Turkmenistan is one of the old constituent republics of the Soviet Union. Located on the northern border of Iran, the country holds within its borders the fourth largest reserves of natural gas in the world. In 1971, a group of Soviet geologists drilled into a large cavern of natural gas, while searching for oil and gas in the Karakum Desert in the center of the country. The cavern collapsed, swallowing the drilling rig and leaving behind a gaping, 70 meter wide crater. To make matters worse, this massive hole seeped large quantities of methane and other dangerous gases into the atmosphere. While not toxic in and of itself, methane is an asphyxiant and it can become highly explosive when mixed with air. Additionally, the impact of methane on climate change is approximately 20 times that of carbon dioxide. While the Soviet scientists may or may not have been concerned with the environmental effects of leaving the crater unchecked, the seeping gases certainly posed a more imminent threat to the neighboring village of Darvaza and anyone who might happen to pass through the area. Thus, the decision was made to light the gases on fire, in the hope that they would be depleted in no more than a few days.
42 years later, the crater is still burning. It has been dubbed as ‘The Door to Hell’ by the local population and is, perhaps, the most interesting example of flaring you could ever choose to explore as a tourist. Not that a lot of people do, mind you, as Turkmenistan recently placed seventh on a list of the least visited countries in the world. However, the Turkmen government is placing an ever increasing emphasis on developing tourism, as it strives to erase the somewhat negative global perception of the country, that developed during the reign of the eccentric President Saparmurat Niyazov. Thus, effectively ‘putting out’ one of the country’s main tourist destinations might not seem like such a bright idea. At the same time, Turkmenistan will look to maintain its recent economic growth through the continued development of its natural gas and oil industries, and keeping the Darvaza fires burning might not fit so well into that picture. In fact, President Gurbanguly Berdimuhamedow ordered that the crater be closed back in 2010, in order to limit its effect on the utilization of natural gas resources in the area. As of March 2013, ‘The Door to Hell’ is still open, however, and the future of the site remains to be determined.
Should the site be kept open in favor of the growing tourism industry or should the crater be closed? Is there perhaps another, less obvious option? Please pitch in with your thoughts and opinions.
It is somewhat of an undisputed fact, whether from a policy perspective, environmental perspective, or from the perspective of your wallet, that America should look at switching its primary choice of transportation fuel— petroleum.
Currently, the United States’ gluttony of oil is detrimental to the environment and leads us towards an unstable future. Our outrageously huge consumption of oil is sure to be detrimental in the future, whether because of a financial meltdown from the price of oil, or the destruction of environment and the health problems future generations could be expected to face due to pollution. America needs to look for a domestic, more environmentally friendly, more stable alternative to oil in order to minimize the detrimental effects of our current oil dependency.
There are many technologies that have promise at solving the issue over the next century. Electric cars, hydrogen fueled cars, super-rail, jet packs… you name it, and some one is suggesting it. But for most of these solutions, the technology isn’t quite there.
Electric cars, for example, have many problems of their own. “Popular Mechanics has tested the Volt’s mileage claims and found that it gets 33 miles on its electric charge (not 40) and that its miles-per-gallon performance is 31.67 in the city and 36 on the highway (not 50).”[i] Also, a question electric vehicle (EV) enthusiasts must answer is how convenient is it to charge the battery? “There are currently 500 charging stations in the United States — 400 of them are in Southern California.”i Then can we not just charge our EVs at home? According to the Washington Examiner, the fine print on the Nissan Leaf states that “it takes 20 hours to charge on a standard 110V outlet” for a 100 mile range.i That is quite an inconvenient amount of time.
Now I am not here to beat up on electric vehicles. I also understand that technology must progress and in the future electric vehicles (among other technologies) may be the solution. But until then, we need a patch.
