Posts from — May 2011
[Yesterday (May 15) was the 100th anniversary of the U.S. Supreme Court decision [Standard Oil Co. of New Jersey v. United States finding John D. Rockefeller's company guilty of restraint of trade and monopolizing the petroleum industry. The court’s remedy was to affirm a lower court decree effectively dividing Standard Oil into several competing firmsdissolution of Standard Oil. This post, taken from Robert Bradley's Oil, Gas and Government: The U.S. Experience, summarizes the manifold contributions of John D. Rockefeller to a fledgling, powerhouse industry. Documentation for the points and quotations below can be found on pp. 1089–1094.], 221 U.S. 1 (1911)]
A resume of the contributions of Standard Oil prior to its court-ordered dissolution in 1911 offers an illuminating glimpse into entrepreneurship, the market process, and consumer service therein.
Rockefeller and the management team at Standard Oil can be credited with accelerating the maturation of the kerosene age in petroleum. Their entrance in the 1870s found an infant industry prone to cyclical growth, undercapitalization, and coordination problems. Explained Williamson and Daum:
Lack of balance between various segments of the industry appeared to be chronic; crude production, refinery capacity and throughput, and market demand were rarely in equilibrium. First, production would outrun throughput by refineries; the manufacturing capacity would exceed either current crude production or the rate at which refined products could be absorbed by the market. These more or less continuous maladjustments were reflected in wide fluctuations in prices of crude and refined products.
Within the free-market environment, company and industry problems invited profitable solutions, and Rockefeller proved to be the right man at the right place and time. Standard strategically bypassed the unstable exploration and production phase, where drilling was risky and production often exceeded storage and demand capabilities, and concentrated instead on the manufacturing phase. Demand for refined products was solid and growing, and the lure of a big strike would keep the drillers busy; Rockefeller’s plan was to concentrate in the middle with storage, transportation, and refining to lower cost and add value to the oil. The refining phase, in particular, was in need of great improvement. Summarized John McLaurin:
The first refineries were exceedingly primitive and their processes simple. Much of the crude was wasted in refining, a business not financially successful as a rule until 1872, notwithstanding the high prices obtained. Methods of manufacture and transportation were expensive and inadequate. The product was of poor quality, emitting smoke and unpleasant odor and liable to explode on the slightest provocation…. Railroad-rates were excessive and irregular…. The cost of transportation and packages had been important factors in crippling the industry.
Rockefeller clearly recognized the “manifold economies,” to borrow biographer Allen Nevin’s term, associated with large size. Contracting in bulk lowered input prices and transportation rates. Diverse plant locations reduced the business risks of fire and explosion. Improvements in distillation technology steadily lowered unit costs. Integration into complementary phases (barrel making, pipelines, wagon production, storage, loading facilities, marketing) internalized profits and trimmed costs. By-products that other refiners treated as waste Rockefeller found uses for. Literally hundreds of by-products were distilled from each barrel of oil. Opportunities for efficient operation were discovered and implemented that set industry standards in favor of the consumer. [Read more →]
May 16, 2011 2 Comments
[Editor note: The other posts in this series are The Great Energy Resource Debate (Part I: Peak Oil was … is here!) and The Great Energy Resource Debate (Part III: Pessimists Turn Optimistic!). Part IV will look at the theoretical case for resource expansionism in light of the preceding posts.]
[Editor note: Part I
“All oil and gas resources should be carefully husbanded—i.e. extracted as late and as slowly as possible. Our descendents will be grateful. We, too, shall need a long bridge to the future.”
- Amory Lovins, World Energy Strategies: Facts, Issues, and Options (New York: Friends of the Earth International, 1975), p. 127.
Yesterday's post provided quotations from a variety of sources espousing a pessimistic, closed view of the mineral resource world as it pertains to oil, gas, and even coal. The names included Daniel Yergin (circa 1979), Jimmy Carter, James Schlesinger, Matt Simmons, Colin Campbell, and John Holdren.
Today's post taps into the neo-Malthusian mainstays such as Paul Ehrlich, Barry Commoner, Al Gore, Lester Brown, Amory Lovins, Christopher Flavin--all of whom forecast the coming end of the fossil fuel era.
