December 9, 2016
ENERGY WATCH by Karel Beckman
December 9, 2016
Highlights from this week’s Energy Watch:
Get ready for the next oil boom (=price bust)
Electrifying mobility in Europe: what will it take?
The new European gas market may look like this
Plus: fossil fuel divestment, UK transition, EU energy innovation
From shale oil to oil shale: get ready for the next oil boom
Stories about a new technology developed in the US to produce oil are starting to appear on the internet. If it becomes a success, this promises to be the next revolution after the fracking revolution. One that will really flood the world with oil.
Sounds fantastic? Well, so did the fracking revolution.
The technology in question is the use of microwaves to extract oil from oil shales. Oil shales are not be confused with shale oil. Shale oil is liquid oil locked up in rocks which can be extracted through fracturing. Oil shale can be found in solid organic materials, called kerogen, from which it can be extracted through heating.
There is a lot of this oil shale around. As this article by James Watkins on the website Ozy tells the story, just the Green River Formation, which spreads across the states of Colorado, Utah and Wyoming, contains 4 trillion (4,000 billion) barrels of oil. That’s 15 times the amount of proven oil reserves of Saudi Arabia (260 billion barrels). The US consumes about 7 billion barrels a year.
Watkins notes that even with existing methods – strip-mining the shale and then “cooking” it, or injecting steam to cook the rock underground (as is done in tar sands production in Canada) – a considerable production could be realized in the Green River Formation – enough to last the US 165 years at current rates of consumption.
The new technology that is now starting to be used on oil shales is based on microwaves. “Producers are experimenting with ways to zap previously unextractable oil resources with microwaves, which has the potential to kick-start an even bigger energy revolution than fracking”, writes Watkins. “This is potentially ‘a whole shift in the paradigm,’ says Peter Kearl, co-founder and CTO of Qmast, a Colorado-based company pioneering the use of the microwave tech.”
Some big companies, like BP and ConocoPhillips, are already getting involved. The technique used by QMast is to “leave the kerogen in the ground and bring its oil to the surface. Producers would microwave oil shale formations with a beam as powerful as 500 household microwave ovens, cooking the kerogen and releasing the oil. It also would turn the water found naturally in the deposits to steam, which would help push the oil to the wellbore.”
“Once you remove the oil and water, says Kearl, the rock basically becomes transparent to the microwave beam, which can then penetrate outward farther and farther, up to about 80 feet from the wellbore. It doesn’t sound like much, but a single microwave-stimulated well, which would be drilled in formations on average nearly 1,000 feet thick, could pump about 800,000 barrels. Qmast plans to have its first systems deployed in the field in 2017 and start producing by the end of that year.”
There are two problems. One is cost, the other is the environment. The cost is not quite clear at the moment. Kearl claims his pumping costs will be just $9 per barrel, which is $2 more than conventional production.
As to the environmental impact, he says that the new technique uses far less water and is much less and energy-intensive than fracking. This would “appease environmentalists”, Watkins believes – but greenhouse gas emissions are not included in this picture.
Writing about the same subject on Oilprice.com, Irina Slav notes that “The very notion of microwaving to extract oil shale is mouthwatering, because it is a water-free process, and doesn’t leave behind waste—one of the main points of contention between the oil industry and environmentalists. It can also save on new-well investment by maximizing the yield from existing wells.” But she adds that “it is perhaps precisely for these reasons that some of these same environmentalists are adamant that microwaving must never be put to wide-scale use as a fossil fuel extraction method: because it will undermine efforts to switch to renewables, much in the same way that cheap oil did.
What does it take to electrify mobility in Europe? Not much/a whole lot
While the US may be preparing for the next oil boom, Europe – and other parts of the world – seems to be focused more on electrifying the transport sector. Or at least on cleaning it up.
Thus, the mayors of Paris, Madrid and Athens – and of Mexico City – have recently said they will stop the use of all diesel-powered cars and trucks in their cities by the middle of the next decade, the BBC reports.
