There is a Big Island Solution to Rising Oil Prices

Lloyds of London warns its business clients to be prepared for $200/barrel oil by 2013.

Why? This video explains.

These folks are international oil experts. Watch the video again until you understand what they are saying.

The most important piece of information you need to understand is that the decline rate of aging oil fields is about 4 million barrels per day annually. This is due to aging oil fields. Every two years or so, we need to find the equivalent of a Saudi Arabia just to stay even with the natural decline rate. In order to keep up with demand, we need to make up for that and then also produce extra.

If one looks at a graph of HEI’s stock price over the last several years, one sees that after a slight lag, HEI’s stock price dropped like a rock in July 2008 when the oil price spiked.

The same thing will happen, but worse, when oil prices hit $200. Local HEI stockholders will face a loss of value of their stock while their electricity prices steadily rise. How is that being good to your stockholders?

It was my nightmare – where they send all the white-haired people away to go look for new land. The white-haired folks are the ones that depend on HEI stock for their retirement years.

There is a solution:

  • First, say unequivocally that HECO will not put expensive biofuels into its Big Island generating units. We don’t have the luxury of time to play games.
  • Second, commit to geothermal and get down to business figuring out how we are going to replace HECO’s oil-fired units. Don’t worry about community outreach, because we are taking care of that. And certainly do not send folks from O‘ahu to do what is our kuleana.

The higher the fraction of the base load we place in geothermal, the more we protect ourselves from volatile oil prices. We need to get serious about this. Now! We do not have the luxury of time.

When oil hits $200 per barrel, it will devastate our tourist industry and hurt American Savings Bank if we have not inoculated them from volatile oil prices.

We all know the benefits of geothermal; we don’t have to keep preaching about them.

We on the Big Island know that if we start to implement geothermal and work with the local people in an honest and respectful way, then we can have a discussion about shipping power to O‘ahu. But not before we take care of our business here first. If we do things in the right way, I am confident that we can ship geothermal power to O‘ahu.

HECO should have a Plan B, instead of betting everything on wind and the cable to Lana‘i and Moloka‘i. If we do this right, geothermal can be the stabilizing force that saves our economy. Price volatility prevents business from investing. Businesses need stability, and geothermal gives us that.

If HECO insists on putting expensive electricity-making solutions into its Big Island grid, it will be taking the wrong fork in the road and we don’t want to follow them there. I wrote about all the reasons we should go to geothermal after my second Peak Oil conference.  That was seven long months ago and time is ticking by.

If we move down the road toward geothermal, we will be moving toward stability and cheap energy.

I asked the folks at the University of Hawai‘i Economic Research Organization if it is fair to say that were we to get most of our base power from cheap geothermal, then we would be relatively more competitive to the rest of the world; and that our standard of living would rise, compared to the rest of the world. Carl Bonham, who is currently working on a formal analysis of $200/barrel oil, told me that it’s fair to say that.

What About ‘A Long Time’ Do We Not Understand?

Just because O‘ahu does not have a base power solution to
electricity, and needs to grow biofuel to generate electricity, that does not mean the Big Island – which has a vast geothermal resource – needs to grow expensive biofuels just to copy O‘ahu.

We need to treat each island as a bundle of resources, and solve each island’s problems according to the resources it has. We cannot afford a one-size-fits-all plan.

Farmers make these kinds of decisions all the time. You work
with the ground under your feet, not the ground that exists the next valley over.

The Age of Oil is now 150 years old and we are already talking about decline. But the “hot spot” under the Big Island will last 500,000 to 1 million years.

What is it about “a long time” that we don’t understand?

This video is by Jeff Rubin, former chief economist at CIBC World Markets, the investment banking arm of the Canadian Imperial Bank of Commerce.

In it, he gives a clear description of today’s oil situation and discusses why oil prices will be rising – and sooner than people think.

It’s because we simply are not finding as many new oil fields as we are using.  More and more, the evidence is growing and we need to come to grips with reality.

It does not have to be disastrous. But we do have to be smart and think like survivors.

Where do we want our future generations to be 150 years from now?

HECO: The Most Ingenious Production/Marketing Model I’ve Ever Seen!

