IDEAS21

Economists are fond of saying that “there is no such thing as a free lunch”. This adage applies to the harnessing or extraction of energy resources, whether they are nonrenewable – such as fossil fuels – or renewable sources like solar and wind.

Put simply, it takes a certain amount of energy input to produce a flow of energy output. For example, energy is consumed in the process of exploring and drilling for oil, just as it is consumed in the process of manufacturing and erecting wind turbines that produce electrical energy. The net energy gain – or energy surplus – is the amount of energy output minus the amount of energy input used directly or indirectly in the production process (including energy embedded in machinery). A closely related concept is the energy return on investment (EROI), which is the ratio of energy output to energy input. The larger the ratio, the more bang one gets for one’s buck.

The EROI and net energy are, argu- ably, among the most important variables underlying economic performance and societal complexity.

This pair of variables is influenced by a variety of factors across both time and space. One determinant is the quality or level of concentration of the energy resource. For instance, it takes less energy to produce oil from conventional onshore fields than from deep-water offshore wells, tar sands or oil shale. Another factor is the sophistication of the technology used in the production process, which may improve over time. An example are improvements in photovoltaic solar cell design, which raise the efficiency with which sunlight is converted into electricity.

The main reason fossil fuels – coal, oil and natural gas – have been dominant over other energy sources is that they have his- torically delivered a relatively high EROI and a massive energy surplus. But depletion gradually erodes the EROI of these finite resources, since the largest and most accessible oil and natural-gas fields were typically discovered and exploited earlier.

New York University’s Professor Charles Hall and his colleagues have estimated the EROI for a wide variety of energy sources.

Calculations show that the EROI for oil in the US declined from 100:1 in the 1930s to 30:1 in the 1970s and around 15:1 in 2010. The EROI for global oil and gas is also on a declining trend and currently stands at about 18:1.

Unconventional oil resources like tar sands and oil shale may be huge, but the EROI is estimated at less than 5:1, which partly explains their comparatively high production costs.

Estimates of the EROI for nuclear electricity are highly variable, depending on which steps in the production chain are included. Hall and his colleagues regard a realistic range as being between 5:1 and 15:1.

The EROI for hydroelectricity can be over 100:1 in favourable locations, but its geographical extent is often limited, which caps the amount of surplus energy available. Wind power has a very competitive EROI, averaging 18:1, as a result of improvements in the efficiency of turbines. Tidal range energy, wave power and ocean current power technologies are still in their infancy and, thus, robust EROI estimates are not available.

Solar photovoltaic electricity has an EROI of about 6.8:1, while that for concentrating solar power may be even lower. However, a big advantage of solar energy is the massive resource base and potential energy surplus. With continuing technological developments, the prospects are steadily improving for solar power.

The EROI for biofuels depends on several factors, including the type of feedstock, the farming methods used and the favourability of soil and climatic conditions for plant growth. Maize-based ethanol in the US has a ratio that is very close to 1:1 and the industry has survived on subsidies. In contrast, ethanol derived from sugar cane in Brazil has an EROI in the region of 8:1. Biodiesel typically has a ratio somewhere between these values.

We can summarise with two points. First, the net energy yield of fossil fuels has historically been much higher than that of most other energy sources, including nuclear power and many renewables. Second, the EROI and energy surplus yielded by finite fossil fuels and uranium-based nuclear power has been declining over time as a result of resource depletion, while the EROI for many renewable energy sources is rising as technology improves.

The race between resource depletion and technological progress is on. The future path and complexity of human civilisation depends on the force that wins.

Our society faces the colossal challenge of rapidly developing alternative energy sources that generate sufficient surplus energy to replace fossil fuels. Otherwise, material standards of living will decline – beginning with those of poorer people – as ever more resources have to be devoted to generating useful energy rather than to producing other goods and services.

EROI figures indicate that the future lies in renewables like wind and solar, not unconventional hydrocarbons.

Published in Engineering News , 15 June 2012

The fact that world crude oil production has been stagnant since 2005 is now commonly acknowledged. But for all the world’s net oil-importing countries – including South Africa – the crucial oil supply variable is total world oil exports, rather than total world oil production – that is, oil importers must compete for the surplus oil sold by oil-producing nations that is left over after the latter’s domestic consumption.

According to the US Energy Information Administration, one of the leading providers of global oil data, world oil exports reached a peak in 2005 at 43.4-million barrels per day (mbpd) and have declined every year since then by an average of 1.8% year. World crude oil exports totalled 40.2 mbpd on average in 2009, according to the latest available data. This represented 48% of total world oil production of 82.4 mbpd.

The 12 members of the Organisation of Petroleum Exporting Countries (Opec) cartel currently produce about 31 mbpd of oil and export about two-thirds of this amount. Opec, therefore, accounts for about half of total world oil exports, and wields this market power to influence prices.

The largest individual net oil exporters in 2009 were Saudi Arabia, Russia, Iran, Nigeria and the United Arab Emirates. The top ten together provided 64% of total world exports.

There are several medium and long-term threats to future world oil exports.

The first is the continuing rise in domestic oil consumption in the oil-exporting countries. In most oil producing countries, local fuel prices are heavily subsidised, which encourages high levels of consumption. And the record-high oil prices of recent years have translated into rapid economic growth and incomes in oil exporters, further stimulating domestic petroleum use.