Senator Lisa Murkowski sums up the patch perfectly:
“Without a doubt, the new technology that we’re seeing has enabled a natural gas boom that has changed our energy landscape and the outlook for our economy,” Murkowski said. “Natural gas is now an abundant, affordable, and clean source of energy, providing great opportunities for economic growth and energy security.”[ii]
Natural gas technologies include compressed natural gas vehicle conversion kits, compressed natural gas vehicles, and maritime fuel containers for LNG engines among other solutions. These technologies use natural gas instead of oil as a fuel source. Through the use of natural gas instead of oil, oil dependency is thus lowered. Although natural gas still produces emissions, the percentage of harmful emissions is much lower compared to power plants.[iii] NGVs also have a total emission reduction of 20-30%, including a carbon monoxide reduction of 70-90% and oxides of nitrogen reduction by 75-95% over gasoline or diesel powered cars.[iv] The economics of a NGV are superior as well to gasoline or diesel powered vehicles. The quantity of CNG a vehicle uses is measured in gallons of gasoline equivalent (GGE), which is the quantity of CNG that offers the consumer the same amount of energy, measured in BTUs, as a gallon of gasoline. A natural gas GGE is on average significantly cheaper than a gallon of gasoline, making CNG a more economical fuel source for drivers.iv For the commuting American, converting his or her vehicle to natural gas from gasoline will save an estimated $600 per year.[v] Also, since natural gas burns much cleaner than gasoline or diesel, the amount of wear and tear on engines caused by gunk and combustion residue is greatly decreased.[vi]
There are promising technologies for natural gas that work today and can use conversion kits to efficiently convert our vehicles to natural gas from gasoline or diesel. Natural gas as a fuel source is both abundant and domestic, and for the time being, cheap. I understand that there is not a solution that is perfectly inconsequential. Natural gas has its own downsides, as I am sure many people can speak to, but it does offer an emission reduction alternative that is readily available, policy positive and less or evenly expensive as gasoline or diesel. If we use natural gas as a patch until one of the other technologies can progress to being suitable alternative, we can help the environment, our security and our pocketbooks.
[iii] Wang-Helmreich, Hanna, and Stefan Lochner. “The Potential Of Natural Gas As A Bridging Technology In Low-Emission Road Transportation.” Thermal Science 16.3 (2012): 729-746. Academic Search Complete. Web. 4 Dec. 2012.
[vi] Tirkey, J. V., H. N. Gupta, and S. K. Shukla,”Integrated gas dynamic computational modelling and thermodynamic combustion diagnostics of multicylinder four-stroke spark ignition engine using compressed natural gas as a fuel,” International Journal Of Sustainable Energy 29, no. 2: 59-75. Academic Search Complete, EBSCOhost
Robert Howarth has been criticized by ANGA[1] (America’s Natural Gas Alliance) for using an unconventional time horizon[2] in his study “Methane and Greenhouse-Gas Footprint of Natural Gas from Shale Formations.” While Howarth’s Paper is seriously flawed (the existing data on natural gas leakage rates is extremely limited[3]), a few pieces are worth salvaging from the flames.
The Intergovernmental Panel on Climate Change uses a baseline 100 year time horizon to measure the radiative forcing caused by gases in the atmosphere, while the Howarth paper uses 20. MIT Energy Initiative ED Melanie Kenderdine went as far as to say “What he has done in his analysis is deviated from what are accepted standards, accepted by EPA, DOE, the IPCC, European Trading Scheme, California Air Resources Board, where essentially the denominator that they use to calculate the impacts of various greenhouse gases is an agreed upon hundred years; Professor Howarth uses 20 years.” Kenderdine suggests that Howarth is setting up his GHG comparison outside the realm of scientifically accepted standards—similar to claiming statistical significance at a .20 alpha.
