March 3, 2017
ENERGY WATCH #1 by Karel Beckman
The Second Coming of Shale Oil
March 3, 2017
Energy watchers may be forgiven for thinking that the oil industry is in trouble. And indeed, international oil companies, such as ExxonMobil and Shell, are in trouble. So are the big petro-states. But that is not necessarily the same as “the oil industry”.
ExxonMobil, the biggest private oil company in the world, last week reduced its proven oil reserves by a whopping 19%. To be precise: it removed its oil sands holdings in Canada from its proven reserves. Other companies have made similar moves over the last couple of months. All told, the global proven oil reserve base of the oil multinationals went down by 10%.
But the reason for this write down does not have anything to do with “peak demand” or a decline in the popularity of oil. On the contrary. The expensive-to-win tar sands in Canada are simply no longer categorized as “proven” because oil prices are too low (and expected to stay low) to make it profitable to develop them. This is because legally proven reserves are resources that look likely to be developed within five years. At current price levels, the tar sands are simply not competitive.
But why are oil prices so low? Because there is less demandl? Because of the Paris Climate Agreement? Unfortunately, no. Although climate measures may have an effect on the long-term outlook for oil demand, that is not the case as yet at the moment. The reason is what Bloomberg news agency describes as “the second coming of shale”.
Quite simply, the US shale oil sector, after taking a hit when OPEC (Saudi Arabia) launched a strategy to ramp up production in order to drive down prices in 2014, is quickly recovering now that OPEC has agreed on production costs and prices have recovered. In fact, according to Bloomberg, US shale oil production has been growing even faster than during the first shale boom, which ran from July 2011 to April 2015:
Bloomberg analyst Julian Lee notes that “U.S. oil production bottomed out in September. Since then oil companies have added an average of 125,000 barrels a day of production each month, taking output back above 9 million barrels a day for the first time since April. What should really trouble OPEC, though, is that this rate of growth is even faster than the first shale boom. Over that earlier period, U.S. oil production rose at an average monthly rate of 93,000 barrels a day.”
According to Lee, “Increasing production from the U.S. is rapidly undermining the output cuts that OPEC is making and, unless those cuts get deeper in the coming months — which looks unlikely, given that compliance is already above 90 percent — things can only get worse for the producer group. Far from bringing the market back into balance, they run the risk that they have seriously underestimated the ability of U.S. domestic producers to adapt to lower prices. And what’s worse is that they may be able to raise production even faster if OPEC succeeds in pushing the price up.”
Lee writes about the consequences for OPEC, but the consequences for the Shells and ExxonMobils of the world are the same: they also hurt by the low prices.
What is the lesson to be drawn from this? Quite simply, that the nature of the oil industry has changed irrevocably.
Lee explains: “What OPEC has failed to understand is that the shale revolution owes it success more to a new business philosophy to deal with a new type of resource, than it does to new technology. As Thomas Reed, chief executive of JKX Oil & Gas Plc, pointed out at last week’s International Petroleum Week conference in London, horizontal drilling and hydraulic fracturing have both been in use in the oil industry for around 50 years. What is really new is not just combining the two techniques in a single well but, more importantly, the industrialization of the process of drilling and completing wells. The long lead-times, complex development plans and huge up-front capital requirements associated with conventional oil fields simply don’t apply in the shale sector. Yes, costs will eventually rise as shale output grows. The industry’s retrenchment has left it employing only the best rigs and crews and focused on the best of the resource. But it is able now to extract so much more with so much less drilling that it is almost certain to keep growing. OPEC has put itself back on the path of cutting output to support competing producers. It just doesn’t seem to have realized it yet.”
If OPEC is in trouble because of the second shale oil revolution, the old oil multinationals are in a worse spot. After they were chased out of most of the big oil producing countries in the 1970s and 1980s, they placed their bets on difficult-to-win, expensive, complex projects in places like the Arctic region, the deep seas and the Canadian tar sands. What they did not see coming was the shale oil revolution.