As the BBC notes, “the diesel ban is hugely significant. Carmakers will look at this decision and know it’s just a matter of time before other city mayors follow suit. The history of vehicle manufacture shows that firms that do not keep up with environmental improvements will fail in a global market. The biggest shapers of automobile design are not carmakers, but rulemakers. There is already a rush to improve electric and hydrogen cars and hybrids. That will now become a stampede.”
It’s just not ordinary diesel that’s under attack – biodiesel too is regarded by many environmentalists as an unacceptable alternative, at least the biodiesel that is being sold on the market today. According to a recent report from Brussels-based green NGO Transport & Environment (T&E), 80% of all biofuel sold in Europe is derived from virgin vegetable oils, such as rapeseed, soy and palm. These have on average 1.8 times higher greenhouse gas emissions than fossil diesel, says T&E.
Palm oil is the worst. This has three times as high greenhouse gas emissions as fossil diesel. This is because palm oil expansion drives deforestation and peatland drainage in producing countries. European biodiesel is now the main end product of imported palm oil, according to T&E.
The NGO demands that the EU stop supporting land-based biofuels, but the EU’s latest Clean Energy Package has merely reduced the volume target for the biofuels share in transport.
According to Jori Sihvonen, biofuels specialist at T&E: “If the world consumes as much palm oil biodiesel as Europe does, it will be game over for the world’s rainforests. We need to stop this biodiesel madness and the best place to start is where all began: Europe. We therefore urge the Commission to phase out land-based biodiesel by 2025 and all land-based biofuels by 2030.”
But what will it take for Europe to switch from combustion engine cars to electric cars? That was the subject of a recent study from the German Ökö-Institut, and consultancies TNO in the Netherlands and Transport & Mobility Leuven (TML) in Belgium, produced for the European Environment Agency (EEA), an EU institution.
The results – which were released in September, but did not get much publicity – are quite fascinating. They are not a cheer story for EVs, though: the challenges of electrifying the transport market will be severe and the risks serious.
The authors first of all make the obvious, but important point that “the introduction of electric vehicles will inevitably lead to greater interaction between the mobility and the electricity sector. When electric car penetration reaches higher levels, the electricity demand from electric cars will become a relevant factor within the energy system and impacts the operation of power plants and grid infrastructure.” This is relevant because energy and transport are currently quite separated policy spheres.
The study looks at two electric car scenarios of medium (50% electric car fleet in 2050) and high (80 % electric car fleet in 2050) electric vehicle penetration. Here we will concentrate on the high scenario. It is contrasted with the EU Reference Scenario – which is the primary policy study used by the European Commission in its energy policy decisions, and projects a strikingly low 8% penetration of EVs by 2050.
If EV penetration is taken to 80% in 2050, EVs will then account for between 3% and 25% of electricity consumption in the EU, notes the study. Rather a wide range. The average will be 9.5%.
Significant additional generation capacity could be required: “Up to 150 GW of generation capacities are added to the energy system due to electric cars (130 GW more than in the Reference Scenario 2013). Assuming constant generation mixes to the Reference Scenario 2013, this includes up to 47 GW wind, 25 GW solar, 41 GW fossil and 11 GW nuclear capacities…. These capacities require significant additional investments in particular for wind and solar power and increase land use for electricity generation.”
However, “as nuclear and coal power plants have significant negative environmental effects and they do not fit into a future energy sector that needs to complement fluctuating renewable energy supply, additional nuclear and coal capacities should be avoided”, according to the study. “Instead, additional renewable capacities should be installed to replace the required additional coal and nuclear capacities. This would include 87 GW wind, 45 GW solar, 24 GW hydro and 13 GW biomass capacities.”
Then there is the challenge of intermittency and the burden EVs will put on the grid. It turns out that “the intensity of electric vehicle charging could potentially put local grid infrastructures under substantial stress and lead to severe technical problems in network operations.”
According to the study, “a literature review reveals that the critical number of electric vehicles for grid operation depends on the local context and no general threshold can be set. Case studies show that severe operation problems can occur with electric vehicle car stock penetration of approx. 10%.”
