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Fifty Years

Earlier this month, I turned 50 years old.  Such milestones are natural occasions for reflection.

Beyond recalling many of the phases and individual episodes of my life, my reflection included a consideration of how the world had changed in the 50 years in which I had lived.  And, naturally, given my profession, I pondered what it would have been like to have been a “cleantech” practicioner 50 years ago, in 1962.

Frankly, it’s not really possible to imagine “cleantech” back then.  50 years ago, there wasn’t much “clean” and there wasn’t much “tech”.

In the U.S., the Clean Air Act and the Clean Water Act hadn’t been passed, and there wasn’t even an Environmental Protection Agency.  Silicon Valley was still mainly apple orchards, and computers less powerful than your smartphone barely fit into large warehouses.

In the energy sector, the U.S. still dominated the petroleum industry.  Not only did Americans consume more petroleum than anyone else (accounting for about 40% of world demand), U.S. oil production was still a major factor, representing almost 30% of worldwide production.

The oil industry’s operations would still have been very recognizable by John D. Rockefeller:  production was mainly from “conventional” onshore seesaw pumpers dotting the countryside; remote locations such as Alaska hadn’t yet been touched, nor had any material production yet been achieved from offshore wells.

Other than perhaps by watching the recently-released “Lawrence of Arabia”, few Americans paid much attention to the deserts of the Middle East in 1962.

Though unnoticed by most Americans, important forces in the oil industry were already beginning to shift in the early 1960s.  Although Texas oil production had been decisive in fueling the Allied victory in World War II just two decades previously, by 1962, the U.S. had become a net importer of oil.  Yet, only King Hubbert projected a future waning of American supremacy in oil production.

Oil prices in 1962 were a little less than $3/barrel, largely due to the price-setting powers of the Railroad Commission (RRC) of Texas, then still the source of a significant share of world oil production.  When a hitherto little-noticed group formed in the early 1960s called the Organization of the Petroleum Exporting Countries (OPEC) assumed the dominant influence in pricing oil a decade later, the world would change forever, as oil prices would never again be anywhere near below $10/barrel.

It’s almost quaint to summon up memories of the oil sector of the era.  Remember what filling up at a gas station was like in the 1960s?  The attendant would come out, put the nozzle in the tank (always with the filler behind the rear license plate), cheerfully wipe the windshield and ask “may I check your oil?”.  Looking out the window, I remember seeing “29.9” on the gas pumps.  That’s 29.9 cents per gallon — which seems almost surreal to us now, but remember, oil prices were then only a few percent of what they are today.

Of course, given the now-unbelievably appalling gas mileage of those Detroit beasts, usually under 10 miles per gallon, you still had to fill up about as often then as you do now.  Back then, it was all about horsepower — it certainly wasn’t about efficiency, nor about cleanliness.  (Nor, for that matter, reliability.)

Every once in awhile these days, I find myself behind a 1960s-vintage car at a stoplight, most often on a sunny summer afternoon.  When the light turns green, I am left in a thin cloud of light bluish smoke and the fragrance of octane and unburned hydrocarbons.  Odors of my youth.  You don’t see and smell that anymore — and I don’t miss it.

Thank goodness for a plethora of cleantech innovation during the past decades:  unleaded fuels, pollution controls and fuel injection systems.

And, let’s not forget that these advances were pushed by, only happened because of, foresightful proactive policies.

While the financial bonanzas and corporate/family dramas enabled by oil discoveries and production had thoroughly captured the American imagination by the early 1960s — consider everything from “Giant” to “The Beverly Hillbillies” — natural gas in 1962 was an afterthought.  Other than some use for power generation in Texas and Oklahoma (where there was no local coal resource), natural gas was mostly flared at the wellhead.  In many ways because (and many people now forget this) natural gas prices were then regulated at depressed levels, the companies that produced gas as a side-consequence from oil production didn’t see much value in making the investments necessary to collect it and transport it to markets.  In fact, natural gas was widely considered a nuisance in 1962.

Certainly, gas is no longer considered a nuisance.  In fact, it’s now being touted by politicians across the U.S. as the Godsend:  providing lower energy prices, lower emissions, higher domestic employment and reduced dependence on foreign energy sources.

No, the oil/gas industry — and those two fuels are today inextricably intertwined — is now much more aggressive in capturing and processing every Btu that courses through the markets.

In the late 1960s, our family lived in the Philadelphia area, and I remember being awed – almost scared, really – by the immense flames emitted by the refinery near the mouth of the Schuylkill River.  All those now-valuable hydrocarbons…gone, wasted, up in smoke.  You don’t see that anymore at refineries, thankfully.

Oil company practices have massively changed in the past 50 years to capture everything of possible economic value.  Of course, that’s the effect of a 30x increase in oil prices, driven by a worldwide search and race to find and produce new reserves to replace five decades’ worth of depletion of much of the cheap/easy stuff in the face of a tripling of global oil demand (mostly from outside the U.S.), counterbalanced by technological progress on a host of fronts over the span of five decades.

Today, oil is pretty consistently trading between $80-100/barrel, and while U.S. oil production has rebounded a bit to approach early 1960s levels, American production now accounts for less than 10% of world oil production.

But think about how low U.S. oil production would be and how high oil prices might be today if not for offshore oil production, directional drilling, 3-D seismic, and an untold number of other innovations produced by the oil patch in the last half-century to enable production from hitherto undeveloped places.

Of course, beauty is in the eye of the beholder, and not all of these developments are viewed positively by everyone.  The current debates about fracking and development of the Alberta oil sands would have been unimaginable in 1962.  At the time, fracking barely existed as a practice, and the Alberta oil sands were then hopelessly uneconomic as a source of fuels.  Moreover, there was virtually no environmental movement to give voice to the concerns of citizens.

It wasn’t really until Rachel Carson published Silent Spring just a few weeks after I was born that much attention was paid to pollution.  Later in the decade and into the 1970s came the grassroots emergence of the environmental groups, such as Greenpeace and the Natural Resources Defense Council.

If you are about my age or older, you may well remember this 1971 commercial.  The tagline (“People start pollution, people can stop it”) and the image of the Native American shedding a tear remain indelible decades later.

Before this, there was virtually no accountability placed on emitters, and anyone could pretty much dump whatever they wanted, wherever they wanted, whenever they wanted.  And, in the early 1960s, no set of interests benefitted from ongoing inattention to environmental considerations in the U.S. more than the coal sector.  For those with coal interests, the times before environmentalists were truly the glory days — and in 1962, the future for coal in the U.S. at that time was terrifically bright.

Sure, trains had just moved from coal steam to diesel-electric, but over half of all the electricity generated in the U.S. in 1962 was based on burning coal.  With burgeoning demand for electricity (especially to keep pace with the exploding utilization of increasingly-ubiquitous air conditioning), coal was poised for significant growth, as thousands of megawatts of new coal powerplants would be added to the nation’s energy grid each year during the 1960s.

While coal is certainly no poster-child for the cleantech sector today, back in 1962, coal remained a particularly brutish and nasty form of energy.  288 American miners were killed on the job in 1962, and all of the coal burned was subject to minimal pollution control – no electrostatic precipitators or baghouses to capture particulates (i.e., soot), much less scrubbers for sulfur dioxide or selective catalytic reduction for nitrogen oxide emissions.  You pretty much didn’t want to be a coal miner or live anywhere near a coal-burning powerplant, as your health and longevity were seriously at risk.

Indeed, some observers speculate that the uncontrolled emissions from powerplants (not to mention other industrial facilities, such as steel mills) threw up such large amounts of material into the atmosphere that the 1970s became a period of unusually cold temperatures — to the point that many scientists were projecting a future of damaging global cooling.  (Although the then-common theory of global cooling is now mainly forgotten, climate change deniers are quick to employ this prior dead-end of thought as one reason for dismissing the strong likelihood suggested by climate scientists that global warming is probably occurring today.)

Of course, the U.S. still mines coal, lots of it, to fuel lots of coal-fired powerplants.  Production in 2011 was 1.1 billion tons, more than double 1962 levels.  However, employment in the coal industry had fallen by over 40% during the same period.  (And, mercifully, annual fatalities have decreased by a factor of 10.)  The primary factors for these changes:  productivity increases due to new technologies (e.g., longwall mining), lower rates of unionization, and a shift from underground to surface mining (now accounting for nearly 70% of U.S. production).

With respect to the latter factor, Wyoming coal activity has exploded — now representing more than 40% of U.S. production — at the expense of Appalachia, whose coal sector is now but a shell of what it was 50 years ago.  The causes are simple:  the subbituminous Powder River stuff from Wyoming is much more abundant and cheaper to mine, and generally has much lower sulfur content to boot, than what is available from Appalachia.

On a broader level, coal is on the retreat in the U.S.:  while coal still accounts for almost 50% of power generation, this share is dwindling.  It seems as though U.S. coal production levels have plateaued at just over 1 billion tons a year.  While so-called “clean-coal” technologies may at some point provide the basis for a resurgence in the industry, the possibility of future growth certainly seems far from obvious today.

