Thursday, January 10, 2013

The Reserves and Resources Concept as Applied to Renewable Energy

Maybe the US Senate's very own pet snapping turtle and leader of the Republican minority, Mitch McConnell, is not telling the truth when he says that our national debt/current deficit is our country's biggest problem. This kind of weather resulting from Global Climate Change caused (mostly by) too much CO2 pollution of our atmosphere (you know, the only one we have) outranks money issues that are caused by not taxing the idle and obscenely rich enough. Map from http://fdlaction.firedoglake.com/2013/01/09/the-real-long-term-problem-is-climate-change/. Even around Buffalo, looks like it got a touch toasty, right?

In the mining industry in general and in the oil and natural gas business in particular, there is no such thing as an essentially infinite supply, though there are seemingly minor exceptions for sand, salt, limestone and gravel. After all, the ocean is the ready ultimate supply of salt (lots of salt is made by solar evaporation of seawater), but a lot of salt is mined from from former oceanic ponds - like those in Western and Central NY. But for the really pricey stuff (diamonds, gold, platinum, rhodium, silver), and especially fossil fuels (coal, oil, methane), the deposits of significance tend to exist in patches interspersed in geographic regions/geological zones. So when it comes to the money-making aspect of the business, it helps to know how much of the goodies exist in a region and whether these can be profitably exploited (i.e. turned into money). After all, there are many deposits that are not exploitable, or to do so would cost more than can be obtained by selling these geological goodies. And the world's richest industry (presently the oil and gas industry) did not get that way by giving it away for free, or at bargains relative to what could be obtained - these fuels are sold, preferably, at as high a price as can be extracted from customers. And almost always at a profit….

Anyway, that's where the concept of the "reserves" and "resources" comes in handy. A resource (such as the Marcellus Shale gas resource) is the volume of shale multiplied by the percentage of that shale that is hydrocarbons (and is mostly methane in most of the Marcellus zone). A reserve is the quantity of the resource that can be extracted; it is always less than the resource that it comes from. Since the Marcellus Shale regions extends over perhaps 50,000 square miles, the methane resource for this area is huge - even if the average thickness of the shale is only around 100 feet thick. Complicating matters is that the shale varies in thickness and in organics content across the area (in NY State, from 1% to 11% "organics"), as it does in depth. Not all locations are "sweet spots" - thick shale with high organics content - and those actually appear to be pretty rare, such as those in north central/northeastern Pennsylvania. The Marcellus resource (Gas In Place = GIP) has been estimated at between 160 to 490 trillion cubic feet (tcf) - http://en.wikipedia.org/wiki/Marcellus_Formation - though it may be even bigger. However, since it costs between $7.5 to $10 million per well to develop a well in Marcellus Shale, and unless prodigious amount of gas is recovered from a lucky spot (the average is apparently around 1.4 billion standard cubic feet of methane per well), this will be very expensive natural gas. In effect, there is no viable reserve if the gas cannot be profitably extracted at $2.71/MBtu (a recent monthly price), which is close to the present price being paid to gas producers (Sept 2012 - see http://www.eia.gov/dnav/ng/NG_PRI_SUM_A_EPG0_FWA_DMCF_M.htm).

Reserves are a whole other matter than are the resources, and these are generally a function of the price that can be obtained for the product being mined, though in some cases, the prize located in identified fields cannot be physically delivered to customers (such as the 67 trillion cubic feet (tcf) of methane located near the McKenzie River delta (Canadian Arctic Sea coastal region)). Thus, the Arctic Sea coastline methane is a "stranded reserve" - see http://en.wikipedia.org/wiki/Mackenzie_Valley_Pipeline - since the pipeline in 2008 was estimated to cost well over $16 billion for its 758 mile length, and the quantity of natural gas available from this locale at current pipeline prices ($3.50/MBtu) is … zero. So, the GIP is irrelevant at present prices and the usable reserves will remain at zero until the price of methane rises significantly. But at past prices, maybe at times it was a viable reserve of 67 tcf. See http://www.eia.gov/dnav/ng/hist/n9190us3m.htm for the following chart:




But with renewable energy (especially solar and wind), well, they don't deplete (that's why they are called renewable), though the quantity of deliverable energy and the rate that it can be delivered definitely varies by location. But, just like the hydrocarbon biz, the usable reserves of renewable energy are also defined by the price as well as the resource which these reserves come from. Some classic examples of "stranded wind" of the US midwest, and in particular Montana, Wyoming, Nebraska and the Dakotas. In just these states, the delivered quantity of wind based electricity is close to 4 times the amount of electricity that the US is presently consuming (see http://www.windpoweringamerica.gov/pdfs/wind_maps/wind_potential.pdf - 100 meter values). However, even with the tax avoidance subsidies worth 2.8 c/kw-hr for 20 years, these awesome wind resources may as well not exist. The Power Purchase Agreement prices being offered by utilities were all of 3.5 c/kw-hr in the fall of 2012 (which is all utility customers would be paying for the generated electricity part of the electricity they would be buying), and nobody was taking them up on this "offer" for developers to lose money (gee, wonder why). So in effect, the wind reserve is only a few percent (maybe 0.1%) of the wind resource. But if the PPA price was to rise to 4.5 c/kw-hr….maybe 2.2% of that resource might get converted to "reserve" status. But that is 40 GW on a delivered basis (about 8.4% of what the US currently uses). All  for the likes of one penny per MW-hr…..

