Vulnerabilities to Energy as Weapons of Political Will

February 7, 2023 § Leave a comment

Low-cost energy lifts all boats of economic prosperity. Equally, the opposite is also true. Over the years, countries have used energy as weapons of political will. When that has happened, the cost of that unit of energy has risen, thus achieving the intended privation to influence a political position. But not all forms of energy are equally susceptible to this manipulation. Examining just the scalable low-carbon energies of the future for vulnerability to supply chain disruption, the likely rank order in increasing vulnerability is advanced geothermal systems, small modular reactors, innovative storage means (including hydrogen), wind electricity and solar electricity.

Given the magnitude of the impact of the curtailment of energy access, small wonder that energy exporting nations use energy access as weapons of political will. In the last half century there have been two of note. One was the oil embargo portion of the trade sanctions against South Africa in an effort to influence abandonment of the apartheid policy. It was only moderately successful in of itself because of backdoor supplies. But it did cause the first successful commercialization of gas to liquids technology. Eventually, other factors forced the policy changes eliminating apartheid.

A more dramatic one was the Arab Oil Embargo in 1973, in retaliation for a pro-Israeli stance by the US and others in the Yom Kippur War between Israel and Egypt. It lasted only about 6 months in the US (bit more elsewhere) but caused economic havoc and permanently raised the price of oil. This emboldened oil exploration in the North Sea and justified the Canadian oil sands. The latter, in no small measure, contributed to North America now being essentially self-sufficient in oil and gas. The North Sea oil and gas boom made Europe less reliant on the Middle East. In that sense, the embargo acted against the interests of the authors. But the use of oil as a weapon of political will, no matter the outcome, was established.

A smaller saber rattle was in the winter of 2009, when Russia cut off natural gas supplies to Europe to punish Ukraine, through where the pipeline traversed. It was only for 10 days but taught a lesson which certainly was not learnt by the Germans and other Europeans. Shortly thereafter, increased reliance was placed on natural gas from Russia. And now look at the consequences. The Russian invasion of Ukraine, accompanied by the reaction by much of the world to reduce or eliminate imports of energy from Russia, has caused a spike in the cost energy. The wild swings in the cost of natural gas in Europe, as compared to relative stability in the US, are shown in the figure. This has rippled through the economies of the world.

Remedies for Energy Used as a Weapon

One remedy would be to have energy treaties with trusted neighbors, much the same as defense treaties. This would apply to virtually any source of energy, but best suited for oil, gas and electricity. Interdependency helps. Mexico is short of natural gas and has surplus heavy oil, which is well suited for US refineries, and plentiful US shale gas is dispatched in exchange. Canadian heavy oil is mostly sent to the US, where refineries prefer it to the domestic shale oil, in part because it sells for a discount of about USD 20 per barrel today. South Asia does not as yet have anything codified but could, possibly with India as the hub. The trust aspect would probably limit any India focused South Asia grouping to just include Bangladesh, Bhutan, Sikkim, Sri Lanka, Maldives, and possibly Myanmar.

In a de-carbonizing world, the energy of the future is largely carbon-free electricity. A disruption, were it to be attempted, would come in the form of limiting access to key elements of the supply chain, not the commodity itself. Carbon-free electricity is a mixed bag in being susceptible to supply chain disruption. Considering just the US as an example, wind energy is probably fine, with the componentry largely sourced domestically. But as in most manufactured items today, supply is distributed. The largest sources are three European countries combined, and India.

Solar power, on the other hand, sources the vast majority of componentry from China, even though the assembly may be in neighboring countries such as Malaysia, making the import seem to be from those countries. Over 80% of polysilicon used worldwide for manufacture of solar panels is from China. Risk to supply can originate from action at either end. The Chinese factories producing polysilicon are believed to discriminate against a minority. But if the reaction to Russian aggressions is any indication, the US may not initiate anything. In the case of Russia, enriched uranium (uranium with higher concentration of the fissionable U235 in the U238 than found in the mined ore) was discreetly not in the list of import bans from Russia, probably because it was too necessary.  Russia is the largest supplier to the US, at about 30%.

It is still too early to tell where components will get sourced for small modular reactors (SMRs), because none or being made in manufactured quantities yet. But the likelihood for sourcing from friendly countries is high except for the enriched uranium. But the enrichment process is well understood and could be ramped up in most trusted countries. Processing of spent fuel, as already practiced in France, will conserve resources. Furthermore, the breeder reactor versions using thorium in place of uranium would benefit from the fact that a major source would be Australia. India too has significant reserves of thorium.

The winner in the insulation from sanctions sweepstakes is the class of offerings known as advanced geothermal systems. They use conventional equipment from the oil and gas industry, and in fact will pick up personnel and equipment increasingly made redundant with upcoming demand destruction in oil. They, together with SMRs, are ideal for filling the temporal gaps in solar- and wind-based electricity production.

Energy treaties with friendlies*, and choice of energy sources most impervious to external manipulation are the best recourse against the use of energy as a weapon of political will.

Vikram Rao

February 7, 2023

*With a little help from my friends, from With a Little Help from My Friends, the Beatles (1967), written by John Lennon and Paul McCartney

Advertisement

SPR Now Stands for Selective Political Rhetoric

February 2, 2023 § 5 Comments

Two weeks ago, The House entertained 140 amendments to HR21, a bill intended to influence the drawdown of the Strategic Petroleum Reserve (SPR). President Biden had executed a drawdown last year in response to oil supply disruptions caused by the Russian invasion of the Ukraine. An amendment by Marjorie Taylor Greene seeking to halt the drawdown was defeated 418 to 14, a historic beat down of any amendment. That is interesting, and embarrassing for her, but what in Sam Hill is going on here?* The answer, further detailed below, is that the SPR has been passe for quite a while. Now, it is just a piggy bank for the administration in power and a convenient political football for the opposition, the latter being emboldened by the fact that the public (including “experts”) does not realize that the original purpose of the SPR is no longer relevant, certainly not at its current size. Here’s why.