HECO has come up with a rather ingenious model to solicit biofuels for running its electrical generation equipment for the Big Island. It works like this:

If the farmer growing the product for biofuel needs a higher price than the current market price – which is way too low – HECO will raise the return to the farmer by raising the cost of electricity it sells to the farmer.

Also, to create demand-pull in the market place, HECO will promote “green” fuels. The message will be:

“There’s more to life than just money. Support expensive green biofuel – it’s a quality-of-life issue.

It’s brilliant! By far the most ingenious agricultural production/marketing model I’ve seen yet!

Some farmers are old enough to remember The Great Liliko‘i Glut of the 1950s. Farmers were told to grow liliko‘i and “they” would buy it all. Practically every house had a liliko‘i trellis or two. When the promoters could not buy the liliko‘i, everybody made liliko‘i juice. People who are my age and live around Hilo know a lot about liliko‘i.

In the early 1980s, it was The Great Cacao Rush. A company came into town saying they would buy the entire local production of cacao, which would be used to make extra special chocolate for the ultra-high-end market. All the farmers had to do was buy certain “special” seedlings, which only the company happened to have.

Although the HECO idea for biofuel production is brilliant, I think that farmers would prefer that HECO grew the biofuels crop themselves, and that farmers get the exclusive right to provide the really, really special rare seedlings from a farmers’ co-op (made up of all the farmers in the state) at a pre-determined, kind-of-high price – with an escalator that moves up with the electricity bill. Payments, by bank draft, would go straight into the co-op’s bank account, six months prior to planting.

This way, the farmers would make money. And as we all know: “If the farmer makes money, the farmer going farm.”

Adopt-A-Class, Year 4!

It’s the start of a new school year, and we are kicking off our fourth annual Adopt-A-Class project. This is where we ask if you’ll give a little bit to help students at Keaukaha Elementary School take field trips.

Why Keaukaha Elementary? Early on, when Richard became interested in the Thirty Meter Telescope, at that time “possibly slated” for Mauna Kea, he noted that the multi-million dollar telescopes atop the mountain sacred to many Hawaiians were not benefiting the Hawaiian community at all.

He focused in on Keaukaha as one of our most Hawaiian communities. He learned that students at the elementary school there only took walking field trips to sites near their school, due to lack of funding. He and his friend Duane Kanuha decided to ask the community to help.

***
It’s been four years since then, and truly amazing things are happening at Keaukaha Elementary School these days.

For a very long time, it was near the bottom of the list in all rankings and achievement. And when the federal No Child Left Behind (NCLB) program started, Keaukaha Elementary was one of the first in the state to be put on corrective action – after what its principal Lehua Veincent describes as “years of struggling to meet state standards.”

Under his leadership and during his first two years as principal, the school met federal standards in 2007 and 2008, and in 2008 it was one of seven schools in the state to exit restructuring status under NCLB.

Kumu Lehua has had a phenomenal impact on Keaukaha. (If you know him, you won’t be surprised to hear that he’s quick to acknowledge the importance of his “dedicated and committed faculty and staff, and the collaboration with community and business partners”).

To Kumu Lehua, though, this whole topic is about so much more than merely academics. He talks about the change in behaviors and attitudes – social aspects that are not accounted for under NCLB.

“When we see 550 people come to our Open House, as they did two weeks ago, that’s powerful,” he says. “When we have 15 kupunas that come and have our children go and sit on lauhala mats and listen to our stories of Keaukaha, that’s powerful. When we’re able to take the entire school, 350 students, and have them chant and hula in unison, that’s powerful. Those are the things that set us apart from everyone else. They are our uniqueness, our spirit.”

He said they always have to remember the school’s mission: “That our children are proud of who they are and where they come from.”

***

In 2007, we did our first Adopt-A-Class campaign, and met our goal of raising enough for every class at the school to take one field trip both semesters. The cost per field trip per class is about $600 (that’s for bus, admissions, etc.); classes sometimes find ways to use that amount to take more than one field trip per semester.

Students have taken their huaka‘i, their field trips, to Hamakua Springs Country Farms, Waipi‘o Valley, Mauna Kea, ‘Imiloa Astronomy Center and more. “Our 4th graders went up to Mo‘okini Heiau and spent a whole day there,” says Kumu Lehua, “learning the whole historical perspective of why it exists. It was a wonderful day for them.” See the links above for some past stories we’ve done about the kids’ excursions. Here are some of the students’ thank you notes.