Many legacy coal powerplants – some of which remain in operation from well more than 50 years ago – are fading away.  Tightening emission requirements, particularly on toxic emissions such as mercury, are just one  competitive disadvantage facing coal; coal power is increasingly uncompetitive with cheap and cleaner natural gas powerplants and (in some places) wind and solar energy.

“Wind energy” and “solar energy”:  50 years ago, these would have been oxymorons.  Other than the minute niches of sailboats and waterwell pumping in the Great Plains, a good wind resource had virtually no commercial value in 1962.  At the same time, Bell Labs scientists were wrangling some with solar energy technologies — primarily for satellites – although a lot more attention was being paid to a related device called the semiconductor.

For energy, scientists were mainly working on nuclear power, moving from weapons and Navy submarines to powerplants.  The nuclear era was dawning:  electricity was going to be “too cheap to meter”.

The very first commercial nuclear powerplant, the relatively puny 60 megawatt plant at Shippingport in Western Pennsylvania, had been running for only a few years in 1962, though dozens of nuclear powerplants were just coming onto the drawing boards.  Visionaries were even talking about nuclear-powered automobiles in 1962.  (“Electric vehicles?  Puh-lease.  Batteries are for cheap portable Japanese radios.”)

Perhaps as a psychological defense mechanism to drown out the anxieties associated with potential Armeggedon from a Cold War missile exchange, such was the sense of optimism in the possibilities of the age.

Apparently, no-one could foresee Three Mile Island, Chernobyl or Fukushima at the time.

The future held boundless possibilities.  Back then, who needed to recycle?  To think about efficient utilization of resources?  To care about water quality or air quality?  There was always more and better, somewhere, to be had.  And we Americans would surely obtain it, somehow and someway.  It was Manifest Destiny, ever-onward.

This American philosophy may have confronted its limits early in my lifetime with the ultimate realization, brought home so vividly at the end of the 1960s by the first-ever images of the solitary Earth as provided by the Apollo program, that we’re all utterly dependent upon a finite planet in an infinite sea of otherwise-unpopulable space.  Earth Day followed in April 1970.

To commemorate this first Earth Day, I remember our second-grade class picking up scads of litter along the side of a section of highway.  Upon reflection, I am glad to note how much litter has declined in subsequent years — a case of how values can be reshaped and behaviors can be changed, if people are just a bit more conscious.

That’s a positive take.  However, one can reasonably look back on 50 years of the evolution of the energy sector and say, well, that not that much has really changed in America.

True, the basic structure of American life may not have changed too dramatically.

We still primarily live in single family dwellings, in suburbia, dependent upon cars that look more or less the same, fueled by gasoline available at stations just down the road.  The power grid is still there, powered by central-station powerplants; the light switches and outlets haven’t changed, with refrigerators still in every kitchen and TVs in every living space.

By all measures, Americans are still energy hogs, relative to the rest of the world.

Even so, I would assert that a lot has changed, at both the macro and micro-level, that have consequentially altered the trajectory of resource utilization in America from the path determinedly being travelled 50 years ago.

Admittedly, some of the changes we have experienced are a bummer:  niceties like summer evenings with the windows open are much rarer.  Nevertheless, I claim that most of the changes of the past half-century are positive – and can be attributed to a significant degree to what we now call “cleantech”.

Our energy bounty, improved so significantly by technological innovation, has been achieved while simultaneously improving environmental conditions in almost every respect.  Notwithstanding the substantial increase in carbon dioxide emissions, almost all other manifestations of environmental impact from energy production and use have dramatically improved in the past half-century.  Standards of living enabled by modern energy use, here in America and even more so in the rest of the world, have dramatically improved.

Moreover, the trends for further future improvement on all these fronts are favorable.

With the proliferation of improved technologies such as LED lighting, energy efficiency continues to advance.  Renewable energy continues to gain share:  wind and solar energy represented about a quarter of new U.S. electricity generation additions in 2010.  Citizen understanding of energy and environmental issues continues to become more sophisticated.

Beyond the forces specifically pertaining to the energy sector, a number of broader influences in U.S. society are improving the prospects for accelerating cleantech innovation and adoption.  Entrepreneurship is booming, consumerism is increasingly being called into question, capital markets are more amenable to investment in this sector and more capital is arriving accordingly, and the Internet makes an immense and ever-expanding pool of information freely available to enable better decisions.

Not to mention:  much of the opposition to a transition to the cleantech future emanates from people in generations that are older, that will die out in the next couple of decades, to be replaced by younger generations that are generally more supportive of increased cleantech activity.

So, while it’s easy to get discouraged by the impediments to cleantech progress on a day-to-day basis, over the long-view, it’s pretty apparent that big positive things can happen and in fact are happening.

50 years from now, in 2062, I hope to be alive and well at 100 and still contributing to the cleantech sector.  That may be overoptimistic.  But I don’t think it’s at all overoptimistic that we’ll see more changes, and more changes for the better, in the cleantech realm over the next 50 years than in the previous 50.

How About A Sane Energy Policy Mr. Obamney?

It’s Presidential Election year.  Ergo, time to discuss our 40 year whacked out excuse for an energy policy.  Royally botched up by every President since, umm?

Objectives:

Make US energy supply cheap for the US consumer and industry, fast growing and profitable for the American energy sector, clean, widely available and reliable, and secure, diversified, environmentally friendly and safe for all of us.

or

Cheap, Clean, Reliable, Secure, Energy

 

An Energy Policy that leaves us more efficient than our competitors

An Energy Policy that leaves us with more and more diversified, supply than our competitors

An Energy Policy that leaves us more reliable than our competitors

An Energy Policy that makes us healthier and cleaner than our competitors

An Energy Policy that makes us able to develop adopt new technologies faster than our competitors

An Energy Policy that makes it easy for industry to sell technology, energy, and raw materials to our competitors

An Energy Policy that keeps $ home.

A Sane Energy policy

 

Think more drilling, less regulation on supply, lower tariffs, more investment in R&D, tighter CAFE and energy efficiency standards, simpler and larger subsidies for new technologies, less regulation on infrastructure project development.

 

A couple of key action items:

  • Support the development of new marginal options for fuel supply, and support options that improve balance of payments, whether EVs ethanol, solar et al
  • Make crude oil, refined products, Gas, LNG and coal easy to import and export
  • Drive energy efficiency like a wedge deep in our economy
  • Support expansion and modernization of gas, electric, and transport infrastructure
  • Support long term R&D in both oil & gas, electric power, and renewables
  • Reduce time to develop and bring online new projects of any type (yes that means pipelines, solar and wind plants, offshore drilling, fracking and transmission lines).
  • Support policies and technology that enable  linking of energy markets
  • Challenge the OPEC cartel like we do EVERY OTHER cartel and break the back of our supply contraints
  • Support the export of our energy industry engineering, services and manufacturing  sectors overseas
  • Incorporate energy access into the core of our trade policy
  • Support deregulation of power markets
  • Support long term improvement in environmental and safety standards
  • Broadly support significant per unit market subsidies for alternatives like PV, wind, biofuels, fracking as they approach competitiveness

Or we could do it the other way:

  • Leave ourselves locked into single sources of supply in a screwy regulated market that involves sending massive checks to countries who’s governments don’t like us because that’s the way we did it in the 50s?
  • Keep massive direct subsidies to darling sectors so the darling sectors can fight each other to keep their subsidies instead of cutting costs?
  • Keep a mashup of state and federal regulatory, carbon and environmental standards making it virtually impossible to change infrastructure when new technology comes around?
  • Promote deregulation in Texas, and screw the consumer in every other market?
  • Every time there’s a crisis, we can shoot the industry messenger in the head, stop work, and subsidize something.
  • Continue the Cold War policy of appeasing OPEC so they can keep us under their thumb for another 30 years
  • And drop a few billion here and there on pet pork projects

Come on guys, stop the politics, let’s get something rational going.  Oh wait, it’s an election year.  Damn.

And in the meantime how about making energy taxes (a MASSIVE chunk of your gasoline and power prices) variable, so they go DOWN when prices go up.  Then at least the government’s pocket book has an incentive to control cost, even if they’re incompetent at putting together a policy that does so.

Book Review: Private Empire

After having extensively tackled the topic of al-Qaida with The Bin Ladens and Ghost Wars, Steve Coll has turned his attention to ExxonMobil (NYSE: XOM)

At first blush, this might seem like a dramatic thematic departure for Coll as a journalist and author.  However, Coll’s newest work, Private Empire:  ExxonMobil and American Power, makes clear that the world’s largest corporation is roughly as powerful a force on the global geopolitical stage as the world’s most dangerous terrorist network.  And, not only powerful, but also sometimes working against the interests of the United States and its citizens. 