The Arab Oil Embargo in 1973 caused a major supply disruption in the US. President Ford signed the Energy Policy and Conservation Act in 1975, which enabled a petroleum reserve of up to 1 billion barrels of oil in four locations in Texas and Louisiana. This target was later lowered to 714 million barrels. The purpose was to ameliorate the effects of “economically-threatening disruption in oil supplies”. SPR releases have been ordered 3 times prior to the current one, twice by Republican Presidents and once by a Democrat. There has been no hint of releases being a partisan issue. Until now.

The three previous releases were in 1991 (Desert Storm driven), 2008 (Hurricane Katrina), and 2011 (International Energy Agency led effort in response to dramatic supply disruptions in Libya and elsewhere). The significance of the year 2011 is that US shale oil production hit its stride shortly thereafter. Once it did so, two aspects became clear. One, that the reserves were enormous, and two that production could commence within months of financing and permitting. Several thousand drilled, but not completed (DUC, pronounced duck) wells could come on stream even faster, and nearly half the cost would already have been incurred. Today, North America is essentially self-sufficient in oil, and natural gas too, for that matter. This is a far cry from the Arab Oil Embargo days that caused the creation of the SPR. Back then, the US was heavily dependent on imported oil and new domestic oil production, especially offshore, would take years. Today, shale oil in the ground is the strategic reserve.

Let’s discuss timing. SPR releases are limited to a rate of 1 MM bpd (one million barrels per day). 90 MM barrels could be drawn in 90 days, or roughly 3 months. Double that and we have 180 MM barrels in 6 months. Currently, the SPR is at about 370 MM barrels. That could get drawn down another 100 MM barrels and still leave enough cushion for shale oil production to pick up the slack in the event of a catastrophic curtailment of normal oil supply. Not only is the current drawdown to 370 MM barrels not consequential to national security, even a further withdrawal would be safe. There is a caveat. Many small operators went bankrupt during the Covid related demand drop and the properties are now with more fiscally conservative owners. Therefore, in the event of a true national energy related emergency, the government may need to step in to assure the necessary production. Persuasion largely failed in the last year or so, but nor did we have a dire situation. In fact, none of the three previous releases were triggered by anything approaching the threshold of supply disruption envisioned when the SPR was authorized. In each case, as in the one ongoing, the release was coordinated with other countries. The US portion was about 30 MM barrels on each occasion, a barely noticeable dent in the total (see figure). So, in close to half a century after creation, the SPR has never been needed for the original purpose. US shale reserves and the feasibility of relatively rapid production ramp up further reduce the justification for anything more than a modest reserve of 200 MM barrels. The current brouhaha over withdrawals is a tempest in the SPR teapot.

Vikram Rao

February 2, 2023

*Everybody look what’s going down, from For What It’s Worth (Stop, Hey What’s That Sound), song by Buffalo Springfield (1966), written by Stephen Stills.

A Stranger in No Land

October 31, 2022 § 1 Comment

I published my “fun book” nearly six months ago, entitled A Stranger in No Land, tales of assimilation. With considerable reluctance, because it smacks of self-promotion, I am linking you to it. The sneak peek that Amazon gives is well selected. But the Preface may be more informative relative to your wanting to investigate it any further. Accordingly, it is reproduced below. The cover art is a painting by my mother, and the illustrations are by my grandniece. As I noted, a fun book.

PREFACE

“People are strange when you are a stranger”

From People are Strange by The Doors (Written by Robbie Krieger and Jim Morrison)

            As the Doors song line goes, a stranger in a new land will be faced by strange behavior. The episode described in If it Moves. . . was the author’s introduction to the stark contrast in sexuality of California in the 1960’s to the experience of a 21-year-old from the all-boys (at the time) Indian Institute of Technology in sleepy Madras. Culture shock about defines it. These shocks can range from the essentially pleasant and intriguing, as was this one, to the shocking. But they all share the trait of a feeling of inadequacy. Of a lack of preparedness.

            In this situation, the stranger has two choices. One is capitulation. (S)he simply returns home. This may not be a physical return; it could merely entail making a choice not to be involved in said activity. In context, home is a zone of comfort. Similarly, the interpretation of “land” in the book title would be a place or pursuit (public speaking, for example), not necessarily a country. When I (the author) was a child, the capitulation option was not available when the family moved every couple of years on postings. Children of such professional nomads, affectionately known the world over as army brats, are reduced to the second choice. Assimilate. Minor avoidances are possible, such as school changes. But in the main, one simply fits in. Personality differences matter for the ability to fit. I was blessed with malleability and the childhood experiences served to inspire confidence that I would not be a stranger in any land for too long.

            This book is largely devoted to tales of assimilation. Characters appear with the familiar names used by the author in addressing them. The meanings of the names and relationships to the author may be found in the Glossary.

The principal criterion for inclusion as a chapter was that something interesting or fun had to have happened. On more than one occasion, that criterion was compelling in its own right. Assimilation took a back seat unless one indulged in flights of fancy to find that association. The Scrooge Strategy was one such. At a performance of The Christmas Carol, the actor playing Scrooge took some extemporaneous license which appeared to give Scrooge a sense of humor. This emboldened me to present a side of Scrooge that Mr. Dickens never intended. Business schools tempted to include the Scrooge Strategy in their branding classes best come calling for permission.

