Energy Guru

Revised Strategy for Energy ETFs

2009-10-08T13:14:00.000-07:00

So much has changed in energy ETF trading, I feel obligated to write a follow-up to my previous article on the topic. That article, in February 2009, outlined the potential for a relatively safe investment in energy by buying and selling calls on energy ETFs. This was based on the premise that oil and gas were relatively cheap, limiting downside risk. At the same time, relatively high expectations for future prices made it possible to profit by selling call options, while further insuring against the downside. The example I gave involved buying USO and selling 6 month options near the purchase price. As it turns out, all of these options have now been exercised, resulting in a tidy 20% return over a 6 month period, although, of course, owning USO without selling the options would have resulted in even larger gains. But, my objective was good returns for “safe” money…alternatives to low yielding CDs or dangerous bond funds. This objective made the options a critical part of the equation.

While I believe safe, profitable trades are still available in energy ETFs, it is important to note that much has changed since those days:

· Oil has nearly doubled in price, with the result that USO is no longer comforted by the idea that oil prices have little downside. Recent history makes it clear that prices well below current prices are possible, and oil is nearer the upper end of my long term target range than the lower end..
· Natural gas prices, on the other hand, have continued to fall. Over the past few months, I’ve become convinced that natural gas is the energy source with minimal downside due to unsustainable low prices. Therefore, I’ve switched to using UNG as the vehicle for trades. I recently bought UNG at 9. 10. 11 and 12 dollars per share, again selling options just above the purchase price for approximately a 15% premium.
· At recent prices, gas is at multiyear lows, both on an absolute basis and relative to oil.
· But, ETFs such as UNG have become so large that they dominate gas trading, and therefore have problems that make them hard to run efficiently. Recently, UNG has sold at significant (20-25%) premiums to their Net Asset Value. Although currently premiums have shrunk to a more manageable level, it is unclear whether UNG will be able to operate effectively in the current environment. Caution and recognition of this issue is advised

You should also be aware that natural gas has its own peculiarities. Unlike oil, it trades on a more localized, rather than worldwide, basis due to transportation difficulties. This makes the price more subject to local economic conditions. While I expect that over time the U.S. market will come to depend more heavily on LNG, raising prices due to processing and transportation cost and linking the U.S. more closely to world markets, this is not currently the case.

Both supply and demand are significantly effected by the transportation and portability issues of natural gas. Shortfalls cannot easily be covered by importing gas from other areas. Surpluses are difficult to store. Gas is difficult to use for transportation, one of our largest consumers of energy.

Natural gas is considerably cleaner that other hydrocarbons. Over time, I see a move toward natural gas from coal and oil. I also see gas moving toward a more worldwide market. All this will result in higher prices But this progression will be slow, and for now supply exceeds demand in the local market, pushing storage to its limits and pushing prices lower. Now is the time to take advantage. Just be aware of the issues with both UNG and natural gas in general and be cautious.

Low Risk Investment in Oil and Options

2009-01-26T13:54:00.000-08:00

In my last post, I mentioned investing in oil and gas by using exchange traded funds (ETF) and covered call options. As a result of comments and discussions since, I realized my explanation of this strategy was rather cryptic, especially for those with little experience in ETFs or options.

I'll state up front that I'm not an options expert, but this strategy is relatively safe and easy and as a result could well meet the needs of a large number of investors right now. So, let me explain in a bit more depth what was suggested.

My premise was that oil and gas, at prices below $40/barrel and $5/mmbtu respectively, seem to be at a point where the downside is likely to be limited and some potential up side seems like a good bet.

Obviously, one way to play this scenario would be to buy oil and gas. But, actually owning oil and gas is difficult for most investors. A relatively convenient alternative is to own ETFs such as USO and UNG. These funds attempt to track the prices of oil and gas respectively and are easily traded like stocks on the NYSE. So, owning these ETFs are a reasonably good proxy for owning oil and gas directly.

I believe that owning these ETFs is likely to be a good investment over the next few months or years, but it involves both signficant risks as well as significant profit potential. However, with the recent fall of the stock market, my normal investment system, Dollar Cost Averaging on Steroids (see the link to Personal Finance Guru on the right for more details), has essentially all my risk capital tied up in stock index mutual funds and I do not believe it is the time to sell these funds.

A greater need right now is for relatively safe and attractive investments for cash which may be needed over the next 3-5 years. Alternatively for some, it might be a place to hide from the markets, although this doesn't fit with my strategy currently. That is where selling covered call options on the mentioned ETFs comes in.

In effect, they are a way to trade some of the risk as well as some of the higher potential profits for some risk protection and a higher probability of lower but reasonable profits. To do this, you would buy (or own) one of the ETFs, and sell covered call options on the ETF for the future. Because of general expectations that oil and gas will be higher in the near future than they are today, the sell price of the calls is relatively high.

Let me give an example of a trade I recently made to illustrate. I purchased 100 shares of USO for $29.65 per share. I then immediately sold covered $31 call options for July 2009 for $4.40 per share. The result is that if prices remain steady I'll pocket the $4.40 and keep my ETF shares, netting about 15% ($4.40 on the $29.65 investment) for the six month period. If the ETF trades above $31 during the period the options may be exercised and I would be forced to sell the shares for $31 and pocket the $4.40, resulting in a gain of about 19% ($4.40 + $1.35 on the $29.65 investment) in six months or less. If the fund falls, I would still have some lessor profit unless it falls more than 15%, or lower than $25.25 ($29.65 - $4.40). Of course, the ETF could fall lower than $25.25, in which case I would lose, but would lose $4.40 less than if I had just purchased the ETF without selling the option.

Hopefully this example makes clear how this process can help meet objectives for a good return with less risk, a common objective for a lot of cash today. Note though, that it is not entirely risk free, and you have to trade potential higher returns for the reduced risk. This process, of course, can work for virtually any stock or ETF investment. But the high expectations that exist in the market for future energy prices (as confirmed by the oil contango and relatively high option prices), combined with my belief that oil prices are unlikely to drop too much further for any sustained period, make this a relatively attractive investment. And, it is a relatively simple process that is easy and practical for most investors.

If you wanted to get just a bit more sophisticated, it is relatively easy to taylor this strategy to your own shade of bearishness, bullishness or agressiveness. If you are more bearish, you might sell the options for a lower strike price (say $28 for the above example) which would increase your downside protection while giving up some upside potential. If you are more bullish, you could sell the options at a higher strike price (say $35 for the above example), which would decrease the downside protection while increasing the upside potential.

I'd love to hear comments, either on something I've missed or a better alternative. But, for my low risk cash, this strategy seems hard to beat.

Opportunity in Energy Investments

2009-01-21T19:46:00.000-08:00

As discussed in my previous post, significant events are in play in the energy world. The cost of both electricity and gasoline seems set for serious increases as a result of Obama energy policies. Both the timing and the implementation details are outstanding questions, and many other factors are at work. But, with so many changes apparently on the horizon, it makes sense to consider the implications and opportunities.

Let's review. Democratic leaders seem strongly inclined to reduce use of coal and gasoline. While the demand and cost for both is relatively low right now as a result of economic conditions, the coming of peak oil would normally increase cost of both coal and oil if demand returns to growth rates of the past 80 years, since a large majority of world energy supply is from these two sources.

However, substantially increased taxes on gasoline will reduce demand for oil, thereby depressing oil prices, relatively speaking. Transportation demand, coupled with high gasoline prices, will substantially increase demand for the two practical alternatives, electricity and natural gas.

Meanwhile, decreased use of coal, or alternatively, use of carbon sequestration, will depress demand and prices for coal. At the same time, carbon sequestration and/or substitution of higher cost alternatives will drive up the cost of electricity, which could already be stretched by transportation demand.

So, what will be the replacement for coal and the source of this increased electricity demand? Solar and wind supplies will be increased, but even dramatic growth in these resources will fall far short of demand for many years. Nuclear appears to be gaining ground, but substantial increases will be at least 10-15 years away due to plant permitting and construction times. Natural gas is clearly the only viable solution for the next decade. Substantial supplies are available, although largely at higher prices. It is relatively cheap. It is relatively green. Combine its role as a viable alternative for both electricity and transportation, and higher demand and prices seem to be a slam dunk for natural gas.

So, where to put your money? Conservation will be a great investment, with both higher gasoline and electricity costs. Unless you have a relatively well insulated and efficient home, conservation investments there will return in excess of 10% annually, even based on current prices. This would be enhanced if I'm right about the direction of electricity and natural gas prices. Transportation is a bit more tricky, since many current efficiency alternatives are not currently viable and the winner of the technology race for transportation efficiency is not yet clear.

But, let's say you want to look at more conventional energy investments. Coal, oil and natural gas are all relatively cheap right now and are essentially the only alternatives available in the near term for the majority of energy supply. So, I'd expect somewhat higher prices for all over the next year or so, as demand returns . But, over time, both coal and oil will be at a disadvantage. Meanwhile, natural gas will see substantial increases in demand and price.

To play the above in conventional energy companies, I'd favor natural gas producing companies over those who focus on coal or oil. Electricity generating companies are not as cheap as resource companies and are still largely regulated. Meanwhile they will need to deal with the complexities of shifting resources while highly dependent on difficult capital markets. As a result, I expect utilities to continue to be the relatively low return, conservative business they've traditionally been.

Manufacturers of solar panels will likely grow, but huge growth already seems to be priced into their prices. Meanwhile, their products are not currently competitive and the technology winner is still unclear, making investments there risky.

Another alternative is to invest in oil and gas exchange traded funds such as USO(oil) or UNG(natural gas). When natural gas is below $5/mmbtu and oil is below $40/ bbl, the downside of USO and UNG seems limited, and I expect both will rise over the next year or two, although as noted above I would lean toward UNG in the longer term.

Related to USO, you should also be aware of an extreme contango (oil futures selling for significantly more than current prices). As a result, many are storing oil while selling it on the futures market. This results in somewhat higher prices today, while putting downward pressure on near term future prices for oil, although the volumes are small relative to the overall oil markets. This situation, as well as robust prices for call options reflects a prevailing wisdom that oil prices will be higher in the near future. As a result, opportunities exist in these funds if you would like to lower the risk involved with being long in them. I've recently been buying these funds and selling 6 month calls with strike prices near current prices for about 15% of current price. With this method I am able to lock in about 30% annualized returns if prices remain the same, while breaking even when prices fall by 15%. I consider this a good alternative to virtually nonexistent yields on CDs or money market funds for cash I may need over the next year or two.

Higher Energy Prices, Dr. Chu?

2008-12-17T14:15:00.000-08:00

As I've indicated in previous posts, energy prices may well drop further in the short term. The drop of almost 8% in oil prices after the announcement of substantial OPEC production cuts is testament to the downward bias of the market, worries about the economy and the ineffectiveness of the cartel. Even so, as I've also noted previously, I believe prices in the longer term will be somewhat higher, in the $50-75 range.

None of the several developments over the past few days in the energy world change that. However, one event stands out as far and away the most influential in driving the future of energy...the nomination of Dr. Steven Chu as the Energy Secretary. This development will change the energy future in significant ways, of which you should be aware.

Dr. Chu marks a departure from the old ways. Previous appointments have been from the more traditional hydrocarbon side of the energy world. Dr. Chu is from the alternative energy side, and he has made clear very strong beliefs which could redirect and clarify the direction of energy in the US for the next several years. Further, it is pretty clear his agenda is supported by Obama and the Congress. I believe his new direction will have support from the general public as well, at least until the bills come due. As a result, I believe he will be successful in implementing many of his concepts. So, let's take a look at some of his beliefs, and then explore the likely results:

He has stated repeatedly that coal is his biggest nightmare.
He has voiced support for a cap and trade system.
He has advocated promoting conservation by imposing motor fuel taxes similar to those in Europe, raising gasoline prices to levels similar to Europe (and most other developed countries).
His career has focused on alternative fuel sources, particularly cellulosic ethanol.
He believes strongly in improved efficiency and conservation as the way forward.

Given the assumption that many of these concepts will be implemented, what are the impacts? Let's start with coal. Coal is used to produce about half of the electricity in the US. Under a cap and trade system, coal will be under a signficant disadvantage. While in time other alternatives will replace coal, this process will take several years. As a result, the only way to utilize coal would be with carbon sequestration. My analysis (explained in a previous post) is that sequestration would approximately double the cost of power generation using coal. So, it is reasonable to assume a 50% increase in electricity cost over the next few years based on this factor alone.

The story for motor fuels is similar. Raising motor fuel taxes to levels similar to the rest of the world would increase gasoline cost to about $5 per gallon. Again, in this scenario, alternatives would begin to replace gasoline, but this process would take several years to replace a significant portion of the gasoline and diesel now being used. In the mean time, transportation cost increases would be on the order of 100-200%. Biofuels obviously are one alternative, but for the foreseeable future, they will be substantially more costly than current prices. Electricity is an alternative, but battery technology is still a problem, and increased electricity use would exacerbate the electricity issue mentioned above. Hydrogen? For the foreseeable future, it is generated only by using electricity or hydrocarbons.

On the positive side, these measures, if maintained over the long term, are likely to result in improvements in alternatives that most Americans would say they want. ..solar power, wind power, biofuels.

On the down side, it will result in several years of higher personal, as well as, business costs. The economy will be weakened relative to the rest of the world. More jobs will leave for lower cost locations.

The worst, and most likely result, is that a lot of money gets wasted before everyone realizes this will be more onerous than they thought and the whole thing comes down like a house of cards.

For the record, I too believe efficiency and conservation are a key to our energy future. But I believe this process will happen most effectively automatically, as a result of normal supply and demand. Imposing artificial factors such as cap and trade and significant new taxes to speed up the process just make it more inefficient and ultimately results in wasted resources and a reduced standard of living.

So, there you have my projection of the future. Debate. Resist. Promote. But, whatever you do, be ready. See previous posts for ideas.

Energy Markets Explained

2008-11-21T12:24:00.000-08:00

Yesterday, the price of oil hit the low end of the price range I’ve predicted would likely be the envelope for long term energy prices. That range, predicted about a year ago, was
$50-75 per barrel, in constant dollars, and yesterday oil closed at about $50. Consequently, perhaps it makes sense to review where we’ve been, where we are headed and what to do about it.

Let’s deal with the most obvious question first-since we are at the bottom of the range, does this mean we should expect a bounce soon? Not necessarily. The events of this past summer illustrate the possibility (likelihood?) that, in the short term, prices can move well outside the long term range. In July, prices spiked about 100% above the top of my projected range. It is quite possible that prices will now oscillate below the bottom of the range by a similar magnitude. I don’t think $25-30 is outside the realm of possibility, although I wouldn’t expect those prices to last long. The point here is that short term pricing can vary widely without affecting the long term trend. In fact, this wild gyration is more typical than exceptional in the history of energy prices.

But, why is this true? Energy prices, like pretty much everything else, are controlled by supply and demand. When prices go up, both conventional and unconventional supplies increase, while demand decreases. High prices promote drilling. They promote development of alternatives. At the same time, they lead to investments in conservation methods such as more fuel efficient cars, homes and factories. And, over time, they lead to attitude adjustments which result in behavioral changes. In severe cases that even leads to recession. An analysis of the viability and break even point of dozens of such factors is what led me to the $50-75 projection.

However, in the short term, both supply and demand in the energy field are very inelastic. Major energy projects typically take 5-10 years to develop. Development timelines for alternatives is long. If you own an inefficient car, it makes little sense to junk it, far short of its expected 10 year life, for a more efficient one. And, it may take ridiculously high prices to quickly change the mentality leading to conservation. Meanwhile, the commodities market, in the short term, may tend to significantly increase price swings-when an investor sees prices moving dramatically up, many will attempt to profit from the trend by buying the commodity, thereby increasing the price. All the same logic applies on the down side. The result is very high volatility in the short term, but relatively straightforward predictions for the longer term.

