Recession Causes Refinery Closures

One of the results of the ongoing economic recession is very low refinery utilization rates, and low operating margins. One recent source states that marginal refineries will shut down, especially those that are independent refineries with no oil production of their own.

That could very well happen, especially if crude prices rise as the U.S. dollar fluctuates in value, which it very well could do. The demand for products is not likely to increase soon, in fact, it will likely decrease as the end of the summer driving season nears. Diesel fuel consumption is not likely to increase because that is tied to overall economic activity, and despite (or because) of the Obama administration's intervention into the economy, there is no sign that diesel fuel demand will increase anytime soon.

California, the largest state economically as well as by population, is in intensive care mode even though last week a compromise budget was passed. The compromise did nothing to cure the economic problems, but merely postponed them for a few months. In fact, some local governments are threatening lawsuits against the State of California for not sending money to the local governments. This is a bit like four people about to eat lunch, with money enough for only three, then the biggest and strongest robs the weakest of his lunch money. There still is not enough money to go around, it is merely distributed differently. The impact on national fuel demand is due to the ripple effect from California's problems. Each state in the U.S. has some impact from California's fiscal irresponsibility, because California grows (perhaps grew is the correct word here) food crops and has three major ports (San Francisco, Los Angeles/Long Beach, and San Diego).

As to which refineries will close, traditionally the smallest in a competitive market are vulnerable, or those with the least efficient processing. As I wrote earlier, in California a refinery closure that was proposed drew the ire of a U.S. Senator and threats of anti-trust litigation. That refinery is now in bankruptcy proceedings. One must wonder if any other refinery must tolerate such treatment at the hands of Senators.

However, the above-referenced article states that Shell is considering shutting at least a part of a large refinery near Houston, the Deer Park complex. Shell Deer Park has a refinery and petrochemical complex.

At what point will the tax-and-spend and more-regulations-are-good forces realize that industry is the golden goose in America? It takes very little for massive refineries to choose to shut down and their tank farms converted into receiving terminals. Foreign refineries such as the new refinery in India are quite willing to refine crude oil and ship the products to the U.S. The loss in tax revenues to the local governments will be noticed. The improvement in air quality will not.

The looming cap-and-trade regulations, and additional burdens of ethanol-blended gasoline and bio-diesel will further erode refinery utilization, causing further shutdowns. Does the USA actually want to have the transportation infrastructure dependent on the vagaries of weather? That is exactly what is at stake with bio-fuels from corn, soy, and other crops. As one recent article states, "When the Bush administration and Congress required gasoline refiners to blend in 15 billion gallons of corn-based ethanol by 2015, they made the impossibly rosy assumption that American farmers would always enjoy good weather. But as every farmer knows, years with perfect growing conditions are uncommon and getting more rare.

In early April, Environmental Working Group Founder Ken Cook warned that the government’s food policy amounted to “hope for good weather.”

OPEC Reaction to Energy Storage Systems

In the Grand Game of global energy supplies and technology (which I describe here), OPEC is of course a key player. OPEC has some control over a few things, chief among which is the production rate of oil under their member states' control. In general, when OPEC increases production, oil prices fall, and vice versa. A key result of lower oil prices, and a major part of the Grand Game, is that the economic incentive for renewable energy decreases. For example, if a consumer is considering the purchase of a new car, either conventional engine or hybrid engine, he must pay more for the hybrid engine vehicle. However, the hybrid engine vehicle will use less gasoline and thus have reduced operating costs. The price of gasoline is a key variable in the calculations. If a sufficient number of consumers purchase the hybrid cars, gasoline demand will be lower than otherwise, and OPEC must reduce production to maintain the price of oil. However, if economies and populations are growing rapidly, the decreased oil demand may merely mean that OPEC is not required to invest in additional production capacity.

In the electric power side of the Grand Game, OPEC is not quite as directly involved, while others are key players. The big debate in the electric power side is renewable energy vs fossil-fired energy vs nuclear energy. OPEC is involved because the price of electric power influences, to some extent, the economic attractiveness of electric vehicles or plug-in electric hybrid vehicles. Electric vehicles that draw power from the grid compete directly with gasoline vehicles, and thus the connection to OPEC.