            In Jodhpur I do start the book at the beginning of the journey. An early chapter is Forty-nine Not Out which recounts the considerable step for a 16-year-old to leave home on a two-day train journey to live and study at an elite institution where everybody could be expected to be as competent as he. This would be unlike the relative walk in the park high school experience. That I became comfortable enough even in the first year to take time to help launch the campus monthly Campastimes is as much a testimony to the embrace of the setting as it is to my assimilative skills. That is when my love of writing emerged. My second to last book is dedicated to Campastimes, and not to a person.

The Stanford University years are prominently represented, beginning with If it Moves, and followed by Forks in the Academic Road and De-mystifying Legendre. These last two have more academic underpinnings, but fitting in takes many forms, and the “something interesting happened” stricture was always in play. That period was transformational. The process of becoming an American was well under way at the end of the Stanford era, even recognizing that California, especially in the sixties, might not have been fully representative of the US. Domicile had not been intended. The plan had been a master’s degree at Stanford, at essentially no cost, followed by a return to India. Events conspired.

The next major change, working for a living, at first on the other coast and later in Houston, merited three chapters as well. All fall in the main theme of the book, beginning with Folded or Crumpled, with an amusing rite of passage at work. When Cultures Cross and When in Rome have the shoe on the other foot. I am now the American dealing with strangeness in England and France, respectively. Interestingly, once one crosses a major cultural barrier, all the rest appear easier to traverse. In When Cultures Cross, I am put in the position of saying grace prior to the company Christmas meal in Cheltenham, England. With ten minutes notice. The Director of the facility realized he was no longer the senior person present; I was. Custom decreed that I, the Hindu, who had only read about such things, perform. Perform, I duly did; having read Jane Austen came in handy.

The two chapters The Rao Dog Tells Tales and The Last Lap for the Rao Dog relate to the assimilative trials faced by our dog Kalu following adoption from the SPCA. Written in her first person, it will be annoying to some. My defense is Peter Mayle. Not that I aspire to his stature, but this author of A Good Year1 also took a flyer with a first-person narration by his dog in A Dog’s Life2. A great read, as are many of his other books set in and around Provence.

            Even the chapters departing from the assimilation theme have elements of cultural differences. Culinary Matters describes the compelling social circumstances under which horse was consumed for the first (and last) time in West Germany (was West and East back then). Close Encounters, on the other hand, is a pure capitulation to whimsy. But closely adheres to the stricture of being interesting, with intent to amuse. If the last is all that a reader gets out of the book, I will be content.

1 Mayle, P A Good Year (2006) Vintage ISBN 0307277755 

2 Mayle, P, A Dog’s Life (1996) Penguin Books Ltd. ISBN 0140261559

How Relevant is the Strategic Petroleum Reserve today?

October 1, 2022 § Leave a comment

There is a lot of teeth gnashing about President Biden ordering a limited drawdown of the Strategic Petroleum Reserve (SPR) earlier this year. A New York Times piece warns that the SPR is at its lowest level in four decades (see chart). How relevant is that statistic?

Let’s go back to how it all began. In 1973 the US was importing 6.2 million barrels per day (MMbpd). Today, it is the largest oil producer and a net exporter by a small margin. But importantly, about half the imports are from Canada, with whom the US has a mutual dependency. Canada has heavy crude the bulk of which is refined in the US, with a resulting export of refined products. Viewed in North American terms, imports from other parts of the world are minor.

Back to 1973. The Arab Oil Embargo to countries such as the US and the UK caused a tripling of the price of oil. To avoid such disruption, the US decided in 1975 to create the SPR. Since then, the crises that drove the decision have not materialized. Drawdowns have been few and light (see chart). In other words, even before shale oil and the resulting North American self-sufficiency, strategic access has not been needed. And yet, pundits, such as those in the NY Times piece, keep maintaining that someday the reserve may be needed*. We discuss that premise here.

The SPR comprises four salt caverns, created by drilling into salt bodies and excavating using circulating water. These are ideal for storage of oil. In fact, salt has been an important impermeable stratum to trap oil in reservoirs. At its peak the reserve had about 719 MM barrels. It was filled over the years and has a low average purchase cost of USD 28 per barrel. While the President’s purpose was to ease the cost of gasoline at the pump for the populace, the sale of SPR oil is coincidentally generating a profit for the government at today’s prices.

Oil is not all the same. One reason the US imports oil from Canada and Mexico, while at the same time exporting domestic production is that US refineries prefer the heavy oil from those countries. They have expensive process equipment to refine such oil, which they get at a large discount because the cost to refine is higher for these crudes. To pay more for light shale oil, while at the same time idling the expensive kit, makes no economic sense. And unlike the European situation with Russian oil and gas, the imports are from friendly neighbors who need the US refineries.

Similarly, the oil in the SPR is not all the same. Over 60% of it is high in sulfur (designated sour) and has significantly lower value than the sweet oil.  The final withdrawals this year are 85% sweet, possibly because that is the mix most suited for purchasers. If, and when, shale oil is injected, it will improve the quality of the balance. But that ought not to be necessary. Here is why shale oil could directly address any shortfalls in supply.

First, there is a significant inventory of DUC wells. DUC stands for drilled and uncompleted and is pronounced duck. I will spare you duck hunting allusions. The hydraulic fracturing portion of the completion is the costly part of the operation. It was suspended for some wells during the low oil prices of a few years ago and the wells were mothballed. Such wells can come on stream in a matter of weeks. Second, even new reservoirs can be accessed and flow oil in a few months. Environmentalists are concerned that new wells will perpetuate fossil fuel production. Ordinarily they would be right for, say, deep water wells. But shale oil wells are burdened with high rates of reservoir depletion. Production from the first couple of years must justify the return on investment. The capital asset does not need years of production to provide the return, as it would for conventional plants such as refineries, or deep water wells, for that matter.