So, are low energy prices good or bad? Yes…good or bad depending on how you see them. Lower prices, over the long term, are certainly good for the American economy, and for those who consume more energy than they produce. The high prices of last summer removed several hundred billion dollars from our economy, acting as a giant tax which dwarfed any government tax rebates. And the damage did not stop there. Efforts to increase energy production caused inflation in other commodities such as steel, copper, and corn directly. These caused even more generalized inflation. This money didn’t just disappear, of course. It went to OPEC nations and other oil producers such as Russia. There, the greatly reduced revenue could lead to big problems, which could spill over into international events.

Even in the U.S., dropping energy prices can cause temporary problems and disruptions. As oil prices drop, a range of other products decrease in price. Deflation can begin to take hold, leading to a slowdown in the economy. No one wants to buy something today that they expect to be able to buy cheaper tomorrow. As sales slow, profits are reduced. As profits are reduced, stocks fall. Over time, though, this will work its way through the system and result in a better economy.

But, what about alternative energy and conservation investments…do they no longer make sense? Obviously, in general, lower energy prices mean reduced alternative energy and conservation viability, but keep in mind that the high prices of last summer never got built into most energy investments. And a short term drop in prices won’t either. Because of the long term nature of most energy investments, only a perception that either high or low prices are here to stay have a significant effect on these investments.

Incidentally, remember the grilling of big oil executives just a few months ago because they weren’t investing madly to increase production justified by the outrageous prices? At this point, they look a bit brighter than they did then. Then, as now, their investment decisions reflected oil at or below the current price. Perhaps some have learned to resist the urge to invest based on short term price trends, leading to a more stable industry. Meanwhile, the hoarded cash will keep them from having to line up with the rest of the world for a handout. A few smaller companies that looked brilliant at the time, borrowing and investing billions based on the sky high prices, are now in big trouble.

And, what about the investments around the house I’m always talking about? Compact fluorescents? Added insulation? Caulking and better weather stripping? The programmable thermostat? The solar hot water or space heater? The ground source heat pump? Keep investing! Over the lifetime of these investments, the supply/demand curve will continue to, on average, price energy such that these investments are very attractive. Making those investments will be good for both your personal bottom line and the country, not to mention the environment.

Energy Markets in Chaos?

2008-09-15T15:27:00.000-07:00

Anyone who follows this blog should not be terribly surprised by the recent fall in the energy markets. After all, I've been writing for quite some time that oil prices (in 2007 dollars) should be in the $50-75 range in the long haul. And, despite the wild ride in the short term, I believe the logic still applies. That is, that investment in alternative sources, efficiency improvements and conservation become attractive in this price range and therefore will result in actions that control long term prices.

I will have to admit that I underestimated the short term impact of factors like leverage, speculation and the herd instinct. But, unlike many others, I don't begrudge the effect of these factors. Ultimately, they have little effect on long term trends, but tend to bring about needed adjustments more quickly. Energy markets are much more balanced today as a result of the speculative prices of a few months ago. And, don't be surprised if prices tend to overshoot on the down side in the near future.

In fact, some markets may already be seeing this effect. The investors who bid oil up to $147 are now unwinding their positions, or even shorting oil. And some investments already seem to reflect much lower oil prices.

Take BP ADRs. One year ago, BP stock was at $70, while oil prices were $80/bbl. Today, BP stock is at $54, despite much higher oil prices. Two years ago, BP was at $67, while oil was at $65. In fact, you have to go all the way back to 2004, when oil prices were below $50 to find BP stock below the current price. (Full disclosure: I own BP stock and have recently been buying more). I suspect speculation and the herd instinct are now driving prices down below what can be expected for the long term. There seems, in fact, to be a double effect. Everyone expects oil prices to drop, and they are selling oil stocks based on that expectation. But, in fact, the stock prices never represented even current oil prices, let alone the peak oil prices seen a few months ago.

Just to balance things out, my son says I shouldn't be buying oil stocks, since it is clear prices are headed down. And, I'll admit that BP has had more than their share of screwups in their operation. Maybe it does make more sense to keep investing in energy conservation and efficiency around your house, which offer an almost certain return. Unless you have a house already well insulated, adding some insulation will be a more solid investment, while insulating you from worrying about energy prices as well as heat and cold. And, for other ideas on conservation, you may want to look back through my archives, or at the Energy Boomer link to the right.

Whatever you do, the oil markets make for some interesting thinking these days.

Energy in your Attic

2008-09-01T18:06:00.000-07:00

As those who read this column regularly know, I have a bit of an obsession with attics, and with the energy available in our attics. So it will be no surprise that, while here at the farm in central Texas, I’ve been doing some investigation above the ceiling.

Previously, of course, I build a solar heat collector in the conventional way-an insulated box with clear polycarbonate sheeting on top. The collector did a credible job as a solar heat collector, generating temperatures inside the box over 80 degrees F above ambient. Though I wasn’t able to generate the desiccant or absorbent cooling I was hoping for, and didn’t get around to quantifying the amount of energy gathered, it is clear that given enough area and storage volume and no worries about aesthetics, it was practical to supply essentially all the heat required by a typical house very cost effectively with this type device. And I’m still convinced it could generate most of the cooling required as well.

But, what if you could generate these benefits in your attic? Without the clear sheeting? Without the additional box/framing? Without the aesthetic issues? Obviously, without the clear sheeting you would collect less of the energy hitting the surface and collect heat at lower temperatures, but might you be able to improve economics and aesthetics by reducing cost and making the collector invisible from outside the attic?

The first step to finding out was to take some temperature measurements. Obviously, the best attics are built with good ventilation. This preserves the integrity of the insulation and minimizes heat transfer into the house, reducing your utility bills. But, it also reduces the temperature in the attic. So, to effectively collect heat from the attic, especially in winter, you would need to insulate below the roof decking and collect heat from the space in between.

To get a feel for whether the temperature would be high enough to make collection worthwhile, I stuck a small patch of fiberglass insulation under the roof decking and inserted a thermometer in the space between. On clear days, the temperature measured was about 150-160 degrees F, or about 50-60 degrees above ambient. Even on partly to mostly cloudy days, the temperatures were about 40-50 degrees above ambient.

This means that it is quite possible to obtain all the heat needed for hot water heating during the summer. And, south of the Mason-Dixon, where high temperatures in the winter average around 60 degrees, it is possible to collect the heat needed for space heat, and much of what is needed for water heating.

Of course, possible is far different from practical. It remains to be seen how much this type collector would cost, and the amount of heat which would be generated from each square foot of collection area. The answers to these questions will have to wait, as I’m moving on to new adventures, but with collector costs a fraction of those for conventional collectors, it seems a good bet that this could be practical as well.

Carbon Sequestration

2008-08-05T13:23:00.000-07:00

I was asked recently to give a rundown on the viability of carbon sequestration. This is a fancy term for separation and storage of carbon, generally in the form of carbon dioxide. Carbon dioxide is the result of burning nearly any kind of hydrocarbon, and is widely cited as a greenhouse gas which would contribute to global warming when released into the atmosphere. There is considerable uncertainty and disagreement on the issue, but let’s put that aside for now.

This issue is particularly pertinent at this time in history. If you believe, as I do, that peak oil is close, then carbon dioxide related to oil will naturally decline. However, unless we are to take a big cut in our standard of living driven by even higher energy costs, this energy source will need to be replaced. While natural gas, nuclear energy or renewables such as solar or wind are relatively low carbon, the cheapest, easiest and most capable current replacement for oil is coal. Coal could easily play a major role in replacing oil, but it has the highest carbon content of any fuel. For coal to play this part we must either be willing to accept higher carbon dioxide emissions into the atmosphere or store the carbon dioxide created by use of coal. Let’s be clear…while many pollutants from coal can be cleaned up, production of carbon dioxide is inevitable in the use of coal. I frequently hear the term “clean coal technology” thrown around, but if carbon is considered, only sequestration can result in clean use of coal.

Carbon dioxide can be stored in one of three places:
In vegetation
In/under water
In/under earth

At first glance, the idea that we can store enough carbon dioxide to make a difference seems ridiculous. After all, carbon dioxide is a gas, and humans pump about 25 billion metric tons annually into the atmosphere, and that number increases each year. And, a ton of carbon in the form of carbon dioxide at atmospheric temperature and pressure occupies hundreds of times the volume of a ton of carbon in the form of say, oil or coal.

On review, though, the idea may not be as absurd as it first seems. After all, the carbon entering the atmosphere today is essentially being taken out of storage in one of the three locations listed above and put into storage in the atmosphere. Carbon is an element, so that essentially means that no new carbon is created…it is just moved about and changed in form. All the carbon we now have has always existed, and been stored somewhere. So, let’s talk briefly about storage in each of the three locations listed above and see where it leads.

Storage in vegetation. Plants, as they grow, breathe carbon dioxide and use it, along with other elements and compounds, to build their structure. Essentially, carbon dioxide is removed from the atmosphere and stored in the plant and oxygen and water are returned to the atmosphere. This sequence naturally occurs, and it is one of the processes than nature uses to keep things in balance. Unfortunately, this process is generally short lived. When the plant dies, it immediately begins to decompose, returning the carbon dioxide to the atmosphere. Generally, only trees have a reasonably longer term effect, since they store the carbon in wood, which may last for several hundred years. But, even with trees, a significant portion may be returned by decomposing leaves, or by forest fires and general disease and decomposition of the wood. And generally, arable land is largely balanced between forests and food production of one type or another. So, substantially increasing forest land would detract from land available for food production. As a result, a significant boost to carbon storage by this method is unlikely. Even so, many firms which sell carbon offsets purport to do it by planting trees. A better choice would be to plant trees in your yard, where you not only put carbon in storage, but decrease your cooling load-keeping some carbon in storage in the form of hydrocarbons, and in the process saving some money on utilities.

Storage in/under water. Water in contact with carbon dioxide in the atmosphere naturally absorbs some of the carbon dioxide, maintaining a state of equilibrium. As carbon dioxide increases in the atmosphere, more of it will automatically be absorbed in water to maintain the equilibrium. Again, this is one of the ways nature maintains its balance. Unfortunately, as carbon dioxide increases in the water, it makes the water more acidic, effecting reefs, crustaceans and other aquatic life adversely. Also, as temperature increases, the water has less ability to absorb carbon dioxide, so increasing temperatures will have the effect of forcing carbon dioxide from water into the atmosphere. In fact, this is one of the possible explanations for rises of carbon dioxide in the atmosphere after the earth warms, as is usually observed in past warming trends. Besides these complications, we have little ability to affect this natural process in a way that increases carbon storage in the sea.

However, there is one possibility that had been suggested for dramatically increasing carbon dioxide storage under the sea. When carbon dioxide is compressed to pressures higher than those below 5000 feet of seawater, or about 2000 pounds per square inch (psi), it becomes heavier than seawater. The theory goes that, if carbon dioxide is compressed to over 2000 psi and injected into the ocean below 5000 feet, it will pool at the bottom of the ocean and remain there permanently. Unfortunately, the theory is largely unproven and the cost would be high. With such a scheme, the probability of unknown, unintended negative consequences could be high.

Storage in/under earth. Again, some storage of carbon in the earth is a naturally occurring process. As vegetation dies, it gets worked into the top few inches of soil. This increases fertility of the soil and, in the process, stores carbon in the earth. But, again, this process is relatively short term and difficult to change in a large scale way.

However, storage of carbon dioxide under the earth in reservoirs and traps is possible. Generally the hydrocarbons which are burned to produce the carbon dioxide have come from these traps. In effect, we would be returning the carbon to the location from which it came. And, it turns out, this has been done enough to gain considerable expertise in the process because it has substantial benefits. Commercially produced carbon dioxide has been purchased and injected into oil reservoirs because it very effectively sweeps oil toward producing wells, increasing oil production from the reservoir. It also has been used to replace natural gas from coal beds.

As a result, this method of storing carbon dioxide is relatively well proven. In fact, this is usually the method assumed when carbon sequestration is discussed. But is it economically viable enough to make coal a reasonable low carbon alternative energy source? The bad news is that it is expensive. The exact numbers vary widely depending on the pressure and permeability of the reservoir, distances between the source and sequestration sites, etc. But, my rough look at reasonable averages results in costs of about $25-30 per metric ton for sequestration of carbon dioxide. And, since carbon is only about one quarter of the mass of carbon dioxide (carbon has a molecular weight of 12, while carbon dioxide has a molecular weight of 44), the cost for sequestering the carbon from one ton of coal is on the order of $100, approximately equal to the current cost of coal. That means that carbon sequestration would approximately double the cost of coal. Worse, most of the cost of sequestration is energy cost for compressing and transporting the carbon dioxide, meaning about twice as much coal would need to be used to generate the same net energy with sequestration as would be required without it. Even so, since coal costs only about 25% as much per unit of energy as oil, coal including sequestration would still cost about half as much as oil.

Keep in mind, these numbers are very rough, but I believe they give a reasonably useful first estimate on which to judge the viability of coal and carbon sequestration. So, is carbon sequestration viable? That depends on how you look at it. It appears it probably is a viable alternative for the short term if oil must be replaced and carbon dioxide emissions must be lowered. But, it would substantially increase the current costs of energy from coal. Arguably, conservation is probably a better alternative for the short term. Substantial conservation is more viable economically, would be better for the general health of the economy, and results in the same net effect in the short term. And, over the longer term, I’m convinced low carbon alternatives such as wind, solar, nuclear or perhaps another, as yet unknown, source will be the way of the future, eventually making carbon sequestration a version of the buggy whip.script src="http://digg.com/tools/diggthis.js" type="text/javascript">

Solar Heat Underutilized and Underappreciated

2008-04-09T09:47:00.000-07:00

A few weeks ago, events transpired which again brought to light the potential of solar heat. This potential is often overlooked, underutilized and underappreciated.

The events began with myself checking the thermostat in my little rental cottage in North Carolina. It read 56 degrees F, the point where my typical strategy of adding a sweater or vest in cold weather begins to reach its limits. After all, I believe the overnight temperature was in the 30's and I'd noticed that the cottage had a minimum of insulation. But, before I could convince myselt to turn on the heat and start the string of events that leads to higher utility bills and increased carbon dioxide in the air, I noticed the sun was shining outside and looked quite pleasant.

I decided to check out the lawn rather than turning the heat on. Sure enough the sun was shining brightly and with a little activity, I was quite comfortable. Then, I had a need to jump in my car, where the temperature was uncomfortably warm.

That turned me to thinking about solar collectors and then the attic.... I wondered what this sunshine was doing in the attic. I grabbed my trusty thermometer and made a visit. Sure enough, the temperature near the peak of the attic was 95 degrees.

Think about it...Here I was, about to turn up the heat, when it was 95 degrees just 4 feet from my ceiling! There has got to be a way to harness the heat in the attic and take advantage of the free solar heat so close by. For those who have followed my blog, you'll know I have lots of ideas. Unfortunately, they'll have to wait until I have a place of my own. Then, let the fun begin!!!

Dynamics of the Energy Market Force an International Perspective

2008-04-01T19:29:00.000-07:00

Oil prices continue to fluctuate wildly around the $100/bbl mark, but an interesting dynamic has developed. Prices no longer revolve simply around the supply/demand curves. The falling dollar has largely turned oil pricing into a function of the dollar.

Oil has become a hedge against the falling dollar. And, the weak dollar means that prices for oil in most economies around the world have seen significantly smaller increases than a simple quote in dollars would suggest.

Of course, the law of supply/demand has not been repealed, it has just been complicated by economic conditions. Demand is up, not because of usage, but as a result of the hedge. And, in many other countries, the offset of currency fluctuations has reduced the effective price, and thereby increased the demand.

