Tag Archives: Price of Oil

Peak Oil

How OPEC’s Decision Affects Hawaii

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Richard Ha blog
The OPEC flag

Last week, OPEC decided to maintain oil production at 30 million barrels/day. Robert Rapier comments on the issues involved at his blog Energy Trends Insider:

OPEC Crashed the U.S. Rig Count

 By Robert Rapier

June 10, 2015

The OPEC Free Fall

 There is a popular narrative going around that I want to address in today’s article. Last November, after several months of plummeting crude oil prices, the Organization of the Petroleum Exporting Countries (OPEC) met to discuss the oil production quotas for each country in the months ahead. Many expected OPEC to cut production in order to shore up crude prices that had been falling since summer. This was the strategy favored by OPEC’s poorer members, as many require oil prices at $100/barrel (bbl) in order to balance government budgets…. Read the rest

Here’s recent background: In the latter half of 2014, oil prices were declining steadily, influenced mostly by large supplies of U.S. shale oil. When OPEC met in November to decide on production quotas, lots of folks expected it to reduce production in order to push oil price higher, but instead the organization decided to maintain market share by maintaining production at 30 million barrels/day. The price of oil dropped from a high of over $100/barrel to mid-$40/barrel. There was lots of speculation as to whether or not shale producers could sustain themselves at $40/barrel. As it turns out, above $70/barrel or so is where shale production increases and below that price it decreases.

Of all the states, Hawai‘i is the most dependent on oil. As soon as oil prices plummeted in November, we knew it would be good for us. The University of Hawai‘i Economic Research Organization (UHERO) has forecasted that Hawai‘i County will have economic growth for the next several years.

So what will happen between now and OPEC’s next meeting? If demand increases, then when oil hits $70/barrel, U.S. shale will start to crank up and that will hold the price around $70. If demand is not sufficient, prices will decline. Either way, it’s good for Hawai‘i.

What about the next OPEC meeting in November? Robert Rapier says that OPEC will probably be dealing with the effect of Iran’s increase in supply if a nuclear deal is made. This means lower price pressure, assuming the world’s political problems remain manageable.

Now if we can find a solution to our liquid transportation problem sooner rather than later, we in Hawai‘i will be well on our way to energy security. Think hydrogen for ground transportation and the Big Island will be in the best possible position to achieve energy security.

Geothermal, Peak Oil

Hawaii, Shale & Geothermal

Richard Ha writes:

Because Hawai‘i relies so much on oil for its energy, the state will be a major beneficiary of the shale oil phenomenon. Conventional oil development takes a long time – five to ten years – whereas activating a shale oil well takes less than a year.

The result is that whenever the Saudis try to raise the price of oil, our U.S. shale oil drillers will react wherever they can make money.

From The Barrel Blog, the essential perspective on global energy:

Energy Economist: Shale oil’s response to prices may call for industry re-evaluation

Shale oil’s investment cycle is shorter and its decline profile sharper than conventional oil production. Current indicators suggest legacy declines from shale will catch up fast with the industry. This points to a sharp deceleration in US shale oil output. But, while conventional oil takes time to slow down, it also takes time to speed up. It will be shale that is best placed to benefit from any oil price recovery, as Ross McCracken, managing editor of Platts Energy Economists, explains in this month’s selection from the publication. Read the rest

At $70 a barrel, a lot of people make money and at $40, a lot of people lose money. This safety valve is very good for us in Hawai‘i.

This will give us time to make rational energy decisions. Oil and gas are still finite resources. Because two-thirds of our economy is based on consumer spending, we need to find solutions that take care of the rubbah slippah folks. Low prices for them strengthens the economy for all.

Each island has its own basket of energy resources. The Big Island, because of its abundant geothermal resource, has the biggest basket of lowest cost alternatives. O‘ahu has the smallest basket of resources and so it needs help from the other islands—hence, the talk about cabling resources.

The elephant in the room is cabling geothermal resources from the Big Island. That will never happen, though, unless the Big Island residents themselves receive a demonstrated benefit from geothermal.

So now we need to work on getting Big Islanders definite low cost and other benefits from geothermal—like making hydrogen for transportation and even nitrogen fertilizer.