They are now trying to reverse course. Thus, ExxonMobil, under its new CEO Darren Woods – successor of Rex Tillerson, now US Secretary of State – in January spent $5.6 billion to double its acreages in the Permian shale oil formation in Texas. This was Exxon’s first major acquisition in shale since it bought XTO in 2009, and the largest oil and gas deal in the U.S. in over two years.
So for oil, as a source of energy, prospects seem to be brightening rather than darkening. This is especially true since Donald Trump took power in the US. His administration will do everything it can to stimulate oil production.
Ironically, as some observers have predicted, Trump’s pro-oil policies will harm rather than benefit the big oil companies that have been his strongest backers, since they are likely to lead to an oil glut, and thus low prices. But it’s not only the oil companies that will get hurt – the climate and the energy transition will also take a hit.
ENERGY WATCH #2 by Karel Beckman
For Shell & Co, a climate of concern
March 3, 2017
For the Shells of this world the problems don’t end there. They are faced with a low-price environment on the one hand, but also face the pressures of climate policy. You could say they are squeezed between markets and policies. They need to produce more oil and gas to survive, and the same time they need to transition away from fossil fuels.
The conundrum that a company like Shell finds itself in, was highlighted in an interesting lengthy article this week by a Dutch journalist, Jelmer Mommers, for a Dutch-language publication (De Correspondent), which was co-published in a shorter English version by The Guardian.
Mommers reveals, in the version of The Guardian, that “The oil giant Shell issued a stark warning of the catastrophic risks of climate change more than a quarter of century ago in a prescient 1991 film that has been rediscovered.” However, “since then the company has invested heavily in highly polluting oil reserves and helped lobby against climate action, leading to accusations that Shell knew the grave risks of global warming but did not act accordingly.”
This “revelation”, it has be said, is somewhat misleading. The Guardian says the Shell film, called Climate of Concern, was “rediscovered”, as if it had been hidden. But the fact is that Shell produced a film warning in very stark terms of the dangers of climate change as a result of fossil fuel use – 15 years before Al Gore’s Inconvenient Truth – and then actually showed it all over the world in schools and universities! It’s no doubt true that the film was forgotten (I had never come across it), but you can’t say that Shell hid it in any way.
But the question then is, what did Shell do with this knowledge, which it shared with the world? There are two issues here: first, what did the company do in terms of lobbying? Second, what did it change in its own operations?
As far as the lobbying is concerned, Shell in the U.S. followed a very different course than the Royal Dutch Shell group in Europe. As Mommers writes, Shell Oil (the U.S. subsidiary) was part of the Global Climate Coalition, founded in 1989, which lobbied strongly against climate policy and emphasized the uncertainties around climate research.
In fact, when the skeptical arguments of this American group reached Europe, Shell asked one of their employees, Peter Langcake, to look into them. Langcake produced a briefing for the management in February 1995 which rejected the messages from the Global Climate Coalition and instead emphasized the scientific consensus around climate change. Nevertheless, Shell remained a member of the Global Climate Coalition until 1998 – after the crucial Kyoto climate conference in 1997.
Shell’s lobbying activities in Europe were of a different nature. Here, as Mommers tells the story, the company was one of the big lobbyists in favour of CO2 pricing and reform of the EU ETS. However, the company at the same time lobbied against renewable energy targets or any other climate policies. It wanted carbon pricing and carbon pricing only.
As far as Shell’s business strategy and operations are concerned, Mommers shows that so far all Shell’s attempts to get away from fossil fuels have failed. In 1997 then-CEO Jeroen van der Veer announced that Shell would create a renewable energy business. He announced an investment of $500 million in five years.
But none of the activities the companies pursued – solar, biomass, geothermal, offshore wind – were profitable enough (at least not for Shell) and they were all discontinued, except for biofuels and carbon capture and storage (CCS). Van der Veer said in June 2006 that solar power was “a dead-end street”.
By contrast, as Mommers points out, Shell did continue to invest massively in fossil fuels. After it got out of solar power, for example, it spent $7.4 billion for the acquisition of – oh, irony – a tar sands company in Canada. The company also spent $ 9 billion exploring for oil in the Arctic, it built (from 2011) the world’s largest floating LNG installation (Prelude) at a cost of $10-$13 billion, and it acquired gas company BG in 2015 for $64 billion – to mention just a few examples of huge fossil fuel investments.
