In a previous posting I stated my belief that the pure electric vehicle was the way of the future and that this sector of the automobile industry would grow more or less continuously for the foreseeable future. I decided to do a bit more investigation into how quickly that could happen given trends in vehicle sales over the past few years. I also decided to look into what has been happening with fuel economy rates given that retail gasoline prices have more than doubled in North America in the last ten years. Unfortunately, what I found was not terribly encouraging.
The chart below displays U.S. vehicle sales since the turn of the century.
There are a couple of things of note.
First, the shift from passenger cars to “trucks” (which includes SUVs) between 2000 and 2005 was significant. This trend did not slow down until the price of gasoline hit about $2.30/gallon and even then the impact was not dramatic. What was very dramatic was the decline in vehicle sales in the U.S. as the financial crisis of 2008/2009 battered the economy.
In those years, when cash was scarce for so many Americans, vehicle sales dropped almost 30% sending almost every U.S. automobile manufacturer into bankruptcy. Truck/SUV sales were hit particularly hard, dropping below sales for passenger cars for the first time in the 21st Century. Presumably this reflected a recognition that the cost of owning and operating a truck/SUV was hard to justify in tough economic times.
As the economy gradually recovered it could have been the case that this lesson would have had a lasting impact; that more economical and fuel-efficient vehicles would continue to dominate. Sadly (in my opinion), this has not been the case.
Sales of Trucks/SUVs have rebounded even more quickly than sales of passenger cars and have regained their leadership position. There is every indication that the gap will continue to grow despite historically high gasoline prices.
What impact have these buying patterns had upon the average fuel consumption for the U.S. vehicle fleet? The trends are shown in the graph below.
The gap in fuel economy between trucks/SUVs and passenger cars is large and has actually increased from 6 MPG to over 7 MPG since the turn of the Century. This is primarily because the two categories of vehicles are treated differently under the Energy Policy and Conservation Act which mandates certain levels of fuel economy for vehicles manufactured in the U.S.
The bottom line is that despite having made some progress in the past few years Canada and the U.S. continue to exhibit the worst vehicle fuel economy in the world (for an in-depth analysis see “International comparison of light-duty vehicle fuel economy: An update using 2010 and 2011 new registration data”). And despite record-breaking retail gasoline prices, tough economic times, and an increasing awareness of environmental issues we keep slipping back into the habit of driving fuel-hungry vehicles.
There are justifiable reasons for that purchasing pattern. We do get some nasty weather in much of North America including snow and ice which makes a four wheel drive vehicle a safer ride. And because there are so many SUV’s, pickup trucks and 4×4′s on the road driving a smaller, lighter passenger car can be more than a little intimidating. To some extent the whole situation becomes one of “I need to drive a big, strong vehicle because everyone else has a big, strong vehicle.”
Is there any realistic hope that vehicle buying habits will change in North America anytime soon? The incentives for such change could include significant increases in retail gasoline prices (very likely in the next 5-10 years), significant changes to the CAFE rules (unlikely because of intractable opposition from automobile manufacturers and conservative politicians), and/or a real change in public attitudes towards CO2 reductions that could moderate climate change (I have seen very little evidence of this as described in another blog posting).
Taking all factors into account the prognosis for a significant change to more fuel-efficient, generally more expensive and smaller vehicles is poor. That does not bode particularly well for EV’s which are even more expensive and often smaller than fuel-efficient gasoline, diesel, or propane-powered vehicles.
It was recently announced here in British Columbia that the the “Clean Energy Vehicle Program Rebate” has depleted its funding pool and would not be extended. These rebates provided up to $5,000 in direct government grants for EV’s, representing about 14% of the price of a Nissan Leaf. Even with this fairly generous rebate program less than a thousand EV’s were sold in BC in the last two years – and BC considers itself (perhaps incorrectly) to be the “greenest” province in Canada.
There is another concern that may start to become apparent over the next year or two. The new breed of EV’s rely upon Lithium-ion batteries – the same type of battery that is used to power mobile phones, laptop computers, iPads and other tablets. Having used these types of devices extensively over the past 10 years I have never had a single device where the battery was not essentially useless after about 3-4 years. Perhaps automobile batteries will perform better – I certainly hope they do. But as the early Nissan Leafs and Tesla’s start to age they may degrade significantly; And that would have a chilling impact on EV sales around the world (note that the Prius uses a NiCad battery that has proved to be extremely reliable over 10 years or more).
So have I changed my opinion on EV’s? The short answer is “No”. I still believe that we have embarked upon a revolutionary change that will take place at a steady pace. However, it could well be that the pace of that change will be slow for most of this decade. Only a serious spike in the price of oil, which is always a possibility, could radically speed up the EV revolution. But that would have all kinds of other negative economic impacts that we would all probably like to avoid.
Less than a week after writing this post I was on a business trip to Anaheim and finally was lucky enough to find a Nissan Leaf “in the wild”. It’s owner, Matt Buchanan was kind enough to spend a few minutes talking to me about his beautiful “Felix”. In fact he stated that he was always happy to talk to people about the car and has had lots of questions about it.
Matt has had the car for a few months and is very pleased with it. He noted that the acceleration was particularly impressive and he feels that the Nissan Leaf is the best engineered car he has ever driven.
In terms of range Matt feels that the 75 mile range on a charge is a reasonable claim although he has not driven more than about 50 miles with the car yet – hasn’t had the need to in his normal driving.
One issue that Matt highlighted was the situation with fast charging stations. Originally almost all the stations were free but some are now charging a fee – typically a monthly subscription plus a per minute charge. So this will impact the economics of driving the car if the trend continues.
Overall Matt is very satisfied with his “Felix” and would recommend a Nissan Leaf to anyone considering purchase of an EV.
John Lennon’s iconic song “Imagine” has been rated #3 on Rolling Stone’s list of the “500 Greatest Songs of All Time”. It envisages a world where elimination of some of the major things that divide humanity – religion, nationalism, and materialism – are discarded in order to achieve global peace and harmony.
While the ideas delivered so powerfully in this song are immensely attractive at the conceptual level, things get a bit more nuanced when you take a cold, hard look at the details. Would any of us really want to try and live with “no possessions”? I don’t think so. And yet there are social changes afoot that are heading in that general direction.
This fairly radical view of the future is based upon a growing recognition, especially amongst the millenial generation, that we don’t all need to own a copy of every possible consumer item even if we can afford to have one. Instead, it might be possible to enjoy almost exactly the same lifestyle as we do today by employing a technique which was common in rural agricultural communities not so long ago – it’s called sharing!
Evidence of the growing popularity of this approach is everywhere.
On a vacation in Chicago last summer my family used the Divvy bike-sharing system. Unlike a traditional rental shop which requires you to pick up and drop off a bike at the same location, the Divvy system encourages you to pick up a bike from any of hundreds of locations, drive it to where you want to go and drop it off at a station near your destination. You can keep doing that as many times as you like in 24 hours for as little as $7.