The renewable energy group includes solar, wind, wave, ocean current, hydroelectric, geothermal, municipal solid waste, and some forms of methane such as bio-gas and landfill gas. This discussion is about producing electric power, thus bio-fuels such as bio-diesel and bio-ethanol are not discussed. The great drawback to many of the renewable energy production technologies is their intermittent nature: the wind is highly variable, the sun shines only for a few hours each day at strengths suitable for power generation, and not at all when clouds or rain block the sun, and waves are variable. The intermittent nature of these renewables can be mitigated with an electricity storage system (ESS), or some other form of storage that consumes renewable electric power and reproduces that power later and upon demand.

Direct storage of electricity is possible, as batteries and ultra-capacitors have shown. The cost per kWh delivered is very high, however. Other ESS include high-speed flywheels, pumped storage hydroelectric, compressed air energy storage, high-pressure hydraulic storage, and a few others. A key breakthrough in flywheel ESS was announced a few days ago, for a large, grid-scale ESS that is to store 30 GW of power, and release power in MW quantities upon demand.

It will be interesting to observe OPEC's reaction to this flywheel ESS. The rules of the Grand Game require that OPEC do what it can to maintain the demand for oil, and the price of oil at a relatively high price. This maximizes OPEC revenue and ensures their survival. The flywheel ESS, if it indeed works as advertised, will release a flood of new renewable power projects in wind, solar, and wave technologies. This may reduce electric power prices, depending on the cost to build and operate the flywheel ESS. If the electric power prices are reduced sufficiently, plug-in hybrid cars or pure electric cars will become very attractive, thus reducing the demand for OPEC oil and the gasoline refined from it.

Therefore, it may be expected that OPEC will increase oil production, decreasing the price of oil and thus the cost to consumers of gasoline. It remains to be seen whether OPEC can increase oil production sufficiently to compete with the new reality of cheap, essentially unlimited electric power.

One interesting outcome could be that OPEC reduces output to create a spike in oil prices, thus increasing their revenue. This would be a short-lived situation, but it could increase OPEC's revenue for the few years remaining until the flywheel ESS are built and integrated into the grid, and intermittent renewable power plants are built in great numbers.

Of course, the flywheel ESS may allow power production at such a low price that nuclear power plants are no longer even considered as candidates for electric production. Nuclear power plants cost many billions of dollars to construct and require a decade-long construction period. The cost of electric power from a nuclear power plant is on the order of 30 to 40 cents per kWh. Renewable-based electricity with flywheel ESS will very likely produce electric power reliably and cheaply, at far less than a nuclear power plant. This is good news for everyone, as there will no longer be an excuse to build toxic, radioactive, ultrazhazardous nuclear power plants that poison the planet with plutonium and other deadly nucleotides for centuries.

Texas Wind Power Generation

The website found here and shown below is simply fascinating. This is the Texas ERCOT Real-Time information on the electrical power grid throughout most of Texas. What is really interesting (to me) is the line-item that shows Total Wind Output, in MW. As I write this, (8:10 p.m. PDT on July 15, 2009), the system records 2,915 MW from wind generators. That is roughly 6 percent of the total generation at that moment in Texas.

I have been following this for several days now, with a view toward confirming or falsifying several statements one reads in various blogs/journals/media about wind and how unreliable it is. I note several things: 1) wind power in Texas never seems to drop to zero. I have seen it down to around 2 percent during the day. Texans use a lot of power each day, and the wind decreases a bit in the mornings; 2) wind power increases at night usually, consistent with increasing winds; 3) the most I have observed from this ERCOT site, is 8 percent of total generation; 4) spinning reserve is invariably more than the wind power generated, but not by much.

