More Carbon-related Fossil Fuel issues (sorry!)
Masdar, one of Abu Dhabi’s leading sovereign wealth funds (SWF), plans to award a contract for the construction of a 500 km ‘carbon pipeline,’ to transport CO2 from steel mills and other emitters, for enhanced oil recovery. This would be the first commercial carbon capture and storage project in the Middle East, and will replace natural gas injection. Kuwait’s Equate Petrochemical (42% owned by Dow Chemical) has launched a CO2 capture and sequestration (CCS) project which, by 2012, will reduce carbon emissions by 60-70%. This is, apparently, an economic project which will produce food grade CO2 for a beverage manufacturer.
A couple years ago, CEO Andrew Gould noted that the carbon footprint of natural gas ignores “all the diesel fuel’ from the generators running the compressors and frac equipment, i.e. the above ground and drilling/completion costs of natural gas production. It has been difficult to determine the truth, or consequences (!) of this comment…. until this month, when a colleague forwarded a link to a Cornell University link, where a preliminary study suggests shale gas production (which is increasingly frac intensive) has a footprint GREATER than many coal products. The results appear to be preliminary, and may ignore certain similar costs for coal production, but the implications, if true, are that the shift from a high to lower carbon economy will be even more difficult, time consuming, and expensive than any estimates extant. It is increasingly difficult to compare a wide range of ‘carbon footprint’ calculations because the results are so dependent on the assumptions. We repeat – The single most viable alternative for carbon reduction, remains, nuclear power which isn’t as cheap as it appears, but can be a very effective contributor to a reduced carbon world.
(Yet) More on carbon — China is planning to implement a carbon trading exchange by 2013, and a cap and trade mechanism by 2020. The source is somewhat biased – the CEO of the only real US exchange, whose firm just shut down operations after the failure of Cap and Trade legislation.
The Kennedy School hosted an “off the record” energy technology conference last week. The agenda, “accelerating the implementation of new technology in energy,” attracted executives from the US Department of Energy, the White House, academia, and chief technology officers from Manufacturing and Oil/Gas industries. The Secretary of Energy addressed the audience at dinner. Without divulging any specifics, a few clear takeaways:
1) Almost everyone agrees there is a role for Government related energy research/assistance, to encourage long term research an facilitate commercialization of extremely capital intensive energy-related technologies.
2) However, what is not clear is how to structure programs to match both government and industrial strengths and facilitate the process.
3) There is great disagreement whether the US government bureaucracy is organized to treat energy policy and implementation as a strategic issue.
For instance, the Department of Defense is filled with career professionals. The entire top management of the Department of Energy is politically appointed and confirmed. If Energy Security or Carbon Mitigation is high enough priority to justify a ‘war footing,’ perhaps the department should be led by career professionals rather than election-cycle hires.
4) The DOE loan guarantee program, while well intended, has been “hijacked by the bean counters” and other government obstacles (procurement rules, etc). There is no clear policy for matching various types of aid to the maturity and potential of projects at hand. The breakdown of the Constellation-EDF nuclear plant project, largely due to loan (but also natural gas value) terms, is a particular embarrassment, as is the $575 million “make it in America” loan to Solyndra, a flailing solar module producer.
5) The discussions shifted among several perceived charters of Government’s role in Accelerating Energy Technology – from energy security to jobs to carbon/efficiency/climate change – and each implies completely different goals and policies.
6) A simple ‘solution’ – jump-starting new technology by mandating Government purchase of renewable fuels, etc – faces significant budgetary and rule-making barriers and, worse, seems to a be a new obstacle to some government officials.
7) No one and nowhere during the event was the concept of energy scenarios more than a sidebar to the conversation.
8) One DOE official, believing natural gas will be $4 forever, wanted to regulate the price of natural gas at a higher level to encourage alternative technology development (!).
9) On a more positive note, the DOE has adopted a ‘quadrennial’ budget cycle to smooth out the politics of energy. However, target and funding policies are still tied to the electoral cycle.
10) Lastly, an industrial executive put it best – there is no way the private sector commit permanent capital (alone or in joint programs) to energy ventures on a stop-start basis, i.e. where programs live and die by the annual budget cycle. Gradual, prearranged, sunsetting of subsidies and benefits seems to be the only way to avoid institutionalization of entitlements.