All the above will make oil prices even less predictable and more volatile. Recently the hedge demand has driven big increases in price, but a reversal of this demand could cause a big drop. And so, enter the effect of the Fed into the oil market. The news today is increased control of banks by the Fed, but their effect on the oil market could dwarf their banking responsibility.

Energy May have Turned the Corner at $100 Per Bbl

2008-02-06T12:20:00.003-08:00

There is fresh, new evidence that energy may have turned a corner within the past few months. As oil companies reported their 2007 results, and while the spotlight was on record profits, other, more interesting, results were below the surface.

First, many reported production increases on a year-on-year basis for the first time in a few years. It seems as if oil has been hovering close to $100/bbl forever, but in reality, only a year ago prices were closer to $50, and the average price for 2007 was about $70. As a consequence, these are the first results that reflect anything approaching the recent price.

Interestingly, many companies did not see record earnings, for the second year in a row, as a result of operating problems, rising costs and gasoline and natural gas prices that have not risen to match the price of oil. This is causing a somewhat ironic hunt for cost savings while admitting for the first time that somewhat higher prices are here to stay. The BP CEO is quoted as saying prices above $60/bbl are probably here to stay, in contrast to previous forecasts of much lower prices, which led to more conservativism in investments. Meanwhile, facilities are stretched to the limit as a result of decisions made in an environment of much lower prices just a few years ago.

And, alternative energy investments have skyrocketed. Solar Photovoltaic IPOs have skyrocketed, and the price of the resulting new companies has skyrocketed as well. (I wouldn't touch them with a 10 foot pole at current valuations, but that is another story. It reflects the public perception that higher prices and global warming issues are here to stay, and there is money to be made in alternative energy.) Even the major energy companies are increasingly jumping into the fray. Many are investing heavily in both solar and wind. BP, for example, just announced another 150 MegaWatt wind plant in west Texas. And, they have a large and rapidly growing investment in the manufacture of solar cells. I'm even starting to see solar hot water and heat being mentioned more frequently.

Meanwhile, the higher prices seem to be beginning to have a significant effect on demand. The world economy is slowing and suddenly conservation is sexy (Not as sexy as alternative energy, but the more practical solutions never seem quite as exotic as the new and exciting.).

All this means to me that energy has turned the corner. Oil and gas are squeezing their last increases in production from the recently high prices. Research into alternatives is at a fever pitch. Alternative technologies are appearing regularly on the front pages. Money is flowing to every alternative with reasonable potential, and is beginning to have a significant impact.

These same high prices are beginning to damp demand. Small cars are in, big SUVs are out. Just yesterday a friend was touting the gas mileage of his new Cadillac crossover. Insulation and more efficient appliances and systems are in. Even the dream home is becoming a bit smaller.

Time will tell, and I'll admit I've thought we might have arrived here before. But now, the signs are becoming clearer. Peak oil is near, and the world has accepted it, starting the path toward a post peak-oil future.

Cost and Savings Comparison for Ground Source Heat Pump with Storage

2007-12-28T14:25:00.000-08:00

ASG asked excellent questions concerning my previous article about a conceptual ground source heat pump with storage( for those who don't normally read this blog, please see the previous article). The questions: What are the incremental cost and payback for such a system? In so doing, he has demonstrated that he is a man after my own heart. I was, just last week, regaling my son with stories about how I used to demand answers to these questions before approving any project or change to a project, back in the old days.

Unfortunately, I'm not well prepared to give a good answer at this point. The plan was conceptual. No sizing, lay out or detailed specifications have been done, and I am not particularly familiar with labor rates in the area.

Even so, the questions deserve at least a rough, conceptual answer, so let's take a shot. Assume the system is for a well insulated 2000 sf house in North Carolina, which might normally be equipped with a high efficiency HVAC and heat pump, as well as an electric resistance water heater. Further, assume such a house can normally be expected to have an electric bill averaging $100/month, or $1200/year, of which 20% ($240) is used by each of 3 systems; space heating, space air conditioning and hot water heat.

The basic heat pump set up ( motor, compressor, freon piping and heat exchanges) for my concept should be significantly less expensive than that in the basic house. There are several reasons for this:

Because the system does not have to be sized for the maximum load of the hottest afternoon and coldest night of the year, the system can be significantly smaller, say 2 tons instead of 3.
Heat exchangers can be smaller, even relative to the heat pump size, since they will have a substantially higher exchange rate for water than for air.
The expensive copper pipe runs will be much shorter.
Because the system will be using both the hot and cold sides of a normal A/C configuration, the expensive heat pump addition of valving, switches and controls is not needed.
Since it will never need to tap heat from the coldest night, a resistance heat coil will not be needed.

As a result, the cost of the heat pump will cost at least 1/3 less than the basic system, say $2000 instead of $3000, for a savings of $1000.

Generally, the increased cost of a ground source heat pump is related to the ground piping which acts as a heat sink. Typically, this might require 300 feet of pipe buried horizontally in the ground for each ton of A/C. Assuming $2/foot for 900 feet (3 tons at 300/ft each). The incremental cost is $1800. This would be lower for a pond installation due to both lower labor and improved heat exchange in water vs soil. If space is an issue, the pipe can be installed vertically in a well, but costs would be higher due to drilling costs. Actual incremental cost might be a bit lower, since you could eliminate the resistance coil, but this is probably minimal in the grand scheme of things.

For my concept, we need only 2 tons of capacity, plus some of the heat sink duty is taken up by the use of the waste side of the heat pump and cross exchange between the hot and cold side. As a result, ground piping, and its cost, can be reduced by at least 1/3, to $1200.

To make this possible, you need the heat storage reservoirs. There are many ways you could do this, each with its own advantages and disadvantages, as well as cost. For purposes of this exercise, assume a 4'x8'x2' plywood/wood frame box lined with pond liner, set on a concrete slab and insulated (both slab and box) by styrofoam. This should be adequate for matching heat and cooling loads over 2-3 days and to allow averaging of heating and cooling loads over a 24 hour period, at a cost of about $500 per box, or $1000 total.

So, overall, the incremental cost for a ground source heat pump would be about $1800 for the ground loop. For my concept, the incremental cost is about $1200 ($1000 for the boxes plus $1200 for the ground loop less $1000 reduction of the heat pump cost).

Then, consider the savings. A normal high efficiency air source heat pump could be expected to have a COP (Coefficient of Performance, or ratio of heat/cooling generated to energy input) of about 3. Since the ground temperature in North Carolina is about 70 degrees Fahrenheit, the temperature difference against which the heat pump must work for both heating and cooling is very low. Assuming a design with about a 20 degree temperature approach for the exchangers, the ratio of total temperature difference for the ground source heat pump should average about half that for the air source heat pump, say 20 degrees vs 40 degrees. Theoretically, the COP should be about proportional to the ratio of total temperature difference, giving a COP of about 6. Being conservative, let's assume an actual COP of 5. This would mean space heating and cooling costs would be reduced by about 40%, or about $100 each, annually, for a total of about $200/year. This savings roughly applies to both the normal ground source heat pump and to my concept.

However, the storage included in my concept adds several advantages. It not only reduces system cost as seen above, it increases energy savings. Since the COP of the electric resistance heating of water in our normal house is about 1, the cost of water heating is reduced by a factor of about 5, even in the heating mode. During A/C season the hot water is essentially a free by-product of the system. So, theoretically hot water costs could be reduced by 80-90%. There will be some incremental losses in the lines and booster/emergency tank, but even so, savings on hot water should be around 75%, or $180/year.

So, how does this all work out?

The incremental cost for a normal ground source heat pump is about $1800. This saves about $200/year, generating payback in about 9 years, with ROI of about 10%.

For my concept, the incremental cost is about $1200. It saves about $380/year, generating payback in a little over 3 years, with ROI of about 30%. Keep in mind that savings could be much greater if off peak rates are available. This varies depending on the actual spread of rates, but could be substantial (See comments on previous automation article, which mentions off peak rates as low as $.02/KwH, for example.). All this is sans wind or solar heat inputs, as per the question. However, the heat storage also would greatly reduce the cost of battery storage required to go off grid, should that be in the future. And the efficiency of the system would further reduce the size of any wind turbine or solar panels required.

Again, I want to emphasize that this is very rough and conceptual only. Actual costs and savings should be calculated based on your actual design. And, again, I welcome questions or comments.

Store Thermal Energy for Maximum Efficiency whether on the grid or off

2007-12-25T15:18:00.000-08:00

I've been asked to put forward an energy saving concept for a small community in the coastal region of North Carolina. The idea is to design a system which would prove economical when using conventional energy, and to make it adaptable to renewable energy in the future. Natural gas is not available in the area, so the energy source defaults to electricity. In the past, this might have led to high utility costs. But with current electricity prices, driven by efficient power plants and low cost energy sources such as natural gas, coal, nuclear or hydroelectric sources, along with technology and a thoughtful design, it is possible to meet all the objectives.

The keys to success are heat pumps and energy storage. With today's highly efficient lighting and appliances, the large majority of our home energy use is for heat and cooling, including HVAC, hot water and refrigeration. And, while energy storage in batteries is quite expensive, energy storage in the form of heat is relatively cheap and easy.

By using a typical heat pump, we can generate relatively efficient heating and cooling. By using the more moderate temperatures available from the earth or a pond, we can improve the efficiency considerably. But, we would improve the efficiency even more if we could use both the hot and cold side of the heat pump. Unfortunately, heat load and cooling load rarely match.

That is where energy storage comes in. By capturing both the heat and cooling in water storage tanks, we can more easily match heat and cooling load, and utilize the ground source only for the longer term load differential. The energy storage not only allows us to use both the hot and cold side of the heat pump, but it allows us to take advantage of off peak rates and to better utilize renewables, since energy storage is one of the most difficult issues in each case.

Fortunately, it is relatively simple to implement a system with all these advantages. In concept it would look something like the below.
Start with a compressor, perhaps similar to the one on your car air conditioning system. The compressed refrigerant goes to the darker red coil, where water circulates the heat generated to the hot storage tank. Then the refrigerant flows to the lighter red coil, where it can be further cooled by circulating water from the ground source to maximize cooling. The refrigerant goes through an expansion valve to reduce pressure and generate cooling, then flows to the darker blue coil. Water from here is circulated to the Cold Storage. Then to the lighter blue coil, where ground source water is circulated to maximize heating. From there, it is back to the inlet of the compressor, where the process repeats itself.

As a result, you have an extremely efficient system for generating the heat and cooling required by your house. The storage allows matching of your cooling and heating load over time, and also allows greater utilization of off peak power. Best of all, it can even out the swings associated with wind and solar power. The compressor can be turned either by electricity, or directly by the wind turbine. And the same storage allows you to utilize solar heat collected during the day, and cooling captured in cold evenings with the solar collector. Then just circulate the water to sypply heat or cooling needs in the house.

You'll still need electricity for lighting, appliances and electronics, but the combination of the above system and energy efficient equipment available today can dramatically decrease the amount required. And, if the desire is to live off grid, the electricity storage requirements are minimized to the point where they can be met at a reasonable cost by batteries. And, the above system could be electricity free if the equipment is arranged to allow thermosiphoning, rather than pumping of the water.

I'm open for comments.

If Not Carbon Offsets, How About Automation?

2007-12-04T10:10:00.000-08:00

Ok, no bites on my tease about Carbon Offsets. Raters at Helium had a similar reaction, consistently rating it last of the articles submitted on the subject. I get the message...forget the teasing satire and stick to what we can really do to address our energy issues. If you are really interested in carbon offsets, check my more reasoned and balanced rewrite on the subject on Helium (check ads on my blogs to get there).

If not carbon offsets, have you considered automation? I've briefly mentioned this before as a potentially significant part of the solution to energy issues, but have not explored it in detail. When the term automation is mentioned, most people think of complex control of giant factories, and certainly there is much room for this approach. But simpler approaches around the house have substantial potential as well, so let's look at some ideas in this area.

One often overlooked area is your electric water heater. When used as resistance heating, as with your water heater, electricity is one of the most expensive and inefficient energy sources out there. Worse, your water heater keeps using electricity to heat water, even when you are not using any hot water. This is because it heats a large tankful of water, which is constantly leaking heat through its insulation even if no water is used. Often this wasted heat is as much as 50% of the energy used for water heating. Consequently, depending on where you live and your lifestyle, water heating is probably your second or third largest user of electricity. Fortunately it is reasonably easy to cut down on this waste without much inconvenience. Simply install a timer. Then set the timer to turn the power off to the heater when no one is using hot water, such as overnight, or while everyone is at work. Actually, due to the large storage of hot water, reasonable amounts of hot water will still be available even when the water heater is turned off. Unless you have a high demand for water, such as mutltiple loads of laundry or several people showering, you can probably get by with running your water heater just an hour or so a day, say just before the alarm goes off in the morning. Most timers have a manual on/off switch as well, making it easy to turn the water heater off when you are away from home for the weekend or a vacation, or on if you anticipate large loads on a specific day. Due to the high voltages involved, you'll probably need to have an electrician install the timer unless you are fairly knowledgeable about electrical work, but even so it will likely pay for itself in a few months.

And consider your heating and cooling system, likely the largest energy user in your house. A setback thermostat allows you to turn off (or down) your heating and cooling when you are not there to enjoy it. And it is relatively easy and safe for a handyman to install. Just buy it at your local hardware store and follow the instructions. Again, depending on your lifestyle, payback is just a few months. If you want to go further, it is possible to install motion detectors that heat or cool an area only when it is occupied. The equipment and controls required are a bit more complicated than for the setback thermostat, but now you are potentially talking about much bigger savings.

What about your lighting? Do you leave your outside lighting (including Christmas lights)on 24 hours a day? Consider adding a timer, photocell or motion sensor, depending on when you want the lighting on. It is likely you can save a large percentage of the energy used on outside lighting and still accomplish your objectives. It is even possible to add motion sensors to inside lighting to cut off lights that are not being used, though the timing and equipment is a bit trickier.

And, consider your electronics. Your TV, your stereo, your DVD player, your WiFi setup. Again, they all use electricity even when turned off. A simple, plug-in appliance timer will stop the electricity flow at say, bedtime, and return it when you are likely to want them on, say breakfast or quitting time the next afternoon. You can always manually switch them on if you find you need them. Again, the few dollars in investment will be returned within a few months.

If you have peak rates, where electricity is more expensive at certain times or is based on a maximum demand, you have even more potential to save with automation. Just set any equipment that can run any time to run at the times when power is cheaper. The water heater and heating and cooling system fall into this category. Just use your timer. Even such items as your freezer need run only a few hours a day. Use a timer to make them do their running in off peak times.

If you use your imagination on your own home, you'll likely find even more applications. But what is clear is that you can reduce your energy costs substantially with simple automation. Your returns on investment in the equipment needed will likely exceed any other investment you can make. And instead of spending money on questionable carbon offsets, you'll save money with the certainty of reducing your environmental footprint. Take that, carbon offsets!

Coal and Carbon Offsets

2007-11-14T14:16:00.000-08:00

Since I didn't have a good source of information about the price of coal, I didn't include it in my last article comparing fuel costs, although I did mention it as one reason electricity is relatively cheap.

After some research, I've discovered it is even cheaper than I thought, at about $2 per million BTU, or one quarter the cost of the cheapest alternatives quoted in that article. That is some pretty powerful incentive to use coal, and in fact there are plans to build about 1000 coal fired power plants worldwide within the next year.

But, I can hear the screams now...Coal is dirty!!! Al Gore has recently stated that we should allow no more coal power plants to be built unless the carbon is sequestered underground. Global warming supporters identify coal as one of the main culprits in the crisis. The same article which quoted the price of coal mentioned above, indicated that it is only cheap because the environmental effects are not priced into the coal.