Here is what the website showed at 22:04 local time (CDT): (reload the ERCOT webpage to update the information)

REAL-TIME DATA

Posted Date 15-JUL-2009 Posted Hour 2204 Actual System Demand (Frequency Control) 52712 MW Scheduled Frequency 60.000 Hz Actual Frequency 59.960 Hz Time Error -1.162 sec Total Generation 52198 MW Current Aggregated Regulation Deployment* -236 MW Adjusted Responsive Reserve 4134 MW Total On-Line Capacity 57338 MW Total Spinning Reserve 5140 MW Total Wind Output 2915 MW

DC Tie Flows Line Scheduled Actual Imp. Lim. Exp. Lim. DC_E -579 -574 600 600 DC_L 0 1 70 100 DC_N 72 69 210 210 DC_R 0 0 0 150 DC_S 0 0 30 30 Total -507 -504 910 1090

Monitored CSC/CRE Flow MW MVAR LIMIT NORTH-HOUSTON 1407 -38 3203 NORTH-SOUTH 245 58 1403 NORTH-WEST -62 52 826 SOUTH-NORTH -245 -58 346 WEST-NORTH 62 -52 1018

* Negative(-) = UP REG Deployed Positive = DOWN REG Deployed

These observations are based on the various things put forth by those in the wind-power business. First, that wind power is only 1 percent of total generation. Not in Texas, it seems. From my observations, it appears that an average is about 4 percent. Second, that wind power drops to zero, and other generation systems must take over the load. I have yet to see it drop to zero, but then I have only watched for a few days, and then not full-time. Third, that a power grid begins to have troubles when wind energy approaches five or six percent of the total load (various sources use different figures here). The Texas grid seems to work just fine with wind providing 7 and 8 percent of the load. I have not read nor heard of any troubles in Texas due to wind-power.

It would be nice if this data were also presented in a graphical form, as California's ISO does. I would like to see a graph of total grid power generated over the 24 hours in a day, with a second line showing the amount of power provided by wind.

Some say renewables are not reliable, and do not provide any energy. Hah. Facts are stubborn things.

Oh. One other thing: the ongoing operating and maintenance costs for wind-energy is essentially zero. It is far, far, less than the cost of running a nuclear power plant, with their outrageously expensive piping, valves, pumps, heat exchangers, boilers, water softeners, toxic waste fuel storage areas, steam turbines, generators, steam condensers, cooling towers, and the hundreds of personnel required to operate. Not to mention the millions of dollars per year that are paid for the operating license. And wind power plants do not leak radioactive, toxic tritium into the water supply.

The wind is free. The wind is non-toxic. The wind does not create a toxic, radioactive waste that endures for centuries.

UPDATE 1 July 18, 2009: A wind energy resource link for Texas, also US, also offshore.

This link shows the offshore Texas wind resource measured at 50 meters height; for an area 50 miles offshore and to the shore. The best wind areas (Class 5) are just offshore Corpus Christi, and ranging about 75 miles southward down the coast, and extend approximately 50 miles offshore. This area is more than 3,500 square miles, representing a huge un-tapped resource of wind power.

Also offshore Texas, there is an even larger area of Class 4 wind to the north and south of the Class 5 area, comprising approximately 9,000 square miles.

Oil from Algae

One of the many oil-alternatives (a substance that can be processed or converted into petroleum-like substances) is an oil that is formed from some types of algae. This week, the technology received a big boost when ExxonMobil announced it will invest (reportedly) $600 million in developing this.

The algae grows by consuming CO2 and sunshine, plus water, as do all plants. The product qualifies as a renewable fuel, as do ethanol from crops and bio-diesel.

In the Grand Game (which I described here), oil-alternatives play a crucial role. First, as more oil-alternatives are found or created, there is more competition for traditional petroleum. However, bringing an oil-alternative to market can be difficult, if the cost of production is higher than that of petroleum. Examples of oil-alternatives include tar sands, oil shale, coal-to-liquids plants, ethanol from crops, and bio-diesel. Some would include natural gas-to-liquids plants, an example of which is a natural gas-to-diesel plant.

The costs to produce algae-oil will include land, nutrients, water (this may be from rain), harvesting, and processing plants to yield the oil. There may also be a storage cost, if the algae does not grow well, or at all, during winter months. One can envisage a growing season of six or seven months, so that part of the oil produced is stored up for use during winter months. Or, one can envisage large floating ponds on the ocean near the equator, with the algae growing in specially treated water (not sea water).