Kenderdine’s characterization is misleading. While the IPCC does use the 100 year time frame, they also use 20 year, and 500 year periods. They note that “the choice of the time horizon depends in part on whether the user wishes to emphasize shorter-term processes…or longer term processes that are linked to sustained alterations of the thermal budget. In addition, if the speed of potential climate change is of greatest interest (rather than the eventual magnitude), then a focus on shorter time horizons can be useful.”[4]
What time frame is most relevant here? The Howarth paper was clearly aimed at the natural gas industry, in the height of the shale boom. The golden age of gas[5] is upon us. If global use of natural gas expands at projected rates, emissions from gas production, transportation, processing, storage, and consumption will have a greater impact due to increased volumes. The EPA’s recent CO2 rule will likely result in the majority of new power plants built in the US to run on natural gas. Natural gas leaked into the atmosphere has a Global Warming Potential of 21 over the 100 year time horizon.[6] Under the 100 year time horizon, it appears very likely that a switch to natural gas could result in a reduction of net radiative forcing over the century—however, the “net” may not be the optimal way to look at the situation. In 100 years, the damage may well be done. Consider the following:
1.) Switching a short time frame GHG for a long time-frame GHG is essentially trading a steeper short term rise for an earlier slope downward. Natural gas instead of coal, for example, would make short term temperature increases more severe, but long-term temperatures more stable. This would be OK if ecosystems and economies were robust enough to take the rapid climb—however many impacts are related to seasonal temperature, not long-term averages.[7]
2.) Feedback loops in the artic make short term changes to temperature more important.[8] Short-term warming of the permafrost releases additional GHGs. Sea ice formation is a central hub of the artic ecosystem, and depends to multiple factors, all of which have the potential to ‘snowball’ with near-term warming. Previously sequestered methane in the artic will be increasingly released into the atmosphere, further increasing the rate of warming as well as extending the period of rapid increase in temperatures.[9] The most potentially catastrophic example of this has to do with the release of the EIA’s favorite resource for tomorrow: Methane Hydrates. Previous releases in the Paleocene resulted in 1-8 degree (C) rises in temperature, dependent on latitude.[10] Methane Hydrates are currently stabilized along continental margins, and the exact amount of forcing that would trigger a release is unknown.[11]
Because climate stabilization must occur before the ‘tipping point,’ I would argue that short-time frames are essential in consideration of emissions. How fortunate that policymakers operate in 1-4 year time horizons.
In a report recently released by the EIA, the Office of Energy Analysis (OEA) takes a stab at answering a question that was formally asked by the Department of Energy’s Office of Fossil Energy back in August 2011: What would be the “impact of increased domestic natural gas demand, as exports?”
OEA’s analysis considered four different scenarios consisting of a slow (1 Bcf/d/yr) or rapid (3 Bcf/d/yr) rate of “phasing-in” increased exports, and a low (6 Bcf/d) or high (12 Bcf/d) ultimate expected rate of export.[1]
As one might expect, their results suggest that increased exports of natural gas (as liquefied natural gas, or LNG) would lead to upward pressure on domestic gas prices. This, in turn, would result in increased domestic production, and (to a lesser degree) upward pressure on electricity prices. The level of the impact on power generation would partly be a function of the difference between the rate of the increase in exports, and the rate of the increase in production.[1]
This upward tick in natural gas production could reverse a recent trend that has seen companies moving away from dry gas plays. As an example, Chesapeake Energy just announced plans to reduce the number of its operating dry gas rigs by ~68%, a result of the currently low natural gas prices.[2]
The current state of affairs in the domestic natural gas markets is significantly different than it was just a few years ago, prior to the rapid adoption of hydraulic fracturing and horizontal drilling, and prior to the recession. Several LNG regassification import terminals were permitted, financed, and built based on the expectation that the US would remain a net importer of natural gas for the foreseeable future.[3][4]
Now, several of those import facilities are going through a similar process to get liquefaction facilities in place that will enable the exports being considered in this EIA report. Cheniere Energy is doing just this. The company has plans to construct a liquefaction facility at its Sabine Pass LNG import facility, which will have approximately a 2.6 Bcf/d export capacity. The company has already initiated FERC, NEPA and DOE permitting procedures and expects the facility to begin operations as early as 2015. They are also considering plans to construct an additional 1.8 Bcf/d export facility in Corpus Christi.[5]
However, it is still not certain that companies like Cheniere Energy will be able to recognize a return on their investment with these export facilities. Just as the adoption of new drilling technologies reduced the need for US LNG imports, the spread of those technologies to other parts of the world may also reduce the US opportunity to export.