The second factor undermining world oil output is reserve depletion and production decline in some exporting countries. Already depletion has turned several former net exporters into net importers, including the UK, Indonesia and Egypt. Over time, more and more oil producers will become net importers. Mexico – currently one of the leading suppliers to the US – is near the top of this list.

The third threat is posed by wars, conflict and political uncertainty in a number of oil exporting countries. In Nigeria, militants have consistently undermined the country’s export potential by blowing up pipelines in the Niger Delta. Libya’s 1.2 mbpd of exports was taken off line completely last year and may not reach their precivil war levels for some time as the political ructions persist. Although Iraq’s exports are increasing, this country, too, is beset by perennial political conflict. As competition for the world’s dwindling oil supplies intensifies, we can expect more civil and regional strife in oil-producing countries.

The fourth – and most immediate – threat to world oil exports is posed by the looming sanctions on Iran’s oil exports. The US and Europe are pressuring importers of Iranian crude to sharply reduce their purchases from the Islamic republic. At 2.4 mbpd last year, Iran contributed 6% of global oil exports. Even halving this could have a major impact on international oil prices.

These developments surrounding world oil exports have some stark implications.

First, from the net oil importers’ perspective – a large majority of the world’s nations – oil supply effectively peaked in 2005. What’s more, world exports will decline more rapidly after aggregate global production peaks.

Second, the decline in global oil exports goes a long way toward explaining why the average price of oil doubled between 2005 and 2011. And we can expect the upward trend in oil prices to continue.

Third, this rising oil price has contributed to a shift in oil consump- tion from the West – the US, Europe and Japan – to the East. It seems that the dynamic emerging markets have a higher productivity of oil – more gross domestic product per barrel – and, therefore, can better cope with higher oil prices than the oil-saturated Western economies. China and India, in particular, are rapidly increasing their share of world oil imports, thereby squeezing out of the market both poorer developing countries and highly indebted industrialised nations.

Finally, prices are not the only mechanism for allocating diminishing traded oil supplies. China has used its economic muscle to conclude bilateral deals with several oil-producing countries, often providing loans for infrastructure projects in exchange for long-term oil-supply commitments. The US strategy is to use its over- whelming military superiority to ensure access to, and control over, oil resources for Western oil companies.

South Africa depends on imports for two-thirds of its petroleum consumption. But ranking just seventeenth on the list of oil importers in 2009, we will be hard-pressed to outcompete the big players like China, India and the US. The only feasible option is to wean ourselves off imported oil. The myriad ways to do this will be explored in future columns.

Published in Engineering News , 1 June 2012

Several articles in the international media in recent months have claimed that worries about peak oil - the peak and decline in yearly world oil production - are unfounded because vast new reserves of unconventional oil are coming on stream. But a closer look at these new sources of oil casts doubt on this assertion.

Data from the US Energy Information Administration show that conventional crude oil production - oil from wells accessed using typical drilling techniques - has been essen- tially flat at around 74-million barrels per day (mbpd) since 2005. Looking at the history of con- ventional crude oil discoveries, this is not surprising - they peaked in the mid-1960s and have been on a declining trend ever since.

Since 2005, all liquid fuels production - which includes natural gas liquids, biofuels, gas-to-liquids and unconventional oil - has been growing much more slowly than in previous decades - at less than 1% a year - while demand in the developing world has burgeoned. The trillion-dollar question is: For how much longer can growth in these unconventional sources of oil offset the declining production from existing conventional fields, estimated by the International Energy Agency to be depleting at about 6.5% each year?

There are three types of unconventional oil resources, namely heavy oil, oil sands and oil shale. Heavy oil, which is mostly located in Venezuela’s Orinoco belt, is denser and more viscous than conventional oil and requires special extraction and refining techniques. Oil or tar sands - the bulk of which is located in Canada’s Alberta province - consist of sandstone impregnated with heavy oil. Oil shale, found predominantly in the western US, is oil trapped in shale rock.

Technically, recoverable resource estimates for unconventional oil vary widely but are generally very large - possibly several times the roughly one- trillion barrels of oil consumed globally to date. But, economically, recoverable reserves are substantially smaller than total geological resources.

The methods involved in extracting oil from unconventional sources are quite different from those used to extract conventional oil. In the case of shale oil, extraction involves similar hydraulic fracturing processes used to extract natural gas from shale. Oil sands production is a massive surface mining opera- tion, followed by extensive use of natural gas to produce synthetic oil.

The hugely capital-intensive nature of these production processes means that marginal production costs - typically estimated at between $80/bl and $100/bl - are much higher than those of conventional oil. As the world shifts increasingly from conventional to unconventional oil sources, the floor under market oil prices will continue to rise.

The higher production costs reflect the most crucial energy variable of all: the energy return on investment (EROI) ratio, which measures the energy delivered by a process relative to the energy required to find, extract and process the energy resource. Experts estimate the EROI for oil shale and oil sands at about 4:1 at best, compared with a global average for conventional oil of about 18:1 today, and nearly 100:1 in the 1930s.

