Posts

Remembering Matt Simmons

by Richard T. Stuebi

It was barely reported, but on August 8, the cleantech world lost a very important messenger, Matt Simmons.

In 1974, Simmons founded the energy-focused investment banking firm Simmons & Company, which came to serve many of the most important oil and gas firms in the world. Simmons personally came to be known as a savvy and controversial analyst of the fundamentals of the petroleum industry, and advised not only corporations but also President George W. Bush on energy matters.

In the early 2000’s, with oil prices at low levels and while practically no-one else was watching or caring, Simmons exhumed the peak oil theory and gave it strong analytical support — and maybe more importantly, an unsurpassed level of credibility, as most proponents of the peak oil notion had been viewed as marginal extremists. Simmons’ 2005 book Twilight in the Desert is a must-read for anyone concerned about the future of energy, as it strongly makes the case that the decline of the massive Ghawar field in Saudi Arabia is inescapable — and with it, the prospects for ever-increasing oil production and petroleum-fueled economic growth can only be fantasy.

No doubt, Simmons’ views made him an unwanted commentator among many in the oil bidness. He had gradually stepped out of the firm he founded and made a global presence, in part because of some negative remarks he made earlier this summer about BP (NYSE: BP) in the wake of the Gulf oil spill. He had retreated from Houston to Maine, where he was a key figure in the formation of the Ocean Energy Institute to pursue offshore wind and other forms of ocean-based renewable energy. Although not a die-in-the-wool tree-hugger, Simmons was one of the few Texans that had seen the light that fossil fuels — regardless of their desirable energy density — were ultimately a road with a dead-end, and foresaw the need to begin moving to new forms of energy production.

I only met him once, but I will miss Matt Simmons, as he was a powerful force for good in the cleantech world.

Richard T. Stuebi is a founding principal of NorTech Energy Enterprise, the advanced energy initiative at NorTech, where he is on loan from The Cleveland Foundation as its Fellow of Energy and Environmental Advancement. He is also a Managing Director in charge of cleantech investment activities at Early Stage Partners, a Cleveland-based venture capital firm.

The Petroleum Industry: Past the Tipping Point?

by Richard T. Stuebi

as posted to Huffington Post

As Jon Stewart so beautifully satired a couple of weeks ago, American political leaders have long said “enough is enough” about the lack of a coherent national strategy regarding oil.

In the wake of the BP oil spill in the Gulf, is this time different? Will the U.S. finally be able to change its stance on petroleum? Will the petroleum industry itself be irrevocably altered?

Though I don’t always agree with its perspectives, one of the better (i.e., more well-informed and reasoned) weekly energy newsletters I receive is “Musings from the Oil Patch”, written by Allen Brooks, Managing Director of the boutique investment banking firm of Parks Paton Hoepfl & Brown.

In the June 8 issue, Brooks provides an excellent analysis of the future of the petroleum sector, entitled “BP Oil Spill Pushes Industry Beyond Tipping Point”. The main conclusion of the essay is that the oil industry will never be the same – and all of the ways in which it will change should drive up the price of oil. His summary:

“Onshore oil and gas resources will become more valuable than offshore ones. Shallow-water petroleum resources may be worth more than deepwater ones. International markets will be more active and attractive for energy and oilfield service companies than the U.S. market. The domestic oil and gas industry will be less profitable in the future. New U.S. offshore drilling and operating procedures will become more onerous and expensive and likely require different, more capable equipment.”

One of the more interesting tangents of Brooks’ article is the discussion of the Obama Administration’s response to the BP spill.

Some news outlets are portraying the calamity in the Gulf as Obama’s Katrina, or perhaps more astutely as his Iranian hostage crisis – either of which would imply a dragging down of his Presidency. Brooks instead sees the Obama Administration somewhat more sympathetically: as “family members outside a hospital operating room following a severe auto accident. While the surgeons work their magic on the victim with techniques beyond the understanding of ordinary people to fully comprehend the knowledge and skills being applied, the family members remain powerless to influence the outcome. Rather, they stand around praying or crying as emotions overwhelm them. Soon they become angry and demand immediate justice or retribution against those responsible for the accident.”