Very importantly, the authors of this EIA report note that the National Energy Modeling System (NEMS) used for their projections “is not a world energy model and does not address the interaction between the potential for additional U.S. natural gas exports and developments in world natural gas markets.”[1]
The fossil fuel sector would love to forget this past month. During this one month alone, no less than three catastrophic accidents have significantly affected the image of each of the sector’s primary industries: petroleum, coal, and natural gas.
The Headline Stories:
Apr 21 – BP Offshore Oil Rig Explodes and Results in Enormous Gulf Oil Spill
o Potentially the worst environmental disaster in US history
o 11 presumed dead
Apr 5 – West Virginia Coal Mine Explosion
o Worst US coal mining disaster in forty years
o 29 people dead
Apr 18 – Natural Gas Well Hits Shallow Pocket, Contaminates Town’s Water Supply
o Over 135 homes evacuated in Caddo Parish, LA
o Told they cannot drink their water
While accidents have always been a part of the energy production story, it is strange how easily we forget how frequently and severely they can occur. Unfortunately it takes something significant and in rapid succession like what has happened in the past month to remind us of the true, hidden costs of our dependence on fossil fuels.
The British Petroleum Oil Spill
BP’s oil rig explosion and enormous gulf oil spill seriously threatens the future of deep water domestic offshore oil production. While the root cause is still being sorted out, what is clear is that after the well was drilled and about to be capped off, an oil/gas mixture accidentally shot up the mile long pipe and ignited into a fireball once it reached the surface rig. The ensuing fire killed 11 people, destroyed the rig, and caused it to collapse and sink, breaking the pipe as it sank into the ocean. But the wellhead at the sea floor could not and STILL cannot been shut off (now three weeks after the event) despite safety valves and attempts to use an improvised large metal “cap” to siphon off the leaking oil. BP is spending $6-7M per day to stop the leak and it is believed that the total cleanup costs will end up running anywhere from $2B to $14B[1]. To put that into perspective, BP’s net income for all of 2009 was $17B, and the company’s stock has already fallen almost 20% since the accident, wiping out $32B in equity value.
Here’s a time-lapse aerial movie of the spill:
Original estimates were that the oil leak was 1,000 bbls/day, but this was quickly raised to at least 5,000 bbls/day based on satellite images that showed a rapidly spreading oil slick. Recent estimates have put the leak as high as 70,000 bbls/day[2] based on analysis of a video made public of the leaking well. But the real problem is that it isn’t clear how long it will take to turn off the leak. The worst case scenario is that it will take 90 days to drill another well into the original one to shut it off. If this happens, this spill will easily eclipse the 1989 Exxon Valdez spill in Alaska, the largest ever in US waters with roughly 250k bbls spilled. Compared to the Valdez oil spill whose cleanup took a very long time due to the remote location, the Gulf Coast is much more accessible which should speed up cleanup efforts. The flip side is that a lot more people live around the Gulf and there are a lot more businesses and livelihoods that will be affected. There is also the concern that the spreading oil slick could enter the Gulf Stream and be swept around the tip of Florida and onto beaches of the East Coast.
Footage from the ocean floor:
One thing to keep in mind, however, is that while terrible, the amount of oil that has been spilled in accidents is actually very small relative to the amount we consume. If you total ALL of the oil spills that have been recorded in the world since the 1940s[3], you find that there have been a total of roughly 40M barrels of oil spilled over the last 70 years. Considering that the US currently uses ~20M barrels of oil and the world uses ~85M barrels every day, the average yearly amount that gets spilled is actually a very tiny fraction (0.002%) of what the world uses in a year. It’s almost a miracle that we don’t spill more, especially considering that 30,000 oil wells have been drilled in the Gulf with over 3000 producing today[4]. The problem, of course, is that even this tiny spilled fraction can wreak environmental havoc on the affected area and result in billions of dollars of direct and indirect damages – or worse, destroy ecosystems for generations.