Private Empire begins with a recap of the 1989 Exxon Valdez accident and ends with the 2010 BP Deepwater Horizon accident, these two spills reflecting the hubris that widely prevails within Big Oil and the gap between the perceived and actual ability to prevent or at minimum contain such disasters. 

In between, Private Empire explores the cultural norms of ExxonMobil, its activities in U.S. policy circles (especially in sowing climate change denial), and its various dealings with bad actors around the world (e.g., Indonesia, Chad, Equatorial Guinea, Russia, Venezuela, Iraq) to obtain access to petroleum reserves.

Although definitive as a recent history of ExxonMobil, the book is far more than just a corporate biography.  It reveals the internal machinations of Big Oil and illustrates over and over how Big Oil needs to often stoop lowly into moral and ethical morasses in the relentless pursuit – a never-ending treadmill – of somehow replacing the oil and gas produced last year or else face inevitable decline.

One thing is abundantly clear:  as the largest remaining component of the former Standard Oil, ExxonMobil is most definitely the son of the father. 

Before being broken up into smaller pieces by anti-trust action in 1911, Standard Oil was ruthless in its rigor, professionalism and anti-sentimentality.  Everything and everyone not Standard Oil was an enemy to be conquered.  Strongly imprinted by the values of founder John D. Rockefeller, Standard Oil pursued one purpose – to maximize the wealth of its shareholders – fully cloaked in the belief that the company was doing God’s work in allowing Mankind to achieve higher standards of living.

ExxonMobil seems to operate in the same vein, and their leaders seem to follow closely in the footsteps of Rockefeller:  pious but cold, principled in their principles and no-one else’s. 

This was especially true of Lee Raymond, ExxonMobil’s CEO during most of the 1990s into the mid-2000s.  Raymond makes for an interesting villain:  someone with a few notable positive attributes (e.g., loyalty) that partially counterbalance his overt meanness. 

Notably, Raymond was convinced that everyone hated ExxonMobil and would always hate ExxonMobil no matter what.  As a result, Raymond didn’t have ExxonMobil undertake any proactive media or public relations strategies to soften the company’s image, as were more vigorously pursued by its fellow Big Oil brethren BP (NYSE: BP), Shell (LSE:  RDSA) and (to a lesser extent) Chevron (NYSE: CVX).  If the ExxonMobil empire was virtually-universally perceived as nasty, as long as it was respected and produced excellent financial results, that was fine with Raymond.

In the wake of Raymond, current CEO Rex Tillerson comes off much more favorably, with his Boy Scout earnestness and at least some willingness to engage productively with outside stakeholders.

Even with Tillerson’s less heavy-handed touch, the ExxonMobil playbook reveals itself again and again as domineering:  outlast and outspend the opposition, bend the truth and rules as much as possible, delay and litigate as needed.   It’s not a pretty picture.  Other oil companies no doubt act this way to some extent, but Coll makes the case compellingly that ExxonMobil is far and away the most extreme of the Big Oil club members.  Fully 100 years after the anti-trust dismemberment, resentment towards the government seems to still ooze from every pore and fiber of the ExxonMobil corporate body.

As you’d expect from the winner of a Pulitzer Prize, Coll is thorough in his reporting, and the writing is clear and energetic, effortlessly pulling the reader through the narrative.

One minor stylistic complaint:  the last seven pages of the book merit its own chapter, rather than being tacked onto the discussion of the Deepwater Horizon debacle.  Using Coll’s practice for naming chapters based on a juicy snippet of the text contained within, I would suggest that this denouement should be called “I Had To Do What Was Best For My Shareholders”.

This was a quote from Tillerson in 2011, when he revealed telephonically to U.S. State Department officials that ExxonMobil signed an agreement directly with the Kurds (not with the Iraqi government in Baghdad) to develop oil resources, against the explicit wishes of the Obama Administration.  With this anecdote and several others in the final pages, Coll ties up many of the loose threads he exposes in the prior 600 pages, and the cumulative effect makes for a sobering conclusion. 

Basically, Coll totals up all the ways in which ExxonMobil has won, at the expense of others who have lost.  In many cases, the loser was the United States itself. 

The subtitle of the book – ExxonMobil and American Power – is somewhat misleading, as it implies that the two subjects are on a similar footing.  Indeed, one can make the case that “American Power” (whatever that is, or whatever remains of it) is revealed by Coll to be in fact subservient to ExxonMobil.  When convenient, ExxonMobil benefited from the government’s service and support, and pressed upon both legislators and the executive branch for certain actions.  Otherwise, ExxonMobil went its own way, sometimes hostile to government (and often hostile to public) interests.

Perhaps in service of his role as President of the policy think-tank New America Foundation, Coll hints pretty clearly his sense that the “era of corporate ascendancy” — with ExxonMobil being a poster-child — is a significant negative force at work in the United States.  Mentioning the Citizens United decision as an example of the mechanics by which that force works, Coll asserts that ExxonMobil’s success “reflected in part the growing relative power of corporations in the American political and economic system.” 

The question that Private Empire ultimately poses the reader is whether ExxonMobil’s gargantuan success is a good thing overall – especially when considering who is losing, and why they might be losing.  This may be no more vividly illustrated than in the final paragraph of the book: 

“In 1999, the year that Exxon’s acquisition of Mobil closed, the federal government and the corporation each took in more money annually than was required to meet expenses.  Their paths then divided.  In an era of terrorism, expeditionary wars, and upheaval abroad, coupled with tax cutting and reckless financial speculation at home, one navigated confidently, while the other foundered.  From the day of the Mobil merger closing until the day of the S&P downgrade [of U.S. debt ratings in 2011], the net cash flow of the United States – receipts minus expenditures – was approximately negative $5.7 trillion.  ExxonMobil’s net cash flow from operations and asset sales during the same period was a positive $493 billion.”

It could be argued more broadly that the last decade has seen a massive wealth transfer from the U.S. taxpayer to its largest corporations (and its shareholders).  As Coll’s exhaustive and authoritative reporting suggests, nobody does it better than ExxonMobil.

A World of Hurt

Seemingly generating nary a ripple here in the U.S., the International Energy Agency (IEA) just issued its 2011 World Energy Outlook — its annual synopsis on the future of the global energy sector. 

If ignorance is bliss, then we’re certainly blessed by generally not bothering to confront the pretty-alarming conclusions of the report. 

A pastiche of the highlighted snippets in the Executive Summary, when stitched together, provide a glimpse of the world we’re now choosing to invent for ourselves and future generations:

“There are few signs that the urgently needed change in direction in global energy trends is underway.”

“Global investment in energy supply infrastructure of $38 trillion (in year-2010 dollars) is required over the period 2011 to 2035.”

“The age of fossil fuels is far from over, but their dominance declines.”

“The cost of bringing oil to market rises as oil companies are forced to turn to more difficult and costly sources to replace lost capacity and meet rising demand.”

“Factors both on the supply and demand sides point to a bright future, even a golden age, for natural gas.”

“Coal has met almost half of the increase in global energy demand over the last decade.  Whether this trend alters and how quickly is among the most important questions for the future of the global energy economy.”

“The dynamics of energy markets are increasingly determined by countries outside the OECD.”

“All of the net increase in oil demand comes from the transport sector in emerging economies, as economic growth pushes up demand for personal mobility and freight.”

“China’s consumption of coal is almost half of global demand and its Five-Year Plan for 2011 to 2015, which aims to reduce the energy and carbon intensity of the economy, will be a determining factor for world coal markets.”

“Russia’s large energy resources underpin its continuing role as a cornerstone of the global energy economy of the coming decades.  Russia aims to create a more efficient economy, less dependent on oil and gas, but needs to pick up the pace of change.”

“International concern about the issue of energy access is growing.  Around $9 billion was invested globally to provide first access to modern energy, but more than five-times this amount, $48 billion, needs to be invested each year if universal access is to be achieved by 2030.”

“We cannot afford to delay further action to combat climate change.”

“New energy efficiency measures make a difference, but much more is required.”

“Widespread deployment of more efficient coal-fired power plants and carbon capture and storage (CCS) technology could boost the long-term prospects for coal, but there are still considerable hurdles.”

“Events at Fukushima Daiichi have raised questions about the future of nuclear power.”

“The wide difference in outcomes between [the scenarios analyzed in this report] underlies the critical role of governments to define the objectives and implement the policies necessary to shape our future.”

When observing the dysfunctional nature of the current political ecosystems in the U.S., in Europe, and in world affairs (e.g., the United Nations), and the increasing imperative for economic austerity to resolve the shortfalls in public coffers, it is hard to believe that governments (other than autocratic places like China and Russia) will be able to take any meaningful action to nudge the energy sector from its trajectory of “muddle-along.”  The chaos that IEA describes in the world energy scene will thus likely only intensify.

Lots of challenges in this world.  But, then again, lots of opportunities too.

Cleantech Blog’s Parameters for a Workable Energy Policy

Energy is life, the rest runs on it.