Over the course of a week various combinations of family members drove bikes throughout the downtown area and along the lakeside bike paths for more than 20 hours in total. The cost? $87 including taxes and some surcharges for trips lasting more than 30 minutes. The convenience and flexibility of the system really made it a pleasure to use.
An identical strategy is taking place with car-sharing. Here in Vancouver both Zipcar and the Modo car co-op are growing steadily. As with the Divvy bike sharing system these services allow you to locate the nearest available car using a computer or Smartphone app, pick it up and drive it to your destination where you simply leave it for the next system user.
Car and bike sharing are really not that innovative in the sense that car and bike rentals have been around for a very long time. But what about specialty consumer goods?
Do we all really need to have a full set of power tools? When was the last time you used a router, circular saw, or sonic stud-finder? And what about that deep fryer, chaffing dish, or food processor?
No doubt it is handy to know that you have these items around in case you need them (if you can actually find them in some dark storage cupboard buried under other “essential” items – I often can’t).
But even if you can afford to own them and even if you have a storage space for them think about this.
What if we could avoid the enormous use of energy required to fabricate these items, package them and deliver them to a retail outlet if we just didn’t require as many? In order to try and assess what the potential savings could be I recently put together a video on the Fantastic Voyages of the Stackable Chair (See it on Youtube).
The idea of sharing our precious possessions is more than a little bit disconcerting. And there are certainly things (like my 1975 Stratocaster) that I personally would not feel comfortable entrusting to the use of anyone but a very close friend. But there are many other things that I use but rarely that it would make sense to make available in some sort of sharing scheme. How much damage could someone do to my 20 foot aluminium ladder or my wheelbarow?
There might even be a few items that I wouldn’t be too upset to see damaged or destroyed – the Garden Gnome I received as a gift from my aunt Matilda comes to mind.
A recent article in a local newspaper here in North Vancouver described a new initiative which demonstrates how the concept could actually be put into practice as well as providing a great summary of the phenomenon that is becoming known as collaborative consumption.
The benefits go beyond efficiency and a reduction in energy use. Sharing within a community, be it a University, neighborhood, or club reinforces the social connectivity within the organization and builds that most precious of social commodities – trust.
I grew up in a rural community where helping neighbors take hay off the fields in the late summer was just expected behaviour. In the winter the outdoor ice rinks were built by volunteers. When the local recreation hall was destroyed by fire the entire community pitched in to build a new one. So I get the idea of sharing work. But the concept of collaborative consumption takes sharing to a new level.
I am not quite ready to go “all in” with this idea. But I do find it intriguing enough to pursue it in some form or other. Any concerns I have are definitely not enough to overcome the reality that this is just the right thing to do on so many levels.
“Imagine all the people sharing all the world…”
Unrealistic? Probably. But what a fantastic tribute it would be to John Lennon’s vision and legacy if collaborative consumption reaches even a fraction of its potential.
There has been a lot of discussion about the electric vehicle revolution and what its impacts will be. Are EV’s gaining traction or getting stuck in the mud? Will they quickly replace internal combustion powered vehicles or will they represent a “green” niche market for decades to come? Will manufacturers be willing to lose billions of dollars on EV development forever or will they eventually make most of their profits from this technology?
The questions about EV’s go far beyond the impact on the automobile manufacturing industry (which is one of the biggest industrial concerns in the world). The impacts upon electricity utilization and the grid, both positive and negative, will in many ways shape future decisions about generation and grid management. I am going to explore a few of these questions in this blog posting.
Firstly, what is the current status of EV sales worldwide?
In trying to answer this question we are immediately faced with another question. What is an EV?
One definition would be that an EV uses an electric motor as its primary propulsion system. Such a definition would probably exclude the Toyota Prius and other Hybrids which normally use the internal combustion engine for motive power and reserve the electric motor for very low speed driving (under 25 miles per hour) and more importantly to boost power during acceleration. The Chevy Volt would meet that definition as it only uses an electric motor to power the vehicle even though it has an internal combustion engine which can generate electricity to drive the engine when the battery pack has discharged to a certain level.
In my blogs I always stress that we need to be looking at the ultimate goal which is to eliminate our use of hydro-carbons, including gasoline. Simply reducing our use of gasoline is not sufficient. By continuing to use an internal combustion engine for long distance travel hybrids and even the Chevy Volt avoid the most difficult issue facing EV adoption. Namely, an unacceptably short range under normal driving conditions.
The Chevy Volt can travel approximately 45 miles on battery power alone under good conditions. The Plug-in Hybrid version of the Toyota Prius is rated at 14 miles. Of course both of these figures can be considerably less in cold winter conditions or under heavy load (for example going uphill for a long distance).
The average commute for U.S. workers is about 16 miles so the Volt would probably work using electric power only. The Prius would definitely not. Neither would work for many weekend trips under electric power alone.
For these reasons I am not going to include either plug-in hybrids or the Chevy Volt in my definition of Electric Vehicles. I will discuss vehicles that are practical, electric power only vehicles that have no gasoline tank. These vehicles are, in my opinion, the true future of the automobile.
Using that definition there are only two mass-market EVs available today. The Nissan Leaf and the Tesla Model S.
Although it is difficult to get accurate quarterly sales figures the graph below represents a reasonable estimate of how sales of these two vehicles have grown since the launch of the Leaf in 2011 and the Model S in mid-2012.
There are now more than 80,000 Leafs on the roads of the world and about 30,000 Tesla Model S’s. This number has been increasing at a steady pace, notably due to a price decrease by Nissan at the beginning of 2013 and by increasing recognition of the Model S as a vehicle that has dependable long-range capability.
The EPA estimate for “average range” for the Leaf is 75 miles. That will certainly handle most commuter trips and some longer trips.
The Tesla Model S is EPA rated at 265 miles range with the largest battery available in 2013. The Model S can also be equipped with super-charging capability which is able to fully recharge the battery in less than an hour. The large battery range and the existence of super-charging stations make long road trips with a Model S quite realistic. A map of the super-charging stations in place at the end of 2013 is displayed below.
EPA ratings and marketing brochures are one thing. Real world experience can be quite different.
When I began to write this blog posting I started looking out for EV’s in my home city of Vancouver, B.C. After a few days I caught sight of a Tesla (I probably missed a few Nissan Leafs which are harder to differentiate from other similiar sized vehicles). I was able to follow the Tesla into a parking lot where the owner, Barry Yates, kindly agreed to an impromptu interview.
Barry purchased his vehicle the first day they were available locally. He regularly travels to Whistler Mountain for ski trips, a distance of about 70 miles. The road to Whistler climbs uphill to an elevation of more than 2,000 feet and has to be done in cold, winter conditions. Barry told me that he never has trouble making the round-trip on a single charge, partially because there is regenerative charging on the trip down on some of the steeper declines.