The issue with BP is that they’ve had a string of accidents in the last few years, including a burst Alaskan oil pipeline and a fatal refinery explosion, and investigations have pointed to a culture of cost-cutting and a lack of safety measures that resulted in the accidents[5]. So far, there is evidence that a relatively inexpensive second-level wellhead shut off device was not installed that could have already stopped the leak. While this device is not legally required by the US (although it is required by the governments of Norway and Brazil), it certainly gives the appearance of a very bad gamble to cut corners. At the time of this writing BP (the overall well owner), Transocean (the rig owner), Haliburton (the well capping company), and the Mineral Management Service (the federal agency responsible for determining and enforcing regulations) are all pointing fingers at each other in an attempt to shift blame.
This is already affecting public policy: Obama has distanced himself from his previous willingness to pursue offshore drilling. Ironically, this oil spill could actually threaten action on a climate change bill. In order for the bill to have gotten as far as it did, environmentalists and conservatives had to compromise, and a plan was developed that called for more renewables, more nuclear, and offshore drilling. Now, the environmentalists are putting their foot down and are backing away from the table, while conservatives are still scrambling to shape a message. “California Gov. Arnold Schwarzenegger and Florida Gov. Charlie Crist have changed their minds about offshore drilling. Schwarzenegger went a step further and withdrew support for a plan to allow drilling offshore Santa Barbara County. Several senators, the latest being Democrat Jay Rockefeller, have refused to vote for any bill that expands offshore drilling.[6]” In some sense, this incident could polarize the debate and force a restart of the legislative/negotiation process.
The West Virginia Massey Energy Coal Mine Explosion
This accident is a sad reminder of just how dangerous coal mines are. Since 1970, 262 coal miners have died in the US and thousands have suffered from indirect, respiratory deaths over the years[7]. In the past 10 years, over 10,000 miners have died from black lung in the US alone[8]. Worldwide, thousands of workers die each year and undocumented tens of thousands more will die from respiratory problems. But these respiratory issues don’t just affect the miners. The particulates that are released into the atmosphere when coal is burned to generate electricity increase the risk of asthma attacks, and are estimated to cut short 30,000 lives each year in the US alone. Considering the direct and indirect deaths due to respiratory problems, and the environmental damage due to strip mining, mountain top removal mining, CO2 emissions, and the occasional coal ash tailing pond that collapses[9], it is clear that coal is one of our dirtiest fuel sources. None of these negative externalities are priced into the deceivingly rock bottom <$0.04/kWh price that we pay for wholesale electricity. Perhaps this latest tragedy that killed 29 miners – the highest number in the US since 1970 – will help us reconsider these hidden costs.
Exco Natural Gas Well Water Contamination
Finally, the natural gas fracking incident that occurred in Caddo Parish, Louisiana – in the heart of the Haynesville Shale discovery – is exactly what the shale gas industry does NOT want to happen. On April 18th, Exco Resources apparently hit a pocket of natural gas that was much closer to the surface than expected which caused the gas to be released into the atmosphere. Subsequent tests of the local water supply showed that the aquifer had unacceptably high levels of natural gas. This is PRECISELY the biggest concern that environmental groups have with the process of hydraulic fracturing, or “fracking” that natural gas companies use to extract shale gas from the geologic formations underground. Although fracking is a mature process that has been used tens of thousands of times over many years, and the gas is typically found far below surface aquifers, the potential to contaminate a region’s water supply perhaps permanently is there. Natural gas has clear benefits over coal, especially in terms of reduced CO2 emmisions, and it is gaining in popularity as a “transition fuel” toward renewables. But incidents of water contamination such as this one will only hurt the industry’s image. If enough large accidents were to happen in the near future, it could spell an abrupt halt to this promising domestic energy source.