I'll admit there is some truth built into all these positions. Coal does have more carbon than other sources and therefore will generate more carbon dioxide when burned. But, eliminating coal as an energy source would substantially complicate the energy supply/demand balance, possibly leading to a severe recession. So, always the analyst, that got me to wondering if the effects could be quantified, and if so, how it would effect the equation. And that led me to thinking about another topic that is much in the news these days, carbon offsets. Various politicians, celebrities and presidential candidates, of course, have recently salvaged their green reputations by buying carbon offsets to compensate for their large carbon footprint.

Is it possible to resolve these two great issues of the day (energy supply and global warming) with a single stone, carbon offsets? Surely it would be ruinously expensive, right? It was worth a look. The answer, if you believe the hype and follow it to its ultimate conclusion, is, yes, the problem is easily solved!

I went to several sites that sell carbon offsets and found that I can buy carbon offsets for about $10-14 per ton. That would mean that offsetting the global warming effect would cost less than the value of the coal, meaning coal is still less than half the cost of other fuels. Voila, we solved the energy crisis and global warming without a major hit to the economy. We just mine our nearly endless supply of coal and buy offsets for the carbon.

Ok, I suspect that others, like myself, may smell a rat here, but the numbers are clear. Can it be that those who sell carbon offsets cannot (and do not)really offset the carbon for the quoted price? Surely our politicians wouldn't be sucked into the hype unless it was true, or worse, try to scam us into believing the hype for their own benefit? Or, is the environmental issue with coal less than generally thought?

I'll call on my readers to answer the questions or sniff out the rat, but either way, I think the exercise is illuminative.

Energy Cost Comparisons and Investment Opportunities

2007-11-09T08:15:00.000-08:00

The price of oil continues to skyrocket. So far, other energy has failed to follow suit. Prices vary, but the following is an approximate comparison, in my area, of various fuels based on energy content of one million BTU:
Crude oil $14
Fuel Oil $16
Gasoline $19
Natural Gas $8
Propane $25
Electricity $28
There is, of course, reasonable room for differences. Gasoline, for instance, is a derivative of crude oil. But it includes refining cost, transportation cost and road taxes. So, it makes sense that gasoline is more expensive than crude. But gasoline is up less than crude because refining margins have declined substantially in the past few months.

Natural gas is essentially a local market, rather than world market, because it has very high transportation cost and often, transport restrictions. So, supply and demand in the local markets is dictating lower prices in many places. In some, such as the overthrust area of Wyoming, limited transportation to major markets is keeping prices much lower.

Electricity, though it looks more expensive in the above comparison, is a higher form of energy. This means that for work applications (horsepower) it has an efficiency on the order of 3 times that of the other fuels. This factor also applies to heating and cooling applications where a heat pump is used. So, for these applications electricity is relatively low cost, at about $9/million BTU. This is a result of high efficiency power plants and its generation largely from low cost coal, nuclear and natural gas. For many applications, electricity is a relative bargain right now.

With the difference in prices, fuel switching seems to be an option. Unfortunately, there are not many viable ways to switch fuels for the typical consumer.

Unless you are ready to spend tens of thousands of dollars on a new car your switching options for transportation are essentially non-existent.

Around home, you have a few more options. If you use propane for heating, a switch to an electrical heat pump looks viable. Even a small resistance heater used to heat a small area rather than the whole house
seems to make sense. If you have access to natural gas, of course that is the best source for heating applications. You may want to check prices in your area to see if switching fuels is a viable option. There is a great article on http://www.energyboomer.com/ that does the calculations for you to help compare fuel costs for propane, fuel oil and electricity.

All that said, there is enough potential for fuel swapping that it seems likely that energy prices will tend to move in the same direction. Right now, that is upwards. But your best bet to reduce energy costs is probably to reduce usage. Carpool, group errands in a single trip, stay home more. Turn down your thermostat. Most of all, this is creating a bonanza for investing in efficiency improvements around your home. Examples include high efficiency appliances, lighting and heat and cooling, as well as upgraded insulation and weatherstripping. Check out articles in my archives or search the internet to find a huge assortment of investments with great returns. Help is available on http://www.eere.energy.gov/consumer/your_home/energy_audits/index.cfm/mytopic=11160 to identify and evaluate investment options. If you don't feel comfortable doing the evaluation yourself, an energy auditor probably can identify and evaluate options worth hundreds of dollars per year, and his fee can likely be repaid by svaings within a few months.

Energy Prices Rise to New Record

2007-09-19T19:46:00.000-07:00

First, let me say, mea culpa. With the price of oil now well above $80/bbl, my prediction in March that energy prices would stay within a range of $50-75 was clearly too optimistic. Even though I still believe in the general logic used then, the topic bears further discussion.

One obvious point is that the energy market is far too complex to use a single benchmark like $/bbl to represent the entire market. While prices for a barrel of oil are considerably higher than in March, gasoline in the USA is considerably cheaper. So is natural gas. Blame refining margins and captive markets. So, I'll need to figure a better way to characterize the energy markets.

Meanwhile, let's look at what has been happening in the market. On the conventional oil & gas supply side, the higher prices appear to be having little affect on supply. The number of working rigs is down, and there still is no evidence of an upsurge in discoveries or production. Perhaps this is not so surprising, since the latest spike is relatively recent and the timeframes for activities to increase production are long. On other fronts, supply does seem to be picking up. As many as 20 nuclear plant applications are expected to be filed within the next few months. Solar and wind power projects are proliferating. Oil sands production is accelerating. Ethanol production is accelerating. But, can these sources keep up with supply? Probably not in the short run, unless demand falls off.

Speaking of demand, it has softened somewhat, but continues upward. I see little change in consumer habits that would quickly decrease demand. I've been traveling lately and can vouch for the fact that hotels are full. I know of no one who has really cut back on their driving or turned down their thermostat. So, there seems to be no tidal wave of actions to immediately cut energy demand. It may take a recession to change this, and the fed seems determined to prevent that.

As for longer term actions, there at least seems to be talk of decisive action. A recent survey indicates that 57% of car buyers say they will consider a hybrid. GM has indicated that only their trucks and SUVs now need incentives to maintain sales. I know of several people who are looking at increased efficiency appliances and installing compact flourescents. Taken together, these seem to bode well for longer term decreases in energy demand. Once a vehicle or appliance is bought, it will decrease demand for 7-10 years.

And so, even though oil prices are above my predicted range, I continue to believe that energy supply/demand can be balanced at something close to current prices if oil decline is not too sharp. Current prices reflect the possibility of sharp, temporary drops based on hurricanes. Longer term, we are still waiting to see whether an oil peak has been reached and how sharp the decline will be. A shallow rate of decline can be managed. A sharper rate of decline could cause the crisis so often predicted by peak oilers. We shall see.

Energy Markets, Peak Oil...a Balanced View

2007-08-21T14:58:00.000-07:00

I feel a bit vindicated today by the fact that oil settled below $70/bbl. As you may know, I've predicted (Mar, 2007) that real oil prices will remain in the $50-75 range. Then, in July, when prices spiked above $75 for a few days and many experts, as well as over 65% of Yahoo Finance respondents, expected oil to quickly top $80, I predicted (July, 2007) that the next stop would be $70.

Vindication on one level, perhaps, but a lot has happened since those articles that bears discussion. Foremost among these were release of second quarter results by the major oil companies. The ink around these centered mostly on slightly lower, but still near record, profits. But, digging just a bit deeper, I noticed what I think are much more important trends:

Consistently declining production, for both the quarter and year-over-year.
The Companies consistently failed to discover oil equal to their production.
For the first time, most companies began projecting declining production for the next few years.

All this despite a couple of years of relatively high oil prices. At the same time, I began taking notice of the website of Cobalt International Energy ( http://www.cobaltintl.com/ ). This is a company recently founded by an old friend, Joe Bryant, focused on energy exploration. An industry presentation shown there is entitled "We're Not Running Out Yet", but nonetheless seems to paint a picture of a world near peak oil production.

All this is not conclusive proof, of course. Many smaller oil companies have been increasing production and replacing reserves and some reserves and production opportunities have been migrating from major international oil companies to state owned oil companies, where information is less reliable and transparent. I briefly mentioned the possibility of peak oil arriving soon in a few previous articles, but the combination of these events convince me that we are either past, or very near peak oil.

So, another bold prediction. We are essentially at peak oil production. Many have beaten me to this conclusion, of course, but the debate has been characterized by extreme views on both sides. I hope to contribute a more balanced analysis.

The conclusion, of course, is complex and inexact. Geopolitical events or market conditions could easily move the exact peak by a few years either way. My conclusion that we are there is based on my expectation of energy prices. That could be seen as a copout, since it is relatively easy to project peak oil if you know market prices. But my expectations (Mar, 2007) are built on an analysis of events largely independent of oil supply, so I believe they serve as a reasonable foundation.

Beyond the exact timing, the effects of peak oil are greatly influenced by the sharpness of the peak. Many alarmists project a relatively sharp peak, and consequently, inability of conservation and alternative sources to make up any deficit. I expect a relatively flat peak, with declines averaging 1-3% over the next several years. This is consistent with the evidence for the last few years, as well as the general bell shape theory that most prognosticators use. The same theory implies greater declines later, but the several years of slow declines gives ample time for alternatives to react to market forces. Unlike most Peak Oil theorists, I do not advocate draconian government mandates or guilt-trip driven cultural pressure. Given the gradual nature of the decline and current prices which economically justify numerous conservation measures and alternative supplies, I have confidence that normal market forces will drive the appropriate responses.

All this leads to the obvious question, what you should do if you buy into my conclusions, so let me take a stab at that, keeping in mind that I'm still wrestling with the question myself.

First, I'd take a long look at your energy consumption, identifying investment opportunities for reducing your energy use. I believe that most people are sitting on investment opportunities significantly better than what they can currently expect for their stocks, bonds or CDs. If you are unable to evaluate these on your own, you might consider an energy audit or more study of this and other energy blogs. This, I believe, offers the greatest opportunity for you to mitigate the effects of peak oil, while improving the performance of your investment portfolio. And, if you are a global warming believer, the same applies to reducing your carbon footprint. We're talking programable thermostats, compact flourescent bulbs, insulation, more efficient appliances, air conditioning and heating.

Second, I'd look at investments in coal and clean coal technologies. Coal is the least expensive, most readily available alternative energy source. This, along with environmental concerns, will drive development of cleaner ways to use coal.

Third, look at investments in alternative energy. Wind is currently the most cost effective renewable energy source, generally less expensive than oil or gas generated power. Solar thermal is also competitive with oil and gas, whether you are talking large power generating plants or small local water heating. If you can identify the survivors, solar power may eventually be competitive. While this is not true today, technology could change this in the future. Meanwhile, be cautious, since there are many recent startups in solar photovoltaics that likely will not survive the transition from fad to serious competitor.

Fourth, look at investments in natural gas. Gas is several years from peak world production and is cheaper than oil, as well as more environmentally friendly. It is, unfortunately, limited by transportation issues, but where these can be overcome gas can be a good investment.

What about major oil companies? Since most seem to be priced for lower oil prices, and oil and gas will continue to be the largest component of energy supply for many years, I believe they will be good investments for years to come. Even so, they could eventually become dinosaurs unless they can make the transition to other energy sources. I'd lean toward those who have substantial natural gas and are planning a transition to other sources, as several are.

I could go on, but I didn't intend to write a book. My main point is that I believe, in history, peak oil will be viewed as more of an opportunity than a crisis. I hope to be able to help identify and promote those opportunities. I'd like to see your comments and suggestions.

Improving the Effectiveness of Windows

2007-08-08T12:10:00.000-07:00

A friend mentioned to me that his windows appear to leak a lot of heat and cooling and asked what he could do about them.

Space heating and cooling likely consume about 40% of your home's energy, and, if the home is well sealed and insulated, a substantial part of that escapes through your windows. This is especially so if windows are exposed to solar radiation and you live in an area with a substantial air conditioning season. So, the possibilities are worth some more discussion.

Homes which are located in the south and are +/- 30 years old were often built with single pane, builder's grade windows which are outdated with today's energy prices. Ideally today, they would be built using multipane, low E glass with Argon between the panes and insulation in the frames. These windows would have an effective R value of approximately 4, cutting heat transfer by a factor of 4 over the old single pane windows. Unfortunately, retrofitting windows is an expensive proposition which is difficult to justify unless the windows need to be replaced for other reasons, so let's look at other possibilities.

To understand window alternatives, it is necessary to understand the main factors in window effectiveness. The energy efficiencies of windows are affected by three different heat transfer mechanisms: 1. Conduction, or heat passing directly through the materials. 2. Infiltration, or air passing through gaps between the materials, and 3. Radiation, primarily solar rays passing through the glass. Different transfer mechanisms often require different solutions, so let's look at each separately.

Conduction: Conduction is a function of the conductivity (inverse of insulation value) of the materials, the thickness of the materials, air gaps, and area exposed. One way to significantly reduce heat gain or loss by conduction is to add insulating material over the window, in the form of heavy drapes or shutters. These can be very effective, especially if they cover the entire window and seal tightly. Unfortunately, they also typically make the room dark and eliminate the view. It is often possible to open and close them when light and view are not an issue, but this can be time intensive and may reduce their effectiveness if not carefully managed. Another possibility is to add storm windows over the existing windows. This can take the form of either true storm windows, or installation of a glass pane which sits in the position of a full window screen. These additions are nearly invisible, but do keep you from opening the window are ventilation during the shoulder seasons unless they are removed and stored during the time when ventilation is beneficial. Or, for a more affordable, shorter term solution, you can add plastic films which are attached with tape to the window frame.

Infiltration: Infiltration can be either around the perimeter of the window, through the weather stripping of the window, or around individual panes. Leakage around the perimeter of the window can best be reduced by caulking all gaps around the window, both inside and outside. In the worst cases, it might be worthwhile to remove the molding around the inside of the windows and foam around the windows. For leakage of the weather stripping, it may be possible to reposition the existing stripping to improve the seal. Also, on many windows, aftermarket weather stripping can be installed. For sealing around panes, clear caulking or putty can improve the seal. And, storm windows or plastic films mentioned under the conduction section can also reduce infiltration.

Radiation: Radiation is generally minor, or even helpful during the heating season, but during the air conditioning season it can be one of the biggest factors affecting the load of your air conditioner. This is particularly true of unshaded windows on the east or west sides. Windows on the north side generally admit minimal radiation and those on the south side will also be minimized in the peak of the air conditioning season if the roof overhang is adequate. And, windows on the south side may offset air conditioning losses with solar gain in the winter. Drapes, blinds or other interior window treatments can limit solar gain by either trapping the heat next to the window or reflecting it back out the window, but are limited by the fact that they try to deal with the heat after it has entered the house. Reflective films applied to the glass can also be effective in minimizing heat gain from solar radiation. However, the best way to minimize solar gain is by stopping it before it enters the house. This is done by shading the windows, perhaps with solar screens, awnings, increased overhangs, or landscaping. Landscaping, though longer term, is likely the best way to manage solar gain. It stops the radiation prior to entering the house and can be managed to stop the radiation in summer and admit it in winter. And, water evaporation from plants tends to cool the area and cut down on wind, reducing conduction and infiltration losses as well, while adding value via improved beauty.

So, there you have it. Lots of opportunities to improve the efficiency of your windows, each with its own applications, issues and budgets. Clearly, you are limited only by your own situation and preferences.

Energy Prices-Where to from here?

2007-07-23T08:46:00.000-07:00

I'm on record (March, 2007)that I expect oil prices to remain in the $50-75 range, inflation adjusted, for the foreseeable future. Prices are now at the extreme upper end of this range, and a recent Yahoo Finance poll indicates that most people think oil will hit $80 before it retreats to $70. That, it seems, is reason enough to take another look.