A further downside to unconventional oil is that its environmental impacts are significantly worse than those of regular oil. The freshwater demands are much greater and the carbon dioxide emissions can be up to twice as high for each barrel of oil. Fracking and oil sands production also pollute freshwater sources. These environmental costs are largely externalised, that is, the public pays for it indirectly.

Returning to peak oil - the key issue is the flow rate, that is, how much oil can be brought to market in a given year. There are economic and physical constraints on how much oil can be extracted from low-EROI, high-cost unconventional oil reserves, arising from the highly capital-intensive nature of this business.

Several peer-reviewed articles in academic journals have shown that the depletion of older, conventional-oil fields will soon outpace the gains from new unconventional oil sources. Chris Skrebowski, consultant editor of the UK-based Petroleum Review and director of Peak Oil Con- sulting, maintains a large database of current and forthcoming oil pro- jects. His latest forecast is that global spare oil capacity will be exhausted by 2015. After that, we are looking at a long downhill slide for total world liquid fuel production.

So, while there will be plenty of investment in unconventional oil sources, it will not materially change the peak oil phenomenon - at best, it will delay the date of the global peak of all liquids by a few years. And the switch to unconventional oil is setting a triple-digit floor to international oil prices, thereby putting brakes on global economic growth.

The bottom line is that the peak oil challenge has not gone away. If we do not intentionally wean our civilisation off oil quickly, we face increasingly severe economic shocks as well as intensifying climate destabilisation and environmental degradation as we burn dirtier fuels.

Published in Engineering News , 18 May 2012

Economic growth is the favourite mantra and apparent cure-all for the majority of politicians and economists in South Africa, and, indeed, in the world at large. But how many people really understand the nature and implications of compound – or exponential – growth?

Albert Bartlett, an American professor of physics, famously declared that “the greatest shortcoming of the human race is our inability to understand the exponential function”. A simple explanation of how compound growth works and what it would mean for some key variables in South Africa will show why.

Exponential growth refers to a quantity that increases by a certain percentage each unit of time. For example, suppose you have R100 on January 1, 2012. Then, if it grows by 10% a year, you will have R110 on January 1, 2013. In another year’s time, you will have R121, as the 10% growth rate is applied to (compounded on) R110 – not your original R100. After a decade of such growth, you will have R259. Nice work if you can get it.

A continuous process of exponential growth at a constant rate has a couple of very interesting properties.

First, it results in a doubling of the starting value after a certain number of time periods. It is actually very easy to calculate an approximation of the doubling time for an annual growth process: a quantity growing at a fixed rate of x% a year will double every 70 years divided by x (70/x) years. So, if the growth rate is 7%, the doubling time is ten years (70/7). If the rate is 10%, doubling takes place after just seven years (70/10), and so on. In our earlier example, your money will double in seven years, and will double again (to R400) after about 14 years.

The second surprising feature of continuous exponential growth is that the quantity added in the last doubling cycle is greater than the cumulative sum of all previous cycles. Take the simplest example of doublings: 1, 2, 4, 8, 16. The last doubling cycle added up to 16, while the previous cumulative sum was 15 (1 + 2 + 4 + 8).

Now let us apply our new arithmetic skills to some pertinent aspects of collective South African life: the economy, mining and coal production.

Suppose our economy – as measured by real gross domestic product (GDP) – were to grow by 7% a year, which is the rate our Finance Minister has said is necessary to reduce unemployment, then the GDP will double every ten years, which sounds very nice.

But consumption of goods also produces a stream of waste. So, assuming the structure of our economy remained more or less the same, as did our consumption habits, we would double the annual volume of garbage produced every ten years. If the rate of growth continued at 7% for a few decades, then each new doubling cycle would produce more waste than was generated in our entire history. You can easily imagine that our cities’ landfills would very quickly be overflowing.

Next, let us assume mining production also grew merrily at 7%. Then, after a decade, we would have doubled the annual extraction of minerals, which would bring in a lot of foreign exchange, profits to the mining companies and taxes for the State.

But, if we maintained this rate of growth for several doubling cycles, then, in each new decade, we would mine nearly as much ore as we mined in our entire previous history! (Note that the actual historical growth rate in mining output was mostly considerably less than 7%, which means that we cannot say the very next doubling cycle would produce more than our actual cumulative production at this point in time.)

Not only that – our mine dumps would grow prodigiously, and the amount of new acid mine drainage released into our precious rivers would, before too long, exceed all that went before it.

But just as significant, our remaining – finite – mineral reserves would be depleted at an accelerating rate.

David Rutledge, a professor at the California Institute of Technology, has estimated that our country has about ten-billion tons of mineable coal remaining. At the 2010 rate of production of 25-million tons, we would have just less than 40 years of coal remaining. But, if production grew at 4% a year, then the reserves would run out after just 24 years.

This coal example, by the way, is not at all realistic. Coal output cannot keep steady – or keep increasing – for a number of years and then suddenly collapse to zero. It will reach a peak – possibly around 2020 – and then gradually decline year after year.

So, next time you hear a politician or economist talk about the merits of continuous growth, think about the downsides of the arithmetic as well. Your children are counting on you.

Published in Engineering News , 11 May 2012

History is replete with wars fought over resources – whether they are agricultural lands, forests, minerals like gold and silver or energy sources. Fossil fuels – most especially oil – have fuelled plenty of conflict over the past century. As the world has entered an era of increasing oil scarcity, with oil prices in three digits since 2010, the energy stakes are rising once more.