One thing that surprised me was that Barry felt the Tesla had good winter road handling despite being a rear-wheel drive vehicle. The large battery distributes the weight very evenly between the front and rear wheels which probably helps. Barry has installed snow tires which is a normal requirement for all vehicles travelling to Whistler.
Barry has also made a few trips to Seattle, Washington, about 150 miles from Vancouver. He has been in the habit of stopping at a Super-charging station at Burlington, Washington, about half-way to Seattle. The 15-20 minute stop tops up his charge so that he doesn’t have to worry about being low on power as he gets closer to Seattle. Anyone that has been in the traffic jams on the I-5 can appreciate that.
What is the bottom line? I think a fair evaluation would say that currently available technology can produce a vehicle that meets the everyday needs of most North Americans.
But that does not guarantee that the adoption of EV’s will be quick or smooth. The Tesla Model S is an impressive vehicle. However, the pricetag is also impressive with the long range version costing more than $70,000. The Nissan Leaf, at about $30,000 is more manageable particularly after various rebates and incentives are accounted for. But for a vehicle its size it is not inexpensive.
There are very significant savings to be had with a true EV with regards to fuel costs. Barry Yates indicated that his home electric bill had gone up about $50/month after installing a 220 V charging system for his Tesla. However, his fuel bill went down more than $500/month. An annual savings of something like $5,000 isn’t a bad return on an investment of $70,000 – as long as you have the $70,000 to put into a vehicle.
Prices will come down as the technology matures, as manufacturers start to achieve economies of scale, and as inevitable increases in the price of gasoline make the returns more attractive. So in my opinion the transition to EV’s is underway and won’t slow down anytime soon.
Given that new reality it would be wise to consider some of the non-automotive consequences that will likely result from this transition.
First, what will the impact of EV’s be on electrical load factors?
Like most things when it comes to load factors the impacts are not that easy to predict. However, it is likely that a typical charge cycle will extend from the time a person gets home from work until the battery is fully charged.
Barry Yates indicated that charging his Tesla takes about 10-12 hours on a 220 V outlet (the same type used for a clothes dryer or oven). As the number of EVs increases this new source of load will start to have an impact on demand curves and the grid.
In Northern areas where the peak demand is in winter this will be particularly problematic. The period 5:00 pm to 8:00 pm is already a high demand timeframe and adding EV charging will definitely result in new record demands unless significant changes in energy usage can be implemented.
In the south where summer air-conditioning results in peak demand the impact will not be as severe. The main impact will be to extend the typical peak demand period (2:00 pm until 5:00 pm) later into the evening but it is unlikely that higher peak demand would result.
For workers with longer commutes there will possibly be a need to charge vehicles after arriving at the workplace. This should not be much of a problem because the morning peaks are not as high as afternoon and evening peaks regardless of the season.
Based upon this very preliminary high level assessment it would probably be wise to try and delay home EV charging until later in the evening. A start time of 11:00 pm would still provide a long enough charging period for most users. As EVs, like other appliances, become “smarter” it may well be possible for them to be programmable to delay the charging cycle until a specified time. Perhaps, ala Siri, this could be done by voice command.
“Car – start charging at 11:00 pm” – sounds both futuristic and creepy at the same time!
In anticipation of an eventual fleet of hundreds of thousands of EVs, considerable research has been conducted into how this resource can be used for grid stabilization and frequency smoothing services. A number of papers published by scientists from the National Renewable Energy Laboratory (NREL) have discussed implementing real time demand response by controlling when the EV fleet starts and stops charging (see for example “Value of Plug-in Vehicle Grid Support Operation”). Of course this would depend upon vehicle owners allowing the local grid operator to control the charging functions of their vehicles. It also assumes a reliable grid-toEV communication infrastructure and protocol was in place.
There has also been some speculation that EV batteries could be used as a source of electricity for the grid when sharp drops in generation capacity occur (as a result of changing weather patterns which impact renewable generation sources such as solar or wind or as a result of an unexpected plant/unit shutdown). This is much less likely because it would require that whatever outlet the EVs were plugged into was capable of receiving electricity as well as delivering it.
Finally, there have been proposals to combine used EV batteries into an array that could act as utility-scale energy storage, capturing excess electricity at night or other low demand times and delivering it as a peak demand source. I discussed this research in one of the first postings in the Black Swan Blog.
It was more than 100 years ago that Henry Ford’s Model “T” rolled out of a factory in Detroit Michigan signalling the beginning of the end for steam powered automobiles. Those were radical times; the internal combustion engine and the assembly line combined to bring affordable transportation to the masses. Our love affair with the automobile has never waned since that time.
The change we face today is no less radical.
This revolution will put you in the driver’s seat of vehicles that move so quietly they can hardly be heard; they will not pollute our atmosphere; they will not rely upon the extraction of an energy source that cannot be replenished.
I don’t know about you but I can honestly say that I can hardly wait until I have managed to trade in my 7 passenger Town & Country (can you really call a 4,000 lb vehicle a mini-van?) for an EV – maybe even a Smart Bike!
Having spent more than 25 years in the oil and gas industry I have seen my fair share of hydro-carbon price fluctuations. So it has not come as a complete surprise to me that the “shale gas” phenomenon has had such a dramatic impact on North American Natural Gas prices.
At the beginning of the 21st century Natural Gas prices were about $4.00/Million BTU and thereafter they rose rapidly to $8-$10/Million BTU in the years 2005-2007. The economic crisis that started in the fall of 2008 coincided with increasing production due to the success of shale gas development which translated into a very rapid decline in Natural Gas prices to just over $2.00/Million BTU in 2012. Since then prices have recovered somewhat to about $4/Million BTU.
The low prices since 2008 have resulted in a very predictable decline in the number of drilling rigs exploring for new natural gas reserves. The impact is displayed in the graph shown below.
There are a few very striking features of this graph.
First, the almost total elimination of vertical drilling rigs is interesting. In traditional gas fields widely spaced vertical wells are able to drain the reservoir efficiently because the gas flows quite freely through the rock. In technical terms this type of reservoir has relatively high permeability.
Reservoirs that consist of rocks with lower permeability cannot be produced very efficiently with vertical wells. It is much more efficient, although also much more expensive, to develop these reservoirs using horizontally drilled wells as shown below.
As horizontal drilling grew more common in the late 1990′s it was possible to economically produce reservoirs that previously had been difficult or impossible to exploit. These so-called “tight gas” reservoirs became an ever more important source of Natural Gas in North America.
Because “tight gas” does not flow freely through the reservoir rock these wells produce a lot more gas in the first year of production than they do in subsequent years. In the industry this is known as the production decline rate.
While a decline rate in a high quality traditional reservoir might be 1-2% (allowing fields such as the Groningen in the Netherlands which came on-stream in 1963 to produce for an estimated 80+ years) tight gas can decline at 10-20% or more annually.
