Monday, July 07, 2008

The Big Picture

I just received a forwarded email of what appears to be a Wall Street analyst's report... the analyst's identifying information was redacted because it was not supposed to be for mass distribution, so I don't have a link, but I did cut and paste the relevant energy section:

As the U.S. endures an energy crisis and imports 60%+ of its energy needs, the House and Senate decided to take action: they overwhelmingly voted to allow OPEC to be sued in U.S. courts for running a cartel. The mind reels…

Over the last 30 years, U.S. elected officials blocked nuclear build-out and spent fuel storage construction, impeded construction of oil refineries, refrained from passing meaningful alternative energy legislation, imposed an import tax on cheaper Brazilian ethanol, prevented offshore drilling in Alaska, California and Florida, delayed for 30 years tighter "CAFE" auto fuel efficiency standards, blocked the construction of LNG ports (in the Oregon Democratic primary, Clinton claimed to be more anti-LNG than Obama), killed wind farms in their own backyards (and back bays), and neglected opportunities for public-private sector partnerships on energy R&D.

They got it wrong; Congress should sue itself instead. Instead of ineffectual and counterproductive OPEC lawsuits, look at other countries. Germany has reached 14% renewable electricity use (they're shooting for 27% by 2020, and Denmark is already at 40%).

The entire continental U.S. is much sunnier than Germany, yet Germany has 17 times the installed solar base per capita. Same goes for Japan, where "feed-in tariffs" (subsidies) have ended, and yet the solar business is thriving and competitive. The head of the U.S. government's Renewable Energy Lab said that the Federal Government is doing "embarrassingly few things" to foster renewable energy (a). Renewable energy research has fallen by 78% since 1978, and the Lab's budget is a paltry $200 million (I will not mention the cost of the Iraq War again. It's $1 trillion). This despite the fact that a handful of successful DOE R&D projects yielded benefits that exceeded the total cost of the entire energy R&D program (b). The "just rely on the private sector" solution isn't sufficient, particularly when intellectual property rights aren't long enough for many energy-related investments (Congress did get around, however, to passing the "Mickey Mouse Protection Act", which extended that particular copyright for 120 years after creation).

A National Task Force recommended in 2006 that the Federal government fund demonstration projects to provide proof of concept for carbon capture storage and other complex technologies (c), but it's not happening on any grand scale. Meanwhile, China signs oil and gas supply deals with Venezuela, Indonesia, Kazakhstan, Iran, Saudi Arabia, Brazil, Gabon, Russia, Ecuador, Myanmar, Turkmenistan and Australia, and is not wasting much time applying Chinese anti-trust laws to OPEC. The world is changing, much faster than the ability of the U.S. legislature to comprehend it. The bill's misplaced sense of entitlement is matched only by its pandering delusion. On oil prices, they are likely approaching a breaking point of some kind later this year. Yes, the supply-demand equation is tight (U.S. reserves per well are half the levels they were a decade ago), and marginal costs are going up (more costly horizontal and directional drilling now account for 40% of wells drilled).

Even so, marginal costs are $70 a barrel, not $140, and OECD demand is being destroyed at a rapid clip. China uses more energy per unit of GDP than any country in the world, so they're not exempt from energy pressures either; food and transport account for 45% of their CPI.

I don't write 'em, I just pass 'em along...