I'll have to admit that $75 oil has not dampened demand as much as I expected. Just yesterday I made a 50 mile round trip to a historic battlefield with some friends. Despite the fact that we live relatively close to each other, we took two separate vehicles. Granted, there were 5 of us, plus two dogs, so it would have been a bit cramped in a single vehicle, but one was a large, crew cab pickup, so it would have been possible to carpool. This is the kind of conservation I would have expected to blossom with oil at $75. And, national gasoline demand trends indicate that this is typical-demand continues to trend upward at about the same rate. And, I have seen few jumps in conservation investment in other areas such as insulation and computer control.

On the supply side, things are progressing more as I would have expected. Solar energy companies are reporting a tripling of sales, and wind farm announcements and new wind energy companies are proliferating. Railroads and mineral companies are surging, based largely on demand for coal usage. Investment in heavy oil is increasing. Meanwhile, demand for drilling rigs continues to surge. Engineering studies for future nuclear plants have been initiated recently. Even OPEC recently stated that they believe oil prices in the $60-65 range are optimum for "both consumers and producers." Of course, OPEC may change their minds if demand is not dampened by current higher prices. It wasn't so long ago that they were committed to keeping prices in the $20-25 range to "avoid damage to the economies of the consuming countries." Ultimately, their motivation is to keep prices at a level that does not significantly destroy demand.

So, in a nutshell, economics seem to be working on the supply side to keep supply-demand balanced. On the demand side, at least at the consumer end of the spectrum, it would appear prices may not be high enough to damp demand. I'm no longer well enough connected in industry to see whether the same holds true there, but demand trends seem to indicate little effect of higher prices yet.

Perhaps the operative word is "yet". It takes a while for a conservation mentality that matches current prices to take effect in the general public. Many seem unaware of the conservation investment opportunities that are currently knocking. And, as I explained in a previous post, energy supply-demand is remarkably inelastic in the short term, but very elastic in the longer term due to the long time horizons typically required for energy investments.

So, is the $50-75 range still applicable? For now, I believe it is. I voted for $70 oil in the Yahoo Finance poll. Many "experts" have recently stated that $80 oil is now all but inevitable, so I'm in the minority. And, if peak oil is close at hand, and conservation does not pick up soon, I could be wrong.

The next few weeks should be very interesting.

Building a Solar Cooker

2007-06-23T09:35:00.000-07:00

At a recent gathering of family and friends, the topic of conversation started with the current hot conditions. From there, it naturally progressed to solar energy and cooling. From there to the possibility of a solar cooker.

In places like Florida, where part of the family lives, the idea has natural appeal. By cooking inside the home you pay for the energy twice... first, the energy to heat the oven and second, the energy to remove the heat from your house with the air conditioner. And, besides heating by electric resistance, as most ovens do, is an inefficient application.

This got me thinking it might be worth discussing. Building a solar oven is relatively easy to do. The website, http://solarcooking.org/plans/ has a great selection of plans for building solar ovens. I particularly like the "Minimum" Solar Box cooker. Obviously, the appeal of the design is their use of simple materials like cardboard and foil.

But, for more practical, everyday use, while keeping it simple, a few changes might be worthwhile. Also, it might be worthwhile to dig into the theory so we can understand the process and obtain more customized results.

First, practicality... if the cardboard box is left out during a typical Florida afternoon thundershower you would soon have a pile of ruined cardboard. So, I'd suggest using a sheet of Polyisocyanurate covered on both sides with aluminum foil. This material is relatively weather resistant and rigid. It can be obtained at pretty much any building supply store for about $10 per 4'X8' sheet and has good insulating properties, R value of approximately 4 per half inch.

That leads us to some theory...the authors don't say what temperatures can be attained with the simple ovens, but with a little understanding of the theory, it is possible to estimate temperatures and see how adjustments can effect it.

For any space, the equation "Heat in = Heat out" represents the equilibrium, or steady condition. This allows us to estimate the temperatures which can be obtained and to make adjustments to obtain the desired results.

"Heat in" is a function of the solar rays entering the box. It is generally accepted that for most subtropical locations the radiant heat of the sun is somewhat above 2oo BTU/sq ft/hr.

"Heat out" is a function of the insulation around the space, represented by the equation

Heat out = UxAxdT/R
Where:
U= heat transfer coefficent. This depends of the surfaces and the fluid on each side, but generally for thin, smooth surfaces with air on both sides is about 1.5 BTU/sq ft/degree F.
A= area in sq ft
dT= difference in temperature, or (T inside - T outside)
R = Resistance to heat transfer of insulation, generally referred as to R value.

So, let's build an oven and estimate the temperature which can be obtained. Assume the box is a 1 foot cube, built of 1/2" Polyisocyanurate board, with the inside painted flat black, so absorption is close to 100%. Let's have a 1 foot clear film on the top to allow entrance of the sun. And let's have a somewhat oversize reflector on the back side to reflect more sunlight into the clear film area. Assume we can get 1.5 sq ft of sunlight into the box. We would probably want to raise the pot off the floor of the oven with a canning ring or other pedestal so it is heated from the bottom as well. I picked this general design because the discussion was around a slow cooking "Crock Pot Type" cooking style where food could be put on in the morning and ready to eat for dinner with minimum attendance.

Then,

Heat in = 200 x 1.5 = 300 BTU/hr

Heat out is equal to the heat escaping through the 5 insulated walls with an R value of about 4, plus the heat escaping through the clear film, with an R-1. Therefore, heat out is represented by:

Heat out = (1.5 x 5 x dT/4) + (1.5 x 1 x dT/1) BTU/hr = (1.9 x dT + 1.5 x dT) BTU/hr = 3.4 x dt BTU/hr.

Therefore:

300 BTU/hr = 3.4 x dT BTU/hr

or:

dT = 300/3.4 = 88 degrees temperature difference

So, this oven would obtain a temperature difference with the outside air of about 88 degrees. Assuming 90 degrees outside, the inside temperature would be about 178 degrees.

Disappointing, you say? Well, use the above theory to build a better oven! Since we have plenty of material left over from our sheet of foam board, let's make a slightly larger box to put the first box inside of, with 1.5" of wadded newspaper in the space between the boxes. Overall the walls and floor now have an R value of 10. Also, I like the "Simple" box cooker idea of using a turkey cooking bag so you have double film over the opening, doubling the insulating value of the film. Also, let's design a reflector which increases the area of sun into the box to 2 sq ft. Now,

2 x 200 = (1.5 x 5 x dT/10) + (1.5 x 1 x dT/2) = .75 dT + .75 dt = 1.5 dt

dt = 400/1.5 = 267 degree difference

Again, assuming outside temperature of 90 degrees, your oven temperature would approach 357 degrees. Oops, better start thinking about the melting and ignition temperatures of the foam or some type of insulating liner!

Keep in mind, these are the equilibrium temperatures, which the empty oven could be expected to approach pretty quickly assuming a tight enclosure and good sun. Any reflective pot would decrease the heat captured, and the mass of pot and food, plus the energy absorption of moisture would substantially slow the approach to these temperatures.

So, there you have it. For less than $15, you can cook outside for free, rather than endure the double whammy to your utility bill of cooking in the kitchen in the summer.

Solar Cooling Prototype

2007-06-19T14:27:00.000-07:00

Time for an update on my efforts to generate cooling from solar heat. For those who have not been following this blog, I set up a prototype to test some concepts for air conditioning the house using solar heat. The prototype is pictured above, and the details of how it works are included in my previous post. The results so far have been a bit disappointing, but as Thomas Edison said, everytime I fail I find out another thing that won't work.

I ran another test yesterday, after adding a fan and some finer spray nozzles. I was able to generate 77 degrees Fahrenheit, in ambient conditions of 95 degrees and 55% relative humidity. Since the wet bulb temperature is 80.5 degrees at these conditions, I got 3.5 degrees cooler than theoretically possible with a simple evaporative cooler. Even so, I expected a lower temperature. Meanwhile, I'm learning that popcorn (my trial dessicant) is probably not a good choice. The humidity absorption rate seems to be too slow, but most of all, the popcorn seems to deteriorate quickly in outside conditions. The is a bit of a surprise, since the experiments I did prior to setting up the prototype seemed to indicate the popcorn would stand up to the expected conditions and repeated regeneration. But, it has happened twice now in a matter of just a few days. The first time, I thought it might have been wetted from rain or overflow, but the second time there was no rain and no evidence of overflow from the exchanger.

Other lessons learned:

If I want to use natural convection to drive the process, I'll need to have taller columns to generate the needed flow.
I need greater contact area with the desiccant to facilitate air drying.

Since these changes would take some time and I'm up against a deadline on my lease, I'm going to switch to a different setup to try an ammonia/water adsorption setup.

Below is the schematic for this arrangement. An ammonia/water solution would be in the section of pipe in the solar collector. When the solar collector heats up, it will boil off the ammonia, which will then condense in the cooler evap section, which is cooled by pumping heat medium to the heat storage. Then, when the solar collector cools off, the water will attract the ammonia, evaporating it from the evap section. In this stage, heat will be added to the ammonia by the heat medium, which is circulated to cool storage. By this mechanism, I expect to obtain, alternatively, both heat and cooling from my solar collector. Below is a schematic. Keep tuned for results from this trial.

Low Tech Solar Heat and Cooling

2007-05-29T08:53:00.000-07:00

I've been thinking for quite a while about solar heat and cooling, and have written a bit about these in this space. The article about cooling a house using heat from the attic, in particular, drew some interest. And, it seems I've become something of a lightning rod for my belief that the more popular photovoltaics are not the best way to use solar energy.

I've thought for years about working up some prototypes, but a few things have kept me from pursuing the interest. First, I'm residing in a temporary rental. But even when I owned my home, I have to admit that the fact that I would need to cut a hole in the roof and install a conspicuous chimney kept me from trying some of the ideas.

So, I decided to do some lower key experimentation. This initially took the form of evaluating the desiccants needed for the process. After looking at some of the commercial alternatives, I decided to experiment with some lower tech ideas. Ultimately I settled on popcorn for the desiccant. Using some clear plastic bottles and a thermometer and humidistat, I found that popcorn could reduce the humidity of room temperature air to about 10% humidity. Even better, I found that the popcorn could be repeatedly regenerated (dehydrated) at temperatures between 120-200 degrees fahrenheit. It seemed that popcorn could act as the dessicant, and could be regenerated quickly by simple, low tech solar collection.

Next step, to build a prototype for experimentation. I built a 32 sq ft solar collector from materials bought at Lowe's for about $50. I was pleased to find temperatures attained were typically 70-80 degrees above ambient. Based on what I could see, it looks like the collector could save about $20/month on my electric hot water bill. Of course, it would take some additional work to tie into the house, which I won't do, since I only expect to be in the house about 3 more months. But, it seems reasonable to expect that a similar system could provide most of my hot water needs with a return on investment of more than 100% per year. A similar system could provide home heating, although with about one fifth(20%) the return, since the heat pump used to heat the house is more efficient than the electric resistance water heater. Also, the collector would turn out less heat in the winter and would not be used about half the year.

So, overall, a great return for replacing my electric hot water heater. For the home heating, the return would be marginal, without a cooling component to better utilize the system during the summer months. That's where the desiccant or adsorption type cooling would come in.

I built this prototype to experiment with these systems. Essentially, the air rises through the left column through the popcorn dessicant for drying, them moves to the right through a heat exchanger cooled by evaporation. The the air exits down through the right hand column with a second stage of direct evaporation. The popcorn is regenerated by the air exiting the solar collector on the far left and then is rotated into the left column to keep the desiccant dry.

So far, the results are disappointing. The water/air mixture exiting the system is running about 72 degrees when the ambient was 94 degrees and 61% relative humidity. Later in the day, I measured about 70 degrees when the ambient was 78 degrees and 59% relative humidity. I was expecting to attain about 10 degrees cooler temperatures.

There are several possible problems:
1. I'm using natural circulation related to the different temperatures. I may need to have taller columns to get enough circulation, or I may get better results by adding a fan.
2. The popcorn may absorb the moisture too slowly. A different desiccant or increasing the amount of desiccant may be needed.
3. I'm using irrigation type misters, but the droplets are fairly large. Better atomization might help.
4. I'm using direct tap water from my faucet, rather than recirculating pumps I would normally use.

I also plan to try an ammonia-water absorbtion system and bought the parts for about $60, again at Lowe's. Unfortunately, I'm out of town for the next couple of weeks, so I won't be able to tinker further until I return. Meanwhile, I'm open to any ideas for solutions or other possibilities.

Solar Photovoltaics for Suckers

2007-04-23T10:20:00.000-07:00

I'm on record that Solar Photovoltaics are far down on the list of viable energy alternatives. An article I just read on Yahoo Personal Finance (Bankrate) makes the point, while ironically implying that there is excitement about a big breakthrough in the product.

The article states that a 1 KW photovoltaic system costs about $14,000, and that it can be expected to reduce utility cost by about $200/year. This implies a return on investment of less than 1.5%. The article goes on to state that there is no operating cost, ignoring maintenance, which typically is rolled into economic calculations at rates between 2-7% of capital expended. In that case, return on investment for the photovoltaic system would be negative. It also tries to capitalize on the common misperception that "energy prices are going nowhere by up". See my previous posts to understand why this is not true.

Every time I make a case like this, someone responds that it is not a matter of economics, it is a case of saving the environment, and maybe the planet. Or, that it is a matter of independence from the oil barons. Ultimately, though, it is just the opposite. The same benefits can be had, much more effectively, by adding insulation, or by upgrading the efficiency of appliances, HVAC or lighting, or by driving a more efficient car. And, every dollar which goes into a less effective solution is a dollar less for solutions which have a greater effect.

But, let's say you are determined to produce energy, rather than just conserve, and want to reduce dependence on the middle east in the process. Attractive alternatives are ubiquitous. Coal, nuclear, oil sands are all attractive investments at today's prices.

What about carbon dioxide and nuclear waste? Solar heat and wind power make good investments. Coincidently, I also read an article today quoting a source of residential scale wind units. The price was about $2-3000 per KW, resulting in a 6-8% return. In other words, the same investment there would reduce carbon dioxide and dependence on oil barons by approximately 5 times the amount of the photovolaic investment. And the good investment would mean you have much more to invest, or maybe even to enjoy the better world you have helped make possible.

I'm an advocate of improving the world, but wasting resources in the process is counter productive. And photovoltaics still fall into that category.

Heat Pumps and GeoThermal

2007-04-17T10:06:00.000-07:00

I've mentioned previously that low grade geothermal systems are an effective way to substantially decrease our fuel usage. I've also mentioned that electricity is not an efficient way to create heat. However, electricity can be an efficient way to pump heat, and that is the key to low grade geothermal practicality.

Heat pumps are, of course, quite common. They effectively pump heat from lower temperatures to higher temperatures. In so doing they can make electricity quite effective at heating or cooling applications. While common usage generally applies the term heat pump to a device that warms your house, your air conditioner is also a heat pump, pumping heat from inside your house to outside. When the temperature difference across which the heat is pumped is not too large, heat pumps are quite efficient. Unfortunately, as the temperature difference increases, the efficiency declines. When heating your house with an outside temperature of 50 degrees, the system is only pumping against a temperature difference of 20-30 degrees. However, if the outside temperature is 20 degrees, you are pumping against a temperature difference of 50-60 degrees and will have substantially lower efficiency. This means that your peak demand coincides with the lowest efficiency of the system. The same applies to your air conditioner. And this fact makes a marriage between your heat pump and geothermal energy a sweet deal.