The drawdown executed by the US administration of about 1 MMbpd for 180 days is nearing the end, with 160 MM barrels already released. The reserve is at about 420 MM barrels and will drop to 400 MM barrels by the end of the year. In the unlikely event that the strategic purpose of the SPR is invoked, and it has not since its inception, that amount provides a cushion while additional shale oil is brought on stream.  Over the last few years, the shale oil industry has been more restrained than in the past, seeking better returns. If this were to be a national security issue, short term policy measures could overcome that hurdle.

Shale oil in the ground is our strategic petroleum reserve.

Vikram Rao

October 1, 2022

*’Cause someday never comes, from Someday Never Comes, Creedence Clearwater Revival (1972), written by John Fogerty.

The Devil and the Deep Blue Sea

September 4, 2022 § Leave a comment

California’s recent decarbonization legislation includes extending the life of the Diablo Canyon nuclear reactors in the face of environmentalist opposition. Their concern has been for the marine creatures potentially killed during cooling water uptake from the ocean. The dilemma posed in the title, similar to between a rock and a hard place, applies to the Diablo Canyon decision. A recent paper from Stanford and MIT details the issues and lands in the extended life camp with some twists discussed later here.

Back to the dilemma. No form of energy, clean or otherwise, comes without baggage. So, it comes down to compromises. Wind has avian mortality and visual pollution. Solar may carry the least baggage, but recent events pose a unique twist. The price of natural gas going up 5 and 6-fold in Europe due to climate change and Russian aggression shows that reliance on a global supply chain could be fraught. In context, over 60% of solar panel components originate in China. Sabers are rattling in the Taiwan Strait. No telling what happens to solar panel costs if things escalate.

More dilemma: opponents of the decision want to simply build more solar and wind capacity. Even Senator Dianne Feinstein weighed in with the opinion that absent the Diablo decision there would be more natural gas usage. Exactly right, especially if the course of action proposed by opponents, more solar and wind, is followed. This is because solar and wind have low capacity utilization due to diurnal and seasonal gaps in output. At this time these gaps are dominantly filled by natural gas power generation. In other words, more solar and wind means more natural gas burned until carbon-free gap fillers, such as advanced geothermal systems and small modular (nuclear) reactors, hit their stride. And that will take a decade. In the meantime, Diablo Canyon 24/7 output notwithstanding, natural gas will continue to increasingly be used in step with addition of solar and wind capacity. A mitigative measure on the associated CO2 production would be carbon capture and storage attached to the natural gas power plants. The best-in-class technology achieves this for USD 40 per tonne CO2. One of the new California bills encourages this direction. It is opposed on the grounds that it encourages more fossil fuel production. True. But, as noted above, until carbon-free gap fillers are at scale, natural gas is the only practical alternative. Rock and a hard place.

The two plants at Diablo Canyon account for 9% of the electricity and 16% of the carbon-free electricity for the fifth largest economy in the world. Removing it would make already tough zero emission goals almost unattainable, certainly the 2030 ones. This state is currently in an epic heat wave causing power demand spikes. It is also the state most vulnerable to climate change driven forest fires. It can ill afford to take out any carbon-free capacity, especially if the concerns expressed on Diablo Canyon continuance can be met by other means.

Diablo Canyon nuclear facility at Avila Beach, CA. Source: NY Times. Credit: Michael Mariant/Associated Press

Enter the Stanford/MIT paper. It has explicit engineered solutions to minimize marine life extinction in the water procurement. It also has two other interesting suggestions to maximize the environmentally related value of Diablo Canyon. One is to use part of the output to desalinate seawater. The measures taken to protect marine life would apply here as well during the water acquisition. Since reverse osmosis produces a highly saline wastewater, the disposal in the ocean would need to follow means to minimize damage to sea bottom species. These are known methods and simply need adoption.

The other suggestion is to electrolyze water to produce hydrogen. This would be considered green hydrogen because the electricity was carbon-free. Power is employed in this way in Europe during periods of low demand. There they are piloting adding a 20% hydrogen cut to natural gas pipelines, to reduce fossil fuel use. A point of note is that the electrolytic process requires 9 kg fresh water for each kg hydrogen produced. While green electrolytic hydrogen is seductive, especially when using electricity during period of low demand, fresh water is in short supply in many areas, especially South/Central California. Could be a reason for the Stanford/MIT report suggestion regarding desalination at Diablo Canyon.

Aggressive decarbonization strategies will come with tough choices. An easy one is to target “carbon-free” rather than “renewable” energy. A harder one is to tolerate bridging methods, such as natural gas power with carbon capture and storage. The trick is to ensure that the bridges* are to definite targets. With sunset clauses.

Vikram Rao

September 4, 2022

*A bridge over troubled water, from Bridge Over Troubled Water, Simon and Garfunkle (1970)

There But for Shale Gas . . .

August 29, 2022 § 2 Comments

Electricity prices in Europe are going through the proverbial roof, as reported in a NY Times piece. There but for fortune go you and I, is the song line*. Substitute “shale gas” for “fortune” and you have the United States today. Were it not for shale gas, we would be facing a dismal future in electricity pricing and carbon mitigation.

European electricity prices are being driven by high prices for natural gas. A scant two years ago, the price ranged from USD 5 to 8 per MMBTU (which is roughly equivalent to a thousand cubic feet).  At the time US prices would have been between USD 2 and 3. In the last ten months, European prices have fluctuated between USD 25 and 60, with a peak of USD 70 following the Russian invasion of Ukraine. These are unprecedented numbers. At the peak, natural gas was at a calorific equivalent of oil at USD 420 per barrel.

