesel and that performance is 10mpg or 35% better than the exact same vehicle powered by a gasoline engine.

If the vehicle fleet in America became 35% more efficient, using diesel, hybrid and plug-in hybrid technology, that would equate to more than all the oil the US currently imports from the middle east ...

The US would no longer need to import fossil fuels if we combined bio-fuels for long range driving with improved fuel efficiency and vehicle electrification for short duration driving. Displacing some of the liquid fuels we use with non-food derived ethanol and renewable diesel can give electric vehicles the range extension they need to compete with purely petroleum derived liquid fueled vehicles.

2nd Generation bio-fuels can help

Cellulostic ethanol and bio-butanol are the leading technological candidates for large volumes of gasoline displacement. Renewable diesel is the leading candidate for displacing large volumes of petroleum derived diesel fuel without incurring a massive cost to upgrade the nation's distribution infrastructure. In the mean time, 1st generation bio-fuels like corn based ethanol and soy based Biodiesel can be used as additives to improve the emission profile of the fossil fuels we use, until we can make a big impact on reducing the overall consumption levels of liquid fuels by electrifying the vehicle fleet.  

Bio-fuels were mandated in December 2007 by the Congress when it passed the Energy Bill requiring the use of 36 Billion gallons of bio-fuels by 2022. This much bio-fuel, used in combination with fuel efficiency improvements and existing US sources of petroleum derived fuels will eliminate the need for the nation to import crude oil to meet its surface transportation needs.

Electric cars with bio-fuel range extension

If we decided that petroleum based fuels should only be used in air transportation, we would need to roll out electric cars more aggressively, saving an expanded kerosene slate for aviation.

A US vehicle fleet with the majority of those vehicles being electric powered, using liquid fuel only for range extension, within a 10 year timeframe is not as difficult to envision as it might seem.

US consumers purchase 15 million new cars each year. Starting today, if all new cars sold in the US market were electric drive, over 50% of the 280 million cars that make up the US fleet would be replaced in 10 years. These new cars are the vehicles doing the majority of the mileage of the US vehicle fleet, so the reduction in liquid fuel demand impact would be the biggest.

Cars like the Chevy Volt are likely to lead the way and there is an old saying that is proving very accurate at the moment "as GM goes, so goes the nation". This vehicle's sales might be the proof of the pudding on how serious the US really is about getting off imported oil and its success or failure will be a good indicator of what the future economic outlook for the nation will be.    

Turbo and Ethanol range extension

Turbo charging, ethanol and electric drive can be extremely complimentary technologies. Ethanol (alcohol) runs cool and can be utilized in an internal combustion engine (ICE) at compression ratios equivalent to those used in diesel engines.

An alcohol fueled engine like the one in the Saab BioPowered100 runs at an effective compression ratio approaching 20:1. A spark ignition engine can thereby achieve energy conversion efficiency ratios close to those of a diesel engine, but without the weight, noise or the emissions penalties that are typically associated with diesel engines.

The problem with running an engine at these high compression ratios means that you can never fuel the vehicle with regular gasoline. Running a low octane fuel like gasoline will detonate the engine immediately if run at a 20:1 compression ratio. A turbo is in effect allowing an engine to run at a variable compression ratio, so if the engine can detect the ratio of alcohol in its fuel, the turbo boost boost can be set accordingly. 

The only hitch to this system arrangement is that turbo's struggle with "turbo lag", making vehicle drivability less than ideal. This is where the turbo, ethanol and electric drive combination could be very effectively utilized in a vehicle's propulsion system.

Using electric motors as the primary drive system and using a turbo assisted internal combustion engine to charge the vehicle's battery for range extension, results in a systems combination that gives excellent performance and fuel efficiency. Instant power is available from the electric motors and no turbo lag is encountered. The engine can run on ethanol when it is available, getting diesel engine like efficiency. If no ethanol is available, gasoline or any blend of the two can be used to provide the range extension power when only that kind of fuel is available by running the turbo at a lower boost.