You see, just a few feet below the surface of your yard, the temperature is close to the average for your area year around. That means substantially less difference in temperatures between the heat source and the house at the extremes, when demand is highest. In fact, for most of the south, the ground temperature is close to 70 degrees, resulting in temperature differences of less than 10 degrees for both heating and cooling. Better yet, the variation in earth's temperature just a few feet down does vary a few degrees, but it lags the actual average air temperatures by 2-3 months, which means that the coolest temperatures don't occur until March/April, when the heating season is nearly over. The warmest temperatures occur in Sept/Oct, when the cooling season is nearly over.

Beyond this, in normal applications today, the benefit is collected for only one side of the application. When your air conditioner is running, it pumps heat to outside, where it is wasted. In winter, when your heat pump is heating inside, meanwhile cooling outside rather than using the cooling for applications inside your home. Low energy prices over the last several decades have resulted in chosing simplicity over efficiency, but higher prices will lead to using both the cooling and the heat that result from the heat pump. And, using the earth to make up the difference in heat and cooling demands and to lower the effective temperature difference will result in a much higher efficiency.

All just another reason why I believe energy prices will stay about where they are for the long term. The heating and cooling needs of your house use the majority of the energy used in your home. These can be made much more efficient. And, at today's prices, it is becoming economical to do so.

Solar Heat and Wind Power-Eliminating Energy Cost Increases and Green House Gas worries

2007-04-09T11:21:00.000-07:00

I've said previously that solar heat and wind power technologies are the most viable alternative energy sources. These twin sources, working together, are ideally positioned to resolve many of today's worries. Pairing of these two is key, because energy demands can largely be divided into two spheres, heat/cooling and work/power. And solar heat is ideal for the former, wind energy for the ladder. For more on understanding the significant differences in the two types of energy, see my previous article explaining why electricity is inefficient in direct heat applications.

So, let's explore why I believe these two sources can eliminate future energy cost increases, and at the same time, eliminate today's worries about the Green House Gas (GHG) link to global warming(see previous article and associated comments on global warming for debate on this connection). First, the similarities... both are plentiful. Just a few hundred square miles of the earth's surface dedicated to each source can meet all the earth's energy needs for the foreseeable future. And, both are viable at today's energy prices.

But there are significant differences between the two, which explain why both are necessary for the practical solution. Both are variable, but they vary based on different, largely non-correlated cycles. Solar heat has regular night and day cycles. Wind varies based on fronts, high and low pressures. But, most of all, solar is ideal for heating and cooling applications. Wind is ideal for power/work applications. By looking more deeply into each source, I hope we can understand the future viability of each and how the synergies between the two mean they can virtually eliminate any worries about increasing energy costs and GHG related global warming.

Wind energy translates easily into the higher form of energy, the work/power sphere, usually in the form of electricity. Efficiencies can theoretically be over 50%. And costs are relatively low. The cost of generating electricity with wind power has come down approximately 85% since the 70's, when the last surge in wind generated electricity took place. It is competitive with conventional sources today, and in fact, has been marketed at rates lower than many conventional utilities in some areas within the past year or two. And, it has the potential for further improvements in cost. Venture capital firms are plowing funds into wind energy in levels never before seen.

Wind efficency improvements have been largely a function of scale and turbine efficiency to date, but I believe the biggest improvement is yet to come in the form of increasing altitudes. This potential is the result of two well known facts. One, wind speeds increase as a function of the height to the 0.15 power. And two, power increases as a function of wind speed cubed, or to the 3rd power. All this means that the wind energy available increases dramatically as height is increased. As an example, the power available at a height of 1500 feet is over 5 times that at 33 feet, the standard wind speed measuring location. For this reason, it is an axiom of wind energy that it makes sense to put your money into raising the turbine rather than increasing the size of the turbine. But, as we have learned in the offshore oil and gas field, fixed structures quickly become self limited in deeper water and the next level is flexible, or moored structures. I believe that the same revolution will take place in wind energy. Turbines will get away from fixed structures and will be moored, perhaps with a kite-like arrangement. This will allow significant increases in height of turbines at much reduced cost, leading to substantial increases in economic viability.

As I mentioned, wind energy is ideally suited to electricity generation. That means running such things as lighting and small motors. It also means potential to drive vehicles with either battery storage or by generation of hydrogen. If the widely expected hydrogen economy is to develop, it must have a source of hydrogen, which electricity can provide via electrolysis.

But, let's shift to solar heat, as distinct from more widely recognized solar electric panels. Solar electric panels are relatively expensive, and deliver efficiencies between 10-20%. Worse, storage of electricity is relatively difficult. Solar heat, on the other hand, can have efficiencies for heating applications well above 60%. Further, the materials of construction are relatively common. And, small scale heat storage is relatively easy with thermal mass using common materials such as water, concrete, rock or earth. And, I as described in my previous article on cooling with solar heat, translating heat to cooling is relatively easy and efficient as well. I am convinced that these technologies also are competitive with current sources, although I'm a bit baffled that I don't see the venture capital flows I would expect in this area. Perhaps the reason is that solar heat is more suitable to small, distributed applications rather than large commercial applications. If that is the case, it may offer each of us an opportunity for some lucrative venture capital application around our house. And for entreprenuer, the opportunity for developing and selling small scale systems.

The good news is that most energy applications can be efficiently satisfied by one of the two methods, and both essentially eliminate GHG from the equation. It is possible to cross over between the two, ie create heat and cooling with electricity or work/power/electricity with heat, but efficiencies for each would be lower. But, this crossover could help manage the variability in each source and peaks in the demand from each sphere.

So there you have it, the potential to solve two of the earth's most pressing worries. And, all with mininal damage to our current way of life. In fact, you could argue that these technologies could increase our prosperity, in contrast to the calls for sacrifice which usually dominate the approach to these two areas.

Landscaping for energy efficiency

2007-03-29T12:45:00.000-07:00

Today, a significant part of our energy usage is related to air conditioning, and the way we landscape around our homes can have an impact on our a/c costs. Assuming a well insulated and sealed house, most of our a/c energy escapes through our windows. If you had no windows, your a/c costs would be a fraction of what they currently are. Even eliminating windows from the east and west sides would substantially reduce air conditioning costs.

However, I love windows, as do most people. The natural light, the view, the openness are practically irreplaceable to me. So, I need ways to reduce the energy cost of windows. While double pane windows and window coverings significantly reduce heat loss, they do little to reduce radiation energy from the sun. For that purpose, the best solution is to keep the rays of sun from arriving at the windows. And the most natural way to do that is with landscaping.

Shade trees are the best way, long term, to keep the sun from arriving at your windows. You can plant and trim them so that they block the sun, but not the view, or so that they block the sun in summer, but not in winter. Use deciduous (those that lose their leaves in winter) trees to optimize the summer/winter effect. As a bonus, trees cast enough shade to minimize solar radiation effects on walls and attics as well.

Unfortunately, shade trees are indeed only a long term solution. If you plan to live in your house for many years, by all means plant them, but other plants may present quicker solutions. Crepe Myrtles, while not know as shade trees, are typically trimmed such that they can provide shade in summer, sun in winter and a reasonable view from the window. Red Tip Photinas and Wax Leaf Lugustrums also can be utilized for this purpose. And all these are quick growers with easy maintenance which can do the job in a year or two.

While these are my favorites, almost any plant that grows more than a few feet tall can work. If you don't mind having the view obscured, a side benefit of more dense vegetation such as hollies or juniper is that they reduce wind velocities around the windows, reducing the wind chill effect.

And, making the investment even more viable, you improve the the aesthetics of the house in the process.

Global Warming?

2007-03-21T11:24:00.000-07:00

After a discussion on global warming with my daughter, Nicole, I realized I have not really addressed this issue in a direct way in this blog. And, though I'm not an environmental scientist, my background and interest in science, engineering and economics mean I may be able to put a practical spin on the topic, a rare feat in today's politically charged environment.

First, the concept. That increased carbon dioxide and other greenhouse gases (GHG) will, all else being equal, increase the temperature of the earth, is beyond dispute. The kicker in that statement is the "all else being equal" qualifier, because another sure bet is that in the environment, all else is never equal.

What this means is that, to evaluate the long term effects of mankind's GHG on the earth, you have to fully understand and quantify a number of other factors, such as:

The proportion of GHG created by man's activities vs natural activities. A huge volume of GHG is created by natural processes, ranging from digestion of creatures to decomposition of organic material and volcanic processes.
The earth's GHG limiting actions. Will vegetation grow faster (and therefore absorb more carbon dioxide) in an atmosphere with more carbon dioxide? Will the oceans absorb more GHG, and if so, how will that effect water supported vegetation? Will the oceans absorb or release methane, a very potent GHG? Will warming lead to more water/clouds in the atmosphere thereby offsetting the GHG effect with reflective effects?
Long term storage mechanisms. The GHG generated by burning of hydrocarbons was, after all, stored by previous generations. By using them, are we restoring the natural balance. And, if left in the ground, would these hydrocarbons eventually perculate to the surface in even more potent forms, such as methane? Will the creation and storage of hydrocarbons increase in an era of increased GHG?
How does the GHG timeframe mesh with solar variations and the end of the hydrocarbon era, which obviously is approaching at some rate? If you doubt that the hydrocarbon era will be ending any time soon, see previous posts about the viablility of alternatives and conservation technology at today's prices.
How significant would the effects of global warming be in the grand scheme of things. After all, sea levels have varied over time much more than the effects predicted by even the most ardent believer in global warming. Ice ages have been created by volcanoes and meteorite collisions. What seems huge to us today could be small, or even offsetting, to numerous possibilities we can barely fathom.

So the answer, after considering all these factors, and more I haven't listed, or even thought of, is....drum roll, please.... I don't know, and no one else does either.

So, what do we do? We conserve when it makes sense. We use lower carbon sources when feasible, say using natural gas rather than coal. We invest in lower carbon energy alternatives when it makes sense. We try to rationally balance the very real issues of today with a low risk, high consequence problem tomorrow, without trying to enforce draconian changes which destroy our economy, dramatically decrease our standard of living today or create black markets to circumvent the draconian measures imposed.

And, that, in large measure, is the process I try to help with in this blog. So, read along, participate in the process. Along the way, you can make good investments, you can save money, you can contribute to the solution, and while doing so, you can raise our standard of living. That is a process, it seems to me, we can all look forward to and be proud of.

Energy Issues Today

2007-03-19T09:08:00.000-07:00

Since I conceived this blog, I've surfed the internet quite a bit to get a feel for what is out there in the field. What I observed is pretty interesting and in some cases, shocking. What follows are some of these observations and my effort to help explain some energy issues:

1. There is great hunger out there for free, or cheap energy. This, in itself, is good, but the underlying tone and reasons for this hunger are a bit worrisome. Most believe that today's energy is outrageously expensive. This is true only in the light of comparing it to recent history. It is cheap compared to the 70's and dirt cheap compared to all of history prior to the petroleum era. Can you imagine what it would have cost to push a 2000 lb car 30 miles before oil? So much that it would be unthinkable for anyone other than a king to even consider it. And yet we can do it for approximately $2.50, less than half an hour's wages at minimum wage. Prior to oil, an ordinary person would have spent a substantial part of their day trying to provide basic energy for cooking, keeping warm and moving about. In fact, for the past century we have been treated to such cheap energy, we cannot imagine the relatively expensive energy of 99% of recorded history. And that cheap energy has created, and still creates, the prosperity we now enjoy. But ultimately prices are a function of their effect on supply and demand, and on this basis, current prices are actually about right. For more on why this is true, see my previous post on how much energey will cost.

2. There is a perception that energy prices are manipulated, or there is some conspiracy. This is true to the extent that everyone out there who owns or can generate energy will try to get the best price they can for it, just like for any other commodity. However, there are far too many suppliers out there for anyone to control the price. Energy is an internationally traded commodity and there are dozens of major oil companies out there, along with thousands of smaller suppliers. And, that is just for oil. Consider all the other potential sources from solar to nuclear to coal and you have hundreds of thousands of suppliers and billions of customers. Energy costs will fluctuate wildly, based on supply and demand and the nature of the short and long term markets discussed in a previous post, but no single entity is even remotely able to control the world price of energy.

3. Very few people out there have enough scientific or economics background to reasonably evaluate their options. While I've been on the fence previously about our educational system, this revelation is certainly an indictment of that system. There is so much snake oil out there and so little ability to evaluate it, I wonder how we can survive as a society. I see people out there claiming they can run your car on water. I see others talking about generating power with a turbine connected to the discharge of a pump ( a perpetual motion scheme, so outrageous the US Patent office rules out awarding patents for them). I see folks confidently talking about spending tens of thousands of dollars on solar panels, when a few thousand in insulation and efficiency improvements would produce the same result.

4. Most relate free energy to attractive economics. In reality, most energy is free at its source. Oil was created by natural forces and is free for taking by the owner. There is enough solar energy falling on 200 square miles of the earth's surface today to satsify all current demand. I could go on and on similarly for nuclear fuel, coal, wind, tidal, wave, geothermal. The cost for making it available for use is a function of who owns it and how expensive it is to gather it. An understanding of science and economics is needed to evaluate it and to effectively bring it to market.

I hope this raises understanding of our energy issues, or at least has you thinking about it. I believe our ability to continue to create prosperity depends on this understanding. To the extent we fail to come to grips with these issues, our standard of living will begin to decline.

The Future of Energy....Trash?

2007-03-12T15:17:00.000-07:00

An article in the Wilmington Star News a few weeks ago has me thinking. The article noted that the county landfill was planning to increase its height from 70 feet to 140 feet tall. That’s about 14 stories high! The reasoning, of course, is that land is limited and permits for new locations are difficult to obtain. The story went on to say that residents generate about 1.6 tons of garbage per person per year.

Based on my experience, this sad story is probably typical of the country. And, trash has negative implications beyond land and permits. When concentrated and compacted, as is typical of today’s landfill, trash slowly decomposes and generates into, among other things, methane, a main component of natural gas which is over 20 times more potent as a greenhouse gas than carbon dioxide, which is usually the poster boy for greenhouse gas in our atmosphere. And there is potential for other pollution through leaching or out gassing of various dangerous compounds, not to mention potential smell and disease issues.

But, trash also has significant energy content. So, I put pencil to paper to calculate what the potential contribution to our energy equation might be if we put trash to work. Wood/paper or plastics make up the majority of this trash. Wood/paper typically has an energy content of 5-7,000 btu/lb, while plastics typically have an energy content of 15-20,000 btu/lb. If we assume an average 10,000 btu/lb, the energy content of trash generated by the US is approximately equivalent to 45% of the total oil production in the US, or about 10% of OPEC oil production.

Since this seems high enough to get almost anyone’s attention, let’s talk about the possibilities. As with many alternative energy issues, the starting point seems to be a discussion about large concentrated processing vs. individual use.

For individuals, the only practical use seems to be burning for hot water supplies. Since hot water use and trash accumulation are both pretty near continuous and the energy content in trash is fairly nearly matched to heating demand for household hot water, this seems a pretty good match. And, it would fairly easy to build a trash based water heater from brick in your backyard. The problem here, especially for a typical subdivision, lies in potential odors and pollutants. Pollution control, though possible, is probably outside the capabilities of most homeowners. For rural folks, this option has feet, since they generally have no trash pickup and often burn their trash in any case. A trash burner can also be supplemented with wood, leaves, pruning debris and other biofuels.

For larger, industrial, processes, a number of options exist. Incineration is one which I believe is viable, assuming proper planning and design to minimize pollution and process upsets. Heating, by plasma arc and other processes to vaporize the trash into combustible gases is another process which has been used. Another approach which has been successfully used is to drill into the landfill and capture/produce the methane as the trash naturally decomposes-slow, but perhaps effective over the long run.