The “shale gas” phenomenon is a variation on “tight gas” which involves the injection of high pressure fluids and chemicals into a horizontally drilled well to break apart or “fracture” the reservoir rock near the well bore. After years of research & development fracking techniques have become standard industry practice and reliably result in significant production from shale reservoirs.
The exploitation of “shale gas” has increased dramatically since 2005 resulting in a glut of Natural Gas in North American markets. This in turn has driven down the price of Natural Gas to near historic lows in constant dollar terms. The Energy Information Agency forecasts that Natural Gas production in the United States will continue to increase for the next two decades based upon ever-increasing production of “shale gas”. They also forecast only modest increases in Natural Gas prices to the range of $7-8/Million BTU by 2035.
I am not convinced that this scenario is at all realistic.
The steep decline in drilling activity over the past 5 years is going to catch up with us at some point in the near future. It usually takes a few years to tie new gas wells into the distribution system and put production facilities in place. Therefore there is a lag between drilling activity and production.
The other difficult obstacle to overcome is the impact of rapid decline rates on total shale gas production.
Assuming a constant amount of drilling activity and discovery success the total production flattens out after about 15-17 years with a 10% annual decline and after only 10 years with a 20% decline, as shown in the graphic below. As the amount of shale gas in production increases the annual decline eventually is equal to the annual additions made through drilling for new reserves (Gary Swindell has analyzed production decline rates in great deal in a paper published in 1998 and extensively updated in 2005).
As noted above drilling activity has not been constant over the past 5 years but has actually decreased pretty dramatically. It follows that there will probably not be a large increase or in fact any significant increase in shale gas production over the next five years.
At the same time the older gas reservoirs will continue to decline at a slow rate as they have for decades.
Putting all these factors together it seems likely that Natural Gas supplies in North America will tighten up somewhat in the next few years. This dynamic of gas “booms” and “busts” is one we have seen many times before and is primarily driven by commodity prices.
When prices reach lows such as they hit in 2012 drilling activity dries up, supplies tighten due to declines and prices go up. Eventually prices go up enough for exploration companies to be willing to renew the search for new gas reserves. That process takes a couple of years during which supplies tighten even more and prices go up further. Eventually the balance swings in the opposite direction and supply meets or exceeds demand and prices soften.
The implications of this cycle are quite worrisome when put in the context of electricity generation.
The MACT regulations will force the closure of more than 40 GW of coal-fired generating capacity in the next few years. This is firm and dispatchable generation that can be called upon at peak demand times. No amount of solar and wind can replace that loss reliably without massive amounts of affordable energy storage which does not exist.
Utilities are struggling to come up with plans to replace the lost coal-fired generation capacity. In many cases the current low prices are pushing utilities towards the construction of Natural Gas fired plants.
That cannot be considered to be a negative choice. Natural Gas burns more cleanly than coal and produces about half of the CO2 per Watt of electricity generated. But there are a couple of problems with a wholesale switch to Natural Gas.
For those truly fearful about climate change then the fact that Natural Gas produces CO2 will continue to be a problem.
Probably more important on a daily basis will be the potential impact on utility rates if Natural Gas prices escalate significantly.
There is a reason that more than half of the electricity generated in the United States up until the turn of the century came from the burning of coal. Coal was and remains the least expensive energy source available.
Coal can also be stockpiled at a generating plant. That may not seem important but congestion in pipelines can be a real problem when temperatures drop and both residential users and power plants are consuming Natural Gas at the maximum rate possible. That was an issue in the NE part of the continent during the recent “Polar Vortex” storm.
My fear in all of this is that utilities will spend 10′s of billions of dollars building Natural Gas plants which will help drive prices up – and those price increases will be passed on directly to electricity consumers.
My hope is that this rather bleak future of higher prices and continued CO2 emissions will cause utilities and governments to consider putting more time and money into developing affordable energy storage solutions. If we could store energy on a very large scale we could time-shift solar and wind generation to match our demand patterns. That is, in fact, a requirement before we can move completely away from the burning of hydro-carbons to generate electricity. There are other measures that we can pursue – many of which are described in my Sustainable Energy Manifesto.
In previous blog postings I have expressed my concerns about the relative return on investment and the economic fairness of roof-top solar panels. But I am also a big fan of solar power which is, after all, the most abundant and the most reliable energy source that we have at our disposal. In this blog I want to draw attention to some encouraging news in the industrial development of solar power. I also want to point out a few very fanciful uses of solar power that I believe demonstrate some of the future potential of this resource.
First, it is an exciting time to be involved with Concentrated Solar Power (CSP). With the commissioning of both the Solana Plant in Arizona and the Ivanpah Plant in Nevada over the next few months the global CSP generating capacity will almost double. The Solana Plant is particularly encouraging because it incorporates molten salt storage allowing the Plant to run for up to 6 hours after sunset. It is not the first plant to incorporate molten salt storage but it is the biggest.
Half a world away CSP developments in North Africa and the Middle East are starting to gain traction. The Noor I CSP Plant broke ground in Morocco in May, 2013 with financial support from the German government. In the same month the Internationally backed Climate Investment Funds approved a revised plan for the rapid development of CSP in North Africa. This plan aligns with the Desertec Foundation’s vision of utilizing solar resources in desert regions to transform local economies while supporting a transition to sustainable energy resources.
This year the government of Saudi Arabia made a massive committment to the development of solar power with the goal of converting most of the oil-fired desalination facilities in the Kingdom to solar power. That would provide some relief for global oil supplies (currently almost 2% of global oil production is used in Middle East desalination plants) as well as representing another very substantial increase in global CSP capacity.
The only negative development in the world of CSP is the 180 degree change to support mechanisms for the development of this technology in Spain.
Prior to 2013 Spain had been a world leader in developing CSP and is home to the two premier CSP engineering firms. However, the elimination of almost all financial supports for CSP developers in August, 2013 has led to a collapse of CSP projects in Spain. Luckily there continue to be many new opportunities in Africa, the Middle East and the U.S.
Photo-Voltaic solar panels have had more of a mixed year in 2013. Module prices seem to have bottomed out and the resulting price competition has led to the bankruptcy of a number of manufacturers. In jurisdictions where the penetration of solar panels has reached double digits as a percentage of normal load incentives are being cut back and in some cases regulatory barriers are being raised, most notably the capacity studies in Hawaii. In Arizona monthly service fees are being added to the utility bills for homeowners with rooftop solar panels. The many challenges facing PV solar represent a serious risk to the further development of this resource.
Although dropping solar cell prices and associated reductions in margins are disrupting the supply side of the PV solar business these developments are making it possible to showcase solar power in ways never before possible.
The team behind the Solar Impulse solar-powered airplane announced that they will attempt an around-the world flight in 2015 entirely on solar power. This well-funded and experienced team has been working for more than 10 years to make solar powered flight a reality.