Since the 70s through every presidential administration and every Congress, we have had an energy policy that boiled down to fighting the cold war through oil and getting lucky on locally sourced coal and gas.  It’s not a zero planning energy policy, we’ve spent money, defined policies, written rules, set goals, etc.  We’ve just done our planning with 50 year old assumptions and zig zagged our way to idiocy.

One of my first ever blogs over five years ago touched on this topic:

My comments at the time after the 2005 energy bill:

We need to achieve low oil prices, and ensure that no one country is able to control our fuel supply. We have just passed a new Energy Bill. It does not do so. What we do need to do: Drop the ANWR fight and instead break the back of OPEC, slash consumption, and work closely with China.

But first things first.  This time I’d like to simply lay out the parameters of what ought to be in a workable, comprehensive, energy policy for the US in a post cold war era, where economic powers are shifting, where the war on terror is real, where environment matters, and where energy supply sources are changing and maybe getting more expensive.

Cleantech Blog has defined 20 parameters needed in a good energy plan.

  1. Has a clear cut and articulated vision – including acknowledging that energy security is not just  “energy independence”
  2. Deals with both demand and supply issues holistically
  3. Considers least cost path in any change
  4. Is phased in manageable ways
  5. Takes into account our current supply mix, load growth forecasts, and geographic considerations
  6. Includes both transport fuels and electric power
  7. Provides us with least cost or comparative advantage in energy both today and in the future vis a vis our core economic competitors
  8. Provides secure and interchangeable supply of energy resources and flows both domestic and cross-border
  9. Doesn’t destroy our current energy industry
  10. Allows time for energy and industry change
  11. Does the least environmental damage possible, and includes ongoing improvement in environmental impact
  12. Survivable under multiple energy demand growth scenarios and resource supply shocks in a global world
  13. Provides reliable energy to our industry and population
  14. Deals with or changes the current state and federal regulatory and permitting structures
  15. Considers the practicalities of infrastructure change, both lead time, economics, financing, technology, and regulatory
  16. Deals with the political considerations of OPEC and the Middle East
  17. Takes into account supply resources where we do have a comparative advantage
  18. Is fair and equitable during any shift in costs for one region or group
  19. Addresses and capitalizes on technology improvement in the US and globally
  20. Deals with China and India and Brazil as rising consumers and producers of energy resources

The energy policy itself should be simple in concept, and the energy plan hellishly detailed and complex in implementation.  But we desperately need this energy plan.

Energy is life, the rest runs on it.

Cleantech Investing: A View From 21

Ordinarily, I let my fellow blogging colleague Neal Dikeman of Jane Capital take the lead in covering cleantech IPOs and publicly-traded stocks. 

However, I recently received the May 2011 newsletter from 21Ventures, and found the commentary by David Anthony on cleantech public equities an interesting complement to Neal’s most current take — sufficiently so to expound upon it herein.

According to David, “by the end of Q1 2011, we will have seen the bottom of cleantech investing and valuations”, with three key subpoints:

1.  “Oil seems stuck above $100/barrel.”

2.  “Nuclear energy may be too ‘radioactive’ as a source for baseload grid power.”

3.  “Renewables will fill the void left by dwindling nuclear capacity.”

It’s a nice newsletter, well worth reading, though I think David’s analysis is a bit too sanguine.  Oil prices will remain volatile, and each time they go down somewhat, the rank-and-file will think (again) that our energy crisis has passed, thus reducing the pressure for change or action in moving towards cleantech.  David overlooks the growing sense of many that natural gas from shale will represent the answer to most if not all of our future energy supply challenges for years to come, thereby mitigating the need for renewables and/or energy efficiency.  And, David neglects to discuss the future role of coal, which I believe will hang on for a long time to come, and whose benefactors will rain on the parade of cleantech as much as possible whenever possible to elevate coal’s relative position in the energy scene. 

All of these factors will mean that cleantech investing will still experience more than its fair share of bumps along the road.  It will be a tough and choppy market to navigate, and I don’t think the public markets lend themselves well to companies unless and until they have very sizable and stable earnings — which most purely cleantech firms (including publicly-traded ones) do NOT have.  Thus, cleantech is an industry that, for awhile, will mainly be capitalized through private equity and venture capital markets, with liquidity events through sales to major corporate acquirers that have sufficient scale to float well on public markets, rather than IPOs for the most part.

But, I do share David’s closing summation:  “We have always believed that dwindling low-cost fossil fuel reserves, climate change, growing middle classes in emerging markets, and urbanization will converge to create some of the best investment opportunities in our lifetime.”  I think Neal would share this conclusion too.

N.I.M.B.Y. – To an Extreme

by David Niebauer

The Story of Rare Earth Metals

A recent article in the WSJ peaked my interest about Rare Earth Metals.  The article discusses how Toyota is searching for an alternative to neodymium, a rare earth metal, in the batteries of its electric and hybrid vehicles.  I have heard other’s bemoan our use of rare earth metals (REMs) and how the earth’s crust only holds so much of the stuff.  So I began researching the subject, expecting to find viewpoints similar to those in the Peak Oil debate.

What I discovered is quite a different story.

It turns out that REMs are not rare at all.  They are a collection of seventeen chemical elements at the bottom of the periodic table found plentifully distributed in the earth’s crust (See here for more information).  They were probably deemed to be rare when discovered in the late 19th Century because no one noticed them before.  REMs have become a fixture in high technology devices and applications.  They are common in all types of electronic devices, solar panels, wind turbines and many types of batteries and superconductors.  Much of cleantech depends on them.

The problem with REMs and why they are so “rare” is that mining and refining for them is incredibly damaging to the environment.  Extraction requires a huge amount of ore (making it highly energy-consuming) and toxic acids that eat into the soil and persist for decades.   To make matters worse, REMs are often found with even heavier elements, such as uranium, making the mine tailings radioactive.

So what has the industrialized world done about this?  Have we found new energy-efficient and environmentally safe ways to refine REMs for sustainable development?  Have we subsidized and encouraged recycling programs so the REMs that we do use can be reused in new and more useful applications?

No.  We have shipped our problem to China.  China now accounts for the production of over 97% of the World’s consumption of REMs.  The Chinese are apparently able to do long-term planning.  They take on dirty, inefficient, labor-intensive work that no one else wants to do, and then make themselves indispensible to the global economy.  But even the Chinese are realizing that something has to give. Recently, they have slapped on increasing tariffs and have started to squeeze the spigot of REM supply.

The Chinese have not always had a corner on the REM market.  In fact, during the 1960s through the 1980s, world production of REMs was centered in Mountain Pass, California.  If the price is right, I assume that the Mountain Pass rare earth mine will re-open.

Recyclers of electronics and PV panels do exist, but they are not exactly the darlings of the investment community – which means that the incentives are not there.  It’s cheaper to consume voraciously and dump the waste in someone else’s backyard.

I usually finish an article like this by saying something along the lines of: something’s gotta give!  But maybe it will take a crisis of historic proportions for anything to truly be done.  Putting a price on environmental degradation would go a long way.  But even trying to manage industrial carbon emissions appears to be too much for our short-sighted politicians.

But really, it’s not even the politicians.  We all have our heads in the sand – or at least I do.  So much of “business as usual” is rife with these kinds of inefficiencies and environmental time bombs.  I continue to buy my electronic devices without thinking too much about what it takes to build them – only to toss them away when I no longer have a use or when I find a better new toy.  I send them to the landfill – its only a drop in the bucket, after all.

I wish I had an answer.  I suppose the rest of the world will begin refining REMs again and will eventually find more environmentally benign ways to do it.  After all, it will now actually be in our back yard.  Maybe even the time will come when we recognize that, in fact, everywhere in the world is our back yard; that living on the planet requires long-term thinking and technologies for sustainable development.  Our future depends on it.

David Niebauer is a corporate and transaction attorney, located in San Francisco, whose practice is focused on clean energy and environmental technologies.  www.davidniebauer.com

Will the 21st Century be the Fossil Fuel Century?

Will the 21st century be the fossil fuel century?

Whether it’s peak oilers, climate scientists, renewable and sustainable gurus, or cleantech venture capitalists, we all talk like that’s not an option.  We’ve preordained that the 21st century is a green energy, renewable power, cleantech century.

And I’d like to believe that.  But it’s not a done deal yet.  There are 3 points all of us need to keep in mind before declaring victory.