Kumu Lehua says what’s important about the Adopt-A-Class program is taking the learning into other places where some of the skills and concepts they learn about in class are more easily visible, in a setting that has been discussed, learned about. “That’s where the application becomes a little more real,” he says. “Everything is so focused on reading and math, but not necessarily making connections between those skills and the outside.”

He says that Adopt-A-Class has brought about a lot of other opportunities for the school.

“People hear about Adopt-A-Class and they donate,” he says. “They tell other people, and people tell people, and you have a slew of people wanting to help, whether it’s with snacks, events, opportunities.”

***

These days the school philosophy centers on “Maoli Keaukaha,” the spirit of Keaukaha. Everything they do, explains Kumu Lehua, ties into one of five key points that make up the spirit and uniqueness of Keaukaha – genealogy, history, place, language and traditional practices.

“It’s the spirit of Keaukaha,” he says. “It’s what you cannot find anywhere else.”

***

Can you adopt a class? You or your company can donate $100 toward the adoption of one class (it gets grouped with other donations), or $600 supports the whole class. Your donation is tax-deductible and 100 percent goes to the school.

See the Hamakua Springs website for more details and how to donate.

Mahalo.

Coming Up Next Month: Peak Oil Conference 2010

It’s Peak Oil Conference time again. I highly recommend this conference, especially for folks in decision-making positions here in Hawai‘i.

I have attended the Peak Oil conference twice before, in 2007 and again last year. Both times I paid my own way and was the single, solitary person to attend from the entire state of Hawai‘i. This time, I am going as a representative of the County of Hawai‘i.

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Here’s the conference information:

Join us in Washington, DC Oct 7-9 for our 6th annual dialogue with the experts on peak oil, energy and the economy.

ASPO-USA members and subscribers receive a $100 discount on all registration categories through Sept 14, 2010

Register Now

More Tangible Benefits Than Ever!

Sometimes change is glacial, sometimes swiftly chaotic. Get the latest data from the best sources with up-to-date numbers on both conventional and unconventional production, depletion, flows, costs, and the opportunities and challenges that come with them.

Keynote Speakers

Geopolitics: Dr. James Schlesinger will announce and explain, once and for all, with updated finality that “The Peak Oil Debate is Over”, for above-ground and below-ground reasons;

Global Trade: Jeff Rubin will present his views on the “End of Globalization” due to energy constraints and be available all week as part of our interactive discussions;

National Security: Admiral Lawrence Rice will explain the U.S. military’s peak oil warnings during our Saturday plenary on national security with Michael Klare, Lt. Colonel Danny Davis, and Tom Whipple;

Transportation:  Dr. Charles Schlumberger of the World Bank will discuss liquid fuel concerns in aviation while Dr. Roger Bezdek, Anthony Perl and others will focus their analysis on the future of transportation.

Investing: learn the personal and institutional upsides and downsides from the Dean of the Energy Analysts, Charlie Maxwell, and don’t miss our popular peak oil investing sessions with Dr. Schlumberger, Jim Hansen, Lily Donge, Gregor Macdonald and others.

See Full Agenda and Speakers

* It’s not just another great ASPO-USA Conference. It’s Conference+Plus. It’s the Year of Hydrocarbon Hell, and our peak oil message will not be ignored by the powers that be. Just to make sure, we are taking the message to the policymakers with a Senate Briefing, a House Briefing, a National Press Club news conference, and other targeted outreach efforts inside and outside the Beltway. Two highly-respected consulting firms are helping to organize ASPO’s first ever fire-hose-data-flow to lawmakers. First come, first served with strictly limited seating for these special events.

 * Sometimes wine and hors d’oevers are better than PowerPoints.  Imagine you’re at the opening reception having a drink with Art Berman, and you ask about his work on the 2010 National Petroleum Council Study. He shares with you the latest input from Jean LaHerrere. Or you overhear some information about the forensic investigation of the BP blowout preventer. This kind of information doesn’t come with the DVDs.

Come to the Conference on the Future of Energy

Register Today!