More recently, Shell has begun investing again in renewable energy, particularly in offshore wind. But it is clear that this activity is tiny compared with the fossil fuel side of the company. Indeed, Shell recently announced that it has no intention in the next ten or twenty years to move to a portfolio with zero emissions.
The standard excuse Shell gives for its continued fossil fuel expansion is that the world – and in particular the emerging economies – needs fossil fuels to meet its growing energy needs. At the same time this becomes a self-fulfilling prophecy, as Mommers notes, because Shell and the other oil companies keep offering fossil fuels to the world.
There is one difference, though, with the past – one way in which Shell, Exxon and BP have changed their practices: they are betting big on natural gas rather than oil. Gas is less burdensome to the climate, and it also presents a way for Shell and the others to avoid the cut-throat competition of the global oil market.
According to Mommers, the problem with this strategy is that it does not regard gas anymore as a bridge fuel, but as a permanent fixture of the future energy system. There are no signs that Shell intends to stop its activities in oil and gas. “The company still wants to grow in shale oil and gas after 2020 … Business as usual until the end – until Shell will be overtaken by green competitors – or until all grim predictions from Climate of Concern become reality.”
Mommers surely has a point. The question, though, is, do these companies have a choice, if they want to survive? It is too late for them to go into solar or wind energy. They don’t have the skills for that either. (Interestingly, some oil producing countries, such as Saudi Arabia, are actually investing heavily in solar power – they have more options to “diversify” than the international oil companies.) Offshore wind is still an option for oil companies, as it requires offshore skills that they do have But this sector will always be limited in size – it could not begin to compare with the oil and gas sector.
They do pursue alternatives such as biofuel or hydrogen, but these also have their limitations. Carbon capture and storage may be a useful activity, but it’s not production of energy. Natural gas seems to be all that is left at the moment.
If Shell seems to wrestle with this problem, this cannot be said for its big U.S. rival ExxonMobil. This company does not see any need to transform itself radically. According to the Huffington Post, the company’s new CEO, Darren Woods, said recently: in an interview: “Fossil fuels today have a role in our society because they bring great benefit. Yes there’s a cost to it, and our understanding of that cost has grown over the years. But based on what we know today, you can’t eliminate the cost and keep the benefit. The unspoken word is that the benefits have to go away.”
In a blog post on the ExxonMobil website published on 23 February, Woods set forth ExxonMobil’s business strategy. Here are the highlights of what he wrote:
- We are creating jobs and growth in the US
“Growing U.S. energy production has spurred a manufacturing renaissance, adding $20 billion a year to the economy and hundreds of thousands of new jobs, according to estimates by the U.S. Chamber of Commerce. ExxonMobil’s new projects on the U.S. Gulf Coast are expected to generate more than 45,000 jobs alone.”
- Energy demand worldwide will grow strongly
“Most forecasts project that many factors – including global population growth of nearly 2 billion, a doubling of worldwide economic output and a rapid expansion of the middle class in emerging economies – will raise global energy demand by an amount equivalent to the total energy used today in the entire Western Hemisphere.”
- We need to provide that energy despite the climate problem
“This growing demand creates a dual challenge: providing energy to meet people’s needs while managing the risks of climate change.”
- We support the Paris Agreement and climate policy in general
“I believe, and my company believes, that climate risks warrant action and it’s going to take all of us – business, governments and consumers – to make meaningful progress. At ExxonMobil, we’re encouraged that the pledges made at last year’s Paris Accord create an effective framework for all countries to address rising emissions; in fact, our company forecasts carbon reductions consistent with the results of the Paris accord commitments.”
- The solutions are: natural gas
“The world already has powerful tools for meeting global energy demand while reducing emissions. One is natural gas. Today in America, nearly one-third of the electricity is produced using natural gas. Our role as the country’s largest producer of natural gas – which emits up to 60 percent less CO2 than coal for power generation – has helped bring CO2 emissions in the United States to the lowest level since the 1990s. Increasing use of natural gas means our overall energy mix is growing less carbon-intensive.”