“A genuine world shortage of pumpable petroleum appears certain by the turn of the century if demand continues to grow as it did in the 1960s.”
- Paul Ehrlich and Anne Ehrlich, The End of Affluence (Riverside, Mass: Rivercity Press, 1974, 1975), p. 44.
“Most of the easily accessible sources of fossil fuels and mineral resources are long gone, and the rising prices reflect the necessity to dig deeper, travel farther, and refine lower-grade ore in order to obtain them.”
- Paul Ehrlich and Anne Ehrlich, The End of Affluence (Riverside, Mass: Rivercity Press, 1974, 1975), p. 100.
“The seriousness of the raw material situation had been brought home during the Congressional Hard Resources hearing in 1971. The exposure of the cornucopian economists had been quite a spectacle—a spectacle brought into virtually every American’s home in living color. Few would forget the distinguished geologist from the University of California who suggested that economists be legally required to learn at least the elementary facts of geology. . . . The overall message was clear: America’s resource situation was bad and bound to get worse.”
- Paul Ehrlich, “Eco-Catastrophe,” Ramparts, September 1969, reprinted in Robert Crandall and Richard Eckaus, Contemporary Issues in Economics: Selected Readings (Boston: Little, Brown and Company, 1972), p. 527.
“Compared to what will occur if we do not start seriously conserving energy—and compared to the food, environmental, and economic crises soon to come—the 1973–74 energy shortage was truly only a mini-crisis.”
- Paul Ehrlich and Anne Ehrlich, The End of Affluence (Riverside, Mass: Rivercity Press, 1974, 1975), pp. 48–49.
“By the 1980s, the depletion of accessible reserves of many nonrenewable resources—notably, but not exclusively, petroleum—was becoming more and more evident.”
- Paul Ehrlich and Anne Ehrlich, The Population Explosion (New York: Simon & Schuster, 1990), p. 57.
“We can be reasonably sure . . . that within the next quarter of a century mankind will be looking elsewhere than in oil wells for its main source of energy. . . . We can also be reasonably sure that the search for alternatives will be a frantic one.”
- Paul Ehrlich and Anne Ehrlich, The End of Affluence (Riverside, Mass: Rivercity Press, 1974, 1975), p. 49. [Read more →]
May 13, 2011 6 Comments
[Editor note: The posts in this series are The Great Energy Resource Debate (Part II: Neo-Malthusian Alarmism) and The Great Energy Resource Debate (Part III: Pessimists Turn Optimistic!). Part IV will look at the theoretical case for resource expansionism in light of the preceding posts.]
“It is clear that domestic [U.S.] oil, gas, coal, and nuclear cannot deliver vastly increased supplies, although it is equally clear that these sources cannot be ignored.”
- Robert Stobaugh and Daniel Yergin, “Conclusion: Toward a Balanced Energy Program,” in Stobaugh and Yergin, eds., Energy Future (New York: Random House, 1979), p. 216.
“The gas lines and rapid increases in oil prices during the first half of 1979 are but symptoms of the underlying oil supply problem—that is, the world can no longer count on increases in oil production to meet its energy needs.”
- U.S. Central Intelligence Agency, The World Oil Market in the Years Ahead (August 1979) p. iii.
From the beginning of the U.S. oil industry in the mid-nineteenth century, warnings have heard from intellectuals, industry experts, politicians, industry practitioners, pundits, and novices alike that that oil (and natural gas) were physically in decline.
How many times have we heard ‘the easy oil is gone’ … ‘the low-cost oil has been found’ …. ‘the big fields are discovered’ … ‘costs and therefor prices must go up’ ….?
But the reality has been quite the opposite, particularly under free market conditions where resourceship (entrepreneurship applied to mineral resources) could reign.
This series on the great energy resource debate begins with a series of quotations from the beginning of the industry in the 1850s through the 1970s. Readers are invited to add other quotations as comments to further add to this collection.
I. Pre-1900 Pronouncements
“Hurry, before this wonderful product is depleted from Nature’s laboratory!”
- Advertisement for “Kier’s Rock Oil”, 1855, quoted in Edward Porter, Are We Running Out of Oil? American Petroleum Institute Discussion Paper #081, December 1995, p. 1.
