Wednesday, March 17, 2010

It takes more than "gumption"...

Energy independence will require more natural resources and/or conservation that we have.

Let's look at some numbers. Total U.S. petroleum demand is 19.5 million barrels per day.  Total daily crude oil production from U.S. oilfields is a shade below 5 million barrels per day. Once you net out other factors - production of usable natural gas liquids, imports of gasoline and other refined products, and exports - yes, U.S. producers on the hunt for market advantages export some 1.8 million barrels daily in crude oil and refined products - net imports of liquid fuels total 11.1 million barrels per day, according to the U.S. Energy Information Administration (EIA).
By 2035, however, net imports are projected to fall to 10 million barrels daily, according to EIA. Demand is projected to rise to 22 million barrels per day, but that would be offset by higher domestic production - an extra million or so barrels from deepwater oil wells in the Gulf of Mexico and greater use of biofuels, chiefly ethanol. Fuel efficiency standards that are due to take effect in 2016 will save an estimated 2 million barrels per day.
Could the gap between domestic supply and demand be closed further? Let's say the coastal plain of the Arctic National Wildlife Refuge, the most biologically rich habitat in the circumpolar north, is handed over to oil companies. A what-if analysis published in 2008 by the U.S. Energy Information Administration projected, in a best-case scenario, maximum daily production of 1.45 million barrels daily by 2028.
If that projection is accurate, we would still need to find another 8.5 million barrels per day to close the gap by the 2030s. How much could be expected from offshore waters that no longer are under leasing moratoria? EIA's Annual Energy Outlook for 2009 provides a clue. Under business-as-usual, assuming that previously closed areas are open to leasing, EIA projects that offshore production in the lower 48 would total 2.7 million barrels daily by 2030. In a what-if analysis of reinstating the moratoria, production drops to 2.2 million - a difference of only 500,000 barrels.
Why the small difference? EIA explains that lifting of the moratoria is not the magic elixir that the "drill, baby, drill" brigades claim. "Conversion of the newly available (offshore) resources to production will require considerable time, in addition to financial investment," EIA notes.
How about liquefying coal? America's Energy Future figured that coal-to-liquids could produce the equivalent of 3 million barrels per day by the 2030s. To accommodate that production would require a 50 percent increase in U.S. coal production - from about a billion tons to a billion and a half tons every year. The likely air, land, and water impacts boggle the mind.
In addition, liquid fuel from coal results in more than twice as many life-cycle carbon dioxide emissions as gasoline. If carbon sequestration proves impractical, scaling up coal-to-liquids production would put paid to any reasonable prospect of stabilizing the atmosphere's concentration of heat-trapping gases.
Ethanol? America's Energy Future estimates the equivalent of 1.7 million barrels daily might be doable by the 2030s. There are issues, however. Ethanol would need its own pipeline network. Ethanol from cellulosic sources is more expensive than coal-to-liquids. [More]
It is, of course stirring to cry out for the US to take the same technological leap in energy as it did to put a man on the moon.  But in case you haven't noticed it, we haven't been able to even repeat that remarkable feat, and it now stands as the high water mark of our collective and political will as a nation.

But the larger issue outlines well by by the report cited in this post, is those resources are not available in our country, not the means to develop them. I do think a goal of reducing our dependence to the equivalent of western Hemisphere sources might be possible, but due to oil's fungibility, we'll never get to no Saudi Arabia imports, nor is there a commanding reason to do so.
The best analogy I've seen of this is one put forward by Fred Singer from the University of Virginia. He said the global oil market is like a giant bathtub. All the producers dump their oil in the bathtub and all the consumers pump their oil out of the same bathtub. And the level in the bathtub is the price. So yes, we could consume less oil by finding something else—we don't know what yet. But in the meantime, we're still going to be tapping into that same bathtub and paying that same price that the rest of the world's global consumers do. This idea that we can detach from this market is craziness. [More]
If security is at the heart of the issue, using less seems to be a far more effective strategy. However, sacrifice, as we are learning slowly from public budget deficits, seems to only be imposed on us, not taken willingly.

The larger question about energy from a corn grower perspective is the looming financial crunch for government and the continuation of ethanol and biodiesel subsidies.
The U.S. ethanol and biodiesel industries are finding it more difficult to maintain political support for a variety of tax credits. We've heard some rumblings that both industries may be joining forces to push for longer-term extensions of the ethanol blenders credit and the $1 biodiesel tax credit. Though both industries have their share of challenges, the ability to secure long-term extensions of those credits may be the determining factor as to where both industries go from here. Environmental groups and others say it makes no sense for ethanol and biodiesel to have tax credits and federal mandates driving production. When the biodiesel tax credit was allowed to expire at the end of 2009, the industry virtually shut down. It is expected the same likely would take place if ethanol lost the blenders credit. With ethanol, based on the current markets, losing the 45-cent credit would make ethanol production a break-even proposition. [More]
The fact ethanol will apparently never outgrow its need for subsidies may be partly because of  competing subsidies for oil, NG, etc. but it raises another question for corn producers. Given the absolute reliance on mandates and subsidies for viability, we may have created a too-big-to-fail entity, not unlike megabanks.  

Loss of government support would put most ethanol production at great risk, even rapid failure, I suspect. Lobbing 3-4B bushels of unneeded corn back on the market as a consequence would at least temporarily (2-3 years) take agriculture to its knees, and dramatically restructure agriculture as we know it. 

So when farmers cry out to let big investment houses die the deaths of their own making, they are creating a rather dangerous precedent.

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