Arguably the world’s pre-eminent authority on resource geopolitics is Michael T Klare, professor of peace and world security studies at Hampshire College, in the US, and author of Resource Wars, Blood and Oil and Rising Powers, Shrinking Planet. Klare says we are “entering a new epoch – the Geo-Energy Era – in which disputes over vital resources will dominate world affairs”. He also identifies three flash points for 2012: the Strait of Hormuz, in the Persian Gulf, the Caspian Sea basin and the South China Sea.

Some 17-million barrels per day (mbpd) of oil transit the Strait of Hormuz, representing one-fifth of global production and one-third of the world’s seaborne oil. Late last year, Iran’s VP warned that Iran would close the strait if the US imposed sanctions on his country’s oil exports. Sanctions have, of course, been legislated and are due to take effect from July. This is a game of brinkmanship with potentially devastating economic consequences, as oil prices would skyrocket if the strait was closed for any length of time.

Some analysts argue that the West’s standoff with Iran over its nuclear programme is really a cover for geostrategic manoeuvres aimed at securing Western access to Iranian oil and gas – the Islamic republic boasts the second-largest reserves of both – and curbing Chinese access to these.

The second hot spot highlighted by Klare is the Caspian Sea basin, an area which includes Russia, Iran, Turkey and a number of former Soviet republics. Since the dissolution of the Soviet Union, most of the ‘stans’ have forged ties with the US and the Europe Union and, more recently, with China.

The Caspian region is well endowed with oil and gas, and has a long history of military conflict, which could erupt once more. Pipelines, which are necessary to export the oil and gas, feature strongly in the geopolitical wrangling as Russia tries to maintain its dominance in this area, the republics vie for autonomy and the US and China seek to secure access to the rich energy resources.

In recent years, notable deposits of oil and gas have been discovered in the South China Sea, which is bordered by China, the Philippines and Vietnam. Two groups of mostly uninhabi- ted islands in the sea have become highly contentious, with all three countries claiming some of them and their surrounding waters.

The US views the South China Sea as a criti- cal area and has close military ties with the Philippines and Vietnam. In January, President Barack Obama announced a shift in US military strategy and resources from Europe and the Middle East to “the arc extending from the Western Pacific and East Asia into the Indian Ocean and South Asia”. This includes a new military base for marines in northern Australia, as well as increased naval presence in the area.

Besides Hormuz, several other notable oil ‘choke points’ are identified by the US Energy Information Admi- nistration. The second-largest is the Strait of Malacca, between Indonesia and Malaysia, which is a conduit for 15 mbpd of oil and half the world’s seaborne cargo. Others include the Suez Canal, the Panama Canal, the Danish Straits, the Strait of Bab el-Mandab, between the Horn of Africa and the Middle East, and the Turkish Straits, which link the Black Sea with the Mediterranean Sea. Closure of any one of these choke points would add considerably to shipping costs and times for oil cargoes and push up world oil prices.

There are other regions where hydrocarbons are fuelling geopolitical tensions. One is the Eastern Mediterranean Sea, where large gasfields have been discovered in recent years. The US Geological Survey estimates that Israel’s recently discovered Leviathan gasfield may contain 12-trillion cubic feet (tcf) of technically recoverable resources, which would make Israel self-sufficient in gas and a net gas exporter. However, tensions between Israel, Greece, Turkey, Lebanon and Cyprus over maritime borders and economic zones are rising.

And, as the Arctic gradually melts owing to global warming, the surrounding nations of Russia, Canada, the US, Norway and Danish-administered Greenland are scrambling to gain access to the newly accessible oil and gas deposits.

Thus far, South Africa has – perhaps, thankfully – not found significant oil- or gasfields. But our country is a world leader in several strategic mineral resources, and so could yet find itself the object of world powers’ aggressive attention.

Published in Engineering News , 30 March 2012

In March, the price of petrol in Gauteng breached R11/ℓ, breaking the previous record-high nominal price of R10.50/ℓ set in July 2008. At R10.37, the wholesale price of diesel is still below the high of R11.43/ℓ recorded four years ago.

Adjusted for general consumer price inflation, however, the 2008 peak retail petrol and wholesale diesel prices would be equivalent to about R13.43/ℓ and R12.60/ℓ respectively, if measured in today’s rands. Still, the persistently rising fuel prices are putting increasing strain on household budgets and company balance sheets.

So, why are fuel prices stubbornly high, and where might they be headed?

Fuel prices in South Africa are deter- mined by the Department of Energy in line with an import parity pricing formula. The so-called basic fuel price (BFP) – which comprises about half the retail price – is benchmarked on international refined fuel prices. To this are added fuel taxes and levies – comprising about 30% of the final price – and retail margins as well as transport costs, which account for the remaining 20% of the price.

Only the BFP component varies from month to month – levies and retail margins are set once a year. The BFP, in turn, depends on two factors: the inter- national crude oil price – measured in dollars – and the rand:dollar exchange rate.

The rand has fluctuated between about R6.75 and R10.12 to the dollar over the past four years, but has been relatively stable for a couple of years and is now trading at almost the same level as it was in July 2008.