Call 877-363-ASPO (2776) or email webmaster@aspousa.org

What I Learned From the Asia Pacific Clean Energy Summit & Expo

Some general impressions I got from the recent Asia Pacific
Clean Energy Summit and Expo:

  • Sofar, I get the impression that the new HECO transition team is made up of very competent people, and the utility is in good hands. I work with Dave Waller on the biofuel foundation and he is good at what he does and is a very considerate and professional person. I have only heard Scott Seu speak, but I was very impressed at his breadth of knowledge and how he
    handles himself. I sat next to Colton Ching at lunch and liked him immediately. He is a person with lots of work experience. Most impressive to me was his belief that this is about people, not only things. I asked him a lot of questions and I was not surprised when he told me Robbie Alm was his mentor. Of course. He and Scott are two-thirds of the clean energy team. Robert Young is another very impressive professional on HECO’s team. I would love to meet the rest of the team, and I’m sure they’re all very good at what they do. HECO is in good hands.
  • [Recently I wrote about having lost confidence in HECO and
    the path it has taken. The new HECO people are good at what they do and they will do a good job for the people of O‘ahu. It is the Board of Directors that has a fiduciary duty to stock holders, which sometimes conflicts with the interests of rate payers. So it is the Board of Directors we are at issue with — not the other folks. It isn’t personal. I think we could work it out if we sat down and talked story.]
  • Ted Peck and his gang put on an excellent conference. I was very impressed.
  • The Department of Energy, Department of Agriculture, the Navy and the Department of Defense have many, many projects going on. I was surprised at how many. The military approaches things in a very systematic and professional manner. They know what they are doing.
  • Senator Fred Hemmings spoke about mini-nuclear stations for the future, and it sounded very reasonable. He said there have been 18 nuclear reactors on O‘ahu, on ships and submarines, for many years. It was safe and all that was needed was to disburse the units where you wanted. Maybe bury it in the ground for safety. It sounded reasonable, especially for O‘ahu, where an alternative base power to oil is not yet available.
  • An algae spokesperson spoke about the progress his company is making. He said that the third stage target for algae biodiesel would be priced at $3 per gallon. And the second stage algae biodiesel would be priced at $2 per gallon. I was impressed. Later, at the Expo, chatted with Kelly King of Pacific Biodiesel, who told me that she would pay $500 for the first gallon of algae biofuel that was actually produced. Hmmm.
  • Now that I have actually seen a hydrogen car, I would like to see a fleet of hydrogen fueling stations around the Big Island. It could be fueled by hydrogen made using electricity from cheap “off peak” geothermal energy. It would be much cheaper than the hydrogen made from petroleum on O‘ahu.
  • It reminded me that HELCO, led by Jay Ignacio, is also a top-flight company made up of first class, competent people. I was very impressed when we toured the command center and Lisa Danglemaier related how they want to get solar data; but instead of buying a very expensive system, they put one together from off-the-shelf materials. I am very impressed by this kind of ingenuity.
  • The Solar Guy grabbed me for a quick interview for the ‘Olelo Channel. It must have been interesting, because he would like for us to do a radio interview next.
  • But there are no magic bullets. I am more convinced than ever that we need to deliberately and systematically incorporate geothermal for the Big Island grid.

‘Aloha, Aloha, Call When You Find Land!’

I stayed at the Ala Moana Hotel last week while attending the Asia Pacific Clean Energy Summit, which had 1400 participants and was huge and exciting.

One evening, as I sat on the lanai of my hotel room looking toward Waikiki and all the lit-up hotel rooms and bright lights and the headlights and tail lights of cars, it came to me: Everything visible was dependent on oil.

The only thing I could see that was good was that the Macy’s sign is cheaper to power than the Liberty House sign it replaced. Shorter sign.

Sitting out there on the lanai, it became clear to me that if we follow HECO’s plan for using biofuels to generate electricity for the Big Island, we will soon have limited food resources and will be making plans to send people out to discover new lands.

Back in 2007, I spoke at the Hawaii Island Food Summit:

I told them I had a nightmare that there would be a big meeting down by the pier one day, where they announce that food supplies were short because the oil supply was short and so we
would have to send thousands of people out to discover new land.

I was afraid that they would send all the people with white hair out on the boats to find new land—all the Grandmas and Grandpas and me, though maybe not June.

Grandmas and Grandpas hobbled onto the boats with their canes and their wheelchairs, clutching all their medicines, and everybody gave all of us flower leis, and everyone was saying,
“Aloha, Aloha, call us when you find land! Aloha!”