Then we can have a group of Big Islanders, representing the people, sit across the table and negotiate the conditions under which the people would approve exporting energy off island.

I would think education for our keiki might be a good starting point.

Current Affairs, Geothermal, Peak Oil, Renewable Energy Sources, Sustainability

Aren’t the Falling Oil Prices Great?

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Richard Ha writes:

Isn’t it great that the price of oil has dropped so low all of the sudden?!

Wait – is it??

In the short term, for maybe five years, we’re going to be pretty happy here in Hawai‘i. More tourists will travel here, food and electricity costs will drop, and we will have more consumer confidence. We’ll feel like everything’s fine.

But everything is interconnected in our big world now, and could there be any problems with such a sudden and steep drop in oil prices?

Gail Tverberg, the former insurance actuary I sometimes refer to here who is very knowledgeable about such things on a macro level – and who writes the blog Our Finite World – just wrote about this.

In her post Ten Reasons Why a Severe Drop in Oil Prices is a Problem, she writes about the big picture.

From Our Finite World:

Let me explain some of the issues:

Issue 1. If the price of oil is too low, it will simply be left in the ground.

The world badly needs oil for many purposes: to power its cars, to plant it[s] fields, to operate its oil-powered irrigation pumps, and to act as a raw material for making many kinds of products, including medicines and fabrics….

Issue 2. The drop in oil prices is already having an impact on shale extraction and offshore drilling.

While many claims have been made that US shale drilling can be profitable at low prices, actions speak louder than words. (The problem may be a cash flow problem rather than profitability, but either problem cuts off drilling.) Reuters indicates that new oil and gas well permits tumbled by 40% in November… 

…

Issue 4. Low oil prices tend to cause debt defaults that have wide ranging consequences. If defaults become widespread, they could affect bank deposits and international trade. 

With low oil prices, it becomes much more difficult for shale drillers to pay back the loans they have taken out. Cash flow is much lower, and interest rates on new loans are likely much higher. The huge amount of debt that shale drillers have taken on suddenly becomes at-risk. Energy debt currently accounts for 16% of the US junk bond market, so the amount at risk is substantial.

Dropping oil prices affect international debt as well. The value of Venezuelan bonds recently fell to 51 cents on the dollar, because of the high default risk with low oil prices.  Russia’s Rosneft is also reported to be having difficulty with its loans….

Tverberg writes about some pretty extreme consequences of nearing the limits of our finite resources. I’ve said many times that I cannot disagree with her. My approach, though, is to look for workarounds for us here in Hawai‘i.

I’ve also said plenty of times that we are so lucky to have geothermal. It’s not quite “infinite,” but the Big Island will be over the geothermal “hot spot” for 500,000 to a million years, and that’s close enough.

We’ll see where all this takes us. It’s uncharted waters. On the state level, it will be good for us in the short term, but on a higher level – where Gail Tverberg operates and what she writes about – we need to pay serious attention to what’s going on. Have a look at her post. It’s important and enlightening. 

It’s been a very interesting week in terms of energy and other issues affecting the Big Island and all the rest of it. Stay tuned. I have more to say! 

Peak Oil

The Declining Oil Price

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Richard Ha writes:

From a 40,000-foot view, a declining oil price is good for the U.S. and Hawai‘i in the short run because it gives us time to adapt.

A lower oil price makes oil-exporting countries vulnerable if they cannot maintain their domestic budgets and take care of their people in the manner in which they have become accustomed.

From PeakOil.com:

Financial reserves of oil-producing countries vulnerable to depletion

A specialized economist said that the financial reserves and surpluses of oil-producing countries are vulnerable to depletion in the event of continuing decline of global oil prices and with the pace of public spending remaining around the current high levels.

Professor of economics at the College of Administrative Sciences, Kuwait University, Dr. Mohammed Al-Saqqa said in an interview with Kuwait News Agency (KUNA) on Sunday that the economies of oil-producing countries (including Kuwait) are facing a real challenge represented in the growth of public spending without “control” to high levels amid the decline witnessed in oil prices in global markets approaching the level of USD 80 per barrel (bd).