The major driver of local petrol and diesel prices over the past decade has been the price of crude oil. Between 1986 and 2003, the oil price traded in a remarkably stable and narrow range, averaging about $20/bl. From 2003, it rose steadily for several years and then spiked dramatically to reach an all-time nominal peak of $147/bl in mid-2008.

This oil price was more than the global economy could bear and, together with the financial crisis, it precipitated the Great Recession. Demand for oil fell steeply and the oil price plunged to around $40/bl in December 2008. Since then, the price has ratcheted up again, and has traded in triple digits since January 2011. Brent crude is now around $125/bl and, in euro terms, is at a record high.

Several reasons are frequently cited for the current high price of crude. Top of the list is the ongoing confrontation between the West and Iran over the latter’s nuclear programme. The sanctions that the US and the European Union have imposed on Iran’s oil and banking sectors are starting to limit Iran’s ability to export its oil. Further, threats by Israel to pre-emptively bomb Iran’s nuclear installations are adding a significant risk premium to oil prices.

Compounding the pressures are short-term disruptions to supplies from Syria – which is a year into its civil war – as well as South Sudan and Yemen.

But these short-term geopolitical factors do not explain the long-run trend in oil prices, which is driven by fundamentals of demand and supply.

Demand for oil is still growing rapidly in many emerging economies. China, which leads the pack, is expected by the International Energy Agency (IEA) to increase its oil consumption by about 400 000 bbl/d this year. Beijing has also begun to fill its new strategic petroleum reserve.

Meanwhile, glo- bal crude oil production has been basically stagnant for the past six years, apart from an increase in biofuel output that has, in turn, boosted food prices. The IEA says it is likely conventional crude oil output peaked in 2006.

Most new oil is being found in hard-to-access deep-water offshore fields, polar regions, Canadian tar sands and American oil shale. These sources typically have marginal production costs in excess of $85/bl or more. The world is rapidly running out of cheap, easily accessible conventional oil, and is being forced to turn to dirtier, more costly unconventional sources.

With the Saudi Arabians having ramped up production to offset losses from Iran and elsewhere, global spare oil capacity is now down to about 2.7-million barrels per day, according to the IEA. This means that the slightest market disturbance can trigger big price fluctuations.

The biggest short-term threat to oil prices is the Iran situation. A military strike on the Persian Gulf country would likely lead to a temporary closure of the Strait of Hormuz, through which a fifth of the world’s oil supply transits each day. In this case, the oil price would skyrocket.

On the other hand, if the eurozone debt crisis triggers a financial meltdown, the oil price could drop considerably, although probably not for very long.

So, brace yourself for more wild gyrations on the oil price roller coaster; better still, look for ways to get off it by reducing your reliance on petroleum.

Published in Engineering News , 13 April 2012

For most of the past couple of centuries of industrial capitalism, the majority of economists, politicians and citizens in general have taken energy supplies for granted. The exceptions were local energy constraints, periods of war, and infrequent incidences of politically-driven supply disruptions such as the 1970s oil shocks triggered by the Arab Oil Embargo and the Iranian Revolution.

But in recent years, two huge challenges to our energy situation have loomed increasingly large and are forcing people to give energy the serious consideration it deserves. The first is anthropogenic climate change, which the majority of scientists ascribe mostly to the burning of fossil fuels. The second challenge – which is still the elephant in the room – is the rapid depletion of cheap and easily accessible reserves of oil, coal and gas.

A Dutch researcher writing on TheOilDrum.com website recently made available a useful data compilation providing global primary energy consumption by energy type (see Figure). An analysis of historical energy patterns shows an astonishing growth in energy consumption and highlights our current dependencies.

World energy consumption 1830-2010

In 1830, the Industrial Revolution was just two generations old in Great Britain, was in its infancy in Germany, and was still in gestation in the United States. Total global energy consumption rose from approximately 24 exajoules (10^18 joules) in 1830 to over 550 exajoules (EJ) in 2010. In the past century alone, energy consumption has grown by a factor of ten. On a per capita basis, energy consumption quadrupled between 1830 and 2010.

In 1830, biomass accounted for over 95 percent of the world’s energy supply. Even today, much of the poorer developing world’s population still relies on traditional biomass fuels like wood and animal dung for cooking and heating. Despite the enormous growth in fossil fuel use over the past century, consumption of biomass energy has continued to grow each year, rising from 23 EJ in 1830 to 63 EJ in 2010. A surge in the last decade is largely due to a huge expansion of ethanol and biodiesel production, driven mainly by government subsidies.

Britain was the first country to exploit its coal reserves in the late eighteenth century, at first mainly because it was running short of wood. Globally, coal replaced biomass as the largest source of energy as recently as 1905. Ironically, the fastest growth in coal consumption occurred in the early part of the new millennium, as China ramped up production to feed its break-neck industrialisation.

Commercial oil production began in the U.S. in 1859, but did not overtake biomass energy until 1955. Oil superseded coal as the dominant energy source in 1964, and still provides the greatest share of primary energy today at over a third.

Natural gas has been the relative late-comer amongst fossil fuels, but has grown rapidly since the 1950s. Where it is abundantly available, it has become the fuel of choice for home heating and increasingly for electricity generation.