- energy efficiency
“Greater energy efficiency is also essential. It might seem counterintuitive, but a big part of ExxonMobil’s business is developing products and technologies that help save energy. Examples include our advanced automotive materials that make cars lighter and more fuel-efficient, and improved plastic packaging that reduces the energy needed to ship goods around the world.”
- carbon capture and storage
“But the world also will need breakthrough clean-energy technologies such as carbon capture and storage (CCS). ExxonMobil is investing heavily in CCS, including research in a novel technology that uses fuel cells that could make CCS more affordable and expand its use.”
“We’re also researching advanced biofuels, including biofuels made from algae – a potentially game-changing energy source that would place less stress on food supplies, land and fresh water than traditional biofuels while reducing emissions.”
- a revenue-neutral carbon tax
“One option being discussed by policymakers is a national revenue-neutral carbon tax. This would promote greater energy efficiency and the use of today’s lower-carbon options, avoid further burdening the economy, and also provide incentives for markets to develop additional low-carbon energy solutions for the future.” (ExxonMobil has never been crazy about carbon trading, it prefers carbon taxes.)”
Woods notes that “all told, we’ve invested $7 billion to develop lower-emission energy solutions during the past decade and a half.”
At a rough estimate, ExxonMobil invests some $30 billion a year, i.e. some $450 billion over 30 years. Its investment in “lower-emission energy solutions” therefore, is around 2%.
In a nutshell: Exxon foresees a very very slow and gradual change away from oil and towards gas and then, possibly, other alternatives.
ENERGY WATCH #3 by Karel Beckman
Solar boom squeezes gas
March 3, 2017
One of the advantages of natural gas, according to the gas industry, is that it is “versatile” – it can be used across a range of applications: transport, electricity generation, heating.
Yet this may also be a drawback, as gas finds itself in competition with other forms of energy in all these applications. For example, no one really expects gas to become the main fuel source in transport.
Electricity generation is currently the biggest source of gas demand, but here gas finds itself in competition with renewables – even as it promotes itself as complementary to renewables. In particular, if the combination solar plus storage were to conquer the world, the role of gas would be strongly limited in future.
And the latest news is that solar power is continuing to make strong progress in key markets. In the United States last year, solar installations increased by 95% compared to 2015: 14.6 GW of new solar was installed compared to 7.4 GW in 2015. Cumulative capacity is now over 40 GW.
Although solar only represents 1% of electricity demand in the US, “what matters going forward is growth”, writes Nick Cunningham of Oilprice.com, “and the 2016 figures point to a solid trend that suggests solar will dominate the future. In 2016, the 14.6 GW of solar installed accounted for 39 percent of the total electric generating capacity installed for the year, more than any other source of electricity. In other words, solar beat out wind, natural gas and coal in 2016, accounting for the most installed capacity for the year.”
Based on the fact that solar costs are continuing to come down, Bloomberg New Energy Finance (BNEF) predicts that “cumulative installed capacity will rise from 40 GW today to 105 GW by 2021” in the United States – equivalent to a third of the current installed capacity for coal.
In Australia, the largest market for solar PV in the world per capita, solar power is headed for a “huge year”, reports Sophie Vorrath on the website Reneweconomy, “on the back of a boom in the large-scale market and a home solar and storage market that is expected to treble.”
According to a report from the Climate Council, “State of Solar”, solar costs have plummeted by 58 per cent in just five years and look set to continue to fall by somewhere between 40 and 70 per cent by 2040.
“Already, however, solar plants are delivering electricity for cheaper than new coal, gas or nuclear, the report says, at prices of around $110/MWh – a price that is expected to come down further, “significantly”, over time.”
“This compares to the price of new coal power – a generation source recently championed by Australia’s Turnbull government – which the report notes is on the rise, potentially reaching $160/MWh for cost of electricity. It has been put at more than double that cost with added carbon capture and storage technology.”