If, instead, we on the Big Island follow our own plan of maximizing
our geothermal resource, and start to add others such as wind, solar and ocean resources as they scale up; and if we emphasize lots of small- to medium-sized diversified farms, we will not need to send out the canoes to look for new land.

The Big Island could help solve O‘ahu’s food and fuel issues, too, so it wouldn’t be necessary for them to send their white-haired folks off, either.

The Asia Pacific Clean Energy Summit was exciting and I’ve spent all week trying to put all the goings-on into perspective. O‘ahu has a real serious electricity problem. It has no proven-technology base power alternative to fossil fuels. And it has limited opportunity to integrate solar and wind.

I can absolutely see why HECO was anxious to institute Smart Grid. It was an attempt to wring every bit of efficiency out of intermittent sources of power.

I can also see why HECO made the decision that biofuels would have to be a solution for O‘ahu. The biorefinery is located on O‘ahu. I can even understand why they changed their minds and decided to bring on more PV solar. THEY do need everything!

What I just cannot understand is why HECO tried to force the Big Island to go that route.

We on the Big Island need a different strategy – one that focuses on the Big Island’s resources and environment.

I Have Lost Confidence In HECO

I am becoming more and more critical of the Hawaiian Electric Company’s (HECO’s) top-level decision makers, and of their policies. I am sad to say that I have lost confidence in their ability to lead us safely into the future.

A Wall Street Journal article last September noted that Spain – the world leader in solar technology – stopped its generous subsidy to support the solar industry. Basically, ratepayers could not bear the cost of the subsidy.

So I was not surprised recently to hear HECO say it could not accept any more solar. What I was surprised about was that they reversed their direction immediately. Did things change? No. It was a missed opportunity to educate the public about what is truly going on. They chose not to.

Recently, HECO was turned down regarding its attempt to initiate Smart Grid on O‘ahu, Maui and the Big Island. Smart Grid is a developing system, and there was no need to be the first in the world to implement this. At Hawai‘i’s size, it is much smarter to be best in the world at copying the most successful systems. You get a tested system that does not cost the ratepayers as much.

Several years ago, HECO chose the biofuel path, but it did not have a serious conversation about it with farmers. Farmers know that they will not grow anything for 7 cents per pound. They might switch from growing food to growing fuel for 35 cents per pound, but oil prices would have to be $400 per barrel before it would send that price signal.

And small farmers would not be able to grow biofuels on the kind of scale that HECO needs, anyway. More likely, it would be on the scale of redemption of cans and bottles.

When HECO brought the biofuel meeting to Maui, there was
discussion about ultimately importing palm oil from Indonesia. Many of the folks in the audience were distressed at what would happen to animal habitat, especially the orangutan. HECO replied that it would source “green” biofuel. 

We know that biofuels will be more expensive than fossil fuels. Will the rubbah slippah folks be able to afford it?  Can small businesses afford to pay the resultant higher electricity rates?

Is this the solution that will give a continuous, competitive advantage to the islands, relative to the rest of the world?

We should look at the resources available on each individual island before we decide what is best for that particular island. It is the cost of the fuel, not whether it is brown or “green,” that is important.

On the Big Island, we know it must be done right. Geothermal
for base power is: proven technology, a low-cost alternative, has the smallest footprint and gives off no greenhouse gases.

The Oil Age is only 150 years old, and already we are worrying about depletion. According to Jim Kauahikaua, Scientist-in-Charge at the Volcano National Park Observatory, though, the “hot spot” under the Big Island will last for half a million to a million more years.

What about HECO’s general renewable energy strategy? They
say they are for everything – wind, solar, geothermal, ocean thermal, biofuels, biomass, etc. But being “for everything” seems to be a way of not talking about any one thing. HECO does not put any effort into enabling geothermal, so we can only assume that they do not really want it.

On the other hand, they do really want biofuels. “Shameless”
comes to mind. I am not for geothermal exclusively. But I do think there should be a prioritization of the various resources based on many factors, such as: proven technology, relative competitiveness, scalability, net energy, social consequence, geographic appropriateness, etc. 

In other words, what will give us the best chance of surviving since we are living out here in the middle of the Pacific? “We are for everything” falls way short.