  1. China, the second largest and fastest growing large economy in the world consumes half the global coal consumption, powered in part by North American and Australian coal supplies, and by a huge increase in Chinese domestic coal production.  This year’s EIA reference case 2035 projection has China’s coal consumption doubling by 2035, driving most of a 50% increase in world coal consumption – and virtually no change in coal’s proportion of the energy equation.  Powered of course with current recoverable coal reserves at some 900 billion tons, or 120+ years of current production.
  2. Brazil, the poster child of biofuels potential the last 10 years, is making a play with its deep water subsalt discoveries to be one of the oil exporting superpowers.  And check out the announcement of its $224 Billion 5 year oil investment program.  That’s like a couple of thousand ethanol plants ,or one major oil company.  The Brazilian offshore finds to date represent production something like 5-10x the current Brazilian ethanol production.  Some poster child.
  3. And then there’s shale gas, its potential exemplified by the Marcellus Shale.  By some estimates this resource is big enough to change the entire game in fuels for power. And most of it’s located right down the street from the heart of the US population centers, just like the coal beds were.  Hard to see how electricity prices keep rising to help renewables in the face of that, with natural gas prices being  moderate and all, (unless of course China eats all the coal and drives coal prices up –  a global fossil fuels century either way?).

Imagine a 21st energy century where the US growth is powered by cheap natural gas, and exports our coal to China to even out the balance of payments.  Where increases in ethanol production and offshore oil production and slightly higher gasoline prices and mpgs balance out most of the transport fuel equation. A world where renewables play an important part, but still stay at margin of the King Fossil.

It’s not a world unimaginable.  And it’s not much different that the imagination might have done seen in 2000, or 1990, or 2050.  This shouldn’t be doom and gloom, nor should it be time to declare a cleantech victory.   The 21st energy century will be a long century.  And it’s just business as usual.

Peak Oil: Objects in Mirror May Be Closer Than They Appear

by Richard T. Stuebi

One of my favorite PowerPoint slides about the peak oil phenomenon comes from the dearly-departed Matt Simmons.  The slide depicted a mountain peak in an automobile rearview mirror, the implication being that we would only know for sure when peak oil production has been achieved after it has been achieved and followed by the inevitable decline.

Over the past decade, there has been a lot of debate as to when the date of peak oil would occur.  (It is worth noting that most of the argument has been about when, not whether, peak oil would occur.  Some of the more optimistic forecasters, such as Cambridge Energy Research Associates, have consistently projected peak oil a few decades out.  Some of the more pessimistic observers, such as long-time oilman Simmons himself, worried that peak oil would come much sooner, perhaps within a few years.

Now, according to a new parsing of the data in the World Energy Outlook 2010 by the International Energy Agency (IEA), it might be that peak oil production actually occurred in 2006 at about 70 million barrels per day.  This is a big shift from the IEA’s prior analysis in 2008, in which it projected that conventional oil production would slowly climb for decades to come.

To be clear, there is a bit of semantics at work here.  “Conventional” oil production represents black crude coming out of the ground in liquid form via wells, and that type of oil production may have peaked.  For sure, it’s getting harder to get:  big finds of conventional oil these days are the exclusive domain of multi-billion dollar big oil companies, working in the deepest places in the remotest places on the globe.

But, as you might have guessed by now, demand for transportation fuels (which historically are derived almost solely from oil) hasn’t peaked.  So, what’s backfilling the decline in conventional oil production?  Unconventional oil production – primarily tar sands from places like Alberta, and to a lesser extent natural gas liquids and (maybe more in the future?) coal-to-liquids – and biofuels are making up the difference.

What can declining conventional oil production mean?  For sure, it can only mean upward pressure on crude oil prices.  It also means that alternatives for crude oil in transportation markets become more economically appealing and more widely utilized.

However, the economics and availability of substitutes for conventional oil remains a great concern.  According to a recent study published in Environmental Science and Technology by researchers at the University of California, Davis, the stock market is projecting that the substitutes will not be economically-viable in large quantities at anywhere near the pace that they may be demanded.

Of course, the stock market is not a perfect predictor of anything.  However, if one accepts that the stock market reflects an incredible quantity of information processed by many very sophisticated market participants and further that on average stock prices are properly valued, the findings suggest that the market in aggregate isn’t seeing any huge near-term opportunities to replace oil in a major way.

If peak oil has indeed already occurred and if alternatives aren’t at the ready at competitive price points in meaningful volumes, then it is almost a virtual certainty that we will see some combination of significantly higher oil prices and/or oil demand destruction through reduced economic activity. 

It’s not a pretty picture staring back at us in the mirror.

Drill, Baby, D’Oh!

by Richard T. Stuebi

Unlike many in the cleantech community, I’m not averse to increased drilling for oil in the U.S. 

I recognize that we’re not going to be able to leapfrog out of the corner into which we’ve painted ourselves over the past few decades, and that we’re going to need oil, gas and coal – and probably as much of it as we can prudently get, especially from domestic sources – for a long time to come as a consequence of the accumulation of our past decisions and investments regarding energy. 

As the most thoughtful segment of energy sector observers frequently notes, our energy challenges in the coming decades are so significant that we’re going to need just about everything we have at our disposal to meet the challenges.

But, as Einstein said, “insanity is doing the same thing over and over and expecting a different result”, and betting our entire national energy strategy solely or at least mainly on increasing production from our fossil fuel resources is a losing proposition that will only further exacerbate the challenges we now face. 

Furthermore, the opportunity may very well not be all it’s cracked up to be.  For instance, last month the U.S. Geological Survey released a revised assessment of the remaining resources in the National Petroleum Reserve of Alaska – which you’ll no doubt remember has long been viewed by many to be the savior of all our energy travails.

Oops!  Instead of a mean estimate of 10.6 billion barrels, it now looks like there’s really only about 900 million barrels up there to be recovered – less than 10% of what was formerly thought.

Now, that resource may still be well worth recovering; it’s certainly worth a lot of money.  The environmental community is largely opposed to going for it, and maybe that position is too hard-line.  Yet, it should also be recognized that there’s no panacea for American energy policy up there on the North Slope.  After all, even if fully captured (which is implausible), 900 million barrels is only equivalent to less than fifty days of U.S. oil consumption – not exactly a history-altering development.

And, logic alone shows that there’s no panacea if all of the reasonable conventional oil/gas exploration possibilities are pursued.  The planet is a finite sphere, and organic matter is not being transformed by geologic forces into fossil fuels as quickly as they are being depleted by manmade extraction and consumption. 

Furthermore, as we all know, fossil fuel resources are not evenly distributed across the planet.  While the U.S. is responsible for about 20% of global demand for oil, our national endowment of petroleum reserves only represents about 2% of total supply on Earth.  Perhaps if we’re lucky, we might find an unexpected field somewhere on our property, possibly deep off our coasts (presuming we can avoid Deepwater Horizon Part II), but we can’t expect surprises to change our fortunes by an order of magnitude.

True, there are wild cards.  We can supply the needs we currently meet with petroleum by utilizing other minerals.  For instance, the U.S. clearly has immense coal reserves.  To date, they have been used solely for power generation and industrial production (e.g., coking for steel).  However, it’s been known for decades that coal can be converted into transportation fuels through the Fischer-Tropsch process.  Coal could thus be a transitional source for moving the U.S. off reliance on foreign oil.

In addition, the U.S. has an immense quantity of so-called “unconventional” oil resources:  stuff that doesn’t come out of the ground as crude, but which can be processed into fuels.  The largest of these is the shale resources of the Piceance Creek basin in Colorado, Wyoming and Utah, which are estimated to contain over 1 trillion barrels of oil equivalent.  (In case you accidentally missed that number, it’s over 1000 times bigger than the revised estimate of the resources in Alaska.)

There are other technological approaches:  second-generation biofuels, electrification of vehicles and shifting electricity generation from fossil fuels, and so on.  

Alas, the problem with alternative sources of transportation fuel is that they are both very capital intensive and have higher variable costs than conventional oil/gas production.  Consequently, neither coal-to-liquids nor shale (nor other alternatives) will be pursued with vigor by the private sector unless there is greater certainty that oil prices will remain high enough for long enough to merit the enormous investments required.  Given the oligopolistic oil marketplace, controlled by the OPEC cartel which can depress prices at any time (for at least awhile) by temporarily flooding the markets with the inexpensive-to-produce oil they now are fortunate to have (for at least awhile), no such certainty exists.

As a result, until then, under a status quo energy policy based primarily upon an overly simplistic “drill, baby, drill” mentality, these types of energy sources will not come to market.

Frankly, even then, these unconventional supplies of fuels are just delaying tactics.  Whether one decade or five or ten, it’s only a matter of time before we are compelled to move to an energy system that is truly renewable and sustainable, as opposed to a system based on a “use it and lose it” premise.  

Until we have the foresight and will to do something different, we’ll simply be stuck “over a barrel”.

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.

Bobby Jindal is Blinded by Money

I was shocked when reading this letter from Governor Bobby Jindal. Now I find him to be over political at times, even though I like his governing style in general. In this case, he is just out of his mind. BP has not even capped the well yet and Governor Jindal is asking for more drilling in Louisiana. I understand the economic output, but given all the gas they have found in the State he would be better off pushing for the Pickens plan which converts heavy trucks to natural gas than letting more drilling occur until they have a failsafe way to prevent future spills.