Even discounting the war related peak as unusual, even the pre-war price of USD 25 to 35 was extraordinarily high and appears to have been driven by LNG supply and demand imbalance. Reminding folks, Liquefied Natural Gas (LNG) chills the gas to -161 C, in so doing compresses the gas 600 times, and is the only realistic means for transoceanic transport of natural gas. The overall delivered cost per thousand cubic feet goes up between USD 3 and 4, depending on the distance of the destination.

When the crisis struck, Europe was getting a natural gas mix of domestic, Russian and LNG. LNG became the last cubic foot and therefore the determinant of price. Climate change related droughts in Asia led to shortfalls in hydroelectricity, thus raising LNG demand, which outstripped supply. Diverting supplies from these other destinations to Europe escalated the cost.

In the US, the norm since 2010 has been natural gas at a fraction of the oil price, except when oil took unusual dips, making gas both cleaner and more affordable. The significance of the year 2010 is that shale gas production hit its stride in 2009, causing natural gas prices to remain low, mostly under USD 5. But, prior to that the US was a net importer of gas and much of it was expected to arrive in the form of LNG, with 41 regasification terminals under consideration. In fact, Cheniere Energy’s Sabine Pass plant, with a regassification capacity of 4 billion cubic feet per day (bcfd) was commissioned in 2008 but by 2010 the decision was made to convert it to a liquefaction facility. Expensive facilities such as high draft vessel berthing and gas storage translated to the new mission. This bold move, betting on shale gas potential, gave them a lead and the model has been emulated by others.

With exports averaging 11.2 bcfd this year, the US went from being an important importer of LNG in 2006 to the largest exporter in 2022. It currently supplies nearly half of Europe’s LNG. Ironically, France, which banned hydraulic fracturing, was the largest recipient of shale gas derived LNG from the US in June.

Gas driven decline in coal power Courtesy US Energy Information Administration

Were it not for shale gas, the US certainly would not have been in a position to ameliorate the pain in Europe today. On the contrary, it would have been a major importer of LNG and there is every reason to believe that it would have been facing the same electricity pricing crisis being endured by Europe today. Furthermore, coal-based electricity would have seen a resurgence. Evidence for this is that in 2021, when natural gas prices nearly doubled, coal-based plant capacity factors increased by nearly 25% (see figure). This elasticity means that if the US had seen anything like the 5- and 6-fold natural gas price increases that Europe experienced pre-war, substantial shifts to coal would have been likely, with new capacity additions. This last would be because the shale gas-based decline in coal plants would not have occurred in the first place. Dismal, indeed, from an environmental standpoint.

There but for shale gas . . . .

Vikram Rao

August 29, 2022

*There but for Fortune, Joan Baez (1964), written by Phil Ochs

This is the Time for Blue Hydrogen

August 11, 2022 § Leave a comment

For the longest time blue had been content as a pure spectrum color at a nominal wavelength of 450 nm. Then the hydrogen police said it was not green enough. This despite Kermit the Frog informing us that it was not easy being green. Apparently, Britain agrees with Kermit, as reported in an Economist story. Their hydrogen strategy is heavily loaded with blue.

First a reminder on definitions. When hydrogen is synthesized by reacting methane with water, the process known as steam methane reforming, it is classified as grey hydrogen. If the resultant CO2 is captured and stored, the color of the hydrogen turns blue. If the hydrogen is produced from splitting water electrolytically using green electricity, it is classified as green hydrogen. To confuse matters further, the Government of India has classified the blue hydrogen from methane reforming as green if the methane is biogas sourced.

Going back to the Economist story, Britain has called for hydrogen to be 4% of energy demand by 2030. Even at this relatively modest target, the green electricity required for this hydrogen to be green would be 126 TWh (terawatt hours). This compares to the total green electricity production in 2020 of 135 TWh, with many potential uses beyond electrolytic hydrogen. In fact, one of the uses planned is blending hydrogen to a 20% level in natural gas pipelines. Mainland Europe has been piloting this and there is a consensus that a 20% blend is tolerated by the pipelines and by the end use.

The British plan calls for production of blue hydrogen in two locations with industry such as ammonia and methanol production that already uses grey hydrogen. Carbon mitigation in industry takes two forms. One is to change the process by replacing the existing reactant, such as coke, with hydrogen, thus curbing or eliminating CO2 emissions. One such is ironmaking with the Direct Reduction Iron process, and the resulting steel would be considered green steel if the hydrogen were to be green. Steelmaking is specifically cited by the British plan.

The other approach is to not change the process, but simply substitute a zero-carbon hydrogen for the grey hydrogen. The British plan favors blue hydrogen as a pragmatic means to achieve carbon mitigation faster than may be possible with just green hydrogen. This plan relies on economical means for capturing and storing the CO2 from the methane reforming. This is increasingly a reasonable expectation, with technology already commercial and likely to be available at scale within a couple of years. Economical is defined as fully loaded cost lower than the carbon penalty in force at the time. This is variable and stands at about €85 at this writing (see figure). A leading carbon capture technology claims capture costs at USD 40 per tonne, with an expected reduction to USD 30 over time. Given that geologic storage costs about USD 10 per tonne, the combined figure is well below the carbon penalty.

Carbon pricing in the EU  Source: EU Carbon Permits – 2022 Data – 2005-2021 Historical – 2023 Forecast – Price – Quote (tradingeconomics.com)

The Good Before the Great

Few would dispute that the most desirable hydrogen is the green variety. Here too a relaxation must be sought for the strict definition. The electricity source ought to be expanded from renewable to carbon-free. The carbon mitigation purpose is served and scalable carbon-free sources such as geothermal energy and nuclear power are then comfortably included. As previously discussed, these are excellent fillers of the diurnal and seasonal gaps in solar and wind production.