“For Australia, which has endured a few false starts on large-scale solar, the report said development was now “surging”, with 20 projects coming online in 2017 and another 3700MW in the pipeline.”
“On this path, the Climate Council predicts Australia will surpass 20GW of solar PV in the
next 20 years, equivalent to about a third of Australia’s current total power generation capacity.”
The same is happening in many other markets. Saudi Arabia, for example, has massive ambitions in the solar sector – which we will write about more next week.
ENERGY WATCH #4 by Karel Beckman
The European gas shock no one noticed
March 3, 2017
The oil industry remains convinced that gas will become the premier source of energy in the future.
Shell on 22 February released a new report, the Shell LNG Outlook 2017. This used to be an annual publication of BG, but will now be continued by Shell, after Shell acquired that company.
Interestingly, in this report Shell writes that “Global demand for gas is expected to increase by 2% a year between 2015 and 2030; LNG is set to rise at twice that rate at 4% to 5%”.
But this is pretty optimistic. The International Energy Agency’s (IEA) 2016 World Energy Outlook (November 2016), see global gas demand rise only 1.5% per year in its New Policies Scenario – which assumes that the policies announced in the Paris Climate Agreement will be implemented, but nothing more will be done (which means the goal of maximum 2 degrees will not be met. The IEA’s 2-degrees scenario sees even slower growth for gas.)
If this, then, is a forecast that seems to ignore climate policy, the industry faces yet another problem with its gas strategy. It is relying heavily on LNG, but LNG tends to be expensive. This is a big problem as analysts agree that demand growth for gas will have to come primarily from the Asian LNG market, especially China. But here gas will have to compete with much cheaper coal (and renewables that are getting cheaper all the time).
In Europe meanwhile, the gas market looks quite stable. Analyst Thierry Bros wrote an interesting special feature for Natural Gas World magazine in which he compared the effects of to “two major gas shocks” – the Fukushima disaster in Japan, which led to a surge in LNG demand from Japan, and the recent drastic cuts in Dutch gas supply, as a result of the earthquakes that have been plaguing the gas producing region Groningen.
Bros writes that “between 2010 and 2012, Japanese gas demand soared by 22 bcm (+24% or an impact of 7% on the total LNG market that was rerouted to Japan), leading to higher LNG prices and also higher European gas prices”. The “effective Dutch production was cut from 86 to 51 bcm (-42% or 1.5x the Fukushima consequences on Japanese gas demand or 9% of the total European gas market).”
Yet this time nothing happened. In fact, “we witnessed a further drop in prices”, writes Bros.
This is quite remarkable, he adds, if you consider that a 7% shock in oil supply can already trigger a collective response from the IEA, in the form of emergency oil stocks being put on the market.
As a result of the Dutch production cuts, European gas imports are now at a record high:
Yet, as noted, prices have continued to go down, as the dotted lines shows (prices on the TTF trading hub).
How can this be explained, asks Bros?
- Not by LNG (global supply grew by 7% in 2016 vs 2015¹ while net LNG imports in Europe were flat).
- A little by Brent prices as less than 30% of European gas is priced under oil-index² formulas.
- Mostly by Russian gas imports that reached a record high in 2016.
In other words, what happened, according to Bros is that “in 2016, Gazprom decided to fight for market share with a record level of exports to Europe. As Gazprom has both market power and a lower supply cost (the rouble devaluation resulting from EU & US sanctions on Russia has had the effect of making Russian gas even more cost competitive) it can decide to go either for higher prices (2011-2014) or higher volumes (2016). But to be successful this market share strategy now needs gas prices in Europe to be below the marginal cost of this new competitor, US LNG.”
So, “at a time when EU-Russia relations are strained and when US LNG could enter the European market, Gazprom’s strategy to push more gas while having a lower price was the perfect solution. Consequently, EU dependency on Russian gas increased to a record high of 26%. And with a spare production capacity of 140 bcm/y and spare transportation capacity both in Nord Stream 1 and in Ukraine, Gazprom can provide even more gas to Europe.”
But isn’t this a problem, as Europe is clearly becoming more dependent on Gazprom?
