Category Archives: Guest Blog

North America Energy Alliance, Round 2

Guest blog by S. A. Shelley: At OWOE we try to be objective in our analysis and evaluations of energy matters. But we can’t always be emotionless, or in my case, I can’t always refrain from smacking my forehead when politicians do questionable things: I’ve been near comatose for the last few weeks on account of the politicians.

In 2017, we looked at and forecast possible outcomes for US energy independence, including oil and gas production (see OWOE: Can the US Become Energy Self-sufficient?). We looked at four possible outcomes, as in the following figure, based upon high / low consumption versus high / low production.

Fig. 1 – US Oil Production Outcome Matrix (2017)

At the time I voodoo guessed that it was more likely that the U.S. would be moving into a high consumption and low production case, resulting in big oil deficits. I think we’re in danger of moving into that condition sooner than later.

According to a US EIA estimate at the beginning of this year, US oil production will fall this year before rebounding next year to  a maximum of 12 million barrels per day. Subsequent reports suggest that the EIA prediction was pretty good. Furthermore, there are now industry wide concerns of all big oil companies underinvesting in new production (see Market Insights, Natural Gas Intel). Thus, it is very likely that the US won’t achieve the 17 million bbls / day production required in the high production case indicated in Figure 1, and could in fact start seeing production fall to the low case of just 7 million bbls / day in a few years. In contrast, the US is already approaching demand of over 20 million bbls day, which is the 2017 high consumption limit. These two factors put the US in the in the high consumption and low production quadrant, which is not good.

Under production (supply), coupled with somewhat steady demand, results in rising oil prices. It takes years for US E&P firms to find and bring on stream new production. So instead of waiting for or encouraging US businesses to find new oil resources, the US President asks OPEC to increase supply. That one really hurt my head. It was an especially egregious policy initiative in light of the fact that the current US administration has stopped most new oil projects in Alaska, Texas, Louisiana (see ABC News and CNBC) and of course, pipelines.*

Up north, in Canada, there are billions and billions of barrels of oil that can supply the American market. It would just take a bit of pipeline expansion. But no, instead of supporting a near trading partner with historically similar democratic values, the US president would rather send more US dollars to hostile states: Make no mistake, most OPEC states are not US allies or friends.

But there may be hope for America. Both big Canadian railroad companies are in a takeover war for Kansas City Southern. This is not a railroad battle, this is a battle to transport oil in the near future. As oil pipelines are being stopped, rail is becoming a major means of transporting oil.

The problem for America is that it will need a lot oil during the green transition, and America is no longer in a position to supply all its needs domestically. Oil by rail is a temporary solution at best. It really is time to think about a North American Energy Alliance (see OWOE: Time for a New Energy Policy) and forget those way-off hostile lands. Make the deal with the neo-communists up north, because then we can keep a close eye on them for much lower cost and less blood. Building an energy alliance of some form with friendly states will be necessary to keep America from running out of oil, because green technology cannot replace oil fast enough to keep the woke progressives happy. It still is, unfortunately, a trade-off between keeping energy and the economy going, or collapsing society and the economy until green technology catches up to the energy demands of a modern society. As written previously, green is better, but overnight green is impossible (see OWOE: Wishful Thinking vs Reality). 

Vive l’Alberta Libre!

*  Really, shut down Line 5. People are focused on the “perceived dangers” of a not yet built pipeline, Keystone XL, while ignoring the real danger of an existing pipeline, Line 5 in Michigan.

The Cobra Effect

Guest blog by S. A. Shelley: Most readers have probably heard of the Law of Unintended Consequences, the more good that one intends then the more harm results (see also the Cobra Effect). Politicians have an intrinsic ability to apply this without fail. Then to make everything worse, there is Pournelle’s Law of Iron Bureaucracy, ensuring that even the slightest of good intentions are inevitably smashed by the insufferable protocols of bureaucracy. Such is the realm of politicians. But in the information age, the woke minority and sometimes business tycoons also suffer from these laws. Business tycoons can correct for such things, otherwise they go bust. Woke progs will often ignore reason and facts, those remnants of patriarchal suppression, in order to validate horrific outcomes. Eventually, though, the smoldering landscape or the increasing number of coal plants being built in Asia should overwhelm Woke feelings.  Unfortunately, politicians and governments are with us for as long as their privilege and pensions last and they rarely admit mistakes let alone mitigate or fix them.