But green electricity is in short supply compared to the demand. The primary reason is that the largest sources, solar and wind, have low capacity utilization. On the demand side, everybody wants some. The MIT spinout Boston Metals needs it to make electrolytic green steel. The other principal green steel method, DRI, needs electrolytic (green) hydrogen. Data centers supporting the cloud are energy hogs that are growing steeply. All the major players in that space want green electricity. Ditto for bitcoin that other fast growing energy intensive sector. In other words, relatively sparse green electricity has many calls on it.

Enter blue hydrogen. The case against it begins with the fact that only 90 to 95% of the CO2 is captured at the point source. Some is still released. The other knock on it is that natural gas production is implicitly encouraged. But the uncomfortable truth is that every new solar/wind emplacement already creates demand for natural gas to fill the longer duration gaps in output. Although coal and oil will continue to decline, natural gas will be needed as a gap filler till the zero-carbon alternatives hit their stride; and that is a decade or more away. That is plain and simple pragmatism. As is the need for blue hydrogen until green electricity becomes more easily available. It is the only viable near-zero-carbon hydrogen that can achieve scale swiftly.

The battle against climate change must be joined with the best weapons at hand. No active battlefront waits on the ultimate weapon. Blue ought to be the primary color of hydrogen until, again quoting Kermit*, being green is easier.

Vikram Rao

* It’s not easy bein’ green Kermit the Frog, written by Joe Raposo, sung by Jim Henson (1970)

How Realistic is a Carbon-free Power Grid?

July 21, 2022 § Leave a comment

There is a new sheriff in Energy Town. In much of the world, solar and wind are the lowest cost source of power, clean or otherwise. They are effectively the new base load to which all other sources of energy must fit. And fit is needed.

Navigating Dunkelflaute

Dunkelflaute is the German word for periods with no wind and no sunlight. A more fanciful definition is dark doldrums. Navigating doldrums has always been hard for sailing ships. So it is for electricity production in periods of Dunkelflaute, which are substantial year round, because solar and wind utilization peaks out at monthly averages of 25% and 40% respectively, with annual medians at lower figures. The figure shows capacity factors for wind-based generation in the US. Capacity factor is essentially the efficiency of utilization of the nameplate capacity (maximum rated output). Solar energy has similar characteristics in terms of seasonal variation, with annual median capacity factors closer to 20%.

The list is short for clean energy sources for navigating Dunkelflaute: geothermal energy, small modular (nuclear) reactors (SMRs) and innovative storage systems. Sure, pumped hydroelectricity and other forms of gap pluggers exist, and may even be cost effective where available, but they are not scalable.

Seasonal variability of wind in Texas 2001-2013

A feature desired for all gap fillers is the ability to load follow. This means ramping up or down in response to demand on a dynamic basis. Advanced geothermal systems, in late-stage development, can load follow without impairing operations. So can SMRs. One reason that the conventional means for gap filling, natural gas fired generators, are so effective is that gas turbines can spin up or down with minimal energy penalty.

Economics of Gap Filling

There are two types of gaps, diurnal and seasonal. Solar has more diurnal variability than wind, and the most well-known gap is the 4-6 hour one in the evenings. This is filled with batteries and this practice will likely continue. The cost for this in the vicinity of 2 cents per kWh, which effectively doubles the solar based cost in places like Los Angeles. A recent study of several grid systems in the US and Europe by the Rocky Mountain Institute1 has shown that batteries alone will be very costly for the last 50% or so of achieving 24/7 clean power. The numbers go well over 10 cents per kWh on the PJM grid in the northeast US. In estimating the cost of gap fillers, investigators and commentators must resist comparing costs with those of solar and wind. The comparison must be with the conventional gap fillers, and that means aiming for less than 15 cents, and possibly less than 10 cents per kWh.

A frame of reference for this choice is the cost of the most common gap filler, natural gas combined cycle (NGCC). With a relatively low capital cost contribution to the delivered cost (20% as a rough average), the cost of natural gas is the dominant factor. At natural gas cost of USD 5 per MMBTU (which is the energy content of roughly one thousand cubic feet of gas), the dispatched cost from the producer will be about 5 cents per kWh. I am using that figure for natural gas cost because I expect that number to not be exceeded (except in short upset conditions such as the Great Texas Freeze) because of abundant shale gas.

But for comparison with zero carbon power gap fillers, one needs to remove CO2 from the NGCC process. Technology available today, but not yet at scale, ought to remove 90% plus for USD 40 per tonne CO2, with another USD 10 for geologic storage. That adds about 2.4 cents to the NGCC tab, bringing it to 7.4 cents per kWh in the US example above. Note that gas price in Europe has always been over double that in the US, and today it is at 6 times, making the associated dispatched cost that much more expensive. The point is that a global figure for a true zero carbon gap filler could conservatively be 15 cents per kWh, with an aspiration target of 10 cents over time.

How realistic is that? Very, according to leading developers of advanced geothermal systems and SMRs. At least two of the geothermal folks, Fervo Energy and SAGE Geosystems, have near term plans for commercial installations, at a Google data center and Ellington Air Force base, respectively. At least in the case of Fervo, we will know by 2024 whether the claimed costs of well under 10 cents per kWh are realized. In SMRs, NuScale is also claiming numbers well below 10 cents, but the first installation will not be until 2029.

Role of Hydrogen

Load following has one shortcoming. When not needed, the utilization is lower. In Texas, for example, in the period 2012-2019, capacity factors for NGCC varied from 48% to 57% in response to solar and wind-based delivery shortfalls relative to demand. Over 80% of the cost of electricity from an NGCC is variable cost, dominated by the price of natural gas. Lower capacity factors are more tolerable than they would be for conventional nuclear power, where capex dominates the economics.