As with most alternative energy sources, the recent high prices are making various approaches more viable. This one could be more viable than most, since by helping solve the longstanding trash accumulation problem, you can effectively kill two birds with one stone. And, this one is sustainable, since trash generation is increasing.

Electricity Inefficient for Heating

2007-03-10T13:37:00.000-08:00

Most people think of all energy as equivalent. In reality, there are higher and lower orders of energy, and understanding the difference is key to making the best alternative energy decisions. Energy in the form of work, such as pushing your car or running an electric motor is a higher order of energy than for heating purposes.

As a result, engines which create the work from heat, whether they be turbines, steam,, gasoline or diesel engines operate at low efficiencies. Generally, these engines work at maximum theoretical efficiencies of around 40%. Ultimately, after friction and other mechanical inefficiencies are considered, the efficiencies of this type equipment are generally much lower.

This makes sense when you think about it. Taking your car as an example... you know that a significant amount of the energy in your fuel is dumped to atmosphere as heat from your radiator and exhaust. In fact, about one third of the energy in the fuel is discharged in each of these areas.

So what does this have to do with electricity? Your electricity is generated by some type of engine. So, the efficiency is necessarily less than 40%. In fact, when mechanical and electrical losses are considered, efficiencies are likely in the 30% range. This is ok when it is used for higher order work, since you would have these inefficiencies even if you generated the power on site. But for direct heat, your efficiencies are well under half what they would be if you generated the heat, a lower order energy, directly with the fuel. This is the reason an electrical water heater is, by definition, considerably more expensive to operate than a gas or oil fired heater. The same applies to your clothes drier.

So, can anything be done about it? The answer is no, concerning the basic comcept. This is a fact resulting from thermodynamic laws. However there are some ways to avoid the negative effect, which may help you in thinking about your energy usage:

Use fuels or heat sources directly whenever possible for heating. Gas, oil or solar are all preferable to electricity if available. This concept is the reason heating from solar is much more efficient than using photovolataics or electricity for the same purpose.
Use a heat pump. Heat pumps, as the name implies, do not create heat directly, they pump the heat from a lower temperature to a higher temperature. As long as the temperature differences are not to high, the efficiency of the heat pump makes up for the inefficiencies inherent in generating electricity. And, heat pumps, by virtue of the pump effect, create cooling in the location from which the energy is pumped, as well as warmth on the warm side, so they can create both cooling and heat in the same process. In this era of high energy costs, increased use of heat pumps for water heating can significantly decrease energy use over direct electrical heating.
Cogeneration. Where there is a need for both power and heat at the same location, they can be connected to significantly increase efficiencies. Cogeneration is being increasingly used in the process industry. If a plant, or nearby plants, have a need for heat, they can use the waste heat from the engine while generating power or electricity, thereby substantially improving efficiency from below 40% to over 90%. Cogeneration is well established in process plants, so why can't it be used at home? In theory, it can. Homes require both heat and work. The problems lie in economies of scale and the lack of low cost, reliable, efficient small engines. And, begging for some good use for their waste heat...your automobile.

So, hopefully, you have a better understanding of energy use and efficiency basics that will help with identifying and selecting energy investments.

Economics of Green Energy

2007-03-09T10:21:00.000-08:00

Jon makes some great points (see comments on a previous post) about how energy alternatives need to be driven by both economics and environment.

As mentioned, oil sands are significantly dirtier that conventional oil and gas. Take a look at the yahoo financial site of Sunoco (SU), a significant oil sands producer. There you will see discussion of new projects to mine and process oil sands. Both the mining and processing require significant amounts of energy be expended, resulting in increased pollution. And the disruption to the earth and waste products will be significantly higher than for conventional oil and gas. You'll also see much discussion about reducing the environmental impacts, but regardless, the environmental impact will be significant. Others, including BP and Occidental, have experimented with "in-situ" processes, meaning the process takes place in the reservoir itself, by injecting either steam for heating or injecting air to allow underground combustion. The heat introduced into the reservoir helps separate the oil from the sand and makes it flow so that it can be extracted. In my mind, this process is cleaner, resulting in less disruption and waste disposal issues, but the additional energy, and resulting pollution, is still needed.

Beyond oil sands, it is an unfortunate fact that many of the energy alternatives that have potential for a significant effect on energy supplies (nuclear, coal) in the near term have different, but significant negative potential environmental impacts. I would even argue that some of the greener alternatives have largely unrecognized negative impacts. I still remember when nuclear energy was considered the solution to all our environmental problems. This was just a few decades before the industry was run out of business by environmental interests.

And, that brings us to the intersection of economics and environment. Traditionally, environmental issues have not been directly driven by economics, although the issues do often intersect. Traditionally, governments set environmental regulations based on the philosophy in power at the location and time. Then, businesses decide whether it is economic to improve the operation to meet the regulations, and if not, they get out of the business. Many will argue that this is good, but to the extent that the most economic processes are forced out, or the costs are passed on to the customer, our standard of living is negatively effected. And, when it comes right down to it, few will make that tradeoff.

Economics and the environment also meet at the customer. If customers value the environment, they can influence business to change operating practices or to shutdown offending operations by refusing to buy from the offending business. Again, however, the result is a decreased standard of living. Customers and businesses make these decisions daily and with little guidance, and the operations ultimately reflect the preponderance of these decisions.

There have been some efforts to more formally connect the environment and economics by use of a pollutant or carbon trading system. The theory is that such a system will drive the most economic solution to reducing pollution by encouraging those who can most economically reduce pollution and allowing those who have the most difficulty in reducing pollution to buy credits. This would address one of the biggest difficulties in managing pollution, ie deciding who should reduce pollution and by how much to reach the most economic solution. Both governments and consumers are consistently poor at managing this process, equivalent to a doctor trying to make delicate incisions with an axe and little knowledge of where the incision should optimally be placed.

Unfortunately, in practice, pollution trading systems have not been very effective. Since only governments have the power to adopt the system in a mandatory way, the system has been largely voluntary. The result is that those who could easily reduce pollution are eager to do it and sell the credits, but those for whom reductions are more difficult can just ignore the system. Therefore, those who voluntarily use the system are at a competitive disadvantage unless their customers are willing to pay a premium for a green process. Oops, you are back to whatever the customer demands, right where you started.

BP has used the system with limited success internally. By setting a "Value of Carbon" price and using this in the economic model for alternative evaluation they can at least see where reductions in greenhouse gases within their operation make the most sense and track the effect of their projects on greenhouse gases.

The above sounds like gloom and doom, but there is a bright spot that should be discussed. Economics and the environment often are aligned by the intersection between them. When you do something to decrease your energy use driven by economics, you also reduce pollution. When you buy a compact flourescent light bulb, it is both a good economic decision and a reducer of pollution. The same applies to almost all demand reducing projects. This often applies for supply-side projects as well. The additional energy demands for oil sands drive both worse economics and more pollution than for conventional oil and gas. That is why most oil sands are still in the ground, and will stay there as long as there are adequate conventional sources.

Obviously, economics and the environment require a balance, but tools to effectively manage this balance are pretty crude. The question is whether these decisions will be made accurately and soon enough. This is a difficult question to answer, since the effects of today's decisions can be long lasting. And, our understanding of the compensating mechanisms nature may have at her command are even less precise than the tools discussed above. Ultimately, though, I believe the actions will be taken in time, largely because of my faith in the ability of nature to adapt to circumstances. And, when the system gets far enough out of balance, it will be obvious to customers and governments the decisions they must make. That is not to say that the adjustments will not be painful, but I don't believe they will be disastrous in the big picture.

One further point. You mentioned "forcing" companies to change. While this is appropriate in terms of economic and other forces creating change by exerting pressures in various directions, I think it often reflects a basic misunderstanding of the nature of business that is prevalent (and destructive) in today's society. Companies are not monolithic structures independent or opposed to people. They are made up of individuals just like their customers, making decisions based on their incentives, their values, their understanding, just as you and I are. I think it is important, and rare, that we recognize this commonality is much greater than our differences, and that we communicate with and educate each other. This alone can help us resolve our problems in the most efficient way.

Cooling by solar heat from attic

2007-03-06T11:49:00.000-08:00

Ok, I promised a diagram of how you could cool your house using heat from the attic. So, I've worked up the rough schematic below to help explain how it might work.

There could be a number of variations of this basic concept, but I hope this will do to explain the basics.

Start with adding a styrofoam sheet to the bottom of your rafters on the south side and a baffle to trap the hot air at the peak of the roof, as shown in red. This increases the temperature of the air at the peak and helps create a draft effect to move the air upwards. Then, again shown in red, add a chimney which has a warm section on the south side and a cool section on the north. Again, this adds to the temperature and draft effect of the hot air exiting the attic. A downward draft effect is also created in the north half of the chimney for cool air.

Cool the air in the north half of the chimney by blowing through an exchanger with a swamp cooler. Alternatively, it could be cooled by circulating water through the ground or rerouting the cool air outlet from the bottom of the cool half of the chimney. For arid regions, more temperate climates or for the shoulder season, this would likely create all the air conditioning required. Unfortunately, most air conditioning demand is in more humid climates and in the peak season, and that is where your solar heat comes in.

By adding a slowly rotating desiccant wheel at the top of the chimney, you can remove humidity from the air entering the cool side. This will warm the air, but this heat can easily be removed by your swamp cooler exhanger. So, below the desiccant wheel and swamp cooler you will have dry, cool (approximately 80 degrees) air. By misting at this point, you can reduce the air and water temperature further, to approximately 55-65 degrees depending on the condition and characteristics of the desiccant. The desiccant is then regenerated (ie, the moisture is removed) by the hot air on the warm side of the chimney.

The cool air and water generated in this way can be circulated through exchangers to cool the house. Alternatively, the cool air from the chimney could be introduced directly to the house, although this would require opening the windows slightly and might result in too much humidity in the house as with a traditional swamp cooler.

Side benefits include a cooler attic since the drafting effect and baffles remove the heat from the main part of the attic. Air conditioning by this method should reduce power usage by 75-90%. At the same time, I believe this system could be installed for less than the cost of a traditional central heating system.

How much will energy cost?

2007-03-01T11:30:00.000-08:00

This topic is very hot right now. It invariably is, when prices have made spectacular up moves, as they have in the past year or two. Most bloggers and the man on the street seem to assume that prices will continue to go spectacularly up. The stock market seems to say otherwise, with energy stocks priced for $40/bbl oil. And, the topic is a bit dangerous, since the short term peaks and valleys associated with oil prices seem to be outside even the experts ability to predict. For discussion about why this happens, see a previous post.

Even so, I believe long term trends have a logic to them which seem to escape the notice of most. Let me be bold and make my projection clear right up front. Barring some short term variability and/or geopolitical events, the long term price of oil will trade in a range of $50-75 per barrel, adjusted for inflation.

One one hand, this seems like a safe bet, since the price has been in this range for the past couple of years, but as I mentioned, this seems to be outside the range of what most would project. Let me explain my logic.

First, the demand side. As energy prices move to the upper end of this range, it begins to provoke actions which restrict demand. Folks begin to carpool a bit more, drive less. They start to think about downsizing their car when they trade, and begin demanding more efficient cars or trucks. They begin to take public transportation a bit more. They turn down (or up in the case of a/c) the thermostat. Energy efficiency becomes an issue with appliances and insulation. Investments in industrial plant efficiency improvements begins to ramp up. Compact flourescent lights take on a new chic. Low grade geothermal heat and a/c become attractive.

Second, the supply side. Solar heat, a/c and wind energy become viable around $50/bbl and are very attractive at $70. Nuclear becomes very attractive in this range. Development of all sorts of energy sources and efficiency improvements begin attracting significant funding. There is a huge supply of coal which becomes attractive at these prices. Drilling smaller and more difficult oil and gas reservoirs suddenly takes off at $50+, and there is an enormous amount of these resources waiting for attractive economics. Ultra deepwater drilling and development becomes attractive, with unknown, but likely large amounts of hydrocarbons to be discovered. And huge reserves of heavy oil and oil sands and oil shale become economic at $50/bbl, wildly so at $75. The known reserves of these resources are huge. Those known in North America dwarf the oil reserves of Saudi Arabia today.

The result is that, outside of short term peaks and valleys, energy prices will remain for the foreseeable future inside the $50-75/bbl range, adjusted for inflation. Perhaps they would be pushed above the rate of inflation a bit by gradually increasing scarcity, but this will be offset by improvements in technology. Notice, no mention of conspiracy by energy companies, auto companies, OPEC, politicos, treaties. these forces may be able to establish some short term control, but in the long term they are powerless against the forces of market supply and demand.

So, what does this mean? It means secure energy sources, on average, at something close to current prices. It probably means increased diversity of supply and a relatively constant percentage of our budget going for energy. It likely means that energy companies are somewhat under priced.

There, I'm on the line with my opinion. Judging by what I hear and read, most will think I'm crazy. So, what's your opinion? Here's your chance to be heard.

Computer Control and Optimization

2007-02-26T12:26:00.000-08:00

I see that one of my advertisers is AspenTech. This is an interesting development, since AspenTech is one of the companies I worked with at BP. In fact, if you dig deep enough into the white papers on their website you'll find reference to their working together with BP on developing and applying software for olefins processes. I was involved to some small extent with this work when I was at BP's Chocolate Bayou plant.

This is apparently in response to a casual mention in a previous post that computer control was one of the main tools for energy conservation, and the AspenTech work is an example of the cutting edge of this trend, and serves as a good example of the potential in this area.

Olefins, as with many industrial processes, has a large number of variables which effect the overall efficiency and economics of the process. In particular, several different feedstocks, varying heat input flux and temperatures and pressures at numerous points of the process, as well as heat and power sources work together in an almost infinite number of possibilities with dramatically different outcomes. The inability to handle optimization of all these variables manually can result in the plant running in a generic condition which may well be inefficient for the given conditions, and on feedstocks that are not optimal for today's price environment. By generating a computer model that simulates the process, it is possible to determine the optimal conditions and either manually or automatically control these conditions as required for best economics. By doing so, it is possible to input the optimum feedstocks and fuels based on real time prices and optimize the process for maximum yield for real time conditions. Doing so can result in millions of dollars in feedstock and fuel savings, as well as top quality products for a typical olefins plant.

The above is just one example of the potential of computer control and optimization. It is becoming more widely used in industrial processes, and has also been widely used in automobiles. A large part of the efficiency and performance gains in automobiles in the past 20 years has been a result of this computer control and optimization. With the low fuel costs prevailing for most of the past two decades, the optimization has been primarily on the performance side, but with the higher recent fuel prices I expect more focus on efficiency.

Obviously, viability of this type optimization is largely related to scale, but if fuel prices continue to move up the potential moves down the scale to smaller applications. Did you know your furnace would operate more efficiently with a variable, rather than an on/off control, or that your refrigerator would be more efficient with a power factor correction? That a significant part of the power consumption of your electronic equipment is consumed when you are not using it? That your air conditioner could operate considerably more efficiently if could detect and optimize both humidity and temperature, or that it would be more efficient with variable speeds rather that on/off controls? Come to think of it, why are you air conditioning rooms you are not occupying today? All these efficiencies could be captured with better controls. And, indeed they will when economics and the market demand it.

Alternative energy for transportation

2007-02-22T14:18:00.000-08:00

What about transportation alternatives, including hybrids and ethanol, versus small, fuel efficient cars? Congratulations, Nicole, on the purchase of a small, light, fuel efficient, 4 cylinder car! From what I know, this is the most economically viable way to reduce our transportation related demand for energy.