Commercial nuclear power generation, derived from the fission of enriched uranium atoms, began in 1954. It was historically the fastest growing new energy source, taking just 12 years to progress from 1 EJ to 10 EJ. But nuclear power has levelled off since 2000, and faces an uncertain future after Fukushima.

Hydroelectricity generation kicked off in the 1870s but has grown very slowly, reaching 12 EJ in 2010. Other renewable electricity generation from solar, wind and geothermal energy sources amounted to just 2 EJ in 2010 – invisible on the figure. This is equivalent to the energy obtained from coal in 1848 and from oil in 1912, shortly after the launch of the model-T ford car.

The figure clearly shows how dependent our industrial society is on fossil fuels. In 2010, 80 percent of the world’s primary energy supply was derived from fossil fuels, 11 percent from biomass, 5.5 percent from nuclear energy, 2.2 percent from hydropower and just 0.4 percent from solar, wind and geothermal energy.

Humanity is now reaching an epic turning point in its energy history. World conventional crude oil production has been basically flat since 2005, and unconventional oil and biofuels have only added marginally to production rates since then. An increasing number of analysts are expecting world liquid fuels output to begin declining within the next few years as discoveries of new oil fields cannot keep up with the depletion of old fields. And a number of recent academic studies have thrown serious doubt on the common assumption of abundant coal reserves.

Installed capacity of renewables like solar and wind have been recording spectacular growth rates in excess of 20 percent a year for several years, but this is off an extremely low base. The transition from depleting and polluting finite fuels to renewable sources of energy represents a monumental and urgent transition for humanity.

Published in Engineering News, 2 March 2012

http://www.engineeringnews.co.za/article/a-century-of-addiction-to-fossil-fuels-2012-03-02

Faced with the converging crises of fossil fuel depletion and climate change, humanity is in desperate need of an abundant, cheap and clean source of energy.

For decades, fusion has been the holy grail of nuclear energy researchers. ‘Hot’ fusion – the process that creates energy in the sun and hydrogen bombs – involves the fusing of hydrogen or deuterium atoms into helium. After decades of research, scientists have yet to crack the problem of managing the extreme temperatures involved. ‘Cold fusion’, which, in theory, would create useable energy at room temperatures, has for a long time been a similarly elusive dream.

In 1989, two scientists at the University of Utah, Pons and Fleischmann, claimed to have demonstrated a cold fusion reaction that produced excess energy, that is, more energy than would be yielded by a normal chemical reaction.

However, other researchers had great difficulty in replicating the Pons-Fleischmann experiments, and the whole notion of cold fusion became discredited as ‘junk science’.

Nonetheless, some scientists scattered around the globe have continued this line of research and, in the past few years, there has been a renewed explosion of interest in the subject.

The term ‘cold fusion’ has fallen out of favour, to be replaced by the more accurate label of low-energy nuclear reactions, or LENRs.

Scientists working in several labo- ratories have claimed to have produced excess heat energy when mixing hydrogen gas with nickel or palladium under certain conditions. Remarkably, the reactions produce no greenhouse gases or radioactive waste.

Last year, an Italian engineer and entrepreneur named Andrea Rossi catapulted himself to fame – or possibly infamy – by claiming to have invented a device – called the energy catalyser, or E-Cat – that produces commercially viable quantities of LENR energy using a special catalyst.

In October, Rossi performed a demonstration of a 1 MW E-Cat to a handful of scientists and a potential buyer at the University of Bologna. Subsequently, Rossi said he sold his device to an unnamed American buyer, which some people have speculated could be a branch of the US Department of Defense.

With Swedish company Hydro Fusion acting as the agent, the website ECAT.com is advertising 1 MW units for sale at $1.5-million each – a 25% price cut after two months, resulting from a “close and successful colla- boration with the first (still undisclosed) customer” and “new favourable and scalable production processes”. That price would equate to about R47-billion for capacity equal to the Medupi power station, which has a price tag of upwards of R120-billion. The fuel and maintenance costs are said to be a negligible $1/MWh each, while the estimated life span of a device is 30 years. ECAT.com claims that 10 kWh household units will be available for purchase by next year.

Rossi’s claims triggered a storm of debate, with many critics saying it was a scam, as his device defied the known laws of physics. Rossi has yet to allow independent scientific validation of his device, arguing that he wants to secure a patent first.

In recent months various competitors have emerged with similar assertions.

Greek company Defkalion Green Technologies issued a press release in November stating that it will begin selling an LENR device dubbed Hyperion this year. Another statement, released on January 23, invited inde- pendent third parties to test the reactors.

In mid-January, the US National Aeronautics and Space Administration (Nasa) released a short video in which a Dr Joseph Zawodny says that the LENR process “has the demonstrated ability to produce excess amounts of energy cleanly, without ionising radiation, without producing nasty waste”. He says this heat could be used on a household scale for space and water heating and converted into electricity generation, on an industrial scale for power generation and, ultimately, for transportation.

On his blog, Zawodny subsequently stated: “When considered in aggregate, I believe excess power has been demonstrated. I did not say, reliable, useful, commercially viable, or controllable.” Nevertheless, he says the video was released as part of a patent application filed by Nasa for an LENR device.