Bros doesn’t think so. The reason is the successful gas liberalization strategy of the European Union: “By having implemented a 2020 energy strategy with a focus on energy efficiency and renewable, the EU Commission has set a new world where fossil fuels need to be competitive if they want to stay in the EU mix. By having commoditized gas and allowed trading on hubs, the EU commission managed to reduce the political risk. Whoever is now interested in euros can come and sell gas in Europe by using the TTF, the most liquid European hub! If a country/company wants/has to flex supply, other producers will enjoy higher volumes. Even Gazprom, that has gained flexibility in the last few years, can adapt much faster to market changes. So, let’s enjoy the ability of the gas market to provide efficient answers and keep this in mind prior to labelling any gas project as political. And with potential delays coming from the Southern corridor we should continue to need more Russian gas and LNG for the next decade as Norway has reached a plateau!”
An interesting situation if you think about it. Europe liberalised its gas market to reduce dependency on Russia, which then led to a greater dependency on Russia, but this is not such a problem anymore, because the market has been liberalised!
ENERGY WATCH #5 by Karel Beckman
How to make transport climate friendly
March 3, 2017
Transport is one of the most difficult sectors to decarbonise. At this moment, transport makes up around 20% of global energy use – and that figure is set to grow, according to the International Energy Agency (IEA).
Electrification of mobility is one method that is getting a lot of attention at the moment, but in the first place that still needs decarbonisation of the electricity supply to make it sustainable, and secondly, it is not a very efficient option for modes of transport such as aviation and shipping.
A new study – The challenge of energy-efficient transportation – written by eminent physicist Jo Hermans from Leiden University’s Huygen’s Laboratory and published in MRS Energy and Sustainability–A Review Journal (MRS E&S), looks at the energy efficiency of different modes of transport and provides solutions for each of them.
“The author of popular books such as Physics is Fun (2012) and Energy Survival Guide (2011) acknowledges that achieving sustainable transport in the post-fossil fuel era will be a huge challenge”, publisher Cambridge University Press notes in a press release about the study.
Hermans “acknowledges that oil-based liquid fuels such as gasoline, diesel and kerosene will be hard to beat when it comes to how much energy they pack in relation to their volume and weight–not to mention the sheer convenience of using them to get from A to B.”
So what alternatives does Herman suggest?
For air travel, he concludes that “liquid hydrogen seems to be a realistic option for what is probably the most problematic of transportation modes in terms of sustainability.”
“Given the severe weight limitations for fuel in aircraft, liquid hydrogen may be a viable alternative in the long run,” he argues, for three reasons:
- First, handling of liquid hydrogen would be carried out by professionals, which reduces the safety issues involved with liquid hydrogen to the same level of risk involved in handling kerosene.
- Second, liquid hydrogen itself is very light (in fact, it is in a gaseous state at ordinary temperatures), which is an important advantage for air travel.
- Third, the disadvantages of “boil off” (created by the low boiling point of liquid hydrogen) would be reduced in air travel because of the low outside temperature at cruising altitudes.
Hermans does not believe in the use of solar power for air travel without revolutionary changes in the airplane concept, but concludes that it seems wise to extend the availability of oil products as long as possible. However, he argues that the low cost of kerosene is a huge disincentive in this respect: “It is a defect that kerosene is so irrationally cheap, which triggers much unnecessary air travel. A worldwide tax on kerosene–if at all politically possible–should be something to pursue.”
For road transport, Hermans argues that liquid hydrogen is not a viable option due to safety issues around handling it. He finds that electric vehicles offer the most promising solution.
“However, the challenge is to improve the performance of batteries to prolong the driving time for electric cars, as well as improving the performance of supercapacitors for more rapid charging of the batteries”, he argues.” Hermans also does not rule out compressed hydrogen in combination with fuel cells.
Biofuel, he writes, “does not seem to be a viable option for any transport mode, given the low efficiency of photosynthesis and the competition with the food supply, at least in the case of first-generation biofuels.”