And, of course, that’s what happened when President Obama determined “whose ass to kick” and exacted his pound of flesh from BP in securing their agreement for contributing $20 billion into a clean-up fund. This, in turn, raised vocal objections from Obama’s opponents — including those formerly arguing that Obama hadn’t done enough about the oil spill — about undue executive privilege. The infamous “apology” by Rep. Joe Barton (R-TX) to BP, and Barton’s subsequent apology about the apology, was the zenith/nadir of the political grandstanding about this spill from all sides.

The ineffective posturing and inane bickering in Washington has contributed nothing towards stemming the flow of oil from the sea bottom, nor to clean up the waters and the beaches in the Gulf of Mexico. But does the venom being spewed over the airwaves from all parts of the spectrum indicate that the petroleum industry is now approaching a tipping point?

In terms of energy policy, I think not. Call me a cynic, but when it comes to national energy policy, I will always take the under on what our Federal leaders will accomplish to improve our long-term prospects.

Why am I so negative? Just like our economy is fueled by energy, our political system is fueled by money. And, there is hardly anything in the economy as wealthy as the energy sector. The industry as a whole and its leading companies are both extremely cash-rich (certainly much more so than the principal advocates of change) and willing to spend money in Washington to support/defend their entrenched interests.

For the big oil companies, it’s not surprising that their primary objective is to protect the status quo, as opposed to making any transition. This point is well articulated by Deborah Gordon and Daniel Sperling in “Big Oil Can’t Get Beyond Petroleum” (a clever play on BP’s slogan “Beyond Petroleum”), as run June 13 in the Washington Post.

Kevin Leahy, Managing Director of Climate Policy at Duke Energy, recently gave a presentation in Columbus in which he opined that “Moderates are the new endangered species in Washington”, adding that sane national energy policy requires tradeoffs and compromises that can only be achieved by crossing party lines — which is traitorous anethema in the current political environment.

No, I don’t think the politicians will have the courage anytime soon to lead us out of our energy challenges. As an economist, I think price signals may be the only way to move us in a different direction.

Absent any rules to change the dynamics of the market, energy prices will move (largely) as a function of supply and demand. (I say “largely” because the petroleum market is a classic oligopoly, controlled by a swing monopolist — Saudi Arabia — with the greatest supply at the lowest costs, so pricing doesn’t follow pure supply/demand forces as they would in a totally free market. But, close enough.)

That’s where the peak oil theory comes in. There are innumerable postings on the Internet about peak oil (see, for instance, the Association for the Study of Peak Oil), so I won’t go into detail here. But, suffice it to say: in a world of increasing demand for petroleum (especially from places like China, where oil demand is growing at “astonishing” rates) and a finite planet with ancient organic matter (e.g., dinosaurs) converting to hydrocarbons not anywhere near as rapidly as hydrocarbons are being extracted, the long-term price trend can pretty much only be upward.

In the June 21 issue of ASPO’s weekly newsletter “Peak Oil Review”, editor Tom Whipple interviewed Jeff Rubin — formerly the chief economist of CIBC World Markets and author of Why Your World Is About To Get A Whole Lot Smaller: Oil And The End of Globalization. Below is a somewhat lengthy but nonetheless fascinating passage from that interview:

“Depletion does not have to be apocalyptic. It will only be apocalyptic if we continue to consume oil as we have in the past when it was cheap and abundant. Because I’m an economist and believe in the power of prices, I believe that we’re going to change. I believe that a global economy, when we move resources all around the world to be assembled by the cheapest labor force and then be shipped to the other end of the world — that’s not a rational way of doing business in a world of $150-a-barrel oil. What we’re going to see is a whole reengineering of our economy, and while we’re going to make a lot of sacrifices in terms of our past energy consumption, we’re going to find that our new smaller world has a lot of silver linings. And in a lot of ways it is going to be more livable and sustainable than the old oily world we’re leaving behind. Peak oil will be an agent of change, and much of that change will be positive, not negative. If we continue to commute 60 miles each way in SUVs, we’re going to get screwed. All of a sudden, peak oil will equal peak GDP; that’s not just an economic recession for a couple of quarters, that’s a world of no economic growth. The point of my book is that, while we can’t do anything about triple-digit oil prices, they don’t have to be so devastating as in the past. We have to reduce, in effect, oil per unit of GDP, and the way we do that is to go from a global economy back to a local economy because a global economy is an extremely oily way of doing business. And that switch isn’t something that the Federal Reserve Board or US Treasury or the Bank of Canada or the European Central Bank is going to put in place; that is going to be the aggregate result of all the micro decisions that consumers make about what we eat, where we live and how we get around. I think triple-digit oil prices will lead us to make the right decisions on those fronts, and the result will be a very different economy than the economy we know.”