Most recently, several blogs are reporting that scientists at the Massachusetts Institute of Technology held a short course on cold fusion in the last week of January, where a successful LENR demonstration was apparently conducted.

If commercial energy from LENR proves to be viable and cheap, it could completely revolutionise the world’s energy systems, rendering fossil fuels and conventional nuclear fission reactors obsolete and making fresh- water through desalination affordable. But a widespread transition to LENR energy would likely take a decade or two.

It is still too early to tell whether commercial LENR is imminent or will turn out to be a red herring. But this story is definitely one to watch.

Published in Engineering News, 17 February 2012

http://www.engineeringnews.co.za/article/is-low-energy-nuclear-reaction-new-physics-or-an-old-scam-2012-02-17

Every year the National Treasury increases so-called ‘sin taxes’ on cigarettes and alcohol, both addictive substances whose use results in large health and social costs. So why not impose a similar tax on another substance that is a national addiction, deleterious to our long-term health and depleting globally – namely, oil?

Consumers already pay taxes and levies on petroleum fuels – amounting to about a third of their retail prices, which are now near their all-time nominal highs over R10 per litre. Further fuel price increases would hurt poor people who generally spend a large proportion of their meagre incomes on transport. Rather, the Treasury should impose a ‘syn’ tax – a windfall tax on the profits of synthetic fuel producers Sasol and PetroSA, which together contribute about a third of our fuel supplies. At the same time, consumers should begin a ‘rehab’ programme to address their oil addiction.

A windfall tax on synfuel profits will not make any difference to the price of fuel paid by consumers. This is because national fuel prices are determined by the Department of Energy on an ‘import parity price’ (IPP) basis. That is, local ‘basic fuel prices’ are benchmarked on international refined petroleum product prices, to which are added transport costs, wholesale and retail margins, and levies and taxes. Thus Sasol and PetroSA sell their synthetic petrol and diesel at the same prices as the companies – Engen, BP, Shell, Chevron and Sasol again – that refine imported crude oil.

Any increase in international crude oil prices or a weakening of the rand exchange rate pushes up local fuel prices, raising the rate of inflation and hurting SA’s consumers but boosting the profitability of synfuel producers. PetroSA recorded a R871 million net profit in fiscal year 2011, while Sasol Group operating profit increased by 25% to R30 billion.

Sasol is SA’s largest company by sales and market value and contributed R25 billion in direct and indirect taxes in the past financial year, ranking it amongst the country’s largest corporate tax payers. PetroSA by contrast is wholly owned by the state.

So should an extra windfall tax be imposed on the synfuel producers? This question was addressed comprehensively by a special Task Team appointed by then-Finance Minister Trevor Manuel in 2006. The Task Team found that both Sasol and PetroSA have benefitted extensively from state support over several decades.

Sasol was created and funded by the Apartheid state in the 1950s, but was privatised in 1979 and is now listed jointly on the JSE and the New York Stock Exchange. Sasol’s first synfuel unit was financed by the state-owned Industrial Development Corporation. The company has always been guaranteed full uptake of its products at import parity prices, enjoyed low tariffs on the pipeline network constructed by Transnet over the years – which gave Sasol market access for synfuels and gas and amounted to a subsidy of approximately R860 million per year – and benefited from tariff protection between 1979 and 2000 to the tune of at least R6 billion.

Moreover, Sasol was privatised “on terms very favourable to investors”, thereby benefitting a small group of shareholders, 40 percent of whom are foreigners.

Mossgas, which later became part of PetroSA, benefitted from tariff protection on the same basis as Sasol, ultimately enjoying subsidies from motorists amounting to R1.5 billion up to November 2004. Soeker, which discovered the gas feedstock, was funded by government but later absorbed into PetroSA. The state invested R13 billion in Mossgas and R8 billion in Soekor, and wrote off loans to these entities amounting to R8 billion and R1.5 billion, respectively.

The Task Team cited several independent estimates of the costs of production for existing CTL and GTL; these ranged between $22-45 per barrel and $18-30 per barrel, respectively. Even though these costs have surely risen over the past five years, the profitability of the synfuels producers indicates that they are considerably lower than recent crude oil prices.

In short, the Task Team commented that “very large amounts of the tax payers’ money have been used to support and maintain the synthetic fuels industry”. Thus they recommended the imposition of a windfall tax of R1.25 per litre of synfuel at an oil price of $110 per barrel, which would garner over R10 billion in annual tax revenue.

However, then-Finance Minister Trevor Manuel shunned this advice, saying the tax might undermine further investment in the synfuel industry, which he argued was necessary for bolstering energy security. An additional reason cited by the Treasury was that it could not be sure whether the windfall profits were of a cyclical or structural nature. With hindsight, it is clear that oil prices have been trending upwards for at least eight years now. And they are expected to shoot much higher after the world passes ‘peak oil’ production.

As it happens, at the same time that the Task Team released its report, Sasol announced that it was considering building a new coal-to-liquid plant, dubbed Mafutha. But the company later said it needed partial government funding for an investment set to cost in excess of R50 billion.

Last year Sasol put project Mafutha on ice because of concerns about the costs of greenhouse gas mitigation and the quality of coal in the Waterberg field. Thus the main justification for withholding the windfall tax has not materialised – and given climate change and other pollution concerns, that might be for the best.