Again referring to the Grand Game, one can envisage the great hot deserts of the world, particularly in Northern Africa, using sunshine to desalinate seawater, pumping the fresh water into the desert to irrigate algae ponds, and producing algae-oil for sale to the world. If this comes to pass, it will greatly change the world. Also, the great deserts of the U.S. Southwest can be used to great advantage. This would be a good use of the abundant sunshine, rather than converting the sunshine to electric power via photo-voltaics.

Cold June for Los Angeles 2009

Well, this is certainly interesting!  The weather is usually cool in June in Los Angeles, 

in fact the phrase here is June Gloom.  But this year was colder than usual.  This is even

more pronounced at LAX, the airport right on the coast.  We are seeing a consistent pattern

develop, with colder waters offshore California causing the sea to contract slightly and 

sea levels drop.  No fear of sea level rise at all, although the powers-that-be in California's

government agencies hold hearings and pay consultants to tell them alarming tales of what might

happen, someday, if all their dire predictions come true about polar icecaps melting.  

The Atlantic ocean is also colder than usual, and zero tropical storms have formed, and zero

hurricanes, too.  That is not so strange, yet, since most hurricanes occur in August and 

September.  I am watching the hurricane count with great interest this year, as it is working 

up to be a dud, again proving that climate change due to atmospheric Carbon Dioxide is a lie.  

The mantra is now the Deniers vs the Liars.  I'm a proud member of the Denier camp.  With all the 

evidence now available that man does not and could not cause global warming, any people who 

cling bitterly to that lost cause are either deluded or liars.  Liars know the facts and 

intentionally say just the opposite.  This is one of the legal elements of a fraud lawsuit. 

From the National Weather Service just yesterday:

PUBLIC INFORMATION STATEMENT
NATIONAL WEATHER SERVICE LOS ANGELES/OXNARD CA
600 PM PDT TUE JUN 30 2009

...DAILY MAXIMUM TEMPERATURES WERE BELOW NORMAL ON EVERY DAY IN JUNE
AT DOWNTOWN LOS ANGELES AND AT LOS ANGELES INTERNATIONAL AIRPORT...

DAILY HIGH TEMPERATURES AT BOTH DOWNTOWN LOS ANGELES AND AT LOS
ANGELES INTERNATIONAL AIRPORT WERE BELOW NORMAL ON EVERY SINGLE DAY
IN THE MONTH OF JUNE. IN FACT...HIGH TEMPERATURES AT EACH LOCATION
HAVE BEEN BELOW NORMAL SINCE MAY 22ND...A STRETCH OF 40 DAYS IN A
ROW AND COUNTING. WHILE RECORDS FOR CONSECUTIVE DAYS WITH BELOW
NORMAL TEMPERATURES ARE NOT TYPICALLY MAINTAINED...THIS IS A FAIRLY
NOTEWORTHY STRETCH OF COOL WEATHER...THE RESULT OF A PERSISTENT
UPPER LEVEL TROUGH LINGERING ACROSS SOUTHERN CALIFORNIA.

AT DOWNTOWN LOS ANGELES...DAILY MEAN TEMPERATURES...THE AVERAGE OF
THE MAXIMUM AND MINIMUM TEMPERATURE ON EACH DAY...HAVE NOT BEEN
ABOVE NORMAL SINCE MAY 22ND. HOWEVER...DURING THAT STRETCH...MEAN
TEMPERATURES HAVE BEEN EXACTLY NORMAL ON 5 DAYS...INCLUDING 3 DAYS
DURING THE MONTH OF JUNE.

ALSO AT DOWNTOWN LOS ANGELES...HIGH TEMPERATURES REACHED OR EXCEEDED
80 DEGREES ON JUST TWO DAYS DURING THE MONTH OF JUNE...THE LOWEST
NUMBER OF SUCH OCCURRENCES SINCE JUNE 1982...WHICH HAD ONLY ONE
SUCH DAY. THE AVERAGE DAILY HIGH TEMPERATURE FOR JUNE 2009 WAS 74.5
DEGREES...5 DEGREES BELOW THE NORMAL OF 79.5 DEGREES.
INTERESTINGLY...THE AVERAGE HIGH FOR JUNE WAS JUST SLIGHTLY WARMER
THAN THE AVERAGE MAXIMUM FOR THIS PAST JANUARY...WHEN THE DAILY HIGH
AVERAGED 74.2 DEGREES. OF COURSE...THAT WAS ABOUT 6 DEGREES ABOVE
NORMAL FOR JANUARY.