Read the rest

The world works on net energy plus technology to extend that net energy. When that net energy starts to decline, there are going to be winners and losers.

The GMO debate going on all around us is a big distraction from the real danger, which is declining net energy!

Geothermal

Testimony To PUC Supporting 50MW of Geothermal for Big Island

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Richard Ha writes:

This is testimony that the Big Island Community Coalition (BICC) steering committee sent to the Hawaii PUC earlier this month. It is in support of the implementation of 50MW of geothermal energy for Hawai‘i island.

The BICC steering committee is made up of the following, all acting on their own behalf: David DeLuz, Jr., Rockne Freitas, Michelle Galimba, Richard Ha, Wallace Ishibashi, Kuulei Kealoha Cooper, Kai’u Kimura, D. Noelani Kalipi, Robert Lindsey, HM Monty Richards, Marcia Sakai, Kumu Lehua Veincent, and William Walter.

Our testimony:

To: Chair Hermina Morita

Commissioner Michael Champley

Commissioner Lorraine Akiba

Hawaii Public Utilities Commission

Email: Hawaii.puc@hawaii.gov

Re: Comments to PUC Docket: 2014-0183 (HECO/HELCO/MECO – PSIP: HELCO Power Supply Improvement Plan and PUC Docket: 2012-0092 (Geothermal 50 MW RFP for Hawaii Island)

Aloha PUC Commissioners,

The Big Island Community Coalition supports implementing 50MW of geothermal as soon as practicable. The high oil price case projected by the EIA 2014, predicts $150 per barrel oil by 2020. There is a direct correlation between oil usage and world GDP. A high oil price of $150 per barrel will adversely impact our tourism industry causing a severe recession.

Geothermal is one of the few ways available to mitigate high oil price. And, we need to move sooner rather than later.

Oil prices quadrupled in the last ten years and the folks who could pass on the costs did pass on the costs. Those who could not were the working homeless, kupuna on fixed income, single moms as well as others such as farmers who are price takers and not price makers. 

The Big Island has the lowest median income of the counties. Our electricity rates have been 25% higher than Oahu’s for as long as we can remember. That high electricity rate acts like a giant regressive tax. We are able to turn that around by enabling more geothermal.

The 23% curtailed electricity from geothermal can support making hydrogen at an affordable cost. This will help solve the green ground transportation problem. And, curtailed electricity can be the basis for making nitrogen fertilizer, without which we cannot feed all the people.

Mahalo, Commissioners.

Richard Ha

President, Big Island Community Coalition

Chart

Geothermal, History, Mauna Kea, Peak Oil, Science

Law of the Splintered Paddle & Today

Richard Ha writes:

Kamehameha's Law of the Splintered Paddle has modern-day application. To those who aspire to be ali’i as they point their fingers in the air and pronounce what we must do to preserve the past: do not forget the rubbah slippah folks. 

You who want to be our ali‘i, our leaders – I don't see you leading us forward, but only back. You want to keep everything the way it used to be, while we are marching into crisis.

The rubbah slippah folks have the right to disagree with the (self-proclaimed) ali’i if those "ali‘i" do not take care of the people.

Read this historical note, from Wikipedia about the "removal of chiefs" due to the mistreatment of common people intolerant of bad government:

It has been noted that Kānāwai Māmalahoe [the Law of the Splintered Paddle] was not an invention of Kamehameha I, but rather an articulation of concepts regarding governmental legitimacy that have been held in Hawaiʻi for many prior generations. Countless stories abound in Hawaiian folklore of the removal of chiefs – generally, but not always, through popular execution – as a result of mistreatment of the common people, who have traditionally been intolerant of bad government. As a shrewd politician and leader as well as a skilled warrior, Kamehameha used these concepts to turn what could have been a point of major popular criticism to his political advantage, while protecting the human rights of his people for future generations.

The price of oil is four times higher than it was ten years ago and the price of everything is through the roof (and still going up). More and people people cannot afford to live here; in fact, more Hawaiians live outside Hawai‘i than on these islands. Isn't that the same as losing our land?

How are you addressing that? How is trying to shut down our geothermal resource (which will substantially reduce our electricity costs), trying to outlaw our biotech options (which will substantially reduce our food costs), and trying to keep out the TMT (which will open up all sorts of new options), helping our people?

