The Oil Drum: Europe

I recently received an interesting e-mail:

Nancy Pelosi, Speaker of the House and Author of "Know Your Power: A Message to America's Daughters" will answer questions in a live discussion on washingtonpost.com today (Wednesday, Aug. 6 at 3 pm ET).

Pelosi will discuss the current political scene heading into the conventions, the message of her new book and other questions submitted by readers.

To submit questions and participate in the live discussion click here: http://www.washingtonpost.com/wp-dyn/content/discussion/2008/08/01/DI2008080102174.html

This seemed to me to be an ideal opportunity to question her on two issues that she is clearly passionate about, but seem to me to be diametrically opposed: Tapping the Strategic Petroleum Reserve (SPR) and reducing carbon emissions. So, I submitted the following question, several hours prior to the chat:

I have a friend who is addicted to nicotine. His liberal friends tell him that this addiction is bad, and point out that it is costing him too much money. Therefore, they want policies passed that ensure that he can continue to consume as much as he likes, and not hurt his budget too much. They are sure that nicotine substitutes will come along soon to save the day. For reasons I detail below, I call this the Boxer approach, but it could just as easily be the Pelosi/Democratic Party approach.

His conservative friends agree that he is addicted, but their solution is to carve out areas in the U.S. where we can grow more tobacco, and therefore his addiction can at least be homegrown. Sort of like "If you are going to smoke pot, at least smoke American pot." This is the Bush approach.

One of the critical factors in making sure that there is enough of an energy supply to meet the growing international demand lies in the logistics of the supply train that is going to have to provide it. When CERA and others point to the totality of the available resource, as Nate is pointing out in his series, they neglect the realities of that chain, and the parts that all have to work if the electric light is to go on the next time that you flip the switch on the wall.

Thus, if for example, Saudi Aramco tells Asian refiners that it is cutting supplies by 9% that does not mean that when a Japanese driver pulls into the gas station tomorrow that he will face a large EMPTY sign. Rather, in March Aramco tells the refiners that it will cut supply in later months, and thus the impact is not immediately evident. :

Saudi Aramco will cut exports of Arab heavy crude by as much as 20 percent to Japan, 9 percent to South Korea and 15 percent to China, refinery officials said. A Taiwanese refiner will receive a 10 percent cut in Arab heavy supply.

The gas that is in the pump came out of the oil well some time ago, and has had to pass though pipelines, storage, tanker shipment, refineries and additional storage before it actually leaves the pump nozzle to flow into the car gas tank. This takes away some of the immediate impact of the OPEC cut back in supply, and if this is, concurrently, occurring when the refineries normally reduce demand because of maintenance, then the impact can be further concealed.

Refineries in Asia typically close from April to June for repairs. Japan will see a peak of 26 percent of its capacity closed in May and South Korea will have 19 percent shut, mainly during the second half of June and the first half of July.

Unfortunately that “not-quite-just-in time-production” nature of the supply train also has a downside at the other side of this situation. When production increases again, if it does, then there will be an equivalent lag-time before our Japanese retailer can take down his EMPTY sign because the gas is back in town.

During the course of the President’s State of the Union Address he spoke to the energy situation in these words

It is in our vital interest to diversify America's energy supply -- and the way forward is through technology. We must continue changing the way America generates electric power -- by even greater use of clean coal technology ... solar and wind energy ... and clean, safe nuclear power. We need to press on with battery research for plug-in and hybrid vehicles, and expand the use of clean diesel vehicles and biodiesel fuel. We must continue investing in new methods of producing ethanol -- using everything from wood chips, to grasses, to agricultural wastes.

We have made a lot of progress, thanks to good policies in Washington and the strong response of the market. Now even more dramatic advances are within reach. Tonight, I ask Congress to join me in pursuing a great goal. Let us build on the work we have done and reduce gasoline usage in the United States by 20 percent in the next ten years -- thereby cutting our total imports by the equivalent of three-quarters of all the oil we now import from the Middle East.

To reach this goal, we must increase the supply of alternative fuels, by setting a mandatory Fuels Standard to require 35 billion gallons of renewable and alternative fuels in 2017 -- this is nearly five times the current target. At the same time, we need to reform and modernize fuel economy standards for cars the way we did for light trucks -- and conserve up to eight and a half billion more gallons of gasoline by 2017.

Achieving these ambitious goals will dramatically reduce our dependence on foreign oil, but will not eliminate it. So as we continue to diversify our fuel supply, we must also step up domestic oil production in environmentally sensitive ways. And to further protect America against severe disruptions to our oil supply, I ask Congress to double the current capacity of the Strategic Petroleum Reserve.

America is on the verge of technological breakthroughs that will enable us to live our lives less dependent on oil. These technologies will help us become better stewards of the environment -- and they will help us to confront the serious challenge of global climate change.

I gave the whole quote, since it was interesting to see the inclusion of biodiesel to a greater extent that I recall seeing emphasized before. The MSM had foretold the increase in emphasis on ethanol, 35 billion gallons a year is some 2.28 million barrels a day or somewhere around 10%, and it would appear that the intent is to mandate this percentage in the national fuel fix. However, while this thrilled the Senator from Iowa, corn ethanol cannot be the total answer, since the impacts on world food supplies (as well as our own) would be severe, and may well still be, as corn prices will inevitably rise.

Dear Me! There has been a considerable stir in the TOD house, since CERA have just come out with a report restating their position that there is no Peak Oil Problem. For a mere $1,000 you may discover (perhaps) what is new since the last time they said this. Now we have commented about problems with the CERA position on a number of occasions (try one, two, three , four and five for a start). But since it is better to do a little checking first, it may take a little time to go through and see exactly what is different this time around, if anything.

In the meantime, the election is over, and a small, cynical, part of my mind wonders how long it will be before we start adding more oil to the Strategic Petroleum Reserve. Last year's Energy Policy Act authorized increasing the size of the reserve to 1 billion barrels. The current reserve is made up of 273.5 million bbls of sweet and 415 million bbls of sour, for a total of 688.5 million, as of November 3rd. However, over the past few months there has been very little activity. The reserve had been filled to its initial target of 700 million barrels by August 2005, but then, following Katrina there was a period where it proved its intended value:

Thanks to Amy for the news that the IEA loan is now over.  This with the need to also repay some of the loans, though not the purchases, from the SPR will no doubt add some pressure to any demand drop in the second quarter.

The members "agreed that the impact of hurricanes Katrina and Rita has been successfully addressed by a combination of the IEA collective action, lower than expected demand, worldwide refinery flexibility and additional efforts by producer countries.

__"The IEA member countries will exercise flexibility in re-establishing their emergency stock levels through 2006, noting the need to take into account seasonal demand and the possibility of higher than expected refinery maintenance," (IEA Chief Claude) Mandil said on Monday.

One of the activities that has, in the past, mopped up a certain amount of surplus supply was the steady purchase of oil for the Strategic Petroleum Reserve. About a year ago we were looking to the Chinese to put a significant effort this year into building their own reserve.  Several posts have discussed, either in the lead or comments, the investment that has been made in the required infrastructure. And there is a concern that this will act as another drain on a tight supply.