I think that the rubbah slippah folks intuitively have it figured out when they say: “One day, the boat not going come.” That is their shorthand way of saying: “One day, things will be too expensive, and the boat might as well not come.” In that scenario, we will be going back to the basics. The most important question one asks all day might be, “I wonder what color malo I going wear tomorrow?”

Two weeks ago, former Chancellor of UH Hilo Rose Tseng invited Bill Steiner, the Dean of the UH Hilo College of Tropical Agriculture and Forestry and myself to attend an REIS retreat put on by the UH Manoa College of Engineering.

I immediately noticed that the Big Island was not a focus and that geothermal was not on the radar. But we were able to express the Big Island’s concerns, and we were welcomed to participate fully. This is very encouraging.

HECO sent many of its people to the retreat because many of
those people work as engineers, and many graduated from the UH College of Engineering. I found HECO’s new Director of Renewable Energy Planning, Dora Nakafuji, impressive because she is willing to discuss alternatives in an inclusive way.

The most recent issue of Hawaii Business magazine describes the restructuring of HECO. I hope the new folks will change HECO’s
corporate culture, and take the time to understand the needs of the rubbah slippah folks. We can take the right path to survival and accommodate everyone’s needs at the same time.

In an ideal reorganization, HECO gains the trust of the community, and because its plan is mutually beneficial we go down to support it at the PUC. Not, no can. CAN!

Energy Conservation & Regular Folk

I don’t talk about energy conservation much because the regular folks already have this figured out.

I would feel a lot better, though, if the regular folks had a greater say about our energy policy.

When the oil price spiked in the summer of ’08, Moms all over the island were following their kids around, turning off lights. By that summer, one could see lots of big pick-up trucks in used car lots. Many more were parked along the roadsides with “For Sale” signs on their windshield.

My nephew’s family had a car and a big-tired 4-wheel drive pickup truck for work transportation. One day, my nephew told me: “Uncle, I’m going to sell my truck and get a scooter to go to work.” A young guy, selling his big-tired pickup truck, the one he used to take his pitbull riding in the back, for a scooter? There is no question that the regular folks get it about high energy costs! That consciousness is working its way through our whole society.

No, I don’t worry about the regular, rubbah slippah folks. I worry more about the folks that have no “real world” life experiences and are making survival decisions for the rest of us.

Unreasonable Expectations for Biofuels

Robert Rapier is one of the most respected voices on biofuels in the world. He lives on the Big Island now, and a few weeks ago he came to visit us on the farm. In his recent blog post on his Robert Rapier’s R-Squared Energy Blog, (we link to it over there on the right side of this page), he states:

 There was a recent article in MIT Technology review called What’s Holding Biofuels Back? There is a relatively simple answer to the question that I will delve into below, but the short answer to “What’s holding biofuels back?” is that we placed unreasonable expectations on them to begin with, and they have simply failed to meet those unreasonable expectations. People would think it was unreasonable if Congress mandated a cure for the common cold within 5 years, but they don’t think twice when Congress mandates the creation of a cellulosic ethanol industry within 5 years. Yet either scenario requires technical breakthroughs that are not assured.

 It’s apparent to me that the Hawaiian Electric Company (HECO) decided to pursue biofuels three years ago, and it’s also apparent to me that inertia is moving them forward. Instead of being at the forefront of change, they are being very sluggish and slow to change directions.

The world has changed and the most important thing now is adaptability. It is not the strongest that will survive, but the ones who can adapt.

What bothers me most is the “one size fits all” way that HECO does business. For example, the PUC rejected HECO’s plan to institute smart grid proportionately for O‘ahu, Maui and the Big Island. They were going to force this on all islands and charge the cost to the ratepayer, in spite of the fact that the Big Island and Maui have different resources than O‘ahu – geothermal. But it’s not surprising, since HECO owns the Big Island’s HELCO and Maui’s MECO.

HECO is pushing hard for biofuels to be used as fuel for its subsidiaries on Maui and the Big Island. They would set up long-term power purchase agreements, which would effectively freeze out geothermal power on both Maui and the Big Island.

Why would we want to freeze out geothermal – which is cheap, dependable and a proven technology that does not emit greenhouse gases? This is our chance to push a solution that could raise our standard of living relative to the rest of the world. A solution that would elevate the host culture, and a solution that would help businesses grow. We must not make the wrong decision.

White Water coming!