Both advanced geothermal and SMRs have relatively low fuel costs, especially geothermal. Load following though they may be, the capital is more effectively amortized if the electricity during the idle periods is utilized in some fashion. The obvious option is storage, but that awaits innovation for systems suitable for long periods.  

An option acquiring some currency is production of electrolytic hydrogen. Considered green hydrogen, the value would be high. But the onus of low capacity factors now shifts to the electrolyzer. Here there can be some relief, in that these units can be relatively small and considerable research is ongoing to reduce both capex and opex costs. The low capacity factor piper must be paid, but this seems like the most cost effective stopping point in the toppling dominoes. At scale, the problem of adequate clean water supply for electrolysis becomes an issue. But another variant on the use of idle gap fillers is for enabling desalination plants.

The hydrogen could certainly be stored and used to generate power as a gap filler. But there are higher value uses. One would be to blend into natural gas pipelines to reduce fossil fuel usage. Blends up to 20% are known to be pipeline and end use tolerant and are already being piloted in Europe. Another high value use is in the production of ammonia for several applications, fertilizer being the largest. Transporting ammonia is cheaper than transporting hydrogen, so the ammonia would most profitably be synthesized near the hydrogen production. Recent advances in cost-effective small-scale ammonia synthesis will enable this option.

Carbon-free power grids are certainly in our future. How many, how soon and to what degree, that will depend on technology, policy enablers and appetite for investment. But even this is just one skirmish in the battle against climate change*.

Vikram Rao

*All in all, you’re just another brick in the wall, from Another brick in the wall (1979), performed by Pink Floyd, written by Roger Waters. This is my interpretation of the lyrics, not the standard one.

1 Dyson, M, Shah, S, & Teplin, C, Clean Power by the Hour: Assessing the Costs and Emissions Impacts of Hourly Carbon-Free Energy Procurement Strategies, RMI, 2021,http://www.rmi.org/insight/clean-power-by-the-hour

HOW WELL ARE WE MANAGING THE RENEWABLES TRANSITION?

November 28, 2021 § Leave a comment

Perhaps the question ought to be how well we are being allowed to manage the transition.  When President Biden attempted to put the arm on OPEC+ (Organization of Petroleum Exporting Countries plus Russia) to increase production to dampen oil prices, he was accused in some progressive circles of acting in opposition to his avowed climate change goals.  No matter that in a country beset by inflationary pressures, any relief for the consumer ought to be welcome.  The oil market is elastic.  Only increased supply, at constant demand, will reduce prices.  Unable to persuade OPEC+, President Biden took the unprecedented step of coordinating with several net importing nations in releasing oil from strategic reserves.  The US will release 50 million barrels, only about 8% of the reserve.  This too was criticized from many angles. 

The one criticism I found most interesting was that US refineries would not want the stuff because the release was from the more sour (high sulfur) crude containments.  The argument was that they would need hydrogen for desulfurizing (true) and that rising natural gas prices made the hydrogen (mostly derived from natural gas) prohibitive (not so true).  The US may be the one country not having a natural gas supply issue, provided producers choose to respond to the relatively high prices.  One factor in favor of so doing is that shale gas wells have a short payback period due to high decline rates (rate of drop in production).  Consequently, an investment in shale gas is not a bet on the long term prospects of the commodity.

Also, the LNG business will continue to grow to feed Europe, Japan, China, India, to name a few dependent on it.  The relative lack of it is why the prices are at unprecedented highs in those countries.  In other words, LNG will be an important customer for decades for new natural gas.  Another parenthetical point on what US refineries want: they do not want US shale oil because it is too light and too sweet(!), and they have expensive kit going idle if all they refine is shale oil.  This is one reason that the US imports 4 million barrels a day of heavy crude from Canada (and only 0.4 million from the Saudis).  The SPR release oil will blend in just fine.

The moral of this particular episode is that while long term carbon mitigation goals must be set, if they cause significant privation in the short term, the current public support for carbon mitigation could dwindle, making it harder for those goals to be bolstered with necessary policies.  Take the current explosion in natural gas prices worldwide, but mostly in the net importing nations.  European governments are scrambling to protect the public from crippling heating bills this winter.  In this scenario, investors shunning fossil fuels do not serve the common good.  The argument is made that investors are leery of taking positions in areas that are in decline.  Natural gas may be the one fossil fuel that will see growth in the short to medium term, and eventually take longer to decline than oil.  In part this is because over 90% of essential backup of renewables comes from natural gas.  As noted in a previous blog, this will continue until we solve the storage problem at scale.

An important consideration for investors is the payback period, and to a degree the allowable amortization period.  The latter is a policy matter for governments.  The US has a long-standing policy favorable to producers (essentially a subsidy), which is debatable in its merit because of the broad swath.  But were it to be used in targeted areas, the use of public funds could be supportable.  In any case, some mechanism must be found to incentivize investment in the bridging areas.  This applies also to vehicles.  We are a very long way from electric vehicles being in the majority.  The auto industry ought to continue to invest in innovation in the efficiency of IC engine based vehicles.

The concept of bridging to a greater goal must not only be tolerated, but ought to be considered essential.  Renewables have intermittencies, which will require fossil fuels to fill the gaps, for at least a decade and change. Today we are faced with the inescapable prospect that additional solar or wind places incremental demand on natural gas. This is an uncomfortable truth that must be faced until cost effective sustainable alternatives take a hold.

Vikram Rao

November 28, 2021

MODERNA’S FAMILY FEUD

November 14, 2021 § Leave a comment

The family in the title is, of course, the scientific community.  As reported in many places, including the New York Times, Moderna and the National Institutes of Health (NIH) are feuding regarding patent rights and inventorship of the key patent applications covering the Moderna version of the mRNA vaccine for Covid 19.