One of the side benefits of using the internal combustion engine (ICE) as an electric generator rather than as the prime mover means that it can run at a single RPM. Running an internal combustion engine at a fixed RPM allows it to be tuned for maximum efficiency, built at a lower cost and sound reduction systems can be particularly effective, making the engine very quiet. 

Stirling engine range extension

Another range extension approach is the Stirling engine which is capable of using multi fuels and is extremely energy efficient. The Stirling engine can provide range extension for an electric car and is capable of multi fuel operation, plus provide the passenger compartment heat for driving in colder conditions. 

Craig Venter is bringing new sources of renewable fuels to the market with a number of different organisms. Genetically enhanced Jatropha and Algae show good signs of promise as fuel feedstock. Craig Venter is seen here being shown Dean's Think Electric car "revolt" powered by Lithium batteries and fitted with a Stirling engine for range extension. We hope that some of Craig's new fuels will soon be running in a Stirling engine near you. 

The trick to accelerating the adoption of these new technologies is to set the policies of the nation to encourage these solutions to come to market. No need to pick the winners, just set the right conditions and the market bring the most efficient solutions out on top. 

Where is the electricity going to come from?

The Department of Energy (DOE) has conducted a study to find out the answer to exactly this question. The results of this study show that there is sufficient generating capacity available to the US grid at night to recharge 180 million electric vehicles every 24 hours.

The nation's generating assets are typically 50% efficient or better at converting fossil fuels into electricity and an electric motor can be as good 90% efficient at converting electricity into drive. Gasoline engines convert energy into drive at a 25% conversion efficiently, so just by converting to an all electric drive vehicle fleet, the nation can consume 1/2 as much energy in its vehicle fleet as it does now by relying on the Internal Combustion Engine (ICE).

This is a pretty simplistic analysis, but it conveys the concept of why converting the US vehicle fleet to electric drive is potentially a good use of our investment capital...in addition, the US imports a tiny fraction of its electricity and it is unlikely that we will fight a war with the Canadian's...going forward, there is sufficient solar, wind and geothermal power available to meet the majority of the nation's energy needs from these abundant, US based, renewable sources.

Solar has huge potential and the graphic below, by Photon International, is a great illustration of the point of how land efficient Solar Photo Voltaic (PV) power is...the chart is a comparison of the distances a car can drive based on the following renewable forms of energy, each produced on 100m x 100m of land which is 2.5 acres:

.

US based, low carbon sources of electricity supply can be very abundant if we were serous about deploying the various technologies available. Solar could provide the bulk of the electric power the US needs during the day and wind power could provide the bulk of the power needed at night. Geothermal power sources are ideal for supplying the base load and natural gas is an ideal energy source for short term bursts to cover peak power shortages.

We have had an on and off again national policy for a long time that has held back renewable sources of electricity from coming on-line in a significant manner. We keep investing our capital in the wrong places and Drill Baby Drill with more Nuclear Power is just extending that loosing strategy.

No need for for more nuclear power

There is no need for more nuclear power, the waste issue is too difficult to solve at the moment and the cost of storage is horrific.

The latest total system life cycle cost for the Yucca mountain facility as presented to Congress on July 15, 2008 by Director Sproat is $90 billion dollars and it is still at least a decade away from being open to accept nuclear waste.

$90 billion dollars would put batteries in 1.8 million cars per year for the next 10 years. Investing in electric drive would potentially eliminate 1 billion gallons of fuel consumption or $100 billion dollars of crude oil purchases over a decade...by investing $90 billion dollars in electrifying the vehicle fleet, we knock a huge chunk off our oil import bill, and better still, we could potentially get our capital back plus a $10 billion dollar profit...

...in contrast, a $90 billion dollar investment in the Yucca mountain is guaranteed to get us a very expensive hole in the ground that is going to be toxic for the next 10,000 years and that investment is guaranteed to provide no return on the capital deployed.