The world is changing. There is more and more homelessness. More than half of all Hawaiians no longer live in Hawai‘i. Young folks cannot find jobs. Farmers are getting older and older, because young people are not going into farming.

What will happen to the rubbah slippah folks in the face of finite resources? Those who aspire to be ali‘i, remember this: "You cannot be ali’i if you cannot feed the people."

  • Geothermal is a gift from Pele that will protect us from electricity and other costs that are spiraling out of control. Why would anyone aspiring to be ali’i want to take away this gift in the face of declining resources?
  • The Thirty Meter Telescope brings our young people great opportunity and inspiration, and it brings the island economic gain, jobs, and more than $50 million in cash to a fund for the education of our keiki. Why would anyone aspiring to be ali’i take these opportunities away from our future generations?
  • Biotechnology is a tool that will safely feed our people. Why would anyone aspiring to be ali’i take  this tool away from farmers trying to feed the people? Farmers representing ninety percent of the farm sales on the Big Island favor using biotech tools. Why look to outsiders for advice when Big Island farmers are telling you what you need to know?

If it wasn't used in pre-contact time, it's bad? Is that really your thinking? Would Kamehameha agree?

Peak Oil, Sustainability

What’s Happening in the Middle East: An Easy Analysis

Richard Ha writes:

The Middle East is on everyone’s mind: How will it affect oil prices? Will traders or oil companies just jack up the prices on every hint of bad news?

Robert Rapier explains what is going on in a way that we can all understand easily. This is the first part of a series that should be very interesting.

Here in Hawai‘i, let’s get busy working on solutions to our problems of food security and rising oil and gas prices.

From Energy Trends Insider: 

The Oil Markets as a Thanksgiving Turkey

       BY ROBERT RAPIER ON JUN 17, 2014 WITH 9 RESPONSES

This week BP (NYSE: BP) released their Statistical Review of World Energy 2014. This is always a big event for energy wonks, and as always I will break it down in a series of articles. My goal is always to flesh out important tidbits that were perhaps overlooked by the media. Here are some of the major findings from this year’s release that have been reported. In 2013:

  • US oil production had the largest increase in the country’s history
  • US oil demand grew at a faster pace last year than China’s, although China’s overall energy demand grew faster
  • Asia increased solar output last year more than Europe for the first time ever
  • Emerging economies accounted for 80% of energy consumption growth
  • Global oil production rose to a new all-time high

In one of those overlooked tidbits I like to point out, while global oil production did indeed set a new record — rising in 2013 by 557,000 barrels per day (bpd) over 2012 — without the US increase of 1.1 million bpd, global production would have declined by 554,000 bpd. But I will take a deeper dive into that starting next week. Today I want to talk about Iraq.

Or, more precisely the impact the unfolding events in Iraq have had on the global oil markets, and more specifically how those oil markets actually work. I had an interesting discussion with someone last week, after a remark was made about oil companies using any excuse — like potential supply disruptions in Iraq — to immediately jack up oil prices.

Read the rest

Current Affairs, Geothermal, Peak Oil, Renewable Energy Sources, Sustainability

What Monterey Shale Oil?

Richard Ha writes:

The U.S. Energy Information Administration (EIA) made a dramatic announcement recently: it is revising its estimate of the Monterey Shale Oil supply downward by 96 percent.

Ninety-six percent is a lot.

Especially when you consider that the Monterey Shale Oil supply presented two-thirds of the United States’s oil reserves. It was estimated that we had 100 years of oil reserves left in this country altogether, but now that we know 66 percent of it doesn’t exist, there must be only 34 percent, or 34 years, of oil reserves remaining in the U.S.

However, the cost we would have to pay for oil companies to retrieve it would exceed what it would cost them to do so. In other words, if we consumers were willing to pay $1 million/barrel, all of those 34 years’ worth of oil could probably be recovered. But if we the people can only pay $150/barrel, we might only see ten years’ worth drilled. Hmm.

Those of us who attend Association for the Study of Peak Oil conferences (I’ve attended five now, the only person from the Big Island to do so) have known that the claim that the U.S. has a 100-year supply of oil was way overestimated. We are never going to be Saudi America.

