US energy independence in five years?

[kgbsquirrel]

Couldn't help it, it's the cynic inside. When I read the subject line my first thought "Is that because our economy will be so trashed we simply wont need any more oil than what we produce domestically?"

[birdman]

Hey birdman, how closely do you watch the GTL & CTL news? From what I've been seeing, I'm still optimistic...
http://www.ft.com/intl/cms/s/0/77ba75b6-3d80-11e2-9f35-00144feabdc0.html#axzz2KyXbyld4

http://www.nytimes.com/2013/01/27/automobiles/racing-fuel-from-the-fat-of-the-land.html?_r=0
The Syntroleum process using the fats left over from Tyson is a Fischer Tropsch process. They break the fats down to syngas.


About 6 months ago, I also saw an article for a shell company buying up Illinois and nearby coal fields and was buyig property to build a coal-to-liquid plant.


I see things slowly moving forward, starting to gain a little momentum. This makes me somewhat optimistic.

How are you optimistic?  A 100kbbl/day plant for $11B?  So, lets see here, we import about 12 million bbl/day, so doing the math...carry the one....well, that's ONLY a $1.32 trillion capital investment, oh, and would only be economical when gas is <$4/mmbtu....which it wouldn't be if the demand suddenly doubled or tripled to make up for the oil.

No, I'm not optimistic. 

The only long term viable fuel infrastructure is synthetic fuel generation from nuclear.  Anything else doesn't have the economic legs.

[longeyes]

If we wanted to be energy-independent we could be.  We have several options.  If W. had been a better man, we'd have 100 nuclear reactors on-line now and half our consumer electrical needs satisfied.  "We," meaning those who rule us, do not want us energy-independent.  This is a political, not technological and engineering, problem.

[MillCreek]

^^^ I gnash my teeth every time I think of Yucca Mountain being shut down.

[drewtam]

Ok, well, I'm still optimistic; the numbers seem to work for continued growth. I don't expect GTL to be the silver bullet to cover all fuel needs; but I expect it to be a major player for the intermediate future (now till 100yrs).

How am I optimistic?
1) $1.32T and... whats your point? You throw that number out there without explaining why you think our 15Tr economy can't handle it.

2) Rome wasn't built in a day. Don't need to cut all imports to 0 in one year investment. Especially considering most of our oil imports comes from Canada and Meheco.

3) Over 10-20yrs, thats a very reasonable capex plan for the oil industry.

Meanwhile, a survey of 350 oil and gas companies by Barclays Capital forecasts a record level of worldwide exploration, drilling and production spending in 2012, but says the rate of growth will slow from a year ago, in part because of wariness about continued economic uncertainty. The $598 billion in expected spending is up 10 percent from $544 billion in 2011.

http://www.aogr.com/index.php/web-features/exclusive-story/surveys-forecast-increased-capex-programs

Lets see: 300B capex US industry, times 20 years, assuming no growth, carry the one, $6Tr industry over 20yrs can't afford $1.3tr in alternative sources?

oh, and would only be economical when gas is <$4/mmbtu....which it wouldn't be if the demand suddenly doubled or tripled to make up for the oil.

Sasol seems to disagree on the spread economics...

The economics of gas to liquids depend on the spread between the price of natural gas and the price of oil, which is the other source of diesel. Even at $6.50 per million BTU, a long-term price forecast by some analysts, gas would be valued at the equivalent of just $40 per barrel of oil, still well below today’s $110 for a barrel of internationally traded Brent crude.
“We will be reasonably comfortable with reasonably high gas prices . . . in the high single digits,” Mr Constable said.

http://www.ft.com/intl/cms/s/0/77ba75b6-3d80-11e2-9f35-00144feabdc0.html#axzz2L0ZgCQmu

This quotes a price spread of $70/bbl, for a rough calc...
$70/bbl x 96kbbl/day x 365day/yr = $2.45B/yr
$13B capex / $2.45B/yr = 5.3yr ROI

That is pretty good. Yup, definitely still optimistic.

[slingshot]

The only long term viable fuel infrastructure is synthetic fuel generation from nuclear.  Anything else doesn't have the economic legs.

I agree and we need to build nuclear plants continuously.

[grampster]

A carefully crafted campaign to reveal to Americans the importance of energy independence and how the Left has caused and is causing the horrid economic situation for the "middle class" by interfering and stultifying inexpensive and plentiful energy, and harping on it everyday in every way, the Stupid Party could bury the Democrat Left.

That single issue alone would rile up the Sleeping Giant and the Dumb Young.

[longeyes]

A carefully crafted campaign to reveal to Americans the importance of energy independence and how the Left has caused and is causing the horrid economic situation for the "middle class" by interfering and stultifying inexpensive and plentiful energy, and harping on it everyday in every way, the Stupid Party could bury the Democrat Left.