“I take this opportunity to express my opinion in the strongest terms, that the amazing exhibition of oil which has characterized the last twenty years, and will probably characterize the next ten or twenty years, is nevertheless, not only geologically but historically, a temporary and vanishing phenomenon—one which young men will live to see come to its natural end.”
- Professor J.P. Lesley, State Geologist of Pennsylvania, 1886, quoted in Paul Giddens, Standard Oil Company (Indiana): Oil Pioneer of the Middle West (New York: Appleton-Century-Crofts, 1955), p. 2.
II: Pre-1970 Pronouncements
“We have anthracite coal for but 50 years, and bituminous coal for less than 2000. Our supplies of iron ore, mineral oil, and natural gas are being rapidly depleted, and many of the great fields are already exhausted.”
- Gifford Pinchot, “The Fight for Conservation,” 1906, quoted in Edward Porter, Are We Running Out of Oil? American Petroleum Institute Discussion Paper #081, December. 1995, p. 7.
“I’m sorry for you—coming to Texas [in 1915] to look for oil. Don’t you know there is no oil in Texas?!”
- Wallace Pratt, Consultant, “Oil Finding—the Way it Was,” Petroleum 2000 Issue, Oil & Gas Journal, August 1977, p. 144.
“The peak of [U.S.] production will soon be passed—possibly within three years.”
- David White, Chief Geologist, United States Geological Service, 1919, quoted in Edward Porter, Are We Running Out of Oil? American Petroleum Institute Discussion Paper #081, December 1995, p. 1. [Read more →]
May 12, 2011 8 Comments
[Editor note: This press release from Toronto Wind Action and Great Lakes Wind Truth (Canada) was released yesterday. Press reaction and key facts are presented at the end. Also see Ms. Lange's previous post, Ontario Update: Offshore Wind Moratorium Decision Hangs Tough, Onshore BAU Targeted (April 8).]
“After being challenged by the Ontario Liberals for the past six months to “show us your plan,” Tim Hudak, leader of the Ontario Conservative party, did just that on Tuesday. In a speech that outlined what could well become the defining issue of the coming Ontario election, Mr. Hudak promised to take down the key elements of Premier Dalton McGuinty’s green energy program.”
- Parker Gallant, “Ontario’s Power Trip: The End of FIT,” Financial Times, May 10, 2011.
Ontario received an early Christmas present yesterday with the announcement by Progressive Conservative Opposition Leader Tim Hudak that if elected, his government will cancel the $7 billion Samsung deal (Canadian) and revisit hydro deals. Such would negate the FIT (Feed In Tariff) programs that fill the coffers of developers at the expense of power users, large and small.
Hudak is electable, and his green-reform initiative follows on the heels of the strong victory by Prime Minister Stephen Harper, whose Tory Party now has full control of the House of Commons. Ontario’s rebellion against Big Wind should hearten the sister grassroots rebellion in the United States–and scare the super-lobby American Wind Energy Association.
The Samsung deal, in particular, was privately honed and constructed to give Korean business opportunities a fine edge in getting power to the grid, as well as more business incentives in construction for solar and wind turbines.
It is time to return to fair power rates for Ontario. “This (Samsung) deal is a rip-off…we’ve got to cut our losses,” Hudak said today. Quoting “odious deal,” Hudak implied that when new governments must govern with previously deadly or economically unfair deals, it obviously cannot be shackled and have government business paralyzed with that unfairness. It was clear that Hudak, if elected Premier, would not be tied and bound by the widely despised secret Samsung deal, spawned by former Minister of Energy George Smitherman.
Sherri Lange, Founding Director of Toronto Wind Action and Executive Director, Canada, Great Lakes Wind Truth, praised the announcement. For years, her grass roots groups and others have been educating government leaders, calling for and obtaining moratorium votes, such as the boat turning Toronto and Region Conservation Authority Moratorium for offshore wind turbines. “From a “talk to the hand” kind of arrogance at Queens Park to finally getting a substantial reversal of turbine woes in the province from Mr. Hudak, feels like a breath of air,” Lange said today. “There are seven families we know of who have had to abandon or leave their homes due to ill health. There are likely many more who have not self-reported and who are living in cottages or family homes.