Let me explain that when I talk about economically viable alternatives I’m excluding tax credits and other government incentives. Don’t get me wrong, I think that government incentives have their place, encouraging development of alternatives that may eventually be viable, but incentives do not really reduce the cost of alternatives. They just mean someone else is paying the cost, i.e., you and I as taxpayers. At the same time, incentives are widely variable from time to time and place to place, and are generally based on politics rather economics. The incentives may improve the viability for you individually, but for a general comparison of alternatives it makes sense to me to exclude incentives from the equation.

With that out of the way, I want to repeat that the most viable alternative for decreasing our use of energy for transportation is the small, light, fuel efficient car. Few things amuse me more than an individual driving a 5000 lb vehicle with 300 hp to the office, alone, while complaining about the cost of fuel and the conspiracy to increase the cost of gasoline. I have no problem with anyone driving these vehicles, and indeed they have their place and it is an individual decision, but the individual should recognize their responsibility for their decisions and their effect on the supply/demand curve driving fuel costs. Happily, there is a lot of room for reduction in this area, because viable alternatives for the near future are pretty sparse.

Electric hybrids, and more recently, plug-in hybrids, are the popular alternatives, driven by government incentives. Unfortunately, these vehicles are marginally viable with the incentives and are far from viable on a total cost basis. The problem for these vehicles lies in the state of battery technology today. The energy density in terms of both energy storage/pound and energy storage/dollar is simply too low. The substantial weight of batteries is a barrier to high efficiency and the cost is a barrier to economic viability. A relatively short life contributes to the cost problem. Perhaps economy of scale or new technology will eventually change this relationship, but the fact today is that hybrids are uneconomic barring dramatically higher fuel costs.

I believe that other types of hybrids, though rarely heard about today, may have more potential than electric hybrids. Alternative energy storage methods such as hydraulic or kinetic (flywheel) have the advantage of quick absorption and release of energy, which could mean reduced weight required for high energy outputs and the ability to more effectively capture braking energy. At the same time, I believe these mechanical type storage devices could mean a longer useful life and lower cost.

Likewise, ethanol is a popular topic today. And a small percentage of ethanol added to gasoline is viable, since it increases the octane rating of the gasoline and thereby makes the most of the energy in gasoline. Unfortunately, as a wholesale substitute for gasoline the economics are not there. As with hybrids, incentives make ethanol marginally economic, but on a total cost basis it is far from economic. The sad fact is that the current corn-based ethanol economy uses almost as much fossil fuel to create as it delivers. I say this, despite the fact that I own land used for growing corn, meaning I would be a substantial beneficiary of increased use of corn. Again, a change to use of switchgrass or sugar cane could change the equation, but it won’t happen any time soon. Sugar cane, in particular, is uneconomic in this country because it is labor intensive. This is borne out by the fact that corn sugar is the cheapest, most used sweetener in the United States. And, while using more of the plant than just the grain seems attractive, returning the plant to the soil is a big factor in maintaining healthy soils.

As for hydrogen, my thoughts have been expressed in a previous post.

It could be argued that public transportation or more carpooling could be viable alternatives, but the convenience factor means that for most, only a substantial increase in fuel cost would justify the inconvenience.

As I said, the list of alternatives is not very attractive in the current environment. About the best we can hope for is some technological development that is as yet beyond the horizon. Meanwhile, lighter, more fuel efficient versions of our present vehicles will be our best alternative if fuel costs become burdensome.

Conservation is #1, Don't get the cart before the horse.

2007-02-15T12:41:00.000-08:00

Because of posted comments, I fear we may have put the cart before the horse. Many want to jump to sexy alternative energy sources, but as I mentioned in a previous post, the most viable alternatives for meeting our energy objectives are actually conservation rather that alternative energy sources.

I'm going to mix energy with investments here, so if you are interested in both, as I am, you may want to check out my other blogs.

Probably the most viable energy alternative, as well as the best investment available anywhere, is the compact flourscent light bulb. A compact flourscent light bulb used 2 hours per day will pay for itself in 6-12 months depending in your electric rate. That means an investment in replacing an incandescent bulb with a flourscent yields an investment return over 100% per year. The return shoots to 200% for a bulb used 4 hours per day and to 300% for one used 6 hours, as many are. In warm climates where a/c is predominant you will gain even more by reducing your a/c usage. And rather than speculative, this return is virtually risk free. I dare you to find a better investment of any kind. As a bonus you'll be decreasing our dependence on foreign supplies of energy and decreasing greenhouse gases and other pollution. Not only are you a top flight investor, but you are helping save the earth in the process.

Other conservation may be a bit harder to define, but you can be pretty sure there are great investments all around your house. Examples:

Insulation. The value of insulation has to be evaluated on a case by case basis, since it is subject to the law of diminishing returns. That means that the more insulation you currently have, the less viable it is to add more. But if your house is insulated below the established standards for your area and you plan to be in your house for a while, you can be sure insulation will be a great investment.
Weatherstripping, caulking and niche insulation. If your house is well insulated, most of your heating and a/c bill is vanishing either through your windows or through gaps around your doors, electrical outlets or other openings. While improved windows are rather expensive and a bit hard to justify for retrofitting, other efforts such as weatherstripping, caulking and niche insulating are not. If the weatherstripping around doors and windows is not preventing a breeze when the wind blows, replacing it will be a great investment as is caulking any source of air intrusion. As for niche insulation...odds are good that even if your attic is well insulated, the pulldown steps into the attic are both unweatherstripped and uninsulated. There is a good chance the ductwork in the attic is insulated by less than an inch of insulation and the ducts are leaking like a sieve. A roll of duct tape and some strategically placed insulation will work wonders. If your water heater feels warm to the touch or if the pipe on the top of it is uninsulated, a $10-15 insulating kit will pay big dividends, especially if it is electric. And don't forget any electrical outlets or switches on ourside walls. Since the box takes up most of the depth of the wall, the outlets are frequently poorly insulated. Foam inserts that fit neatly behind the cover are just a few cents apiece at your local hardware store.
Set back thermostat. One of the best ways to save energy is to set the thermostat warmer in summer and cooler in winter, but of course there may be a comfort tradeoff. You can make these adjustments when you leave and return with less effect on your comfort, but a better way is to automate the process. A set back thermostat can be an investment with triple digit returns, particularly if everyone is away from the house on a regular basis.

I could go on and on, but you get the picture. Improve your financial health and help solve some of the world's most pressing problems by taking some time to look for conservation measures you can take a small bite at a time. Many can be financed with the loose change that collects in your pocket in a few weeks time.

Intense commentary plus a/c from heat

2007-02-13T13:21:00.000-08:00

Wow!, while I admit that my intention is to promote discussion, I am surprised (and delighted)by the intensity of the comments on my last post. So, where do I begin to respond?

First, let me say I sincerely appreciate the comments, despite...No, because of, their intensity and diversity.

Jay, you make some excellent points. For example, with my comments in red:

Energy drives our entire economy. Quite correct, energy supply is a serious matter which has wide reaching effects on our way of life.
Solar energy is the source of all energy on the earth. Wind, wave and fossil fuels all get their energy from the sun. Fossil fuels are only a battery which will eventually run out. There may be a few other exceptions, such as nuclear and tidal energies, but the point is well taken. Many do not recognize that even fossil fuels are essentially just a capture and storage mechanism for past solar energy.
the direct conversion of sunlight with solar cells, either into electricity or hydrogen, faces cost hurdles independent of their intrinsic efficiency. Ways must be found to lower production costs and design better conversion and storage systems. Agreed, hence my comments that photovoltaics are far from viable economic alternatives to the grid in the current environment.
Mandate net metering. Since utilities are generally government sanctioned monopolies, government has the right and obligation to mandate appropriate controls on the monopoly.

However, before I retreat to my area of expertise (technical), let me be perfectly clear. I believe very strongly that free enterprise will produce the best solutions at the appropriate time. In general, neither the federal government nor big business has either the mandate or the ability to solve these problems by edicts outside those demanded by free enterprise. Both government and business will effect solutions when, and only when, their customers demand it. Regulations and actions outside those demanded by free markets divert valuable resources and decrease the efficiency of the system in solving problems.

Only education about the possibilities, the science, the technologies available can improve the efficiency of the free market, hence this blog.

Now, off the soapbox and on to the issue of cooling with heat.

Jeremy, thanks for your question about using solar heat to generate air conditioning. As I mentioned in my previous post, this area is one of the least understood and therefore least recognized alternative energy resources. And, of course, it seems contradictory. At the same time, the technology is well proven. Most RVs have propane refrigerators which use the propane to generate heat, and thereby refrigeration by a process known as adsorption. You may remember natural gas powered air conditioning systems, although they are pretty rare now. They work on the same process. Variations of both this and other cooling process, such as steam vacuum are widely used in industrial processes to provide cooling through application of heat.

Very simply, the process looks like this:

Use desiccants (materials that naturally attract water vapor) to attract moisture.
Evaporate water to supply the moisture demand created. Cooling results from the water evaporation.
Regenerate the desiccant by using heat to drive moisture out.

As I said, this is a well proven process. I realize that, to most, the term desiccant is foreign, but it simply means materials which attract or have an affinity for water, and there are many well known examples. Salt is a desicant...you've seen water extracted from the air into salt to create a wet mixture in a humid area. Popcorn becomes less crisp when exposed to humidity for the same reason. Ethylene Glycol (antifreeze) is added to your radiator because it attracts water and therefore makes the water mixture less inclined to boil and escape the radiator. Ethylene Glycol and ammonia are dessicants widely used in industrial processes for drying and/or cooling. And there are desiccant pellets such as silica gel manufactured specifically for drying air and natural gas to eliminate freezing, corrosion and other negative effects in processing. These are also used to remove moisture from packaging. You've probably seen the small packets of silica inside packaging. They are there because they absorb moisture from the air and therefore prevent moisture related problems.

So, all that remains is to select the appropriate desiccant and to generate sufficient temperatures with solar heat to apply the process to solar air conditioning. Importantly, this process has synergy with solar heating which makes both more attractive. Everyone knows, of course, about solar heating. But one of the problems is that heating demands are high, but short lived. A solar heating system designed to meet a significant portion of heat demands in a home sits idle much of the year. And, even worse, the highest heating demands occur when there is the least sunshine, ie at night or cloudy days. If the same heat collector and storage mechanisms can be used for air conditioning, the economic viability of both solar heat and air conditioning can be significantly improved. And the highest air conditioning demand largely corresponds to the periods of maximum sunshine.

So, what does this collector look like? You've seen them and could probably do a pretty good job of building one yourself, but here is where I get most excited. I believe that with relatively minor modifications you could collect enough energy in your attic to supply most of your air conditioning and heating requirements. And you would further improve the efficiency of your house in the process by increasing ventilation and temperature in the attic.

I'll leave you with that, although I know some may want more details. If there is a demand, perhaps I'll get smart enough to post sketches and schematics in the blogs and explain further.

But what alternatives?

2007-02-12T11:57:00.000-08:00

I love it when a plan comes together. Jon asks, what are the most viable alternatives?

That is not such an easy question to answer, but I'm anxious to give it a shot.

First, what are not viable alternative energy sources? Hydrogen!! I know you've all heard the hype. Hydrogen is the most plentiful element on earth. The only exhaust from its burning or conversion in a fuel cell is water. Both quite true, but very misleading.

This is because there is no readily available source of hydrogen in its pure form. Most hydrogen is either combined with carbon in hydrocarbons such as oil and gas, or is combined with oxygen as water. That means that a significant amount of conventional energy is required to generate hydrogen which is useful. If generated directly from hydrocarbons, the hydrocarbons are consumed, requiring a large source of conventional petroleum and leaving the carbon to enter the atmosphere, primarily as the potent greenhouse gas, carbon dioxide. If the hydrogen is generated from water, electricity is generally used in a process called electrolysis. And, you guessed it, the process requires considerable energy, largely supplied by hydrocarbons today.

All of this means that hydrogen really should be thought of as energy storage similar to a rechargeable battery, rather than an energy source. With any technology generally on the horizon today, generation of hydrogen is both polluting and conventional energy intensive.

So, what are the alternatives closest to being viable? I'll exclude coal, nuclear and heavy oils, even though there is considerable potential for increasing production of these fuels with oil prices above $50/bbl. I consider them to be proven, conventional sources. Beyond that, the most viable way of reducing conventional energy use is conservation. We're talking compact flourescent bulbs, insulation and weather stripping, lighter vehicles, computer control of processes ranging from air conditioning to refineries. Conventional energy use could be significantly reduced with highly attractive investments in these technologies, assuming prices above $50/bbl. And more good news... these technologies can and should be invested in by individuals at the lowest income levels and will decrease the release of greenhouses gases in the process. You and I can make a difference.

Ok, so you wanted to know about the most promising alternative energy sources? Wind, solar heat and low grade geothermal. Let me take them one at a time.

Wind. There is enough energy blowing in the wind to satisfy all the world's demands several times over. We just have to capture it. Unfortunately, that is not necessarily so simple. Most of the wind energy is in remote locations and/or at high elevations. That means a robust electricity transportation system is required. Wind energy is also highly variable. That means either batteries or interconnection of widely varied regions to even out the supply. There is a lot of investment in battery technology today, but for the foreseeable future energy storage in batteries looks like a marginal investment unless grid power is not available. All that said, I think wind energy is currently the most viable alternative energy source.

Solar heat. Notice I'm not talking about generation of electricity by photovoltaic cells, the technology most touted today. In general, photovoltaic cells are not viable alternatives to grid electricity at anything approaching today's energy prices despite the fact that many times world demand is available for the capture cost. This is true because of the high cost and low efficiency of today's cells, as well as because of the variability issue discussed in the section on wind. Solar heat, however, is one of the best, but least recognized alternative energy sources, particularly where electricity is utilized for these purposes. A large part of our energy consumption is for heat and cooling, both of which can be supplied through solar heat. The variability issue can largely be overcome by energy storage in mass such as water, earth and concrete. And, in the case of air conditioning, the largest loads correspond to high solar energy supply periods, ie sunny days.

Low grade geothermal. Again, I'm not talking about the few locations where high grade geothermal is easily accessible to generate steam. These areas are too sparse and protected to generate significant energy supplies. But just a few feet in the ground is an energy supply at nearly constant temperatures which can be tapped for heating and cooling. This applies nearly everywhere there are major populations. A heat pump can extract either heat or cooling (or both at the same time) from this source at substantially higher efficiencies than from the more variable ambient air temperatures.

So there you have it. I realize I've been rather cryptic in my explanations, but perhaps I can go further into the details in the future. So, keep those questions and comments coming.

Are we running out of oil?

2007-02-04T14:54:00.001-08:00

With my background, people often ask questions about energy. Things like "Are we running out of oil?"

My answer: It depends on the intention of the question. There is almost certainly less oil today than yesterday and there will be even less tomorrow. There are some theories which hold that oil and gas are being generated deep within the earth and continue to fill the traps, and of course more petroleum could be generated by decaying organisms, but nearly everyone agrees that we are using much more than is being generated.

But will we ever run completely out of oil? I don't think so. The reason lies more in economics than in geology. As more energy is used and less remains, inevitably the supply-demand curve will dictate higher prices until either production increases, demand decreases or alternatives become viable. Eventually, demand for petroleum will decrease, leaving the most difficult to develop resources still in the ground.

The really difficult part is predicting the schedule of these events, the prices we'll see and the alternatives which emerge. Petroleum is subject to booms and busts, because both supply and demand are very inelastic in the short term but very elastic in the long term. This is because the actions which produce higher production, lower demand or viable alteratives run on long term cycles. It can take many years to develop additional supplies in response to higher prices, and once they are in the pipeline they produce for years, regardless of the price. Demand is a bit better, since there are things we can do almost immediately to conserve, but any less painful conservation takes years of changing the infrastructure to improve efficiency of things like cars, factories, etc. This is the reason increasing prices seem so painful.

Hope this helps in understanding the petroleum industry.