Solar Impulse is not the only game in town when it comes to harnessing the energy of the sun to power an aircraft. Flying somewhat under the radar is Eric Raymond and the team behind the Sunseeker series of aircraft. The newest member of the family, the Sunseeker Duo (shown above) is currently undergoing flight tests. It will be the speediest solar-powered aircraft ever built. It will also be the first to be able to carry a passenger. I would encourage my readers to visit these sites and if you like what you see consider making a donation which will help these organizations continue their ground-breaking work.
Shifting from the skies to the oceans, the world’s largest solar-powered ship, MS Türanor recieved a new life mission as a research vessel after completing the first solar-powered circumnavigation of the earth’s oceans. It has set off on a Swiss-sponsored voyage to study the seasonal changes in the behaviour of the Gulf Stream.
These innovative applications of solar power demonstrate the potential of an energy source that can meet many of our current needs. Efficient and cost-effective energy storage remains elusive but with a dedicated global effort storage solutions will be developed. In the meantime it is interesting to watch as solar power moves from the hand-held calculator to powering transcontinental flights and beyond.
Most supporters of renewable energy development are probably pretty comfortable with the way things are going. Wind and Solar generation has been increasing both in "nameplate capacity" and in actual production of electricity. There have not been any significant grid failures that can be blamed on renewables. Apart from a consolidation within the solar cell manufacturing sector there have not been any notable bankruptcies within the electricity generating sector. All visible signs are positive for a continued expansion of renewable resources.
When I talk to groups about renewable energy I start off with a Youtube video which demonstrates testing the compression strength of a concrete block. For 2 minutes and 40 seconds this is the most boring video you could imagine. The block shows absolutely no sign of stress. At 2:41 the concrete block fails and is utterly destroyed. As far as I am concerned we are at about 2 minutes and 30 seconds with respect to the electrical grid.
In order to understand what I believe to be the serious risks facing the electrical generation and distribution system it is necessary to review the structure of the system as it was before renewables began to be developed in a significant way. The chart below shows hypothetical load profiles for a peak demand day during the spring/fall, winter and summer as well as a line that represents the overall generating capacity in the system.
It can be observed that the system demand/load varies considerably throughout the day and throughout the year. It is also clear that there is a great deal of excess supply available for most hours on most days. In fact, only on the highest peak demand days of the entire year will the demand come close to the supply. That is by design as every well-managed electrical generation system in the world requires a reserve margin of 8-15% above peak demand. This reserve is meant to provide resiliency for the grid to accommodate scheduled maintenance shut-downs at major facilities such as nuclear plants, natural gas-fired and coal-fired plants as well as unscheduled outages due to storms or switching problems or other operational issues.
(Note: I appreciate that many people will raise objections to the demand curves presented in that their local situation might be very different. That is one of the challenges facing every Independent System/grid Operator. Local demand curves can be all over the map due to the mix of commercial, residential, and industrial users. My point is not that these particular curves are the most typical in all locations. The point is that demand varies significantly over the course of the day and through different seasons.)
So before we began to develop renewable energy there was plenty of generation capacity within the system. In fact, many generation facilities were not running at anything close to capacity most of the time.
Because of a public policy decision to reduce the burning of hydro-carbons (and the associated production of CO2 emissions) wind and solar generation sources have been subsidized through a variety of financial instruments including capital grants, tax credits, and feed-in-tariffs. Renewables have also been given preferential access to the grid in most jurisdictions.
These measures have achieved the stated policy goal. Wind and solar now make up a significant percentage of generation capacity in a number of jurisdictions and at times provide a large percentage of electrical production.
For example, Germany has developed over 30 GW of solar power and over 30 GW of Wind. On a blustery spring day in Germany renewables can meet up to 40% of the total electrical demand for a few hours at mid-day. There are regular announcements of "new records" for both solar and wind generation. A similar situation exists in Texas with regards to wind and in parts of Hawaii with regards to solar.
Remembering that there was already a surplus of generation capacity in the system before the development of renewables it is obvious that when renewables hit their generation peaks most traditional thermal generation plants are unable to sell electricity. That would not be a problem if the construction of these plants had not been financed based upon assumptions regarding how often they would be used and what wholesale electricity prices would be. In fact, the economics of running these plants has deteriorated to the point where many utilities, especially in Europe, are on a "credit watch".
The rational response of companies trying to sell electricity into a market that has a great over-supply would be to decommission some of the oldest and most polluting plants to bring supply and demand into a better balance. But there is a problem. Renewable resources cannot be relied upon, particularly at peak demand times. The chart below displays the wind resource available compared to the demand curve for a week in November, 2013 in Texas (this week was not chosen on purpose to make wind look bad. It was literally the first file I found on the ERCOT site when I was starting to write this blog).
In this situation demand rose throughout the week as a strong high pressure system spread across the state bringing with it colder temperatures while at the same time shorter days required more lighting. One of the more troublesome realities of meteorology is that large, stable high pressure systems are often responsible for peak electrical demand in both winter and summer because they are associated with clear skies and temperature extremes. These systems are also commonly characterized by very low winds across a wide area.
As a result while demand continued to climb wind energy faded away to almost nothing. At this point most of the thermal generation assets available within Texas had to come on-line in order to meet demand.
So it is impossible to decommission even the oldest and least efficient thermal generation plants in the system regardless of how many wind farms have been built and solar panels deployed. German utility E.on came face-to-face with that reality in the spring of 2013 when they were instructed by the local grid operator to keep an old plant operational even though it would rarely be needed.
But a new day is dawning in the U.S. and it could be a darn cold (or hot) one.
The EPA announced regulations in December 2011 that will require coal-fired thermal generation plants to clean up or shut down. The reality is that for many of these plants it will not be feasible to clean them up. In fact, in some cases the EPA will not even allow them to be updated with modern pollution controls. As a result more than 30 GW of firm generation capacity will be decommissioned over the next several years.
Plans to replace this loss are in some cases vague and have been changing often. Increased conservation and better utilization of existing plants are frequently included in Integrated Resource Plans. In other cases greater reliance upon renewables is explicitly identified. These are not really replacements for firm capacity.
A number of new Natural Gas fired plants are also under construction. While current low gas prices make this an attractive option the threat of future significant price hikes as well as the EPA's stated goal to regulate CO2 emissions are worrisome and are impacting the ability to secure financing of these plants in some cases.
As more and more coal-fired plants are retired it is likely that total system firm generation capacity will drop resulting in smaller reserves. This, in turn, will make the system more susceptible to storms or other unplanned outages.
The degree to which grid security is compromised will vary from region to region depending upon the penetration of renewables, number of coal-fired plant retirements and the health of the local economy which has a major impact on electricity demand. Based upon those factors I believe Texas and the Mid-west are the areas most at risk.
It may be that the reduction in coal-fired generation will do nothing more than cull excess capacity out of the system with no negative impacts. But groups such as the Institution of Engineering and Technology in the UK have issued warnings about the progressive stress on a system that has taken decades to evolve and is now faced with unprecedented challenges.