There are over 100 more people who have reported serious health concerns. This expansion of business in the province (and if that business is economically viable is highly questionable), over human health and environmental concerns is not acceptable.”
More to Do
Lange also expressed the hope that Mr. Hudak will expand on his energy platform in the days to come. She hoped today that victims of wind will have compensation for suffering and be allowed to have full restitution. [Read more →]
May 11, 2011 18 Comments
[Editor Note: Wind energy is not a new technology as previous posts at MasterResource have discussed (listing at end below). This excerpt is from a longer article, "Changing Winds: The Evolving Wind Turbine," published in the April 2011 issue of POWER. Ms. Patel is the senior writer with the monthly magazine.]
“The use of wind power is as old as history.”
- Erich Zimmermann, World Resources and Industries (New York: Harper & Brothers, 1951), p. 62.
From as early as 25–220 A.D., wind energy has been harnessed for practical purposes. The late nineteenth century began the era of large structures capturing wind to convert to electricity. This post describes early applications of this technology.
Blyth Turbine (1887)
The first wind turbine used to convert wind energy into power—unlike windmills, which are used to pump water or grind grain—was built by Professor James Blyth of Anderson’s College, Glasgow (now Strathclyde University) in 1887. Blyth’s experiments with three different turbine designs resulted in a 10-meter-high (33-foothigh), cloth-sailed wind turbine, which was installed in the garden of his holiday cottage at Marykirk in Kincardineshire. It is said to have operated for 25 years.
Blyth’s invention marked the dawn of wind turbine development. Close on its heels was a turbine built by American inventor Charles Brush in 1888. That 12-kW turbine featured 144 blades made of cedar, each with a rotating diameter of 17 meters (m) (Fig. 1). Then came the work of Danish scientist Poul la Cour in the 1890s, which spawned about 2,500 turbines in Denmark by 1900, with an estimated combined peak power capacity of 30 MW. La Cour’s wind turbines produced hydrogen as well as power.
Fig. 1. The Brush. American inventor Charles Brush in 1888 built one of the first wind power turbines. Source: Wikimedia Commons
Wind-powered turbines were installed by the millions around the world thereafter, particularly in the American Midwest, where between 1850 and 1900 they were used to power irrigation pumps.
By 1931 the first forerunner of the modern horizontal-axis wind generators was put into service at Yalta, in Russia. It was a 100-kW generator on a 30-meter-high tower that featured a load factor of 32%.
The First Modern Wind Turbine: 1941
In 1941, the world’s first grid-connected turbine (1.25-MW ) was built at Grandpa’s Knob in Castleton, Vt. [Read more →]
May 10, 2011 2 Comments
[Ken Glozer's new book, Corn Ethanol: Who Pays, Who Benefits?, sponsored and published by Hoover University Press, will be released this month. Mr. Glozer is president of OMB Professionals, a Washington, D. C. based energy consulting firm. He was a senior executive service career professional with the White House Office of Management and Budget in the energy, environment, and agriculture area for 26 years.]
“Clearly, reducing petroleum imports with the current ethanol policy is a costly ineffective policy. The nation and its taxpayers and consumers would be far better off if the federal government adopted a competitive market-reliance policy for ethanol and thereby avoided the very substantial costs that current ethanol policy has imposed on the nation’s consumers and taxpayers. The current corn ethanol policies should be phased out over a year or two.”
My new book provides detailed a political history of how the United States ended up with current federal corn ethanol policy.
Part I relates the significant external events that have driven the politics that in turn has driven the policy since 1977. I address important questions about when the policy started, how it evolved, what were the major political and market forces that drove it, and, most important, who were the key officials that formed and shaped the policy.
Part II of the book contains an in-depth objective evaluation of the major claims made by those who have advocated the ethanol policies during the past thirty years. I probe how well the ethanol policy has worked compared to the claims made by two presidents, three federal agencies, and the corn, soybean growers, and ethanol producers.
The book evaluates the Renewal Fuels Standard (RFS), which was first enacted in 1975 then doubled, to a mandatory 15 billion gallons of corn ethanol blended into the nation’s gasoline supplies. The surprising finding—that federal ethanol policy has little to do with energy and everything to do with wealth transfer—is particularly compelling because, after three decades of federal subsidies, trade protection and most recently mandated ethanol blending, ethanol remains uneconomical.