The US has a a lot of desert and semi-desert lands, places ideal for solar thermal and PV locations. In these spots, an average of 340 days of full sunshine can normally be expected, and it really does not get much better, energy wise. However, PV and solar thermal are very capital intensive ways to make electricity. Even at places where incredible economies of scale take place (a 500 MW PV project is a $1.35 billion investment) and where the PV output is an average of 20% of rated capacity, the real cost to make this electricity is near 18 c/kw-hr (@ 7.75%/20 yr financing) or 14.6%/kw-hr (@ 5%/20 yr financing), and somehow profits need to get tacked onto that. And yet, compared the 7.3 c/kw-hr needed for wind (subsidy-free basis; 4.5 + 2.8 = 7.3 c/kw-hr), it's still a very high price for electricity. Obviously, more than a penny per mw-hr…

So what constitutes a viable energy reserve? Well, there is the quantity of energy to be obtained, the rate it can be tapped and the cost of the capital investment needed to tap this. There may be a cost to store renewable electricity (as when there is an excess made compared to what is needed) as well as the cost to move the electricity from where it is made to where it is used. But then there is the willingness of customers to pay for electricity from certain ways to make it in contrast with with other ways, as evidenced either by government subsidies or just popular preferences. Is this fair? Obviously, not, but it's a bit like asking people what their favorite color happens to be. And when they have the ability to use governmental taxes (or tax avoidance based incentives, which are roundabout versions of the same thing) to pay for the "red" thing and not the equivalent "green" thing, then it's not surprising that the "red" thing can get a lot more money spent on it to deliver the same quantity of, in this case, electricity than the lower cost but less respected "green" thing.

And somewhere in this world, it will soon be important to be financially efficient when replacing CO2 pollution sourced electricity with electricity that was made with no CO2 pollution. That is, for each billion dollars invested in making electricity, how many megatons of CO2 pollution is avoided? After all, there are all these rumors that we are running out of money (actually, untrue according to both Keynesian and Modern Monetary Theory, alias MMT), but who can argue against getting the most bang (CO2 pollution prevention/replacement) for the gigabuck? Of course, what we are currently experiencing is a drastic lack of economic demand, and way too much wastage of resources on things with no real economic or environmental benefit, including at least a hundred billion dollars per year on military "R&D" and other public works projects in the military sphere. Or the roughly $200 billion/yr that could be considered to be squandered on defense of oil resources around the world. Especially if we actually put some effort into removing hydrocarbons from our energy mix….

An effort to both deal with the lack of demand (as in, ANTI-AUSTERITY - see http://www.dailykos.com/story/2013/01/06/1176856/-The-IMF-Incompetent-Ideological-or-Simply-Lying) and the Climate mess and the horrid balance of payments (we do export a lot of dollars to import ~ 10 million bbls/day of crude oil) would seem to be a good thing to do these days. Especially if we concentrated on replacing as much CO2 pollution as is possible - notably by substituting "green electricity" for pollution based electricity as well as electricity (from renewables) for heat and then comes the tough one - transportation fuels. But, two out of three isn't bad for starts. It would create a lot of jobs, stimulate a lot of economic demand and replace roughly 70% of our present CO2 pollution for this country. After all, every journey starts with that first step….

BTW, here's a comparison between $10 million worth of wind turbines installed in the US Northeast and a typical Marcellus Shale gas well (1.4 billion scf in a 20 year period, also with an "all-in cost" of $10 million) with respect to electricity that could be made. Assuming the methane gets converted at a 50% efficiency, that would be 205,038 MW-hr of electricity plus 85,750 tons of CO2 pollutant from operations. $10 million  worth of wind turbines is a pair of Vestas V-100 x 1.8 MW turbines on 95 meter tall towers (lots of other equivalent examples) which should be able to deliver a 40% net output (6312 MW-hr/yr per turbine) or roughly 252,480 MW-hr and close to zip for CO2 pollution from ongoing operations. If the CO2 pollution was priced at anything close to what it should be ($85/ton CO2 would be a good start, alias the "social cost of carbon" via the Stern Report), well, that's a $17.4 million bill, but the "social cost of carbon" is sort of like a Roofie (Rohypnol (http://en.wikipedia.org/wiki/Flunitrazepam), alias the date rape drug) slipped to the general public, followed by subsequent abuse perpetrated on the public whilst the abuser gets to (theoretically) profit. Of course, with gas prices what they are, there's not even any profit (for the methane producer) in this societal date raping. So what are so many of our political "leaders"pushing fracking the Marcellus for? Are the little crumbs in the form of political campaign contributions and those for certain promises of money-for-nothing "work" once they get out of office they are expecting worth that much to them....? Looks like the general public is not the only one getting slipped some Roofies..... and with similar effects to society that psychopaths do to unlucky coeds care of Rohypnol....

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