The proceeds of a syn tax should not be used to subsidise domestic fuels, as this would encourage our oil addiction. The revenues should instead be utilised to reduce SA’s dependency on oil imports. Global oil production has been essentially stagnant for six years and an increasing number of analysts warn that we are at or near ‘peak oil’ production, and that annual output will begin an inexorable decline within the next few years. As the International Energy Agency’s chief economist Fatih Birol is fond of saying, “we must leave oil before oil leaves us”.

Thus syn tax revenues should be invested in renewable electricity capacity and more efficient and sustainable transport systems, like electrified rail for both freight and passengers. Subsidised public transport would be a much more sustainable form of support to poorer commuters than fuel subsidies.

In a country with amongst the highest levels of inequality in the world, it is iniquitous that a few private shareholders – many of whom are foreigners – should profit at the expense of our citizens. Our government should follow the example set by their Australian counterparts – in respect of their mining ‘super-tax’ – and divert resource rents to sustainable investments for the benefit of all South Africans.

Published in the Mail & Guardian, 10 February 2012

http://www.mg.co.za/article/2012-01-20-barrelling-towards-fuel-shortages/

Everything about the People’s Republic of China is big. It is the world’s second-largest country by land area, has the biggest population at over 1.3 billion people, and in 2010 its economy surpassed that of Japan to become the second largest in the world. China’s rampant industrialisation has profound implications for the global economy, energy security, environment and geopolitics.

For the past three decades the economy has grown at an average compounded rate of almost 10% per annum, which means the economy has been doubling in size roughly every seven years. Industrial growth, of course, requires energy – and China’s demand for energy has been growing prodigiously, so much so that the nation is now the world’s top energy consumer.

Coal is the mainstay of China’s economy, providing two-thirds of primary energy supply and fuelling over 80% of the country’s electricity. China is far and away the world’s top coal consumer and producer, accounting for 48% of global coal consumption in 2010. In each successive doubling cycle – about every decade – China consumes as much coal as it did in all of its previous history. According to a report by the German-based Energy Watch Group, China’s coal production could peak as early as 2015, although two Chinese researchers estimated the peak will likely occur between 2025 and 2032.

Oil is also increasingly important for the Chinese economy, accounting for 17% of primary energy supply in 2009. Oil consumption grew on average by 7.2% a year from 2003 to reach 9 million barrels per day (mbpd) in 2010. Chinese total vehicle sales were 18.5 million units in 2011, having overtaken the US in 2009. China’s expressways network is expected to exceed the total length of the US Interstate Highway system within the next couple of years.

The country is currently the world’s second-largest consumer and net importer of oil behind the US. Production in 2010 was 4.1 mbpd, but is expected by researchers at the China University of Petroleum to peak within the next few years. China already relies heavily on Middle Eastern oil producers – chiefly Iran and Saudi Arabia – for close to 50% of its oil imports.

China’s voracious appetite for energy has three major consequences for the world at large.

The first is pressure on world energy prices. While oil consumption has been declining in the rich Western nations since 2006, China has accounted for around half of world demand growth and thus much of the rise in oil prices. In 2009 China became a net coal importer, which has already had a noticeable impact on international coal markets.

The second implication of China’s hunger for energy concerns the country’s greenhouse gas (GHG) emissions and contribution to global climate change. In 2006 China overtook the U.S. as the largest absolute emitter of GHGs. China plans to reduce its energy intensity – energy consumed per unit of GDP – by 31 percent between 2010 and 2020. Beijing also recently announced a plan to introduce a moderate carbon tax. The world desperately needs China to accelerate its transition to low-carbon fuels to help avoid a climate catastrophe.

The third big ramification of China’s growing energy use is geopolitical. Depletion of finite fossil fuels implies increasing competition with other countries – notably the U.S. – over access to energy resources. In December 2011 President Obama announced that the U.S. military would be shifting its main focus from the Middle East to the Asia-Pacific area, obviously to counter China’s growing influence in the area. Nonetheless, the military actions by the US and its allies in Africa and the Middle East could be partly aimed at restricting China’s access to oil.

For its part, China is rapidly modernising its military, reportedly spending around $100 billion on defence in 2010. But Beijing’s main strategy has so far been to lock up energy resources in bilateral contracts with producer countries. And Chinese oil companies – mostly state-owned – have been investing aggressively in many resource-rich nations.

Looking ahead, three scenarios present themselves.

One is a derailment of the Chinese growth juggernaut. Concerns are mounting that the real estate bubble could soon burst, landing China with the same fate as Japan, whose economy stagnated for more than a decade after its property and equity bubbles burst in the early 1990s.

A second scenario is that China continues its relentless growth, powered principally by fossil fuels. This would be a world of rising carbon emissions and escalating geopolitical tensions. But in the face of oil and coal depletion, this path will also come to an end sooner or later.

Thirdly, if the Chinese government is really serious about transforming their energy-economy system to one that is sustainable and provides greater energy security, it could conceivably lead the world in a transition to renewable energy sources.

One thing is sure: when the Chinese jump, the world shakes.

Published in Engineering News, 3 February 2012.

http://www.engineeringnews.co.za/article/when-china-jumps-the-world-shakes-2012-02-03