These effects can be “partially counteracted” with the help of smart charging. However, the idea that we can use EVs as “batteries” (as “an aggregated large scale storage option”) is probably not realistic. This potential “appears very limited due to low overall storage capacity and the competition with other more cost-efficient storage options. Additional tear and wear of the battery might also be a reason for the limited electricity storage potential.” Nonetheless, “electric cars could potentially provide important system services to contribute to grid stability.”
An important outcome of the study is that the situation is different in each country and requires different approaches. “Even between countries with similar renewable energy shares, the appropriate strategies for charging can be very different depending on the renewable technologies and the remaining types of generation capacities. In countries with high fluctuating renewable energy supply the coordination of the electric vehicle demand with fluctuating supply will become a major challenge. Electric vehicles also provide a valuable source of flexible demand that can foster the integration of renewable energy (e.g. Portugal, Denmark and Germany). Nonetheless, countries with a focus on solar energy (preferred charging peak during the day) will apply different charging strategies than countries with a focus on only wind or solar and wind electricity production (more volatile preferred charging peak due to wind power).”
The extent to which the expansion of EVs will lead to lower greenhouse gas emissions depends on the set-up of a country’s power sector. Nevertheless, results may be expected to be positive: on the basis of the generation mix assumed in the EU Reference Scenario, emissions from passenger road transport (calculated from well to wheel) will be 84% lower compared to 2010 if 80% of cars will be EVs.
The impact of local air pollutant emissions from electric vehicles and emissions from power generation cannot directly be compared, notes the report. Nonetheless, when we look at “the net balance” of emissions, the high EV scenario also results in local air pollutant emissions reduction (PM, NOx and SO2) in passenger transport of more than 80%.
In short, the EV revolution is worth it, from a climate and environmental perspective – but it will take a lot of investment – and ingenuity – in electricity generation and distribution capacity.
By the way in case you are wondering what are the best-selling EVs in Europe, here is an overview of sales for the first ten months of 2016, taken from Cleantechnica.com:
The new European gas market: will it look like this?
I am sure that most of our readers aware that the integration and liberalisation of the European gas market has progressed very well in the last few years (unlike the electricity market). Prices have converged, spot trade has expanded, interconnections have improved, trade flows have expanded, even to the extent that a country like Ukraine does not need to import gas from Russia anymore but can source it from the EU (see last week’s article on Ukraine and the Victory of the EU gas market). The market is not perfect yet, especially not in South Eastern Europe, but it’s getting there. Thanks, we may add, to the EU’s forward-looking energy policy, in the form of the Third Energy Package.
So what is the next step? Well, why not: one truly single EU gas market?
Currently, the EU gas market is divided into a number of trading zones, to some extent (but not completely) coinciding with national markets. In these zones so-called entry and exit tariffs apply. This means that a shipper pays the network operator to get gas into the zone, and, if the zone is used as a transit zone, pays once more to get it out again, into the next zone. This means that the tariff is independent of where the gas is transported within the zone.
The new structure makes for much more transparent markets than in the past, when different tariffs applied. But why not take the next logical step, which is to turn the EU gas market into one single zone?
This is the proposal put forward in a highly interesting paper published recently by Norwegian consultancy Sund Energy.
This is how the paper sets out the context of the proposal:
“If we have reached a tipping point for gas, the next phase needs a different market design, especially for contributions of infrastructure and storage to support renewable energy, including renewable gas. The purpose of this article is to describe a possible vision of the future gas market in Europe and how a more integrated design could improve overall efficiency and welfare.”
“We attempt to describe a future vision for the European gas market, and how regulation could be adapted to achieve it. While current regulations have had a high focus on security of supply (SoS) and competition, these issues are less problematic today. There are many routes of supply to Europe and competition has given lower prices to all EU member countries. This could be a result of regulations alone, but probably also benefit from a general oversupply of natural gas globally, renegotiating old long term contracts, and an overcapacity in import facilities. Most gas is now priced at or near hub prices (with sellers covering transportation), and the price differences between countries have fallen due to sufficient transportation being available, and the lack of congestion.”