Like the concrete block in the Youtube video the system is not displaying any outward signs of weakness. The question is this – will the North American electricity system encounter its own version of second 2:41?
In many parts of the world there are significant financial incentives for homeowners to install roof-top solar panels. This can include capital grants for the equipment, tax write-offs and/or Feed-In-Tariffs that guarantee that electricity produced by the solar panel will be purchased by the local utility at above-market prices. In Hawaii the annual cost of these incentives is at least $200 million. In Germany it is now in the $billions.
As I pointed out in an earlier blog posting there is inherent unfairness in these subsidies which are only available to relatively wealthy single-family home owners. People living in multi-family dwellings, renters, and those on low or fixed incomes that cannot afford the capital costs of the installation cannot share in these programs. They can, however, contribute through taxes and electricity bill payments to the cost of the subsidies. They can also disproportionately help pay for the added complexities of a grid that can incorporate distributed power generation.
The incentive programs in many areas are also vulnerable to abuse. One couple in Ohio have installed over $180,000 worth of solar panels in order to provide year-round heating for their large indoor swimming pool and indoor tennis court. I’m sure they are most grateful to the taxpayers of Ohio and in fact the entire U.S. for the more than $55,000 they will receive in various tax breaks. And by the way, their solar panels do not help anyone become independent of Middle Eastern Oil. Electricity in Ohio is generated primarily by coal-fired plants with a small amount from natural gas-fired and nuclear plants.
Putting aside the fairness issue there is also a very strong argument against residential roof-top solar panels based upon basic economics.
If you live in the suburbs your street probably has dozens of single family homes of different sizes and shapes with various configurations of roofs covered by a variety of materials. Imagine if you will a veritable army of roofers crawling over these houses, attaching frames and mounting solar panels. If you think about that for a moment you will have to come to the conclusion that it is not an overly efficient operation. Lots of up and down ladders time and safety setup time and not so much install solar panel time. Now imagine that same scenario when it is raining or snowing – more than a little scary for everyone involved.
Compare that to utility-scale solar where uniform racks can be laid out and solar panels mounted from the ground in a matter of minutes. The two scenarios are illustrated by the photographs.
Recognizing that the public and electrical utility customers are footing a large part of this installation bill which configuration would seem to provide the best return on investment? It would be hard to argue against the utility-scale solar panels.
What about efficiency in terms of making the best use of the solar resource?
In the case of residential roof-top solar there are likely to be plenty of other buildings, trees, and hills nearby so that the solar panels are often in the shade. Almost all of these solar panels will also be mounted rigidly, most commonly at the angle that is the roof pitch. This will not be the optimal angle for most sites and latitudes.
Utility-scale solar panels can easily be equipped with single or dual-axis tracking which very significantly increases the power generated under all circumstances. They will also be located in large open areas where they will be in direct sunlight for most of the day.
Having small, deep-cycle batteries as backup for the solar panels might be an expensive necessity at Possum Lodge but in suburban North America that type of installation doesn’t make a lot of sense – which is probably why almost nobody does it. Instead, through the magic of net metering, the surplus solar at mid-day is pushed out onto the grid whether it is needed or not. The home-owner effectively gets to use this mid-day electricity as a credit against the much more expensive evening and night electricity that would otherwise have to be purchased from the local utility at peak demand prices.
For the local utility the end result is a significant reduction in revenues from the owners of the roof-top solar panels even though they are making the grid more expensive to build and maintain. Who picks up the slack? Everyone that does not have roof-top solar panels.
The home owner that installs the roof-top solar panels will probably be pretty excited about them and will maintain them to some degree. But as houses change hands that commitment could fade; as leaves, moss, and dirt accumulate through the years who is going up on the roof-top to polish up those solar panels. Nobody is my guess. So the overall efficiency of the panels is bound to decline over time. The same with local battery storage if it has been installed.
Finally, the presence of roof-top solar panels has been identified as a significant danger to fire fighters.
All in all, looking at roof-top solar panels perfectly objectively they just don’t make sense. There are better ways to spend those dollars as we transition away from a hydro-carbon economy. Some other ideas are described in my Sustainable Energy Manifesto.
The electricity generation situation in British Columbia, Canada is both simple and complex. The simplicity arises from an abundance of hydro-electric generating capacity. The complexity comes from a somewhat disjointed ownership of generating assets compounded by government policies that have been confusing to both generators and rate-payers.
Starting in 2002 BC Government policy mandated that BC Hydro (the publicly owned near-monopoly) change the way it added new generation capacity. Updates to existing hydro facilities and development of new large-scale hydro facilities would remain with BC Hydro. However, integration of new renewable and small-scale hydro generation would have to be through long-term purchase contracts with Independent Power Producers (IPPs). The rationale provided for this decision was the desire to transfer the risk of investments in new generation to the private sector. Given the guaranteed electricity rates, long-term locked in contracts (20 to 40 years) and “take or pay” provisions I don’t see much risk being transferred to the IPPs. What I do see is guaranteed increases in power rates for electricity which might not be required or might be better provided through public sector investments. As you might expect there has been a veritable stampede of IPPs bringing forward all manner of generation proposals. Over-subscription is usually an indication that what’s on offer is a pretty safe investment.
There are two fundamental issues at the heart of BC’s push for additional generation capacity (and the resultant growth in IPPs) .
The first issue is the Provincial Government’s stated desire to make BC “self-sufficient” in terms of electricity generation. Just how to determine whether or not this condition has been met is a contentious issue.
As in every jurisdiction peak demand in BC lasts for only a few hours on a few days or weeks of the year. At all other times and on all other days there is ample generation capacity already existing in the province.
So how do we handle those peak demand events which might be due to low water levels in hydro reservoirs or particularly hot days or particularly cold nights?
In the past BC Hydro had access to the 900 MW Burrard Generating Station (BGS) which could ramp up quickly to meet demand spikes. It has performed that job admirably since its construction between 1962 and 1975. In July, 2009 the BC Utilities Commission (BCUC) issued a report stating that “the Commission Panel declines to endorse BC Hydro’s proposal to reduce its reliance on Burrard for planning purposes” (page 115). In other words the BCUC found it to be in the public interest to continue to operate BGS during demand peaks as required (typically less than 10% of capacity on an annual basis).
On October 28, 2009 the BC Government issued a press release over-ruling the BCUC decision and has subsequently not allowed BC Hydro to include BGS for planning purposes. This administrative decision effectively removed 900 MW of firm capacity from BC Hydro’s generation fleet and provided some justification for the acquisition of new generation from IPPs (as stated explicitly in the press release).
Another side effect of this decision was the rejection of any upgrades to BGS that could have substantially reduced the Greenhouse Gas emissions of the facility while show-casing relatively environmentally friendly CCGT technology – technology that is being aggressively deployed in many other jurisdictions.