Kurt Cobb writes about this at Resource Insights:

The great imaginary California oil boom: Over before it started

Sunday, May 25, 2014

It turns out that the oil industry has been pulling our collective leg. 

The pending 96 percent reduction in estimated deep shale oil resources in California revealed last week in the Los Angeles Times calls into question the oil industry's premise of a decades-long revival in U.S. oil production and the already implausible predictions of American energy independence. The reduction also appears to bolster the view of long-time skeptics that the U.S. shale oil boom–now centered in North Dakota and Texas–will likely be short-lived, petering out by the end of this decade. (I've been expressing my skepticism in writing about resource claims made for both shale gas and oil since 2008.)

California has been abuzz for the past couple of years about the prospect of vast new oil wealth supposedly ready for the taking in the Monterey Shale thousands of feet below the state. The U.S. Energy Information Administration (EIA) had previously estimated that 15.4 billion barrels were technically recoverable, basing the number on a report from a contractor who relied heavily on oil industry presentations rather than independent data.

The California economy was supposed to benefit from 2.8 million new jobs by 2020. The state was also supposed to gain $220 billion in additional income and $24 billion in additional tax revenues in that year alone, according to a study from the University of Southern California that relied heavily on industry funding.

But that was before the revelation by the Times that the EIA will reduce its estimate of technically recoverable oil in California's Monterey Shale by 96 percent–almost a complete wipeout–after taking a close look at actual data for wells drilled there already. The agency now believes that only about 600 million barrels are recoverable using existing technology. The 600 million barrels still sound like a lot, but those barrels would last the United States all of 40 days at the current rate of consumption….

Read the rest

We need to take a step back and reevaluate where we are and what we need to do. As I’ve been saying for years now, we need to get on with geothermal. For the Big Island, the path we need to take is clear.

A byproduct of the oil operations is natural gas, and it would be helpful if natural gas prices rose to help with the costs of development.

It’s kind of like curtailed electricity. If it could be sold at any price, it would help lower the bid price of geothermal and wind operations and would result in lower electricity costs for the rubbah slippah folks.

If curtailed electricity could be bought at a cheap enough price, it could also enable a hydrogen storage option. Then we could get a hydrogen fuel cell option for various motors. And we could look at converting hydrogen to ammonia, so we would have nitrogen fertilizer to help with our food security. 

Peak Oil, Renewable Energy Sources

Paniolo Power in Waimea

Richard Ha writes:

I went to a talk in Waimea last night, and it's just exactly what the Big Island Community Coalition (BICC) is talking about.

Parker Ranch CEO Dutch Kuyper was talking about the new venture Paniolo Power. From the website:

During 2013, Parker Ranch embarked on a comprehensive integrated resource planning effort to explore the possibility of reducing the cost of electricity for the Waimea community.

Parker Ranch lands are endowed with significant potential energy resources. These resources include wind, solar, biomass and, possibly, geothermal.

Parker Ranch commenced a utility-grade resource planning effort to explore whether a compelling alternative strategy could be both economically and technically feasible as compared to the resource plans produced by the incumbent utility.

The management team prioritized the study of whether a “community micro grid” could benefit the residents and businesses of Waimea – the hometown of Parker Ranch.

This website will provide information and perspective on our energy planning efforts. At present, our efforts continue in the research phase. At each stage of our progress, we will report our findings on www.paniolopower.com.

We will also be meeting with our community on a periodic basis to engage our friends and neighbors to help everyone understand the purpose of our efforts.

We look forward to sharing our efforts with you in the future.

Aloha and mahalo,

Paniolo Power Company, LLC

This is exactly the kind of thing that the BICC is interested in. This will benefit the whole community in Waimea. It's about all of us; not just a few of us.

You can read/follow the BICC blog here.

Food Security, Government, Peak Oil

The People I Turn To Re: Energy Issues

Richard Ha writes:

It is clear to me that the most important issue we face here on the Big Island right now is that of energy costs. There is a huge risk associated with the rising price of oil, it’s going to affect us all, and we don’t have the luxury of time to deal with it. We need to figure it out now.