Whew.

I’ve said to many people that I’m one of a very small (and widely-disliked) minority — and clearly Mr. Rubin is in this camp — who believes that high energy prices are and will be a good thing, from an environmental perspective, an energy security perspective, and a technology innovation perspective. And, if Mr. Rubin’s thesis bears out, high energy prices can also represent a force for reattracting much of the economic activity that has left the U.S. in recent decades to other parts of the world.

Globalization can continue for virtual things like ideas and communication, but for physical and material goods, an increasing oil price can only mean a reversion towards greater localization of economic activity.

A consistent re-migration of manufacturing back to the U.S. would really be a signal that a tipping point has been achieved. However, the big worry is summed up nicely in a quip by Mr. Leahy during his talk at the workshop “Opportunities for Ohio Businesses in a Clean Energy Economy”: “In his 2006 State of the Union speech, President Bush said that ‘America is addicted to oil.’ To which I say, ‘Unfortunately, every time America kicks the habit, the dealer drops the price.'”

While true in previous decades, price-cutting in the oil markets may not be so inevitble in the future. With the insatiable appetite for oil and the increasing challenges of supplying it from more difficult and remote resources, I don’t think even manipulative actions by OPEC to “keep America hooked” via lowered oil prices can or will work for very long — in a future world of ever-tightening supply/demand balances for black gold.

What American politicians can’t do via the laws of man, the laws of petroleum engineering and the laws of economics can and will eventually do.

I doubt that there will ever be a discrete tipping point for the petroleum industry, but rather a gradual ebbing. Perhaps the ebbing has begun. If there is a tipping point, as noted petroleum analyst and banker Matthew Simmons likes to say, it will only be obvious in the rear-view mirror.

Richard T. Stuebi is a founding principal of NorTech Energy Enterprise, the advanced energy initiative at NorTech, where he is on loan from The Cleveland Foundation as its Fellow of Energy and Environmental Advancement. He is also a Managing Director in charge of cleantech investment activities at Early Stage Partners, a Cleveland-based venture capital firm.

Thrills from Spills

by Richard T. Stuebi

The oil spill in the Gulf continues to astound. It’s now reported that BP (NYSE: BP) has spent $350 million so far on clean-up, and that the total tab will run $2-14 billion.

Maybe BP can make up the billions in lost shareholder value via other dubious means: Bookmaker.com is running odds on whether the containment strategy being attempted will decrease or increase spill rates.

In this ecological disaster, a lot of dollars and not much sense is involved.

Richard T. Stuebi is a founding principal of NorTech Energy Enterprise, the advanced energy initiative at NorTech, where he is on loan from The Cleveland Foundation as its Fellow of Energy and Environmental Advancement. He is also a Managing Director in charge of cleantech investment activities at Early Stage Partners, a Cleveland-based venture capital firm.

Oil Spill Call for Action

By John Addison (5/4/10)

National Tragedy in the Gulf of Mexico

Two hundred thousand gallons of oil spill daily into the Gulf of Mexico, destroying the beaches of Florida, Alabama, Mississippi, Louisiana, and Texas. News viewers witness oil explosions, fires, and destruction. Containment chemicals are dumped where fish were caught for our dinner tables. Billions of dollars of damage is done. Major ports of our nation’s commerce are threatened. We are again reminded of the damage that oil can do to our environment. United States Response to Deepwater Horizon Oil Spill.

Oil addiction also hurts our economy. In 2008, oil prices dipped to $32 per barrel. Now oil prices are over $80 per barrel, on the way to being triple the 2008 low. While oil companies argue that we are not running out of oil, they should be admitting that we can no longer find cheap oil. Instead, it is now billion-dollar deep-drilling ocean platforms, the highly destructive strip mining of Canada for tar sands, and unconventional sources with high greenhouse gas emissions that brings us our incremental oil that we convert into gasoline, diesel, jet fuel, and asphalt to widen roads for more cars.

And we continue sending trillions of dollars to parts of the world where people want to do us harm. With rising oil prices we are sending more money for less oil.

To the rescue, since 2005, Americans have used less oil by riding clean, riding together, and riding less. In 2005, we consumed 20,802,000 barrels per day; by 2008, 19,498,000 daily barrels (EIA Data). Consumption continues to drop.