Direct driving using solar power is difficult, Hermans finds, even under a clear sky. However, students from Eindhoven University of Technology are among those that have taken up the challenge; they built a four-seater solar-powered family car that can be driven indefinitely under clear skies at a speed of about 43km/h. The only drawback is that the car is just over 1m tall and is not very comfortable.
Hermans concludes that “solar family cars will be feasible in future if consumers are willing to sacrifice on comfort.”
But the best way to reduce transport emissions is, not surprisingly, to “reduce our mobility, for example, by having shorter distances between the workplace and home. In other words, urban planning provides an important key.”
In addition, it is always a good idea, of course, to select the most efficient most of transport, which is cycling, followed by the train or the bus, as shown in this table:
Yes, that’s right: if you were thinking of taking a cruise – that’s about the worst thing you could do from a climate point of view.
ENERGY WATCH #6 by Karel Beckman
Transatomic: one more nuclear hope dashed
March 3, 2017
We end this week with the strange, cautionary tale of Transatomic Power.
MIT Technology Review, a publication of the famous MIT university in Boston, reports that this nuclear startup has made false promises. It “has backed away from bold claims for its advanced reactor technology after an informal review by MIT professors highlighted serious errors in the company’s calculations.” Yet for MIT as an institution the episode is rather embarrassing.
Here is how MIT Technology Review tells the story:
“The Cambridge, Massachusetts-based company, founded in 2011 by a pair of MIT students in the Nuclear Science & Engineering department, asserted that its molten salt reactor design could run on spent nuclear fuel from conventional reactors and generate energy far more efficiently than them. In a white paper published in March 2014, the company proclaimed its reactor ‘can generate up to 75 times more electricity per ton of mined uranium than a light-water reactor.’
Those lofty claims helped it raise millions in venture capital, secure a series of glowing media profiles (including in this publication), and draw a rock-star lineup of technical advisors. But in a paper on its site dated November 2016, the company downgraded ‘75 times” to “more than twice.” In addition, it now specifies that the design “does not reduce existing stockpiles of spent nuclear fuel,” or use them as its fuel source.
“In early 2016, we realized there was a problem with our initial analysis and started working to correct the error,” cofounder Leslie Dewan said in an e-mail response to an inquiry from MIT Technology Review.
The dramatic revisions followed an analysis in late 2015 by Kord Smith, a nuclear science and engineering professor at MIT and an expert in the physics of nuclear reactors.
At that point, there were growing doubts in the field about the company’s claims and at least some worries that any inflated claims could tarnish the reputation of MIT’s nuclear department, which has been closely associated with the company. Transatomic also has a three-year research agreement with the department, according to earlier press releases.
In reviewing the company’s white paper, Smith noticed immediate red flags. He relayed his concerns to his department head and the company, and subsequently conducted an informal review with two other professors.
“I said this is obviously incorrect based on basic physics,” Smith says. He asked the company to run a test, which ended up confirming that “their claims were completely untrue,” Smith says.
He notes that promising to increase the reactor’s fuel efficiency by 75 times is the rough equivalent of saying that, in a single step, you’d developed a car that could get 2,500 miles per gallon.
Ultimately, the company redid its analysis, and produced and posted a new white paper.”
So why is this important? Well, for one thing, it shows that even a lofty institution such as MIT can go wrong – even though it did correct itself in the end.
Secondly, the promise of “advanced nuclear reactors” is an important part of the nuclear industry’s promise of technological innovation (see this article by Dan Yurman on Energy Post). “The promise of recycling nuclear waste, which poses tricky storage and proliferation challenges, was a key initial promise of the company that captured considerable attention”, notes MIT Technology Review.
That promise now looks like it can’t be fulfilled. Although the MIT article notes that “it would still be a notable accomplishment if the company can build a reactor that improves fuel energy efficiency over conventional reactors by a factor more than two” and reduce waste by 53% compared to light-water reactors”, it adds that an analysis from Oak Ridge National Laboratory “found the reactor couldn’t sustain a fission chain reaction long enough using spent fuel for it to be a feasible option, as previously hoped.”
As if the nuclear industry did not have enough problems already …