Not only is Yucca mountain a bad investment idea, dragging nuclear waste through our towns on trucks and trains so that it can be stored in that mountain is even worse of an idea. One mistake can lead to a catastrophic disaster...we dodged the bullet with Three Mile Island, Chernobyl laid waste to large numbers of people and a vast area lest we think we do not make mistakes...

10,000 year storage is a very long time

The Longnow Foundation has commissioned a study on how to build a clock that can last 10,000 years. It is not an easy challenged to be able to think that far ahead, but that is how long nuclear waste will remain dangerous.

Saying we can keep the Yucca mountain safe for the next 10,000 years is like Pontius Pilot putting a Roman Praetorian Guard at the door to Jesus' tomb to stop it from being broken into for the next 10,000 years.

Would that guard be there now...how about in 8,000 years from now?

10,000 years is not a normal timeframe for humans to think in. The tree rings on these photos below start at 909 AD and only the very edge of the tree's time lines do we see the Declaration of Independence. A tree with rings on a 10,000 year timescale would not fit on your entire computer screen, let alone in your browser.

Aviation

It is very difficult to see how jet aircraft might be electrified in the next 10 years so we need to be thinking about low carbon fuels for the aviation industry. The closest technology we have that might be capable of substituting for the jet engine and still achieve similar performance is the Unducted Fan.

The problem standing in the way of making an electric version of this amazing design is that the energy density of batteries or capacitors is nowhere near the capability of liquid fuels at the moment.

It is very difficult to see massive adoption of this kind of technology in the 10 year timeframe. Instead, we should be looking at producing carbon neutral version of the current aviation liquid fuels, Jet-A and JP-8.

These fuels are easily made, but the shortage of renewable feedstock is an issue that needs to be overcome. Algae biomass holds out the biggest promise of meeting this renewable crude oil requirement. However, this crude oil production technology is not available now. It is likely to have a 5 year time horizon on it before we can even begin to start thinking about implementing the use of this kind of fuel in the aviation industry. 

If we put serious money into algae biomass to jet fuel research now, we might overcome the feedstock shortage in a 10 year timeframe. With the right research effort, we might be able to develop an economical way to produce crude algal oil within that timeframe. As a byproduct of this research, we might be shown the way towards developing an economical power plant carbon dioxide sequestration system. 

Let's not get diverted with this "DRILL BABY DRILL" political rhetoric and have to wait till 2018 to start reducing our dependence on foreign oil.

Political rant of the day

I could not finish this article without a reference to the political and physical climate at the time of this article being written. The most ironic event of the 2008 US Presidential campaign was that John McCain had to cancel a political speech scheduled to be made from an oil rig due to a storm in the US Gulf of Mexico. Then Hurricane Gustav curtailed the GOP convention, which was followed up by Hurricane Ike shutting down the Gulf refineries and Gulf production facilities. The NASA image below shows the path of Ike in relation to the oil production assets in the Gulf. 

Good job the US economy does import oil from overseas while the US production platforms are shut due to hurricanes, otherwise we might have to park our cars during hurricane season if a Drill Baby Drill energy policy is put in place.

A Drill Baby Drill energy policy will put more investment into oil production at a time when all the signals are telling us we need to reduce our oil consumption not increase it. How much price volatility and supply disruption do we need to suffer before we say enough is enough, it is time to start moving towards using a different source of energy and not do more of the same that got us in this mess.  

Anyone heard of climate change

A Drill Baby Drill policy does not even attempt to solve the CO2 emission problem...the really big elephant in the room...

If you like Al Gore or not, you have to imagine he was crying somewhere in America the night that the Drill Baby Drill cry went up. However, he must have had a chuckle when bad weather cancelled the "Straight Talk Express" from more stump speech making on an offshore platform out in the Gulf. 

If you still can't believe people would shout Drill Baby Drill, watch it for yourself...


 

     
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