AT LOS ANGELES INTERNATIONAL AIRPORT...THE HIGH TEMPERATURE FOR THE
MONTH OF JUNE WAS JUST 71 DEGREES...THE LOWEST MONTHLY MAXIMUM FOR
ANY JUNE SINCE RECORDS BEGAN THERE IN 1944. DAILY HIGH TEMPERATURES
VARIED BY JUST 5 DEGREES DURING THE MONTH OF JUNE AT LOS ANGELES
AIRPORT...FROM A LOW OF 66 ON THE 3RD...TO A HIGH OF 71 DEGREES ON
TEN SEPARATE DAYS...MOST RECENTLY ON THE 27TH. THE AVERAGE HIGH
TEMPERATURE FOR JUNE 2009 AT LOS ANGELES AIRPORT WAS 69.3
DEGREES...3.4 DEGREES BELOW NORMAL...AND THE LOWEST AVERAGE JUNE
MAXIMUM SINCE 1982. IT WAS ALSO LOWER THAN THE AVERAGE HIGH
TEMPERATURE DURING THIS PAST JANUARY WHICH WAS 69.5 DEGREES.



BRUNO

Peak Oil and Unicorns Both Mythical

Peak oil is a subject that comes up from time to time, as the scare-mongers who do not understand the oil industry, nor the world-wide energy industry, completely miss the mark. Peak oil is a theory that maintains that the Earth's supply of oil is finite and that we have reached the maximum of oil discoveries and production rate. The theory maintains that as demand for oil increases, production cannot keep pace so a huge price increase in oil will result, thereby disrupting all economies in the world. The Peak Oil hysterics shriek that "we" should immediately stop using oil, and switch to renewable, sustainable, energy supplies.

Peak oil, however, is a myth.

As the graphs in the following link show, the real price of gasoline (U.S., regular) has steadily declined since 1919. This is deadly data to the peak-oil believers. All during this period (1919 to now) peak-oil believers have sounded their alarms. Peak oil never happened, and never will. Oil price increases are due to temporary market distortions, and nothing more. Technology for finding oil improves much faster than oil consumption, thus driving the price down in real terms. Technology is improving faster and faster, with better computers, more sophisticated production techniques, economy of scale in transportation (ships, pipelines, refineries), and vehicles that achieve higher miles per gallon. All these drive the cost of gasoline down.

As ExxonMobil’s executives state frequently, what is keeping the price of oil up is restricted access to known oil deposits around the world. The Saudis and others in OPEC knew what they were doing when they nationalized their oil assets, kicked out foreigners, and restricted the production of oil so as to increase the price and thus their revenues. Smart guys, have to admire them for that. Those steps not only increased prices, they reduced production and thereby extend the life of the oil fields.

Peak oil is a myth, just as unicorns are mythical.

http://www.eia.doe.gov/emeu/steo/pub/fsheets/real_prices.html

Just a bit more elaboration on why oil production technology improves. Better seismic geologic data interpretation through improved computers and software allow drilling companies to drill fewer dry holes and hit oil more frequently. Directional drilling allows much more oil production from a given field. Secondary and tertiary production techniques allow much more oil production from a given field. Deeper drilling is possible at lower costs than ever before. Drilling in deep ocean water is possible and cheaper than in decades past. It is a little-known fact that oil companies are prolific inventors, as can be seen from the patent records in the U.S. ExxonMobil, to name just one, receives roughly one patent per day, on average.

We can expect that gasoline prices will drop further as automotive standards change, especially those standards that mandate improved miles per gallon. With the California Pavley standard now approved by the U.S. EPA, (this occurred early in July, 2009), and the U.S. Federal gas mileage standards modified to match California's the normal demand for gasoline will decline. Prices for gasoline will also decline, except as offset by very expensive corn-based ethanol and taxes.

THE GRAND GAME:

The grand game that is being played out around the world involves oil, natural gas, and renewable energy, also automotive technologies, and now climate change legislation. The stakes are high, the players are world-wide, and opportunities for making and losing vast fortunes exist.