Even without considering BGS there is considerable debate about whether or not BC is actually “self-sufficient” with regards to electricity generation.
The situation is made more complicated by the Columbia River Treaty between the U.S. and Canada. This treaty, ratified in 1964, allocates up to 1.2 GW of generation capacity in Washington State to Canadian “ownership” in return for Canadian dams constructed on the Columbia River in aid of flood control in the U.S. As a matter of practice BC Hydro has not taken this electricity in kind but has instead received the proceeds from the sale of this electricity to U.S. customers.
There are also two industrial concerns (Rio Tinto Alcan and Fortis BC) which own and/or operate hydro-electric facilities with approximately 1.3 GW of generating capacity. Both of these organizations have the ability to enter into electricity sales agreements that are not controlled by BC Hydro, including export sales.
More detailed analyses of the “self-sufficiency” conundrum can be found in studies by Sopinka and Kooten (2010), Hoberg and Sopinka (2011) and Sopinka and Pitt (2013). A chart indicating the various sources of generation in BC as of 2011 is shown below.
The bottom line is that it would be very difficult to conclusively state that BC has insufficient electricity generation assets to meet domestic needs in the foreseeable future.
The second issue driving the need for additional IPP generation in BC is the forecast for future electricity demand. This too, is a contentious issue.
In 2004 BC Hydro forecast that annual electricity demand would be 72-76 GWh in 2024 as shown in the chart below. Without additional generation additions and with the loss of Burrard Generating Station a growing deficit in generation capacity was forecast.
Source for 2012 Forecast Source for 2004 Forecast
Eight years later the 2024 Forecast should have been much better defined. In fact, the revised forecast is for between 62 and 72 GWh. Not only has the total amount moved down but the uncertainty has increased significantly.
Even this downward revision of demand seems to be too high. Although the figures displayed in various BC Hydro publications are not totally consistent the “domestic” demand listed in the 2012 Annual report (page 91) was 52.197 GWh. This is considerably less than the 57 GWh forecast in 2004. All things considered it is very difficult to feel comfortable that BC Hydro projections are solid enough to warrant entering into long-term contracts for additional IPP generated electricity – electricity that is very significantly more expensive than that produced by existing legacy hydro facilities.
The impending development of some LNG facilities in Northern BC may lead to an increase in demand. However, it is quite likely that these plants will generate their own power using natural gas.
So what is the optimal path forward regarding electricity generation in BC? It seems to me that there is too much uncertainty around demand projections, the impact of conservation programs, LNG developments and most importantly Government policy regarding use of the Columbia Treaty allocation and other aspects of electricity “self-sufficiency” to be able to easily discern that path when considering BC in isolation. However, if we broaden our perspective to include a more regional view I think there are some hard facts that may point us in the right direction.
The Alberta and Saskatchewan economies are growing relatively quickly and both provinces are heavily dependent upon coal-fired plants for electricity generation. Alberta has also made a significant commitment to developing its abundant wind resources and has more than 1 GW of capacity installed as of the end of 2012. More wind developments in both Alberta and Saskatchewan are planned but integrating this intermittent resource is proving to be a challenge. The Alberta Electricity System Operator (AESO) has undertaken a multi-year investigation into how this challenge can be overcome.
Hydro facilities have the ability to follow rapid changes in the transmission system because output can be varied in less than a minute. As a result, using hydro to cushion output variability from wind farms is a very effective strategy. In Denmark and Germany this is accomplished using hydro resources from Sweden and Norway.
So here is a proposal.
The Site C dam proposed for development by BC Hydro is currently undergoing environmental review. It remains unclear if this additional electricity is actually needed in BC. However, this dam, located as it would be only about 100 km from the Alberta border, could act as backup to a much expanded development of wind resources in Alberta and potentially Saskatchewan as well.
The current plan is to equip the dam with 1.1 GW of generation capacity. But what if that was increased to 1.7 GW? Production at that rate would deplete the reservoir and is therefore unsustainable over the long term. But production at that level would be possible for many hours, possibly a few days – enough time to cover calm periods in Alberta when there was very little wind resource.
This over-capacity could work in conjunction with up to 2 GW of wind farm development in Alberta to reliably deliver emissions-free electricity to both provinces. The amount of “firm” and dispatchable electricity would be the average output of the wind farms plus the average output of Site C – roughly 600 MW of wind (at a capacity factor of 30%) and 1.1 GW from Site C for a total of 1.7 GW.
In periods of high winds (> 600 MW) electricity would flow into BC and the Site C output would be cut back and the Site C reservoir would be refilled. When Alberta wind farm output was low the excess generating capacity at Site C would be used to make up the difference, drawing down the reservoir.
Both Alberta and BC could be guaranteed a certain amount of electricity. For example, if it turns out that BC does not really need all 1.1 GW from Site C then the output could be split with Alberta receiving 1.2 GW of the aggregate 1.7 GW and BC receiving 500 MW as shown in the chart below. In that situation Alberta would be agreeing to purchase an average of 600 MW of output from Site C.
If it turns out that BC needs more than 1.1 GW from Site C then the output could be split differently with Alberta receiving perhaps 400 MW and BC receiving 1.3 GW. In that situation BC would be agreeing to purchase an average of 200 MW of wind generated electricity from Alberta.
The split could be renegotiated from time to time.
This proposal would allow the two provinces to work co-operatively to develop emissions-free electricity generation to meet future requirements. By pooling demand and negotiating a split of output that worked well for both provinces the risks associated with developing Site C and greatly expanding wind generation in Alberta would be minimized. This approach could serve as a model for similar arrangements in different parts of North America.
I recently joined a discussion about how gravity might be used to generate and store energy. One of the comments provided a link to Gravity Power, a company that has proposed a modified take on “pumped storage” whereby a vertical water reservoir is used with a heavy piston. During the discussions a few variations on this technology were proposed. I suggested that abandoned open pit mines might represent a good starting point for very large facilities.
As in my earlier posting on Funicular Power the principle behind Hydraulic Energy Storage is to use excess electricity generated mainly from wind farms when demand is low (for example at night) to raise the potential energy of a mass by moving it to a higher elevation. In this case the means to do that is a relatively standard hydro turbine in a very non-standard configuration.
In energy storage mode a massive solid piston is raised by increasing the water pressure below it by running the turbine in reverse, acting as a pump to force water down the penstock.
In generation mode the piston is allowed to sink forcing water back up the penstock and through the turbine.
The piston would be a large concrete “cup” filled with as heavy a material as could be justified by the economics of the project. This could be rock debris, dense concrete, or even iron ore. The denser the material the better.
The containing cylinder would also have to be reinforced concrete. Between the cylinder and the piston there would have to be a pressure seal. This could be a large rubber or plastic tube such as that used to contain oil spills.