More importantly, as a smart young person, he knows that we can offset all off shore drilling with electric vehicles, natural gas, and higher CAFE standards. Why politicians like him put their brains
in a drawer to dumb themselves down I have no idea.
Jigar Shah
www.creatingclimatewealth.com

Top Ten Energy Myths

by Richard T. Stuebi

I get a kick out of trite little lists that I can quickly report on and provoke some thinking and conversation.

And so it is that I recently came across the “Top Ten Energy Myths”, as suggested by Thomas Tanton, a fellow at the Pacific Research Institute.

As listed in the table of contents, the ten myths are:

  1. Most of our energy comes from oil.
  2. Most of our oil comes from the Middle East.
  3. We have no choice but to import vast quantities of oil.
  4. Offshore oil production imposes environmental risks.
  5. Reducing our peroleum (sic) use through alternative energies like solar and wind will increase U.S. energy security
  6. Energy companies will not invest in clean reliable energy.
  7. Renewable energies will soon replace most conventional energy sources.
  8. The U.S. consumes large amounts of energy and thus emits a disproportionate amount of the world’s greenhouse gases.
  9. Federal mandates for higher-mileage cars means less energy consumption
  10. Forcing drivers to use alternative fuels will help solve global warming.

As Tanton notes in the introduction, Mark Twain is attributed to have said that “it ain’t what you don’t know that gets you into trouble; it’s what you know that just ain’t so.”

And so it is: some facts are myths. But, then again, some facts are factual too, and some claimed facts are myths. For instance, at the conclusion of a brief commentary on these top ten myths in the February issue of Power, Tanton presents as “fact” that “increased oil production can have green results”, with the supporting claim that “new drilling technology, developed by private energy companies, has greatly reduced the risk of oil spills.”

Uhhhh…..

I guess the moral of the story here is that readers have to be pretty discerning when considering the writings of thought-shapers, to not accept commentary as absolute, definitive and permanently correct, but rather to look between the lines in identifying biases and competencies that underlie their arguments. And, if a writer is neither competent to discuss the topic, nor unconflicted in discussing the topic, readers are well-advised to not put a lot of trust in the writer’s opinions.

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.

BP Oil Spill

Barrons had an interesting take on biofuels from garbage: http://online.barrons.com/article/SB127327100968888619.html

I have been following this movement for some time and there does seem to be an extraordinary amount of capital and brainpower going into this space. People talk a lot about ethanol and I am a big of ethanol, mostly because I like the constiuency and channel to market it creates. More importantly, I am big fan of all of the other alternatives such as biofuels to garbage which has big proponents from Waste Management to others and Barrons claims that we might be able to get as much as 600,000 barrels a day of oil equivalent from this source. Not much compared to the almost 20,000,000 barrels a day that we use in the US alone.
Efficiency within existing ICE engines is another area we should focus on:
My friends at BP think that for an extra $4K per car you could reduce fuel usage by 50% within the next 4 years (typical auto planning cycle).
Electric Vehicles are a good choice as well:
For many applications, if you can put together the right financing you can achieve a lower cost per mile than diesel powered delivery vehicles today.
T Boone Pickens and others have talked about Natural Gas. With gas prices so low right now, there is some financial justification for this approach, particularly for heavy trucks — where less incremental infrastructure is required.
What the idea above show is that this will be a tough nut to crack, but on diversification arguments alone we should start the task of moving away from a largely oil based fuel future to one that diversifies away from oil.
Oh and it will be cheap and pay for itself in lower fuel and oil prices!
Jigar Shah
Carbon War Room

Fossil Fuel and Life

by Richard T. Stuebi

In the past month, we’ve witnessed two major catastrophes associated with U.S. production of fossil fuels — the BP Deepwater Horizon oil rig explosion killing 11 workers in the Gulf of Mexico, and the Massey Upper Big Branch coal mine explosion claiming 29 lives in West Virginia.

It’s easy to vilify energy companies like BP (NYSE: BP) and Massey (NYSE: MEE) for being reckless at these operations. No doubt, there will be lots of investigation in the months to come, and tighter regulations and legal action in the years to come. Scrutiny is definitely deserved, new requirements may be forthcoming, and severe punishments may well be in the offing.

Rather than focus on the obvious human cost of these tragedies, and the truly frightening ecological disaster currently unfolding in the Gulf of Mexico, I choose to comment herein on the profound implications of our long-followed energy policy, which I term as “cheap energy at any price”.

For the most part, our problems do not lie with fossil fuel producers. Certainly, they must be held to meet safety and environmental standards — and in these two cases, these standards do not appear to have been met. But that does not mean that all oil and coal companies are led by evil people, and that their employees are complicit conspirators in misdeeds against humanity and the planet.

No, it’s far too easy to take that oversimplistic but misguided position.

Pretty much every reader of this post will willingly use fossil fuels today — in the coal burned to generate the electricity to power your computer, in the petroleum burned to move you to your place of work.

Let’s not forget that fossil fuels have been an instrumental factor in the huge leaps in quality of life over the past 100 years. It is this utter reliance by all of us on these fossil fuels that compels companies and people to supply these fuels. And, of course, to try to make a profit in doing so. After all, that is the American way.

These two disasters are the exception, not the rule. More fundamentally, the problem is not on the supply side, but on the demand side.

Fossil fuel companies are not the bad guys — they supply a product that will remain vital for years to come.

We have met the enemy, and it is us.

It is time for us to dedicate ourselves to putting virtually all of our incremental attention, money and efforts towards an energy system not nearly so dependent upon fossil fuels. And, we need to accept imposing such a discipline upon ourselves — for instance, by being willing to establish stronger price signals in the energy markets to drive our society in that direction.

In other words, we must stop the “cheap energy at all costs” mentality that has pervaded our thinking for decades.

As Albert Einstein once noted, “Insanity is doing the same thing over and over again and expecting different results.” In the case of energy, if we keep putting all of our eggs in the fossil fuel basket, all we can expect are more human and ecological tragedies.

Only a few of these tragedies will be very visible and instantaneous as in these two explosions. The worse tragedies are long-term and hidden: climate change, depletion of finite and irreplaceable resources, continued reliance on supplies from objectionable sources, and increasing geopolitical conflict leading to resource wars.

Think about the deceased of the Deepwater Horizon and Upper Big Branch, working on an offshore oil rig or underground in a coal mine. Are these the jobs we want to see for the 22nd Century? Did these people want their children to be earning a wage in the same way they were?

The best way to honor the dead would be by taking these recent tragedies to increase our resolve to move us from the fossil fuel past to a new and better future that need not rely so desperately on fossil fuels.

It won’t be easy, quick or cheap to create a new energy system, but we need to start working much harder to sever the link between fossil fuels and human life. Because escalating reliance on fossil fuels can only be harmful to our long-term social and planetary health.

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.

An Evening With Ernest Moniz

by Richard T. Stuebi

Last week, the MIT Club of Northeast Ohio hosted a talk at the Great Lakes Science Center in Cleveland by Professor Ernest Moniz, the Director of the MIT Energy Initiative, and a member of the President’s Council of Advisors on Science and Technology.

Over the course of about an hour of spirited commentary and responses to questions, Prof. Moniz made a number of interesting points. A few highlights:

  1. Arguably the key challenge facing the energy sector is the virtual monopoly that petroleum has on the transportation sector. Producing more non-petroleum options/alternatives for transportation will be pivotal to a better future. By virtue of its considerable domestic resource and lower carbon intensity, natural gas is an attractive option — either as a transportation fuel directly (e.g., CNG), or in generating electricity to support electrified vehicles.
  2. One must never lose sight that energy is a capital-intensive commodity industry subject to “complex politics”, which in turn means that the asset base changes very slowly, and (unlike other economic sectors such as consumer products) is driven first-and-foremost by considerations of cost. Technologies exist today to address most of our challenges, but “inconveniently” they are considerably more expensive, which is not attractive to either customers or politicians.
  3. Although more study at greater detail is always helpful, climate scientists have erred in framing public debates via increasingly sophisticated analysis. Over a century ago, predictions were made about carbon dioxide levels and planetary impact that are a good first-order approximation of what is being evidenced today. Rather than being required to prove that human-induced climate change is occurring, the burden of proof should be on others to show convincingly that human-induced climate change isn’t occurring — that second- and third-order effects (such as feedback loops and consideration of other variables) are somehow dominating the first-order linkages between carbon dioxide concentrations and average planetary temperatures.
  4. The exact future impacts of climate change are unknown, but the distribution of probable planet-wide average outcomes is fairly well described. An increase of 2 degrees Celsius by 2050 — what many consider to be the point beyond which planetary impacts become much more problematic — is on the lower-end of the range of possibilities even if global per capita carbon dioxide emissions are cut by 80% from today’s levels. If status quo is maintained, there’s virtually no statistical chance of containing temperature increases to 2 degrees Celsius by 2050.
  5. From a technological standpoint, advancements in all forms of low-carbon electricity generation — nuclear, renewables, and coal with carbon sequestration — will need to be pursued intensively. In addition, because some amount of future climate change is virtually predetermined given our past history, adaptation strategies and technologies should get much more attention. Although premature to employ, and scary because of the principle of unintended consequences, serious research should at least begin on planetary engineering approaches (e.g., deliberate emissions of sulfates) to offset the effects of an increased level of carbon dioxide concentrations in the atmosphere.
  6. The recent climate negotiations at Copenhagen never had much of a chance of producing a meaningful agreement without U.S. Congressional action. Hopefully, Congress will act to pass good legislation on climate change, because the prospect of EPA regulating carbon dioxide and other greenhouse gases as pollutants under the Clean Air Act is “horrific”.