The Hidden Costs
With all of these accidents happening, it got me thinking – how DO you come up with the costs of all the negative externalities associated with the entire fossil fuel industry? There’s CO2 emissions and the effects of global warming, direct environmental damage (air, water, land) due to daily operation as well as accidents, loss of life, health problems, the cost of securing access to oil through military projection, and national trade deficits with countries that aren’t friendly to us. This is a very important question because the fact is we ARE paying for it one way or the other – just not at the pump or the plug. If, for example, gasoline costs $2/gallon at the pump, but causes $10/gallon worth of negative external effects that are distributed over everyone at some point later in time, this Total Cost of Ownership is not only worth knowing, but not recognizing these costs are a failure in the marketplace. Getting these numbers right is important to truly compare energy sources on an apples-to-apples basis in order to set effective policy.
A new report from the National Research Council, called “Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use,” has attempted to arrive at a number[10]. This report looked mainly at the effects on human health (and did not thoroughly look at the effects of climate change, rising food prices, or risks to national security). It found that the hidden cost of our current energy mix on human health alone was $120B in 2005, the last year for which data was available. When the other effects are taken into account, this number could exceed $500B each year – over $1500 per person per year.
I don’t know why all of these serious accidents happened in just one month, but if there is any silver lining to them, it is that the currently un-priced, negative externalities associated with our dependence on fossil fuels are suddenly and unavoidably put back into the spotlight. Hopefully this will galvanize the growing public support for alternative sources of energy and will provide a renewed commitment to their development.
What do you do when America’s largest corporation and one of the world’s top oil producers’ drops $31 billion to buy one of the country’s largest producers of natural gas? This is the question being asked of Congress after ExxonMobil’s recent purchase of XTO Energy.
To be honest it is one of many interesting questions that stem from ExxonMobil’s foray in to the world of natural gas:
Does this signify a change of heart by a company that is often portrayed as Public Enemy Number One by many environmentalists?
Should peak oil alarmists view this as ExxonMobil hedging their bets on oil because it is running out and raise the victory flag for peakists across the globe?
Whatever happened to T. Boone Pickens and the Pickens Plan?
Let’s start with the original question posed for Congress. The simple fact is ExxonMobil is a lot like Walmart in the respect that if Walmart decides to make a change or invest in something new you can be pretty sure their decision will have a wide ranging impact. ExxonMobil has the same kind of power. When ExxonMobil made the decision to invest a paltry $600 million in biofuels people took notice. The same thing is happening now that ExxonMobil has spent significantly more to become a major player in the natural gas industry.
How will this affect Congress? Natural gas prices are notoriously volatile and some of the lifelong politicians in Washington have a long memory as evidenced by this quote from Sen. George Voinovich (R-Ohio) in the New York Times article “Exxon-Xto Deal Forces Congress to Reconsider Natural Gas” illustrates, “We encouraged our electricity to go to natural gas; our gas prices went up to the top,” Voinovich said, leaning into the microphone to get his point across. “We lost millions of jobs in this country because of high natural gas costs. When we did that policy, we didn’t pay attention to the impact it would have on our economy.”
The price volatility that burned us in the past could become a thing of the past with ExxonMobil in the mix. ExxonMobil has discussed selling gas using long term contracts, as opposed to the traditional six month contracts currently used. This move alone could remove a great deal of the volatility involved with natural gas.
Moving on to the second question I would caution anyone from thinking this signals a greener, gentler and more environmentally friendly ExxonMobil. Oil is still going to be what pays the bills at ExxonMobil, just ask Vice President of Investor Relations David Rosenthal “It’s not a strategic shift. We are not shifting away from oil to gas.” There you have it.
Don’t expect a straight answer out of ExxonMobil or anyone else about the issue of peak oil. The verdict is still out for a number of reasons, not the least of which is it is really, really hard to figure out how much oil is spread out across the planet. Analysts will tell you that it is getting harder and harder for ExxonMobil and everyone else to find the easy oil. Natural gas on the other hand has never been easier to access, although there are also questions about whether we have reached peak gas.
As for ol’ T. Boone and his Pickens Plan it seemed like a great idea when gas cost $4 a gallon and the economy hadn’t completely tanked. Today you don’t hear much about Mr. Pickens. You can bet that ExxonMobil will want to sell their natural gas one way or the other, but the idea they would push to use natural gas as an alternative fuel for traditional transportation is farfetched at best.