That single issue alone would rile up the Sleeping Giant and the Dumb Young.

The GOP is afraid of using fear as a political tactic. That could very well be their undoing.

[grampster]

But it wouldn't be fear.  It would be finally using something that has been devalued: Truth.

[kgbsquirrel]

But it wouldn't be fear.  It would be finally using something that has been devalued: Truth.

The public in general doesn't respond to truth. They respond to either fear (stick) or what they want to hear (carrot).

[birdman]

Ok, well, I'm still optimistic; the numbers seem to work for continued growth. I don't expect GTL to be the silver bullet to cover all fuel needs; but I expect it to be a major player for the intermediate future (now till 100yrs).

How am I optimistic?
1) $1.32T and... whats your point? You throw that number out there without explaining why you think our 15Tr economy can't handle it.

2) Rome wasn't built in a day. Don't need to cut all imports to 0 in one year investment. Especially considering most of our oil imports comes from Canada and Meheco.

3) Over 10-20yrs, thats a very reasonable capex plan for the oil industry.http://www.aogr.com/index.php/web-features/exclusive-story/surveys-forecast-increased-capex-programs

Lets see: 300B capex US industry, times 20 years, assuming no growth, carry the one, $6Tr industry over 20yrs can't afford $1.3tr in alternative sources?
Sasol seems to disagree on the spread economics...http://www.ft.com/intl/cms/s/0/77ba75b6-3d80-11e2-9f35-00144feabdc0.html#axzz2L0ZgCQmu

This quotes a price spread of $70/bbl, for a rough calc...
$70/bbl x 96kbbl/day x 365day/yr = $2.45B/yr
$13B capex / $2.45B/yr = 5.3yr ROI

That is pretty good. Yup, definitely still optimistic.

Ugh.

Okay, more detail,
1. you can't directly compare overnight capital (1.32T) with amortized income...for either ROIC or overall investment.
2., sasol's ONE plant isn't going to change the price much...132 of those would by changing the NG demand curve.
3. In good economic conditions, the demand for the liquid fuel grows by 3-5% per year, meaning over 20 years, you actually need double that.
4. Plant lifetime needs to be taken into account (can be done with a modified discount rate)
5. That spread "profit" is reduced by other costs (distribution to:from, O&M, etc), I would bet based n distro costs currently of $5-10 for liquids and gas equivalent liquids, that the spread is about half, and if the price spread decreases due to increased demand for gas, the income can easily drop faster due to fixed costs.

With all of the above, what you end up with is an effective discount rate of 10-15%, and an income spread about 60% of the idea fuel comparison...meaning the cap-ex is effectively 2-3x as high.

I just ran this kind of analysis, in more detail, for a nuclear customer to compare synthetic fuel generation with GTL...and found a few good papers.

I'm not saying it can't be done, its just less rosy that it seems at first blush.  The reason the synthetic fuel generation wins economically is it doesn't have the deman caused cost increase as you aren't "diverting" production of anything existing to do it (fuel cost for nuke is a really small fraction, unlike GTL), so it becomes better economically, as the capital costs for incremental investment decrease, meaning the spread increases over time with greater demand for the product, rather than decreases.

[drewtam]

1) Still haven't explained why you think 1.32T in investment is too much for our economic system to handle over 10-20yrs.


2) Of course. GTL isn't going to be a silver bullet that completely covers all oil needs. Maybe not even all import needs. But it will be a major player, along with the big shale oil extractions now going on. Most of my excitement over it is that it forms an important stepping stone from crude oil refining stream to a nuke powered synthetic stream.

From that perspective, I am expecting the demand for NG to increase until it rebalances at a higher than current price ratio with crude. That additional demand is not going to come all from electric power, but some will. It won't all come from NG powered vehicles, but some will. It won't all come from GTL, but some will. These uses will grow until the spread or price ratios find a more traditional balance.


3) You got a source on that? I looked at the EIA data, and it showed pretty slow growth since 1980. Maybe I'm looking at the wrong data set. There hasn't been 3-5% growth since the 70s. The 10yr avg growth from 82-92 is ~1%/yr, from 92-02 ~1.5%/yr, 02-12 ~-0.5%/yr (05 was an all time peak). Only single year growth spikes ever get into 3% range, but is never a long term trend.


4) Yeah, I'm not gonna bother with NPV calcs since I have only the roughest of estimates to work with, and no costs. So what I look for, do companies with their own cash place their bets on this path, that it will make them money. And I'm seeing a CTL&GTL industry starting to form.

[Waitone]

Never happen.  the Petro dollar as a planetary currency requires US dependence on Middle Eastern oil sources.  Destroy the US dollar and a lot of things become possible including energy independence.  Never happen until the dollar is destroyed.

[birdman]

1) Still haven't explained why you think 1.32T in investment is too much for our economic system to handle over 10-20yrs.