In Prof. Moniz’s view, there is significant urgency for action, and a good chance of a not-very-good outcome. But, all we can do is the best we can do, so we have to move forward in a mood of determined optimism.

Richard T. Stuebi is a founding principal of 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 Immutable Principles of Energy

by Richard T. Stuebi

Jim Halloran, a financial analyst of the oil/gas industry now with Russell Energy Advisors at Financial America Securities, recently sent along to his various contacts something he came up with called “The Immutable Principles of Energy”. I liked it, and thought it was worth passing on verbatim to readers of my blog:

1. Never confuse reserves with production.

2. The biggest, best fields are discovered first.

3. Commodities are priced at the margin – the last 1% dictates the price.

4. E&P companies are serial destroyers of capital. Any appearance to the contrary is a temporary aberration, usually due to hoped-for, unsustainable pricing gains.

5. More than any other sector, time is money with respect to Energy.

6. The more efficient we become in our use of energy, the more we will use (Jevons’ Paradox).

7. The more society expands and demands greater access to energy, the more it will create roadblocks to its delivery.

8. We desire six qualities in our energy sources: 1) Affordability (cheap); 2) Abundance; 3) Reliability; 4) Purity; 5) Universal access; 6) Environmentally friendly. There is no set of circumstances under which all of these can exist simultaneously.

9. There exists at least a “$2 differential” between crude oil and competing sources of energy, regardless of the price of crude oil.

10. In dealing with OPEC, pay attention to what its members do, and give little heed to what they say.

11. Governments look at energy fields as sources of revenue, not as sources of energy:
· Governments have a disincentive to promote efficiency/conservation
· Income streams will be protected as to magnitude
· Long-term energy planning is incompatible with political realities

12. Once a field goes into decline, it will not increase production beyond this peak in the future without capex infusions that will prove to be uneconomic.

13. Crude oil is universal. The price you pay for gasoline is determined more by the small producer in Colombia than by the Wal*Mart on the corner

14. Natural gas is local. The price will continue to be set by continental production even after the lawyers have given up fighting the LNG terminals.

15. The media know nothing about the oil business. The more strident the published predictions of a price extension above (below) extreme levels, the closer the oil market is to a temporary top (bottom)

16. “It’s always something” – Roseanne Roseannadanna

Richard T. Stuebi is a founding principal of 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.

Peter Huber: Low-Confidence in Low-Carbon

by Richard T. Stuebi

A few weeks ago, I wrote here that it is often a good thing to read and reflect upon intelligently-crafted opinions that differ from those you hold.

A good example is offered by the essay “Bound to Burn” by Peter Huber, a Senior Fellow at the Manhattan Institute. In this thought-provoking piece, Huber makes the following interesting statements about the challenges to be faced in moving to a lower-carbon economy:

· “We rich people can’t stop the world’s 5 billion poor people from burning the couple of trillion tons of cheap carbon that they have within easy reach….We don’t control the global supply of carbon.”

· “We no longer control the demand for carbon, either. The 5 billion poor – the other 80 percent – are already the main problem, no us. Collectively, they emit 20 percent more greenhouse gas than we do. We burn a lot more carbon individually, but they have a lot more children. Their fecundity has eclipsed our gluttony, and the gap is now widening fast.”

· “Might we instead manage to give the world something cheaper than carbon?….For the very poorest, this would mean beating the price of the free rain forest that they burn down to clear land to plant a subsistence crop. For the slightly less poor, it would mean beating the price of coal used to generate electricity at under 3 cents per kilowatt-hour.”

· “Fossil fuels are extremely cheap because geological forces happen to have created large deposits of these dense forms of energy in accessible places. Find a mountain of coal, and you can just shovel gargantuan amounts of energy into the boxcars. Shoveling wind and sun is much, much harder.”

· “Another argument commonly advanced is that getting over carbon will, nevertheless, be comparatively cheap, because it will get us over oil, too….But uranium aside, the most economical substitute for oil is, in fact, electricity generated with coal….By sharply boosting the cost of coal electricity, the war on carbon will make us more dependent on oil, not less.”

· “By pouring money into anything-but-carbon fuels, we will lower demand for carbon, making it even cheaper for the rest of the world to buy and burn. The rest will use cheaper energy to accelerate their own economic growth. Jobs will go where energy is cheap, just as they go where labor is cheap.”

· “If we’re truly worried about carbon, we must instead approach it as if the emissions originated in an annual eruption of Mount Krakatoa. Don’t try to persuade the volcano to sign a treaty promising to stop. Focus instead on what might be done to protect and promote the planet’s carbon sinks.”

· “Carbon zealots despise carbon-sinking schemes because, they insist, nobody can be sure that the sunk carbon will stay sunk. Yet everything they propose hinges on the assumption that carbon already sunk by nature in what are now hugely valuable deposits of oil and coal can be kept sunk by treaty and imaginary cheaper-than-carbon alternatives.”

By no means is Huber’s writing perfect: the essay is too long by half, runs a too-circuitous path with considerable redundancies, and doesn’t lead to a very satisfying or forceful conclusion.

Along the way, some of Huber’s snide asides are too pessimistic. As an example, he claims “there is no serious prospect of costs plummeting and performance soaring” for solar and wind energy, but there is ample evidence (and lots of activity funded by prominent venture capitalists) to dispute this assertion.

And, Huber’s clearly got some facts wrong. For instance, he talks of $500/ton carbon offsets and 15 cent/kwh wind energy. If you believe these far-too-high numbers, no wonder you reach conclusions that aren’t very favorable to low-carbon energy sources.

Huber has been wrong before. About ten years ago, he and Mark Mills launched the Digital Power Report, which was touting the emergence of advanced technologies in distributed generation and energy storage to revolutionize electricity supply. Although quite compelling and seemingly well-supported, the perspectives they put forth in their periodical were at best far premature – and less charitably, inaccurate or incorrect. After a run of a few years, Huber and Mills wound down the Digital Power Report, presumably because the world wasn’t turning out the way they were predicting.

But, I still think this latest work by Huber is a worthy contribution to the discussion. Most notably, Huber’s concluding call for much more focus on carbon sinks as a no-regrets approach is hard to dispute.

Huber is no dummy. Many of the points he makes along the way are logically sound, and ought to be factored into any strategy for moving towards a lower-carbon economy. As unpleasant as some of the concerns raised by Huber may be, they are nevertheless important to hear to develop a more compelling story that overcomes the objections to thereby mobilize more real movement (rather than just talk) towards a low-carbon world.

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become Managing Director of Early Stage Partners.

Texas Excess

by Richard T. Stuebi

Over my spring break vacation, I had the pleasure of reading The Big Rich: The Rise and Fall of the Greatest Texas Oil Fortunes by Bryan Burroughs. It was one of those books I just couldn’t put down.

The Big Rich profiles the saga of the so-called Big Four of the Texas oil bid-ness — Roy Cullen, H.L. Hunt, Clint Murchison and Sid Richardson. Though hardly household names, these four amassed gi-normous fortunes under the radar screen during the 1930’s and 1940’s, while the rest of the U.S. and the world was focused on the Great Depression and World War II.

Only Hunt Oil remains as a direct consequence of this era. However, in their heyday, the Big Four were responsible for some major forces that continue to shape the world we know today, including:

  • Supplying the preponderence of oil to fuel the Allied war machine in World War II — a huge factor in the success in defeating the Axis
  • Launching the religious right as a force in American media, culture and politics
  • Setting the precedents to ensure that large quantities of money from the oil industry became an enduring feature of the American political process — propelling the careers of Dwight D. Eisenhower and Lyndon B. Johnson (and, of course, the Bush dynasty)
  • Elevating conspicuous consumption to a form of high art to be envied by the masses, as a result of their affiliations with Hollywood and the Dallas Cowboys
  • Accelerating the shift of the U.S. power base and population out of the Northeast and down to the Southwest

A native Texan, Burroughs casts an unflinching eye at his home state. The book is essential reading for those who want to truly understand the U.S. in the early 21st Century.

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will become a Managing Director at Early Stage Partners.