According to the Department of Energy’s Energy Information Administration, ethanol never has and never will have a significant impact on petroleum imports compared to what could be achieved under a competitive market policy. Thus my sober conclusion: taxpayers and consumers are the victims of the current policy in that they have no choice but to pay and pay.
From the Preface [Read more →]
May 9, 2011 8 Comments
[Editor note: This is a revision of a previous post at MasterResource last year. Part II highlights a federal free-market energy bill created for discussion by the Institute for Energy Research. Part III examines the Cato Institute's (Jerry Taylor and Peter Van Doren) federal energy priorities.]
Energy is the master resource. Without it, other resources could not be produced or consumed. Oil, gas, and coal could not be replenished without the energy to manufacture and power the requisite tools and machinery. Nor could there be wind turbines or solar panels, which are monuments to embedded (fossil-fuel) energy.
And just how important are fossil fuels relative to so-called renewable energies? Oil, gas, and coal generate the electricity needed to fill in for intermittent wind and solar power to ensure moment-to-moment reliability. So renewables, ironically, codepend on nonrenewable energy given that battery storage to firm the flow of electricity is prohibitively expensive.
As a component of all products and services, energy is the fourth factor of production in addition to the textbook triad of land, labor, and capital. Ubiquitous energy must be affordable, convenient, and reliable for economic progress, which requires that public policy respect consumer preference and allow energy producers to meet the demands of the marketplace. Enter private property rights, voluntary exchange, and the rule of law to facilitate the global exchange of energy and its innumerable subcomponents.
Global energy supplies are primarily the product of government, not the free market. In state-run economies, political elites make the decisions that otherwise would be made by the multitude. Win-win voluntary exchanges are supplanted by bureaucratic command. Without incentives to minimize costs, and without competition between firms for the same resources, wealth is redistributed and wasted that otherwise would go to better uses.
Government intervention with privately held resources also has unintended negative consequences. For example, a state law (such as in Texas) may force electric utilities to buy wind power, solar power, or another politically correct energy under a state law. A mandate is required because a free marketplace would not support such expensive, unreliable—noncompetitive—supply. [Read more →]
May 6, 2011 1 Comment
“In the long run, [government] subsidies can stifle technological progress and retard true commercialization. If state-of-the art technologies find a market, some of the private incentive for further improvement is dissipated. The acceptable becomes the enemy of the better, because individual firms come to have a stake in present technology. Minor improvements will be made to stay ahead of the competition, but there is little motivation toward major steps away from a successful line of business. Once a basic design is established, it also becomes more difficult for federal research and development managers to support radically different approaches to the same problem. There is fear of appearing foolish, hesitation in seeming to second-guess prior decisions, concern about upsetting investment in the operating technology, and pressure to satisfy competing demands for funds to support marginal improvements to current practice.”
- Sam Schurr et. al., Energy in America’s Future: The Choices Before Us (Baltimore: The Johns Hopkins University Press, 1979), pp. 534–35.
The Fukushima Daiichi nuclear disaster in Japan has once again caused many to question the appropriateness of nuclear power. The timing is significant: in the U.S., Georgia Power has placed an order for two nuclear reactors, while other utilities are considering the possibility of constructing new reactors for the first time in decades.
To move the process along, the Obama administration has increased the amount of loan guarantees available to utilities with the knowledge that the cost of a new reactor will run between $6 and $8 billion. Obama’s last proposal was to increase the loan guarantee kitty by $36 billion (to $54 billion). That would be enough to jump-start between seven and ten new reactors, according to the Department of Energy.
Obama’s unveiled his new energy plan earlier in the year. But with Fukushima and with federal budget cuts in vogue with both political parties, the odds have worsened that Georgia Power’s Vogtle Units 3 and 4 (and other proposals) will become the nation’s first new nuclear power units to operate in more than 30 years.
Clearly the costs, along with renewed environmental concerns, make the notion of any revival tenuous. A larger issue is why a revival is necessary from a technology that promised so much. Looking back, the events at Three Mile Island in 1979 come to mind. Yet, the decline of nuclear power started before Three Mile Island. Consider that until just recently, no nuclear plant had been ordered since 1978.