With security of supply and competition largely problems of the past, “the next challenge”, notes Sund Energy, “will be cost coverage of internal infrastructure (interconnectors, reversible pipelines and storage) that, if used less efficiently, could lead to less welfare to European users. Lower demand has been a deliberate policy of the European Commission, to reduce climate emissions and import dependency, and may now contribute to higher infrastructure costs.”
In other words, regulation should now start to focus on infrastructure and on the position of the transmission system operators (TSOs) in the market.
Sund argues that since the purpose of EU policy is “reduction (or elimination) of price differences across the continent that are due simply to competitors being able to exercise market power in certain geographic regions”, the best way to go forward is turn the EU market into a single zone with a single entry-exit tariff and a single trading hub.
According to Sund, the most obvious choice for an EU trading hub is the Dutch TTF, which is by far the most liquid hub on the European continent.
This “drastic change in vision” will also “allow resetting the Regulated Asset Base (RAB) of each player and the total remuneration of all transport companies in Europe.” It adds that “this will, as usual, be resisted by transport companies unless one is smart enough to become the EU pipe company (by buying all the others) or by applying a Norwegian Gassco/Gassled solution.”
Currently, TSOs are rewarded on the basis of their RAB: if they increase this (i.e. build more infrastructure), they will earn more money. This works as an incentive to build pipelines that may not be needed. “To avoid [overcapacity] a simple way is to set the remuneration of transport players linked to volume effectively sold and put into storage in 2020 (weather corrected) and a fine system in case of congestion (as this will impede the EU gas market). As the total remuneration is going to be set by the regulator …, transmission system operators will have to decommission useless infrastructure (to reduce their RAB) while maintaining spare capacity in the system (to avoid fines).”
The cost of the pipeline infrastructure in the zone can then be split into an entry and an exit fee, Sund suggests. This should be cheap enough not to discourage suppliers.
The result is that all suppliers will compete “on the same level playing field as they will receive for their gas the hub price minus entry fee. The competition will be more global. As the UK will be out of the EU, the EU entry fee will be higher (bigger market more liquid, less volatility) but the entry fee needs to be in the same range as the UK one. Also the remuneration will have to be competitive vs Gassco/Gassled tariffs. The idea behind this is to have a competitive entry fee to allow suppliers to enter the EU market, to compete and keep prices as low as possible.”
As to the TSOs, the most logical outcome would be simply to have one EU-wide TSO, notes Sund. Their report concludes: “Our design is simple and easy to grasp for both suppliers and consumers. It could be resisted by transportation companies that will need to adapt but it makes much more sense to have a EU wide transportation company (that could also be highly viewed by the financial markets) than numerous regulated companies that try to maximize their respective profits. The general EU gas welfare interest is far above the sum of the respective transportation companies. With no welfare losses and reduced long term contracted capacity materializing in 2020, it is now the perfect timing to reset the remuneration of European pipe operators.”
EU energy innovation funds directed at buildings, renewables integration, storage, electric cars
Among the avalance of documents known as the “Winter package”, the European Commission has included a Communication on Clean Energy Innovation. In this it announces that it intends to spend over €2 billion from the Horizon 2020 work programme for 2018-2020 to support research and innovation projects in four priority areas:
- Decarbonising the EU building stock by 2050: From nearly-zero energy buildings to energy-plus districts
- Strengthening EU leadership on renewables: Further system integration and developing the next generation of renewable-energy technologies, including potential game-changers (e.g., electricity from renewable sources, advanced biofuels and other synthetic fuels derived from the use of carbon dioxide and other re-used greenhouse gases).
- Developing affordable and integrated energy storage solutions: to accelerate the full integration of storage devices (chemical, electrochemical, electrical, mechanical and thermal) into the energy system, at domestic, commercial and grid scale.