ConocoPhillips’ CTO on the Future of Cleantech and Energy Technology

I had the opportunity recently to chat with Stephen Brand, the chief technology officer for ConocoPhillips (NYSE:COP), one of the largest major oil companies in the world. I have a long personal history with the ConocoPhillips organization. One of the first IPOs I ever worked on was the Conoco, Inc. IPO when DuPont spun it out in the late 1990s. At the time (pre dotcom) it was the largest IPO on record. My uncle worked for Phillips Petroleum on the other side of the company for 30 years. And for the last several years I have advised parts of the ConocoPhillips company in its emerging technology and alternative energy groups.

ConocoPhillips has always been the quietest of the majors when it comes to the press, so I was delighted when Stephen agreed to speak on the record on energy technology, cleantech and alternative energy technology with Cleantech Blog. He recently also headlined the Rice Alliance for Technology and Entrepreneurship forum. Stephen himself came out of the Phillips organization from the exploration and production side of the business, originally starting as a geologist.

ConocoPhillips has always been a quiet leader, with technology budgets at levels swamping all but the largest venture capital organizations in cleantech, and was the first oil company to join US Climate Action Project and are part of the Carbon Disclosure Project. They are also quietly repositioning the company around a global energy strategy – not just oil.

This move tracks the history of the company. While one of the oldest oil companies in the world, 20 years ago Phillips was not generally considered a major player in the oil industry, and given the changes driven through M&A in the last 15 years, which Amoco, Mobil, Arco and numerous other massive organizations did not survive as independent, it certainly was not clear the Phillips would become one of the Tier 1 companies. But today, at $178 Bil in assets, it clearly is. The current CEO, Jim Mulva, took over as chief executive about 10 years ago, and the moves the company has made, including deals that brought Conoco, Inc. and Burlington into the fold, helped vault the company well above its historical presence. In some respects COP is positioned to do the same thing in energy and technology more broadly. Especially given that its annual capital expenditures of $15 Bil are on the same scale as the whole solar industry revenues or the global venture capital sector, and in one underreported move in the last couple of years they doubled annual technology spending to $500 mm.

I put a few questions to Stephen during our discussion to outline what all of this means.

Stephen, how important do you see technology to the future of the oil patch in general?

Neal, by 2030, global energy demand is forecast to be about 50 percent higher than it is today, even with improvements in energy efficiency. Emerging technologies will help us meet the world’s growing energy needs as we look for oil and natural gas in ever more challenging environments – for example the deepwater Gulf of Mexico and offshore Arctic – and in more challenging forms such as oil sands and gas hydrates. Innovation also will help us to minimize the impact on our environment and reduce greenhouse gas emissions.

In the 1980s/1990s oil companies under oil price pressure cut back on R&D drastically as WTI prices fell down to $10, was that a mistake in hindsight, even though it made financial sense at the time? Besides energy prices, what else has changed?

We take a long-term view of our business which enables us to stay focused on results. We apply a consistent, systematic business model with the flexibility to adapt to changing business conditions around the world, but we understand that we need to take a long-term perspective of for innovation that will develop future business opportunities. ConocoPhillips is committed to invest in people, technology and projects that allow us to safely, reliably produce oil, natural gas and to develop the next generation environmentally superior fuels to sustain our economy and way of life.

In which area is technology most important for the energy business?

Technology is important in every segment of our business. It is one of the most important tools we have for finding and producing new sources of oil and natural gas, but also for developing and delivering energy in new, more efficient ways. For example:

New exploration technology – 3-D seismic – allows us to detect undersea oil and gas deposits at great depths with minimum impact on the environment;
Breakthroughs in lithium-ion battery technology greatly improve the safety, power and reliability of batteries for hybrid vehicles, thereby improving fuel economy and reducing emissions;
A “coal-to-gas” technology that allows the use of this abundant resource in an environmentally superior manner;
Innovations in carbon capture and storage will allow us to address concerns regarding global climate change.

You have announced the long term transition of ConocoPhillips from an integrated oil company to a global energy company, what does this mean, and how does that apply to technology?

Yes, ConocoPhillips is not looking just at oil for the future of our company, but energy broadly. Technology is a key part of that transition. Any moves into new markets for any company requires access to innovation and technology. The ConocoPhillips Technology group has more than 350 scientists and engineers – 50 percent of them with Ph.D.s. These are the people driving our innovations and our transition as we become more technologically sophisticated. One of the most significant aspects of that transition, I believe, will be our ability to recruit and retain the kind of scientists and researchers who can develop the next generation of energy. That’s one reason why ConocoPhillips is creating a new 400 acre global technology center outside of Denver, Colorado and why budgets have gone up.

I’ve followed the Company for a while, but can you share some perspective on COP’s technology budgets are with our readers, and how and where they have been growing?

We have doubled our research and development spending. In 2008, we invested $500 million in technology – technologies that improve our existing assets, as well as those that create new emerging businesses. We expect that figure to grow in the future. As I mentioned, our global technology center, projected to open in 2012, is another indication of our emphasis emerging technologies and their role in the future.

In the last several years ConocoPhillips made a number of moves in technology, including a much reported biofuels effort, but also launched a groundbreaking lithium ion battery electrode business called CPreme. But more broadly what technology areas is COP interested, and how might you rank them?

Safety is always our top priority; and we believe safety is very much tied to operational reliability at all our facilities, which is large part a technology problem. But in addition to using technology to enhance operational reliability at our core upstream and downstream facilities, we’re focused on identifying breakthrough technologies that can deliver energy while lowering greenhouse gas emissions – next generation energy including alternatives like biofuels and renewables like solar and geothermal; and technologies to reduce industrial CO2 emissions.

Are you looking to do more in-house R&D or external partnerships?

Both. We are actively recruiting for our own efforts, and to foster technology innovation, we have several co-ventures with Iowa State University, the Colorado Center for Biorefining and Biofuels and the U.S. Department of Energy’s National Renewable Energy Laboratory. We also established the ConocoPhillips Energy Prize, in partnership with Penn State, to recognize new ideas and original, actionable solutions that can help improve the way our country develops and uses energy. The first awards will be announced in October.

Okay, so then do you see COP making technology acquisitions at any time in the future, or will it all be homegrown?

We are supporting innovation inside and outside the company. While we have not made any technology acquisitions, being open to new concepts and innovation means that we would not rule that out.

As far as the internally grown R&D efforts, you’ve had a major expansion in the works for some time but hasn’t gotten much press. Can you share a little about the upcoming Denver technology center?

Our Louisville, CO, technology and learning center outside of Denver, slated to open in 2012, will be a center of innovation for us. In Louisville we will have a purpose-built facility where we can work to explore new and expanded research and development opportunities in upstream, downstream, environmental, renewable and alternative technologies. This is also part of our push to recruit and retain top talent.

Oil and gas is not the only core technology area for the company. COP has had a long history in materials technologies, and most people don’t know has developed some of the most innovative lithium ion battery technology in the world. Can you talk some about Cpreme?

Our CPreme ® graphites are the highest-performing anode materials currently available for lithium-ion batteries. We are rapidly scaling up to meet growing transportation demand. We are also developing high performance cathode material to help reduce the cost of batteries, while meeting demanding automotive industry performance standards. This product will be available soon for testing by battery manufacturers, and we have begun commercializing the technology – not only can we develop new technologies but we can move from R&D to the commercial side.

And the COP biofuels program has gotten lots of press, what can you share about that?

We are engaged in development and production of new biofuels that have a better environmental footprint than existing sources. We currently produce renewable diesel fuel at our Whitegate refinery in Ireland using vegetable oils as a feedstock, and are testing the process at our Borger refinery in Texas as part of our arrangement with Tyson Foods to utilize by-product animal fat as a feedstock. We are also doing research – internally and outside the company – on new biomass fuels. We have a joint development agreement with Archer Daniels Midland to develop fuels from agricultural wastes and a relationship with Iowa State to research all phases of biofuels. We are also a founding member of the Colorado Center for Biorefining and Biofuels, a cooperative research and educational center devoted to the conversion of biomass to fuels and other products and where we will be studying the prospects for algae in biofuels development.

What else do you see COP looking at alternative energy? Solar? Wind?

We look at those innovative alternatives where there is potential for technology to make a significant breakthrough. With our emphasis on research and development, alternatives like solar, geothermal, clean coal and battery technology are where we put our efforts, in addition to moving forward on renewables like biodiesel and cellulosic ethanol.

And I should ask before I let you go, when exactly did COP decide to create the position of “CTO”? That’s not a typical oil company title.

Well Neal, officially I’m the senior vice president for Technology. ConocoPhillips created the position in 2007 to better centralize and coordinate research and development (R and D) efforts that had always gone on in different parts of the company. This focus on R and D allows us better pursue projects that help strengthen energy security and to better allocate financial resources to invest in new technologies that reduce the environmental impact of our operations.

Stephen, thanks for finally coming on the record with us. It is exciting to see what’s going on.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, Chairman of Cleantech.org.