The advantage of using hydraulic storage is that it can be scaled up to a truly massive size. A large hole, such as that left behind after an open pit mine has been abandoned, would accommodate a gargantuan cylinder and piston (for example the Marmora Iron mine shown below);
The facility described below would use only a portion of the Marmora pit;
||Diameter of piston (m)
||Height of piston (m)
||Density of concrete (kg/m3)
||Volume of piston (m3)
||Weight of piston (kg)
||Bouyant weight of piston = concrete – water (kg)
||Piston movement = Mine depth – piston height (m)
||Energy in MW if generated over 10 hours
The concrete pour required to line the hole and create the cylindrical “cup” is not overly large compared to a major hydro dam. A solid concrete piston would be rather expensive – on the order of $150 million in this example. It would be much cheaper to fill the “cup” with rock debris although this would be less dense. Increasing density by adding iron filings or using “dense” concrete would be useful but expensive.
Based upon other large engineering projects and mining operations this facility could probably be constructed for less than $1 billion – possibly less than $500 million. While that is a large amount of money it would provide 86 times the energy storage capacity compared to the largest battery complex in North America for less than 20 times the price. The Notrees facility completed in December, 2012 by Duke Energy cost $44 million to construct and the battery performance will degrade over time. Hydraulic Energy Storage, which uses exactly the same components as a hydro dam, would have a useful life of as much as 100 years.
Rather than trying to use an abandoned open pit mine which might be a long distance from transmission facilities Hydraulic Energy Storage could also be located close to a wind farm although that would involve additional costs associated with excavating a new hole.
When it comes to long-term, dependable and reliable energy storage there are not a lot of options available. Creative use of existing technologies (see unpumped storage) or investigation of untested concepts such as Funicular Power and Hydraulic Energy Storage have to be on the agenda if we are serious about transitioning to a sustainable energy environment.
It must be admitted that the circumstances were unique.
The consequences, although predicted by a few (or so they claimed) were dismissed as impossible by political leaders and the general public.
And yet there had been warning signs.
For months the price of oil had been moving monotonically higher; not at an alarming rate but without any obvious underlying cause.
Those with technical knowledge of the subject would have pointed out that the increase in daily oil production capacity had not been keeping pace with the increasing daily demand for several years. As a result the world markets were susceptible to any major problem in the supply chain.
But people had been hearing threats about “peak oil” for decades. They were immunized against this conspiracy by the oil industry to increase “Big Oil’s” money grab. Peter had cried “wolf” too many times.
So when oil passed $150/barrel public outrage called for an end to oil company creed. Politicians the world over, most being disciples of Reagan and Thatcher, refrained from interfering with the sacrosanct “market forces” that they believed in so deeply.
And then on October 31 those laws of supply and demand, both respected and feared, passed judgment on the world.
A late season hurricane shut down production along the Gulf Coast of the United States. The same week an earthquake in Southern Iran caused extensive damage to a number of pipelines serving the port of Ras Tanura in Saudi Arabia. Over 5 million barrels of oil at the terminals were spilt into the Persian Gulf when storage tanks were ruptured by that same earthquake.
Within days the price of oil had hit $200/barrel and gasoline prices in the U.S. spiked to $5/gallon. Service stations began to run out of gasoline and lineups reminiscent of the 1970’s became the norm.
Over the next several months oil production in the Gulf of Mexico returned to normal and significant progress was made on repairs to the Middle East infrastructure. Despite the increasing supplies the world oil crisis continued. World oil prices rose to $300/barrel and gasoline prices in the U.S. rose to $6/gallon.
It was clear that there was now a serious imbalance between supply and demand. When pressed to increase production the most prolific oil producers in the world stated categorically that there were no large untapped pools available. The old standbys, Saudi deep reservoirs and the Canadian Tar Sands had long ago been tapped and were producing at close to maximum output. Production continued its inexorable decline in the North Sea and the Alaskan North Slope as well as all of the older conventional oil fields.
As the new reality became accepted the world reacted as it had several times before to oil price spikes. Sales of pick-up trucks, the cash cows of the North American automobile industry, came a crashing halt.
Unable to deal with the endless line-ups at service stations many people started commuting via mass transit. While this was considered by most to be a positive development it stressed urban transit systems almost to the breaking point. Too often the destination signs on buses read “Sorry – Bus Full”. Subway and train riders frequently watched as car doors opened and closed with no opportunity to board.
As consumers had to allocate more of their disposable income to fuel purchases of one sort or another retail spending slowed dramatically pushing the developed economies into recession.
There were, of course, winners from the energy chaos. Oil and Gas exploration companies, flush with cash, began to expand their workforces. However, not quite believing that they were truly into a new era this expansion was tempered.
Manufacturers of electric vehicles saw record sales but were hard pressed to ramp up production lines quickly. But here again uncertainty about the future held back aggressive expansion plans.
And still the crisis deepened.
It was discovered that China, through its 5 year planning process, had secured the majority of its projected oil import requirements through fixed-price, long-term purchase agreements with major oil producers. Although not completely sheltered from the economic chaos being experienced elsewhere the Chinese economy continued to grow albeit at a slower rate, driven more and more by internal demand. The result was further pressure on the global oil supply.
As oil prices touched $400/barrel many consumers began to switch energy sources to use natural gas whenever possible. And that is when the other “shoe” dropped.
A fracking project in SE Ohio was identified as the source of a significant landslide which buried a small town resulting in more than 100 deaths and the destruction of several hundred homes. It was found that the local groundwater supply had been contaminated with fracking fluids making the water unfit for human consumption. As a result a national moratorium on fracking was imposed until the situation could be thoroughly investigated.
With a cloud hovering over the entire fracking industry the price of natural gas spiked to $10/MMBtu. The downstream impacts on employment and energy costs were felt almost immediately, pushing many economies further into recession.
In Europe declining tax revenues and rising unemployment caused the debt crisis to rear its ugly head once again. But this time the German and French economies were not strong enough to be able to rescue the weaker members of the EEC.
Greece and Spain quickly defaulted on bond payments and had to revert to National currencies leaving many Euro zone lenders with huge holes in their balance sheets. Several other countries teetered on the edge of loan defaults.
There were calls within the United Nations General Assembly for global rationing of oil resources. In an ironic twist Communist China declared that the commercial contracts that it had signed with oil exporters should trump any U.N. resolution. Because of its permanent seat on the Security Council and associated veto these discussions went nowhere.
Finally, out of frustration and desperation, the United States declared an embargo on all oil and natural gas exports from North America. All production from the Canadian Tar sands and Mexican oil fields not used domestically was diverted to U.S. refineries. LNG exports to Japan and elsewhere were halted.
As global political tensions kept rising the oil crisis did not abate. Even with lowered demand around the world and a significant increase in exploration activity discoveries could not replace declining production in the mature oil fields of the world.
China demanded that the U.S. lift the embargo on exports from the Canadian Tar Sands that China had contracted for. The United States refused and requested that China join U.N. discussions about oil rationing.
For the first time in decades diplomats around the world began to discuss the possibility of a global armed conflict.
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