In reality, the decline of nuclear power can be traced to government policies that emerged during the 1950s that led to the demise of the technology and from which it has never fully recovered. [Read more →]
May 5, 2011 6 Comments
For two years now, I’ve made a case that climate alarmism – which I define as the reflexive tendency to assume worst-case scenarios generated by climate models are true (and warrant public policy based on that belief) – is in a death spiral.
Climate alarmists, I documented, were losing their fight for legislation, regulation, and public opinion. It’s clear that I was right on at least two counts: nobody thinks legislation to control greenhouse gases is on the horizon, and President Obama won’t even talk about climate change, preferring to hide the ball in talk about “clean energy,” instead.
The public is also turning away: a new Gallup poll, conducted in 111 countries, found that fewer Europeans and Americans consider climate change a serious threat than they did before. In the US, 53% of people feared climate change, down from 63% in ‘07/’08. In the UK, 57% feared climate change, down from 69% in ‘07/’08.
Signals are more mixed on the regulatory front, but Republican efforts to push EPA off the greenhouse-gas-control ball continue. And given our anemic economic recovery, the odds are looking better all the time. The Supreme Court, too, seems poised to reject the idea that states can use the courts to impose greenhouse gas controls on power producers.
Unfortunately, I was also right in another prediction: “the entire issue of climate change will go sub rosa, and be embedded in discussions of energy, sustainability, energy security, renewable energy, protecting biodiversity, or anything that lacks the words “climate change” in the title.” [Read more →]
May 4, 2011 6 Comments
[Editor note: Part I on energy conservationism examined Richard Nixon's price control order of August 1971 as the birth of peacetime conservationism , with shortages leading to mandatory allocation law.]
A tract for the energy-shortage times was a 1976 essay in Foreign Affairs by Amory Lovins, the 29-year-old energy representative of the U.K. environmental group, Friends of the Earth. In “Energy Strategy: The Road Not Taken?” Lovins coined the term soft energy paths to differentiate energy conservation and decentralized renewable technology from the “hard” path of central-station power plants fueled by oil, gas, coal, or uranium.
Neo-Malthusians such as Paul Ehrlich and John Holdren sang his praises, and the article became the most reprinted piece in the history of Foreign Affairs. Lovins was soon testifying before the U.S. Congress and advising President Carter on the proposition that the least-cost energy option was not to produce energy, but to save it.
Unlike S. David Freeman of the Ford Foundation Energy Project (see post yesterday), Lovins, an Oxford don, specialized in the technical minutiae of energy and wrote, footnoted, and argued his opponents into despair, never mind how hypothesized and obscure his engineering-grounded pontifications were from demonstrated market preferences. Lovins became the most talked about energy guru in the world during the crisis period, with a deceptively simple message that less was more. To critics, however, Lovins was “selling a dream without presenting the bill.”
Lovins held a deep-rooted suspicion—even phobia—about the energy market. “It is hard to think of any current energy technology in extensive use that does not hold the potential for serious long-term environmental risks—risks which may today be wholly unsuspected,” he warned. From this premise came his worldview, later dubbed whole systems thinking, that saw current energy usage—thus production—as a massive market failure. “We must devise a science and a technology of energy impact analysis so that we can make energy a critical variable in all policy decisions, rather than leaving it to emerge de facto from decisions taken on other grounds,” he wrote in 1975. “Boundary conditions on the energy inputs are now needed.” This message was new to the United States energy debate, although the “small is beautiful” theme of E.F. Schumacher was already popular in Europe.
Lovins’s first order of business was to push for a short-term phase-out of nuclear power—a signature issue for Friends of the Earth. Lovins feared that the rapid depletion of oil and gas would segue to super-abundant coal and nuclear—a bad transition and worse long-run lock-in to him. Lovins wanted “transitional technologies that use fossil fuels briefly and sparingly to build a bridge to the energy-income [energy-renewable] economy of 2025.” However wrong this would turn out to be, Lovins would fare better with his second aim: full-scale deployment of conservation technologies to reach a “realistic long-term goal” of “modest, zero, or negative [energy] growth” per unit of output. [Read more →]
May 3, 2011 7 Comments