These are just a few of the questions that have arisen out of ExxonMobil’s big move. Any time ExxonMobil steps out of their traditional role as an oil supermajor you have to take notice and wonder how it will affect the bigger picture. For now we will have to wait and see along with everyone else.
Pemex is the national oil and gas company of Mexico. And fortunately for Pemex, Mexico has considerable state-owned natural gas resources. But because of legal, economic, and political barriers, the country is drastically underutilizing its gas reserves.
Mexico currently holds approximately 11.8 trillion cubic feet (Tcf) of proved gas reserves, but is seeing significant declines in reserves each year [1]. While production in Mexico is declining, consumption is rising at nearly 7 percent annually [3]. A major contributor to the rise in gas consumption is the increased use of natural gas as a fuel for electricity generation. Consumption in the electricity sector alone has grown from 16 percent in 1997 to 33 percent in 2007. Pemex itself is Mexico’s single largest consumer of natural gas, accounting for approximately 40 percent of the country’s annual consumption [2]. The figure below shows the recent decline in Mexican natural gas reserves.
Already a net importer of natural gas, these trends raise questions of how Mexico can sustain its current energy policy as it relates to natural gas, or for that matter, why it would choose to.
Mexico has significant potential for new discoveries of natural gas, predominantly in the deep and ultra-deep waters of the Gulf of Mexico. However Pemex does not have the necessary technology or financing to develop these resources, and the current legal framework and political regime has proved that changing the status quo will be difficult. Additionally, legal restrictions in Mexico all but ban outside investment.
Mexico needs to create joint ventures and partnerships with foreign companies to significantly bolster exploration and production efforts in order to combat current declines in production as well as steady increases in consumption. By and large, Mexico has waited too long to act. Their energy policies have been extremely shortsighted and have failed to realize a growing need to open their natural gas market to outside investment. Policymakers should be aware of several certainties in the Mexican gas market, which should be the driving force behind many of their energy policy decisions.
1) There is a limited domestic gas supply and production is rapidly decreasing;
2) Mexico has shown a strong demand growth for natural gas in recent years;
3) Pemex has limited technology and financing;
4) Pemex has shown limited execution capability; and
5) There is significant potential for new natural gas discoveries [3].
If Mexico is to reverse this trend it must act ASAP, and dramatically change its policies to attract more foreign investors.
[2] Leon, Alejandra and Falcon, Ricardo. Mexico’s Quest for Energy Reform: Making the Bid for the Quantum Leap? Cambridge Energy Research Associates, Inc. April 3, 2008
[3] Salazar Diez de Sollano, Francisco X., “Natural Gas in Mexico: Current Trends and Alternate Scenarios.” The James A. Baker Institute for Public Policy, Rice University. May 27, 2004.
Please forgive me for the cheezy post title, but if you choose to read on I think you will see it is relevant. When we discuss the challenges facing wind energy we hear about the intermittency and storage issues, destroying the visual landscape, lack of transmission and even the dangers posed to birds. Many people also raise valid concerns regard whether or not wind can be economically feasible without government subsidies, regulations and mandates. A recent Scientific American article shows that wind proponents should also worry about the challenges we don’t hear about every day.
Not surprisingly, a lot of these less discussed challenges are coming from wind’s competitors. The Coalition for Fair Transmission Policy believes wind producers should fork over the funds needed to expand the transmission infrastructure from the areas of the country where wind energy is produced (the Midwest) to the areas with the highest energy demand (the East Coast). While this seems like a reasonable idea on the surface you should be asking yourself who is this Coalition? Turns out the Coalition for Fair Transmission Policy is made up of East Coast utilities.
Closer to home we have players in the natural gas game demanding that wind developers be held responsible for some of the costs associated with running backup natural gas generators. These generators are essential in providing electricity when the wind slows down and is unable to produce the needed amount of electricity. As before this appears to be a reasonable suggestion. Why shouldn’t wind energy producers help foot at least part of the costs generated when a gas turbine is turned on to make up for a decline in wind energy? At the same time this seems like an attempt by the natural gas industry to increase their competitions costs and help keep natural gas competitive on price.