Lightly discussed in the press, but mentioned as a further point of contention, is that the NIH has a seminal patent for enabling the action of mRNA based vaccines.  The Covid 19 virus (SARS-CoV-2) has a structure resembling a crown, hence the name corona virus (see figure).  Note the spikes jutting out beyond the main body. This is composed of the spike protein. When the mRNA is introduced into the body it produces the spike protein, mostly in the liver.  However, merely being produced is not enough, because what matters to the immune system is not just the sequence of the protein, but the shape. Left to their own devices the produced proteins wouldn’t fold into the signature spike shape, so tricks are needed to nudge them in the right direction.

SARS-CoV-2 transmission electron microscopy image, courtesy NIAID-RML

To achieve this, NIH and university collaborators arrived at a method of covalently stabilizing the produced protein using a divalent sulfide bond.  The resulting “closed structure” is sufficiently like the SARS-CoV-2 spike protein as to stimulate the production of antibodies providing immunity from the disease.   A more scientific discourse on what was done is in a recent Nature paper.

The technique described above applies to all corona viruses.  The patent US 10,960,070, which issued just in March this year, covers all viruses with spike proteins.  The importance of this is twofold.  Firstly, any variant of the mRNA approach for addressing Covid 19 appears to need this technology to be effective.  More on that later.  Secondly, one concern continues to be that more corona virus mediated diseases are likely, particularly if the animal to human transmission with SARS originally from civets in 2002, MERS reportedly from camels in 2012, and now Covid 19, likely from bats, broadens to other species.  Were this to happen, it appears we have the technology to quickly produce mRNA vaccines to combat them.  Even this time around, the time scale of vaccine production was unprecedentedly short.

Now, back to the main dispute between Moderna and the NIH.  Facts not in dispute are that the NIH funded Moderna to the tune of USD 1.4 billion (yes with a b) to develop the vaccine.  This was a company that had never commercialized any product previously. NIH also provided experienced collaborators.  Three of them, Drs. Graham, McLellan, and Corbett, were inventors on the technique described above, and Graham was the lead inventor (in the eyes of the law all inventors are equal, but it is customary to have the largest contributor be named first; accordingly, the patent is referred to as the Graham patent).  Also, seemingly not in dispute is that US 10,960,070 is vital to the efficacy of any mRNA-based coronavirus vaccine.  Certainly, the creators of the other mRNA vaccine, Pfizer-BioNTech, licensed the patent.  Curiously, Moderna did not, and yet nobody is arguing that they are not using the technology in their vaccine technology.  My not very expert read of the claims in the patent is that the claims are strong and hard to work around.

If Moderna is using US 10,960,070 and not licensing it, why has the NIH not taken infringement action?  One explanation could be that the four-year collaboration certainly commenced prior to the March 2021 issuance of the patent, and until early this year, there was no certainty of issuance.  But it did issue.  Ordinarily, that would lead to some legal resolution.  Muddying matters is that NIH scientists collaborated and quite possibly the “background” technology, comprising the technique underlying the NIH patent was offered for non-exclusive use. This is normal in collaboration, but often includes “normal and customary” royalties in the event of commercialization. Perhaps it did not in this case. 

Now to the essence of the dispute.  NIH claims that the three scientists mentioned above ought to be named inventors.  The Moderna spokesperson says, “the company was legally bound to exclude the agency from the core application, because “only Moderna’s scientists designed” the vaccine”.  On the face of it the legal aspect is correct.  Being a collaborator is not sufficient.  Inventorship has the higher bar of direct contribution to at least one of the claims in the patent. This is a fact issue.

In context, the Times story states that the patent office “role is simply to determine whether a patent is warranted”.  While that is the case at this stage, if the validity of the patent is placed in dispute, inventorship is something that plays an important role.  Leaving out (provably) legitimate inventors can render the patent unenforceable, although the bar for proof is high. These days, the lowest cost means to challenge a patent is to appeal to a federal body through the Inter Parte Review (IPR) process.  Aside from being cheaper than conventional litigation, to date the IPR process has been substantially more challenge friendly than the courts.

Inventorship does not automatically grant ownership rights to the employers of the named inventors.  But it is usual for the patent to be co-owned in these cases, especially when both entities have invested in the discovery.  US 10,960,070, for example is assigned to NIH, Scripps, and Dartmouth.  Yet, the reporting has it owned by the NIH.  As is usual in these situations, there must be a side agreement on respective rights.  Absent that, each co-owner has the legal right to do what they want to with the property, which gets to be a mess. 

There is a hint in the reporting that part of the impetus for the NIH asserting co-ownership in the recent Moderna patent application is the desire to make it available to poorer countries.  If it did so by licensing, there is the risk of the licensee improperly executing, thus bringing disrepute to Moderna’s offering.  I have faced this in my career and always required safeguards, which would not be possible if Moderna was not directly involved in the licensing. The better resolution to this dispute is a royalty share rather than rights to license by the NIH, and an agreement for Moderna to make the vaccine available at lower cost to those poorer countries.  AstraZeneca is reputed to have done that.  When the Gates Foundation invested in CureVac (Germany) they made such a provision a condition.  The NIH ought to have done so at the outset.  In all fairness, the civilian bosses at the time may not have felt that way.  Now that horse has all but bolted*.

A feel-good story has turned into a horror show.  The poster child for public-private partnerships has become Exhibit 1 in the short course on how not to conduct collaborative innovation.

Vikram Rao

November 14, 2021

*”I drove my Chevy to the levee, and the levee was dry” from American Pie written and performed by Don McLean (1971)

Where Am I?

You are currently browsing the Uncategorized category at Research Triangle Energy Consortium.

%d bloggers like this: