Wednesday, January 26, 2011

Endangered Elements: Threat to Green Energy.

A list of "endangered elements" [1] has been published in a new report, including the rare earth elements (REEs) in particular neodymium, production of which, it is reckoned [2], will have to increase five-times to build enough magnets for the number of wind-turbines deemed necessary for a fully renewable future. Nonetheless, my rough calculations indicate that this would still take 50 - 100 years to implement, depending on exactly what proportion of the renewable electricity budget would be met from wind-power, and if the manufacturing capacity and other resources of materials and energy needed for this Herculean task will prevail.

Neodymium is a rare earth metal used extensively to produce permanent magnets found in everything from computer hard disks and cell phones to wind turbines and cars. Neodymium magnets are the strongest permanent magnets known, and a neodymium magnet of a few grams can lift a thousand times its own weight. The magnets that drive a Toyota Prius hybrid’s electric motor use around 1 kilogram of neodymium, while 10 - 15 kg of lanthanum is used in its battery [1]. Interestingly, neodymium magnets were invented in the 1980s to overcome the global cobalt supply shock that occurred as the result of internal warfare in Zaire (now Congo). Around one tonne of REE based permanent magnets is needed to provide each MW of wind-turbine power.

Of the other REEs, demands for dysprosium and terbium, which are harder elements to extract than their lighter relatives, are such that supply will be outpaced within a decade.The latter have been described as "miracle" ingredients for green energy production since small quantities of dysprosium can result in magnets with only one tenth the weight of conventional permanent magnets of similar strength, while terbium can be used to furnish lights that use as little as 20% of the power consumed by normal illumination. By alloying neodymium with dysprosium and terbium, magnets are created that more readily maintain their magnetism at the high temperatures of hybrid car engines [1].

However, far more dysprosium relative to neodymium is required than occurs naturally in the REE ores, meaning that another source of dysprosium must be found if hybrid cars are to be manufactured at a seriously advancing rate. 97% of REEs come from China, and it appears that China will run out of dysprosium and terbium within 15 years, or sooner if demand continues to soar. The joker in the pack, is that Chinese hegemony for its own future energy projects may mean that the current amount of REEs being released onto the world markets will be severely curbed.

Peak oil may already be with us, and peak coal in 10-15 years, while peak lithium remains a subject of speculation. Peak neodymium is the latest threat to green-energy, while doubt emerges over the security of many other element groups including the rare earths, the platinum group metals, and elements such as antimony, beryllium, gallium, germanium, graphite, indium, magnesium, niobium, tantalum and tungsten. Helium (used to cool superconducting magnets in hospital MRI scanners) and phosphorus (in agricultural fertilizers) are also under threat.

If even "renewables" cannot save us from waning fossil fuel depletion, the only solution is to begin seriously the deceleration of consumption to a lower-energy society based around local communities immediately, with vastly reduced inputs of energy and all kinds of "mined" resources. Recycling must be key to this most difficult transitional step, in hand with a new concept of a "circular economy", that aims to model nature where nothing is wasted.

Related Reading.

[1] "Critical Thinking," By Emma Davies.

[2] "Going "All The Way" With Renewable Energy?" By Mason Inman.

Friday, January 21, 2011

A Recent History of Oil Prices ... history about to repeat itself?

I wrote this two years ago, and now oil is headed for $100 a barrel. So expect another economic catastrophe!

The price of oil has oscillated from an all-time hike of almost $150 a barrel to a low of $30, hand in hand with the credit-crunch and the inextricable economic connection between money and oil. Why? Expect a Long Emergency...

In January 1999 the price of a barrel of oil reached a low point of $16 when Iraq increased its oil production at the time of the Asian Financial Crisis when demand for oil fell. Prices then increased rapidly, reaching $35 in September 2000, and after a temporary fall reached $40-50 by September 2004. Crude oil prices surged to a record high above $60 in June 2005, and by early August 2005 hit $65 as consumer demand was maintained. In September 2007, the price of US crude oil broke the $80 barrier. In October 2007 a barrel of US light crude oil exceeded $90 for the first time, due to a combination of tensions in eastern Turkey and a fall in the value of the US dollar. The next psychological watershed of $100 was briefly breached in early 2008, but the price fell again until the end of February after which it remained and rose well above this new setting. Then a visible ramping effect became evident and so the price exceeded $110 on March 12, 2008; $125 on May 9, 2008; $130 on May 21, 2008, $140 on June 26, 2008 and $145 on July 3, 2008. The record was reached on July 11, 2008 at $147.27 as a consequence of geopolitical tensions over Iranian missile tests.

The above data stress the point that the price of oil is highly sensitive to the world political situation and to a general sense of confidence, including that in the stock markets. When the $147 barrel appeared, it did appear there would be no stopping the escalating price of oil, and that by December 2008 a barrel of oil might cost around $150 or more, amid speculation that by the end of 2009, it would be nearer $200. However, oil prices declined by more than $20 over the next two weeks in July 2008, and seemed to stabilise at near $125 a barrel on July 24, 2008. A forcing factor came into play, which was that the very high price of oil had changed people’s behaviour and they were now driving less with a reduced demand for oil. Oil prices then dipped further, reaching $112 a barrel, on August 11, 2008.

On September 15 the $100 psychological barrier was again broken, but in reverse, when the price fell below $100 for the first time in seven months. On October 11 there occurred a massive crash in the value of global equities, with a barrel of oil falling by 10% to $77.70. In consequence of further economic slowdown the price continued to slide and today (December 4, 2008) it is trading at around $45 a barrel. Rather than the $200 predicted last summer some analysts are now predicting a $20 barrel sometime during 2009. I must stress, however, that even if this does happen it will be a short-lived event, because the facts of geological limits to production, increased production costs to obtain more difficultly recovered oil and that demand is still rising (demand is simply rising less steeply during this economic recession, but it is still in the ascendant).

The upshot will be a gap between the demand for crude oil and the limits of how much of it can be produced, a quantity that must inevitably fall beyond the point of arrival of “peak oil”, which will force the price up again. Thus oil will become a commodity that is both increasingly scarce and relentlessly expensive. The price of oil (and that of all commodities), is subject to major variations over time, since they are inextricably linked into to the overall business cycle. When the demand-supply gap is reached, oil prices will soar, but the commitments and habits that determine the energy use of oil-users will take time to adjust. It is time-consuming and expensive to introduce more production capacity in the near term, but in the longer run, both businesses and individuals will act to cut back their oil use in response to the driver of high prices. An optimistic economist might argue that high prices promote new investment in production and so new sources of oil will emerge on the market, gradually restoring a supply-demand balance.

The remarkable hike in the price of oil in the summer of 2008 was driven partly by a period of brevity when global demand for oil outran its supply. The OPEC nations were encouraged to ramp-up their production to get the price down for western nations who would be unable to maintain their demand for oil if its price remained at such high (and relentlessly increasing) levels. My suspicion is that the summer-spike in oil prices, led to a fall in oil-use and a significant curb in demand for cars and other goods, which became notably more expensive, and precipitated the present economic downturn. Job losses and less disposable income then meant that many in the low-income bracket would be unable to pay-back their mortgages and a credit-crunch ensued, with a lack of confidence in and among banks who had lent money rather carelessly. The increased output of oil by OPEC along with a contraction and the threat of further slowdown in the business sector, hence less oil being used, has created a minor glut, thus forcing down the price of oil, and increasingly so along with the declining value of all equities. While a low oil price should help businesses to invest and expand, the credit crunch and fear by the banks to lend money has acted in the reverse of this, and prompted a recession.

On the basis of microeconomic theory, when supply exceeds demand, the price of a commodity should reduce to the nominal cost of production of the most expensive source. In the case of oil, as its price drops, the most expensive wells become uneconomical and are shut down, at least temporarily. A price equilibrium is met at a point near the production cost of the most expensive source required to meet global demand. The variation between what the market can bear in the first days of shortage to the marginal cost of the last well in times of surplus can be enormous. Indeed, the price of the majority of commodities including metals and food are subject to equivalent large swings over time. As global oil production begins to decline, following “peak oil”, oil prices are likely to become increasingly volatile than before the peak, because the range of production costs among all sources supplying the market will be much wider. Major oil fields exist where the cost of production is comfortably below US$10 per barrel, and for decades their output was sufficient to meet the whole of global demand for oil. Indeed, many such cheap wells still provide a substantial proportion of the world’s oil .

The shortages and high prices that are inevitable in the future will render viable the extraction of oil sources that cost $50, $70, or $100 or more, a barrel, including offshore/deep water fields, oil sands, oil shale, and enhanced/secondary recovery from depleted fields. As couched in the jargon of microeconomic theory, the supply curve will be much steeper than in past years. Shifts in demand, either up or down, will hence cause swings of relatively greater amplitude in the market price. Nonetheless, even the most expensive sources of oil will be unable to provide anywhere close to the 30 billion barrels of crude oil that the world currently depends on each year. It is the rate of supply (variously termed rate of flow, rate of conversion or rate of recovery) that is at issue. Put simply, it doesn’t matter how big the volume of the resource is, if oil cannot be recovered at a rate of 85 million barrels a day to meet present demand (and rising), we must learn to live by using less oil. This poses a challenge that is simple but not easy, since it must involve curbing our reliance on personalised transport, mainly cars, which most of the world’s crude oil is currently used to run. The corollary to this is the need to develop rapidly, more localised communities, that depend far less on cheap oil-based transportation, which will no longer exist. Meanwhile, expect a Long Emergency situation, as James Howard Kunstler has warned us: the demand-supply gap for oil, and then peak oil will bite hard on the tail of the credit-crunch.

Related Reading.

This is the final section to an article entitled: The Oil Question: Nature and Prognosis" which was published in the popular science journal "Science Progress": "The oil question: nature and prognosis," Sci. Prog., 2008, Vol. 91, 317 - 375. I thought I would put it as a posting on here for general interest and/or comments.