2) Of course. GTL isn't going to be a silver bullet that completely covers all oil needs. Maybe not even all import needs. But it will be a major player, along with the big shale oil extractions now going on. Most of my excitement over it is that it forms an important stepping stone from crude oil refining stream to a nuke powered synthetic stream.

From that perspective, I am expecting the demand for NG to increase until it rebalances at a higher than current price ratio with crude. That additional demand is not going to come all from electric power, but some will. It won't all come from NG powered vehicles, but some will. It won't all come from GTL, but some will. These uses will grow until the spread or price ratios find a more traditional balance.


3) You got a source on that? I looked at the EIA data, and it showed pretty slow growth since 1980. Maybe I'm looking at the wrong data set. There hasn't been 3-5% growth since the 70s. The 10yr avg growth from 82-92 is ~1%/yr, from 92-02 ~1.5%/yr, 02-12 ~-0.5%/yr (05 was an all time peak). Only single year growth spikes ever get into 3% range, but is never a long term trend.


4) Yeah, I'm not gonna bother with NPV calcs since I have only the roughest of estimates to work with, and no costs. So what I look for, do companies with their own cash place their bets on this path, that it will make them money. And I'm seeing a CTL&GTL industry starting to form.

My point is it is -at least- a $1.32T NPV investment, and because of the various factors (even with low growth, taking into account plant lifetime and other factors makes the discount rate big) it when amortized is a $150-300B/yr CAPITAL investment, which is pretty much the capital equipment investment of a significant percentage of the entire US economy...for decades.  Since it hasn't substituted, its additional capital.

Not saying it can't be done, only that the economics are questionable, which is why it ISN'T being done.

Call it Occam's razor for economics...if it seems obvious that money could be made, at ANY level of capital investment, but the investment isn't happening, your economic assumptions are wrong.  I see this all the time, and its one of the major arguments that derail things, even nuclear.

There are companies with tens of billions of cash, and consortia investment blocks with trillions...so its not access to capital.  Turns out small aspects in the forward calculation start really mattering, and it makes it non-economical at large scale.

Sasol's investment is because it is "small", since it won't distort the market, its legit, however, scaled to significant percentages, it becomes non economical.

[longeyes]

The public in general doesn't respond to truth. They respond to either fear (stick) or what they want to hear (carrot).

My point.  Few people care about "truth."  They are moved by primal emotions.  Romney, one example, needed to create the scenario of America under Obama as it would impact voters' lives and the lives of their children.  One compelling speech like that might have turned the election.

[RevDisk]

Not saying it can't be done, only that the economics are questionable, which is why it ISN'T being done.

Call it Occam's razor for economics...if it seems obvious that money could be made, at ANY level of capital investment, but the investment isn't happening, your economic assumptions are wrong.  I see this all the time, and its one of the major arguments that derail things, even nuclear.

There are companies with tens of billions of cash, and consortia investment blocks with trillions...so its not access to capital.  Turns out small aspects in the forward calculation start really mattering, and it makes it non-economical at large scale.

Economic or political assumptions. I highly suspect you rolled both meanings in there, but I'd argue it'd warrant separate consideration. Long range investments must take "What's going to happen in X years" into account. If one thinks taxes or compliance costs will go up, the risk has to be justified with increased profitability. No one sane (aside from governments) is going to put money into long term ventures, with high fixed, non recoverable costs, with a skimpy profit margin if they think that profit might further shrink or go negative. Not when there is significantly safer short or medium term ventures with higher ROI.

[birdman]

Economic or political assumptions. I highly suspect you rolled both meanings in there, but I'd argue it'd warrant separate consideration. Long range investments must take "What's going to happen in X years" into account. If one thinks taxes or compliance costs will go up, the risk has to be justified with increased profitability. No one sane (aside from governments) is going to put money into long term ventures, with high fixed, non recoverable costs, with a skimpy profit margin if they think that profit might further shrink or go negative. Not when there is significantly safer short or medium term ventures with higher ROI.

By definition, economic assumptions MUST take into account political assumptions as at the least, a parametric case (no change, change better, change worse).  If the sensitivity to political assumptions is non-zero, then the risk needs to be adjusted accordingly--and in my mind, ANY political sensitivity is negative as its tacitly unpredictable and by definition can have infinite effect (ie, something is banned).  It's also effectively impossible to predict in any fashion cost of influence in one direction or another.

Things that require political changes to be profitable are exceedingly high risk, those that don't, or have little sensitivity to politics other than outright ban or illegality, are much more attractive.

In this case, nuclear investment in this country has poor economics based on politics--nearly 30-40% of LCOE (levelized cost of electricity) is "regulatory compliance and impact" for nuke plants--and its going up.  Having done those models, its sad, but shows that politics and economics are directly linked.