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Bitcoins are Carbon Pigs

Guest blog by S. A. Shelley: For several years, Bitcoins and similar digital currencies have been the rage, heralded as a true medium of exchange and value that is independent of government manipulation, as is seen with all fiat currencies. However, Bitcoins in particular have also generated rage amongst environmentalists because the energy consumption and carbon emissions required to support Bitcoins approach the total annual consumption of states like New York or exceed the total energy consumption of nation states like the Netherlands or Argentina.

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Canada plans to invade the US (again)

Guest Blog by S. A. Shelley: Pipeline politics have come to dominate energy discussions domestically and internationally. Probably the most well-known of these are the Nordstream 2 Pipeline in the Baltic to bring Russian Gas to Germany and of course the Keystone XL Pipeline which would have brought more Canadian Heavy Oil to American Refineries. Believe it or not, pipelines can bring benefits. For Nordstream 2 it will bring Russia a new vassal state. Keystone XL, had billions in money set aside to utilize renewable power and hire unionized workers; It would have been the world’s first “net-zero” pipeline and probably the world’s first equity built pipeline. Unfortunately, for both pipelines the tactical thinking won out over the strategic benefit.

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The Simple Answer: Oil Demand is Declining and Natural Gas Demand is Increasing

Guest Blog by S. A. Shelley: Since 2016, OWOE staff have been watching energy markets change as new technologies and phenomenon entered society, or as old problems and business practices ossified. While 2020 was a wild year that laid bare the ineffectiveness of most major governments to handle crisis, it also exposed some of the fallacies upon which western societies are built: Namely the need for business executives to fly around the world for meetings, the need for hordes of people to commute to digital jobs, and of course the lack of economic robustness in most realms. For certain, the pandemic surge and economic drop of 2020 that cut travel, commuting and similar highly energy intense activities resulted in a major drop in oil demand (Reuters, US BLS), and a noticeable drop in CO2 emissions along with a corresponding improvement in overall air quality in many urban settings. But, and here’s the real issue, as the pandemic ends, energy demand is increasing again.

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New Digital Tech Solutions Equal More Old Energy Tech

Guest Blog by S. A. Shelley: The last decade has seen an explosion of new digital tech incessantly infiltrating all areas of our lives. There were cells phones before 2010 as well as websites and such, but with the advent of smart phones, 5G, the internet of things, everything is now wirelessly connected. New things such as crypto currency and EVs have also made significant inroads into society in the last 10 years. Many of these technologies are, of course, promoted as green and helping the world. Such is always the case when new technologies arise, and there are enough people to advocate for their favorite thing: Bud or Bud Light, Democrat or Republican, Trudeau fan or intelligent person.

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The World Never Thanks Naval Architects

Guest Blog by S. A. Shelley: For almost all of human history, trade has been facilitated by water borne craft. Mesopotamia? They had boats on the rivers and in the gulf. Egypt? Boats on the river. Rome? Boats hauling grain from Egypt to Rome. China?  The Chinese were sailing and trading along East Asia for thousands of years.  By the time of the Clipper ships, naval architects had mastered wind power such that a clipper ship could make a transatlantic voyage in about 12 days . A modern fossil-fueled container ship can make the same voyage in about 8 days.  By 2018 goods carried on ships amounted to nearly 11 billion tonnes with some economists estimating that between 80% to 90% of all goods produced globally travel by ships across some water at some stage of production.

Ships today tend to be powered by fossil fuels, and when looking at the amount of CO2 emitted per tonne of cargo moved per kilometer, ships are by far the most efficient way to move goods (Fig. 1).

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Wishful Thinking vs. Reality

Guest blog by S. A. Shelley: On the morning of October 25, on CNN, Ms. Alexandria Ocasio-Cortez spoke about fracking and how it is necessary to ban all fracking in the U.S. by 2025.

Fracking for energy is responsible for the overwhelming majority of gas supplies that feed America’s economy, including the heating of homes. As noted in previous blogs and based upon scientific fact, not woke feelings, burning natural gas is one of the cleanest ways to continue powering economies while economies transition. Yes, there are problems with fracking, including leakage of methane from poorly tapped wells, but with political imperative these problems can be fixed, now-ish without doing major economic damage.

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