We have resources here and ways to address this. It’s not rocket science.  It’s all a matter of cost and common sense. What I find is that the rubbah slippah folks get it quickly.

It comes down to a matter of attitude. Instead of being the people who look for a thousand ways why, “No can!” we must become people who look for the one reason why “CAN!!”

Energy issues are completely interconnected with agriculture – together, they all lead to our food security, or lack thereof – and I appreciate all the supportive testimony from so many people re: my renomination to the state Board of Agriculture. Here is a full list of the testimony, which includes support from some of the very knowledgeable people I turn to to learn about and confirm information about energy issues.

If it sounds like I know what I am talking about re: energy, it is because I have spent a lot of time at conferences and also learning from these experts, whose testimony you can read at that link above:

#7 Mayor Billy Kenoi. Mayor Kenoi recognized early on that geothermal would play a crucial role in our energy future and that’s why he helped the Geothermal Working Group, authorized by SCR 99, accomplish its work. I was part of a delegation he took to see geothermal operations at Ormoc City, Philippines. We visited a geothermal plant sited on the flanks of a volcano that last erupted 100,000 years ago. (In comparison, Mauna Kea last erupted 4,000 years ago and so is likely an even hotter spot for geothermal.) The mayor also formed a task force to evaluate the health effects of geothermal on the community.

#204 Henk Rogers. Henk is founder of the Blue Planet Foundation and understands and appreciates the potential of geothermal base power energy. He operates his own grid at Pu‘uwa‘awa‘a Ranch. He also has a fully functional hydrogen refueling station on site. Hydrogen fuel cell cars are coming to the Big Island. Henk is a doer more than a talker. When he does talk, it’s likely to be with the King of Bhutan or Sir Richard Branson about energy issues.

#89 TJ Glauthier has operated at the highest level of our national government. He was second in command in the Department of Energy in the Clinton Administration. His list of accomplishments is so long that when I introduced him to the senior assets managers at Kamehameha Schools, I did it like this: TJ has an extremely long list of accomplishments but let me just describe him this way: He is a “good guy.” That’s all I needed to say. Here in Hawai‘i, we all know what that means. He is a good friend and we are in constant contact.

#257 Robert Rapier. Like Mayor Kenoi, Robert Rapier is a “scrappah.” His was the lone voice that opposed Vinod Khosla’s biofuel projects because the net energy did not add up. Several hundred million dollars of subsidies later, Robert proved to be right. He knows his stuff. He has actually operated industrial-scale chemical plants, and yet he can explain scientific concepts in a way that is easy for the layman to understand. I can call him at all times of the day or on weekends. We have become good friends.

#82 Nate Hagens. Nate was editor of The Oil Drum blog, where academics, oil industry professionals and investors came to see what was new. If you participated, you had better know what you were talking about. These folks did not suffer fools lightly. The Oil Drum did not stop publishing because Peak Oil was dead; I think it stopped because we know all we need to know. Now it’s time to do something about it.

Charlie Hall. (See his testimony at this post.) Charlie Hall is a world-renowned systems ecologist. He does not speak about biology from an individual silo but talks about how it involves energy and its effects on real people. Environmentalists who are not systems-oriented sometimes forget about the effects on people. Charlie is known as the father of modern day Energy Return on Investment (EROI). I helped arrange lectures for him to speak at UH Hilo as well as UH Manoa. His wife Myrna, Charlie and myself have become good friends.

#84 Gail Tverberg. Gail is a former insurance actuary whose job was to price risk. She has a stark view of the future. Although I cannot find fault with her view of things,  I am the eternal optimist and spend my time looking for workarounds. Gail wrote in support of our Big Island Community Coalition’s efforts to lower electricity rates. (As it turned out, we were successful in defeating the Aina Koa Pono biofuel project, which would have cut off options for lowering our electricity rates.) I helped bring Gail to Hilo for a presentation at the Hilo Hawaiian Hotel and spent a whole weekend taking her family around the Big Island. I asked her a million questions.

I wrote this in November, and it’s still true. From Let’s Adapt to Change and Survive: “Charles Darwin said it’s not the strongest nor the smartest who survive, but the ones that can adapt to change. Let’s survive, and more.”