Ten Solutions to Save at the Pump

1. Employer Commute and Flexwork Programs. Major employers are saving employees billions in travel costs. Employers sponsor ride sharing, last mile shuttles from transit, and guaranteed ride homes. Some employers have web sites and lunch-and-learns to help employees in the same zip codes match-up for car pooling. 57 million Americans work at home, at least part-time, with the help of flexwork programs. Employer programs have helped with reduced car ownership.
2. Public Transit. Americans made 11 billion trips on U.S. transit in 2008, a 50-year record. Use has dropped some due to transit operators being forced to cut some routes and remove buses as the recession drove down local sales tax revenues needed for public transit. Americans are eager for more and better transit.
3. Walk. On an average we take 4 car trips daily, compared to 2 in Europe. Sometimes 1 of those 4 trips can be a pleasant walk to market, neighbors, or school event.
4. Safe Routes. Thousands of communities across the nation are showing us how to safely walk to school, community centers, and to public transit. Route maps go on line, pot holes get fixed, sidewalks repaired, danger spots eliminated, and signs displayed. Walk to School Days are on the increase.
5. One Car Households. The average suburban U.S. household has two vehicles. Some more. The average urban U.S. household has one vehicle. More American families and roommates are going from three cars to two cars to one car.
6. Sharing the Gas Miser. Households with 2 or more vehicles increasingly share cars, putting the most miles on the fuel miser as the gas guzzler stays parked more often. My wife and I share the hybrid, when not using transit, and leave the other car parked 6 days per week.
7. Make your next Car a Fuel Miser. You now have a wide-range of car choices that get over 30 miles per gallon. There is no reason to settle for less when you buy or lease a fuel-efficient sedan, hatchback, even SUV, turbo diesel, CNG, or hybrid car. Top 10 Cars With Lowest Carbon Footprint
8. Order an Electric Car which is ideal for many who live in a city where 100-mile range is rarely an issue, and where transit, car sharing, and car rental are also available. The average U.S. suburban household has two vehicles, so the EV could be ideal as one of those two. Top 10 Electric Car Makers
9. Car Sharing. In 600 global cities, cars can be used by the hour. Car sharing is popular with individuals and fleets. At many university and colleges, students with good grades can participate at age 18. Add transit and bicycling and many students live car free.
10. Smart Apps for Smart Travel. Internet savvy people now use Google Maps, 511, car share apps, and smart phone GPS apps to compare car directions and time with public transit directions and time. With a few clicks on a social network a shared ride is arranged, or a shared car reserved. In the old millennium we got everywhere by solo driving in gridlock. In the new millennium we plan and use a mix of car driving, transit, and other modes to save time and money.There are hundreds of ways to save at the pump, or avoid it all together. The above are a just a few as people shift from their only choice being driving a gas guzzler, to options that include ride sharing, car sharing, walking, bicycling, buses, and rail for some of their trips.

Waiting for Responsible Government

We can all make a big difference without waiting for responsible government action, but it would help. The cheapest way to end highway gridlock is to invest in public transportation. Instead government cuts funds for transit and spends billions widening highways. For oil companies, we allow them to drill off our invaluable shores, fight wars to protect their oil, and then put oil companies on welfare. As Forbes Magazine discussed on April 5, the most profitable company in the United States, Exxon, paid zero U.S. income tax in 2009.

At a time when the average U.S. tax payer is hurting, we need to end oil tax loopholes and ensure that the 4 million vehicles in government fleets are gas misers or electric. While a minority in Congress block all attempts at progress, local communities are taking action across the nation by making cities vibrant, with work, services, and play close at hand. Portland, Oregon, is a role model in creating urban density and great public transportation. California with SB375 is requiring regional plans that integrate development, transportation, and greenhouse gas reduction.

In the United States, we embarrassingly have more vehicles than people with driver’s licenses. We have 246 million vehicles. AAA estimates that it costs $8,000 per year for each car owned, which creates a financial burden on cash-strapped Americans. You can help your pocketbook and help the nation by riding clean, riding together, and riding less.

John Addison is author of Save Gas, Save the Planet and Publisher of the Clean Fleet Report. (c) Copyright John Addison. Permission to repost up to a 200 word summary if a link is included to the original article at Clean Fleet Report.