Anyone who is familiar with the wind industry understands the large role played by the government. While people can certainly debate whether the government should be involved at all and if so to what level, nobody can deny the importance of politics in the past or in the future. In my podcast I touched on the concerns Senator Charles Schumer raised regarding the spending of stimulus funds on projects that were creating more jobs in China than in the United States. Now Schumer and three other Senators proposed a plan that would prevent federal grants being issued to any project used blades or turbines manufactured outside of the U.S. opponents of the Senators’ plan claim that the U.S. cannot afford to slow or limit the growth of the wind industry because it will only put us at risk of falling behind Chinese and European manufacturers. They also point out that Schumer and his colleagues are simply trying to funnel jobs to their states and the number of jobs going overseas has been exaggerated. As with most things in politics the number of jobs being created in and outside of the United States differs significantly depending on who you talk to and before you know it the whole issue has taken a nasty turn towards “he said, she said”-ville.
It is obvious each of these parties (Senators, utilities, the natural gas industry) and their actions are motivated through their own self-interests, but it should be just as obvious that we cannot simply dismiss these legitimate concerns simply because we do not support the people raising them. In a perfect world we would be focused on finding solutions for the “natural” problems facing wind instead of creating additional artificial roadblocks. In that same perfect world everyone would be working towards the common goal of creating clean renewable energy and the traditional utility, natural gas and coal industries would be okay with that. Reality is the world isn’t perfect and the future of wind energy is hardly certain. For the wind industry to continue its impressive growth they will have to learn to be just as focused on navigating the wonderful world of politics and viciously competitive energy industry as they are with coming up with solutions to their storage issues.
Generally when we talk about energy policy we mean decisions regarding industry regulations, subsidies, and reserves. Occasionally though new technologies in the energy sector can have far reaching consequences throughout the political world. An example is the seismic shift in Russian diplomatic strategy and options in just the past 2 years.
As has been mentioned in previous posts, advances in natural gas extraction, particularly horizontal drilling and hydraulic fracturing or “fracking” have vastly expanded the US’s established natural gas reserves:
“Proven U.S. reserves have risen to 245 trillion cubic feet in 2008 from 177 tcf in 2000, despite having produced nearly 165 tcf during those years,” says Daniel Yergin of Cambridge Energy Research Associates. “With more drilling experience, U.S. estimates are likely to rise dramatically in the next few years. At current levels of demand, the U.S. has about 90 years of proven and potential supply — a number that is bound to go up as more and more shale gas is found.”
At the same time, these massive gains have had a very different impact on the other side of the world. As recently as 2008 Russia’s long term international strategies assumed their position as an energy supplier, primarily due to their natural gas reserves. In fact, in 2005, during a dispute with the Ukraine over gas pricing, Russia flexed its political muscle by cutting off gas supplies to Western Europe. Additionally, in what many industry observers considered a first step towards an OPEC-like cartel, Russia joined with fellow gas exporters Algeria and Iran to open an international natural gas office. Exploration of the massive Shtockmann field under the Arctic ocean was predicated on a world market desperate for Russian national gas, especially in Western Europe and the US.
That has all changed now. The Shtockmann fields have been mothballed, partially due to the global economic downturn, but also due to the drying up of demand for Russian gas. The US, who in 2003 was hearing warnings of domestic natural gas running out, is now poised to become self-sufficient on natural gas, and potentially start exporting. With the glut of natural gas on the global market today, Russia’s clout in the energy sector has waned, along with the political power that came with it.
At this point it’s unclear what the eventual political fallout of Russia’s diminished influence will be. However, there could be a silver lining, as the Russian economy may be forced to diversify away from the energy sector, resulting in a more stable and modern economic base. Which, in the long term, may be far more beneficial than the dominance of a being a major natural gas supplier.
Energy, Technology, & Policy 
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