OPEC's role in the game includes adjusting the flow of oil into the world market, which is their only move. Increasing oil production does several things: it decreases world oil prices, and shortens the lifetime of the oilfields under OPEC control. But, OPEC oilfield lifetimes are still measured in dozens of decades, perhaps hundreds of years. The real impact is oil price. As oil prices decrease, so does the incentive for alternatives to oil-based transportation systems such as bio-fuels, hybrid vehicles, and pure electric vehicles. In contrast, higher oil prices due to OPEC production reductions lead to not only more incentives for alternate-fuels, but can make oil-alternates more attractive, too. The oil-alternates include tar sands, coal-to-liquid plants, and shale oil. OPEC leaders try very hard to maintain oil price as high as possible without providing incentives for the oil-alternates to be produced and become a competitor to oil.

Enter technology improvements. Natural gas vehicles compete directly with oil-based transportation fuels gasoline and diesel. Some might wonder why the U.S. does not promote CNG vehicles, but instead appears to disfavor them. T. Boone Pickens understands the game, and knows the crucial role that natural gas vehicles can play. CNG cars with hybrid technology are a complete game-changer. With natural gas at historic low prices, currently around $4 per million Btu, the fuel cost per mile is much less than with gasoline. Governments enter the game when they provide rebates or tax credits for non-petroleum vehicle systems such as CNG and hybrids.

Another technology improvement mentioned above is improved gas mileage. Both California, and now the U.S., have laws that mandate 42 miles per gallon from new passenger cars by 2016. Other technology improvements exist, for example the Tata Motors car in India, and the BYD hybrid car from China. The USA has several advanced hybrids, and battery makers are in a furious race to produce better batteries for the transportation market. Infrastructure improvements also are in the works, with at least one company offering a battery-change service that will not take any longer than filling a gasoline tank. The electric car with a low battery charge would pull into a service station, and have the battery exchanged for a fully-charged one within 5 minutes.

Another factor in the grand game is world-wide demand for transportation, whether as gasoline, diesel, CNG, or electric vehicles. Some countries in the world have mature or shrinking transportation demand, while others are increasing. The economies of India and China are mentioned frequently as increasing the demand for transportation fuels, while the US and Europe are stagnant or decreasing. Note that hydrogen fuel cell vehicles are a joke, not worthy of consideration. Even Honda, a leading manufacturer of a fuel cell hydrogen car, admits that the manufacturing cost is outrageous and their cars for lease are for marketing purposes only. Their construction costs are on the order of $250,000 each, and the operating costs for hydrogen for the fuel cells is many times the cost of gasoline. Fuel cell cars are not part of the game.

The net effect of these technology improvements in the grand game is the same as OPEC increasing production, that is, it drives down oil price. The demand for oil decreases as the technologies become more accepted and in use, so OPEC can cut production. These also further delay the day when the oil-alternates will become economic, and increase the operating life of OPEC oil fields.

A fascinating window into the future, especially the oil future, may be found by watching oil commodity futures prices. One is available from finance.yahoo, with contracts out eight years. As I write this, the contract for December 2017 is priced at $89.30 cents per barrel. The closing price for oil today was right at $67 per barrel. If peak oil were imminent, crude futures price eight years from now (2017) would be a lot more than $89 per barrel. In fact, one can also look at oil inventories and note that these are at historic highs. This also indicates that the price of crude oil is about to drop due to oversupply in the market.

The game is grand. The game is fascinating. The game provides immense opportunities for profit, and for loss. As my old buddy Todd Wehner says, Stay tuned, sports fans. This is about to get interesting!

(Note about my old buddy Todd Wehner: we grew up together from 3rd grade, including every grade through college graduation - except for two years when he went off to a fancy private university. He values his privacy, but I can safely say he has done quite well. He is one of the smartest people on the planet, and one of the funniest. We played intramural softball, and he not only managed our team, also played a position, and kept the scorebook for each game. He has a phenomenal memory, and never missed a play even while he was on deck, batting, running the bases, or playing the field. He just remembered everything and wrote it all in the scorebook when he was in the dugout. )

Roger E. Sowell, Esq.