- Electro-mobility and a more integrated urban transport system: Rapid development and deployment of next-generation electric vehicles based on advanced battery designs and new powertrains, an innovative recharging infrastructure and associated business models and services
Students and universities in UK protest against and divest from fossil fuels
UK universities are leading the way on fossil fuel divestment globally, according to research conducted by People & Planet as part of their University League.
The League table shows that 43 higher education institutions in the UK have committed to exclude the fossil fuel industry from around £10.7bn of endowment wealth, overtaking other EU countries, the US and Australia.
The University of Glasgow was the first in Europe to divest from fossil fuels. Since, “student campaigns have convinced a succession of world-leading universities to follow suit, including the University of Oxford, University of Cambridge, University College London, Kings College London, the University of Edinburgh and London School of Economics. This represents over a quarter of UK universities and places UK universities ahead of their global rivals”, says the announcement.
People & Planet add that “there are currently over eighty campaigns in UK universities with students now targeting Barclays bank over their investments in fracking, the Dakota Access Pipeline and coal mining in Argentina, alongside their university-focused campaigns. Recently sixty bank branches faced protests from students and the wider public over Barclays’ investments in Third Energy, the company looking to extract gas via hydraulic fracturing in controversial sites in the Yorkshire Dales, against a backdrop of strong local opposition.”
UK energy transition “doesn’t cost the world”
A new report from consultancy E3G based on analysis from Imperial College London “lays to rest the argument of a preventative ‘hidden’ cost of renewable power. Investment in grid flexibility lowers the final costs for the grid and for bill payers”, says the report. “This is because the variable output of renewable technology can either be covered by building half as much low carbon generation again, or, cheaper, some flexibility.”
E3G notes that the UK Government recently adopted the 5th Carbon Budget and “now needs to deliver it as cheaply as possible. This will require the construction of new low carbon generation capacity capable of producing over 150TWh of electricity each year by 2030 – around half of all current output. All plausible scenarios imply that this can only be achieved by deploying a significantly increased volume of renewable generation – likely to be around 50GW, predominantly from a combination of onshore and offshore wind and solar PV.”
Concerns have been expressed that variable renewable generation creates ‘hidden’ costs for the system and that the power system needs ‘baseload’ power to operate, but according to the study undertaken by Imperial College “the system integration costs of renewable generation are low and … the power system can operate securely and at least cost with more than 50% of electricity demand being met from variable renewable sources.”
The study shows “that under the current trajectory onshore wind will be at least 22% cheaper than nuclear with offshore wind and solar PV providing savings in excess of 4% and 8% respectively. Actual savings are likely to be even greater as system flexibility improves.”
The important conclusion from this study is, “therefore, that the cheapest way to decarbonise the power system involves large volumes of variable renewable generation even when taking system integration costs into account. The Government can proceed with investment in renewable generation without risking unnecessary escalations in system costs and a burden on consumers.”
China turns to biomass, puts brakes on solar
Just when globally investment in biomass is under pressure, in part because of increasing doubts about the climate friendliness of bio-energy, China has turned its sights on this form of energy. According to Bloomberg New Energy Finance (BNEF), the National Energy Administration said on its website that China will invest CNY 40bn ($5.8bn) in the sector by 2020.
Biomass currently accounts for just 1% of China’s electricity mix. The new funding will boost installed capacity to 15GW from about 10.3GW at the end of 2015.
By contrast, global investment in the technology has plunged 81% from about $15bn in 2011 to an estimated $3bn this year, according to the latest biomass Market Outlook from Bloomberg New Energy Finance. According to BNEF, “the industry has struggled to rein in costs as quickly as rival sources of renewable electricity such as wind and solar farms, which have captured more support from investors. Japan, Netherlands and the UK are among the countries that are nevertheless seeing activity in this sector.”
At the same time, “China has applied the brakes on solar project development”, notes BNEF, which “expects China to be a smaller solar market in 2017 than in 2016. Total solar installations globally in 2016 are expected to be at 70GW – with the largest chunk in China. The 2017 total number is projected to be slightly higher at 73-76GW.”