The other side of the CARBON XPRIZE

http://ansari.xprize.org/

I was exited when I first heard about the newest XPRIZE.  XPRIZE as an organization is a very forward looking innovation engine, that with generous donation harnesses the energy of competition to advance technology. I was looking forward reading about the newest addition to the great lineup of previous prizes, while recalling the first Ansari XPRIZE which achieved suborbital space flight in reusable vehicle.

The new, $20M NRG COSIA Carbon XPRIZE is solely focused on finding a new and innovative use for CO2 emitted by combustion of fossil fuels, primarily coal and natural gas. It hopes to financially motivate finding a way to mitigate CO2 emissions, convert them into valuable products and in the process reduce the cost of managing CO2. I am assuming that the new technologies will be tested at the NRG coal power generation plant in U.S. and at the natural power generation (co-generation) plant in oil sands operations in Alberta, Canada.

Upon further reading and as the focus of this prize is on CO2 alone, I am somewhat disappointed as I see major flaws in the whole premise behind this competition. As I see it there is a high probability that if it is successful, we may find ourselves creating an even a larger problem on our hands...remember...any time we create energy by combustion we create both, GHG emissions and air pollution. We actually have two major problems we need to deal with.

Air pollution immediately and directly impacts human health, and has direct financial consequences. It is not easy to make a direct connection between respiratory and other health problems and pollution originating from electric power generation, ICE transportation, flaring and industrial activities involving combustion. At the same time, there are a number of studies showing that pollution is an immediate problem that should not be neglected and has direct financial consequences. More on the impact of air pollution can be found in A Costly Diagnosis, Subsidizing coal power with Albertans’ health, March 2013 or Full cost accounting for the life cycle of coal.


It is important to understand that it is a real challenge to deal with CO2 regardless of its origin. It is typically created by oxidization (combustion), has low energy as it is effectively a "spent fuel" and to dissociate it or to convert it to something else requires an external energy supply.

For the power generator or an oil sands producer the Carbon XPRIZE is potentially the beginning of a great story. It shows initiative, willingness and if it is successful an opportunity to maintain status quo of existing power generation and oil production. As we will require more energy to convert CO2 into something useful, this additional energy will come from fossil fuels. But why not use renewable sources of energy? Because if we produce renewable energy, it is much better to use it to directly benefit the end user and skip the fossil fuels altogether.  Using fossil fuels to mitigate GHG emissions from fossil fuels makes sense for oil producers as it will maintain demand for oil, gas and coal, create social acceptance and slow-down the transition to a more sustainable future.  

However, the end result will be not very good for you, and me and our children. GHG emissions may be partially mitigated while air pollution and everything that comes with it will accelerate. This is the simple reason that the Carbon XPRIZE is not a very good idea. Instead efforts should be redirected to find more sustainable uses for hydrocarbons.

If I would have $10M to spare today, I would propose the.....

Green Plastics XPRIZE for developing a small scale process to make environmentally friendly plastics directly from crude oil, without combustion and fresh water, easily recyclable, traceable, and moldable without harmful plasticizers. 

Today, we can extract hydrocarbons from the ground without emissions, pollution and fresh water (green hydrocarbons), yet no one is doing it because it would be more expensive and there is no social, political or regulatory will. But at some point in the not too distant future, we will, and having green hydrocarbons will help in the transition for the oil and gas industry. I cannot wait for the day when I can go to the local microfactory (like Local Motors) and 3D print all what I need from locally made plastic pellets created without emissions and pollution with both virgin and recycled green hydrocarbons.

Price of oil may recover ONLY one more time...

As the Oil and Gas industry is going through a forced hibernation, everyone is trying to estimate how long the current low price environment will last. At the same time, no one has any doubt that prices will eventually recover and things will go back to normal with a fast ramp-up in drilling activities with higher risk tolerance for capital deployment. Interestingly, some analysts suggest that the current low price environment may be due to the approximately 1,000,000 barrels per day of oversupply which is causing an inventory buildup and is depressing global oil prices.

http://www.artberman.com/something-solid-world-oil-demand-increases/

If it is true that such a small (<1%) oversupply can result in market instability, then I suggest there are a number of incoming changes on the demand side of the market that will make the next oil price recovery the last we may ever see (I am not including regional instabilities or conflicts in my assumptions).

Here is why I think this is possible.

The current oil demand predictions dramatically underestimate the impact of energy efficiency going forward and the growth of electric/hydrogen transportation. 

Efficiency is a very complex issue and I will tackle it in a future post, however it is primarily based on the assumption that new global awareness of climate change will drive reduction in GHG emissions, and the easiest way to accomplish this is with efficiency improvements.

Let me explain the impact of the electric/hydrogen car.

1,000,000 barrels of oil per day are used by approximately 30,000,000 small cars, primarily for city driving assuming 60km/day and 8l/100km fuel consumption. At the same time electric vehicles are making headway on the market. Today the global penetration of the electric car is around 700,000 cars, 35 times more than in the beginning of 2010 when there were less than 20,000 electric cars globally. The International Energy Agency projects 20 million electric vehicles on global roads by 2020 (https://www.iea.org/publications/globalevoutlook_2013.pdf).

http://gas2.org/wp-content/uploads/2015/08/electric-cars-infographic.jpg

Based on the current commitments by top car manufacturers and assuming current low oil price it appears that may reach 30 million (primarily electric and some hydrogen) cars on the roads in the next 7 years.

China is a wild card and if the government brings even stronger mandate to increase domestic production of electric cars, China may overtake the rest of the world with EV production by 2020. Just look at the amazing job they are doing with adoption of renewables in the last 2 years. 

https://www.iea.org/Textbase/npsum/MTrenew2015sum.pdf

Let me be clear, oil and gas are very valuable resources, not only as a source of energy but as a source of hydrocarbons for everything we use in our lives. Yet, when oil prices recover, it will make it so much more attractive to invest in electric and hydrogen transportation and in renewable energy generation which will only lower the levels of long term demand for oil. In the next 10 years, unless oil and gas companies reinvent themselves, only those who invested early on in process efficiencies and are in plays with a slow decline and high reserves will do well in another lower price environment, while players with high cost and energy intensity or those with fast declining production will have a very difficult time.

Some of us may hope for one more run and a quick exit at the top of the market, on the other hand I would suggest let's not waste the current market environment which happens only every 4-6 years and lasts only about a year. We should use the current conditions to provide motivation to improve our cost structure, build resilience and invest wisely in long term, efficiency driven projects. The key is to make an investment that results in low opex to let us ride low prices and generate great cash to re-invest in the long term when prices are high.

It is time to switch from growth in barrels per day to growth in profitability from the barrels we already have. It may not seem as glorious as bringing more volume on at any cost but in the long term it will be the best thing we have ever done!

So where does this leave oil and gas prices, market stability and the future of oil and gas companies?

I may be wrong in my predictions yet no oil company can go wrong by improving their cost structure, regardless of what happens to oil prices!

The inescapable future of fossil fuel combustion

      

Hydrocarbons as Energy?

In the last 100 years human mobility and energy production was revolutionized thanks to petroleum based fuels and internal combustion engines. Today’s quality of life is clearly an outcome of finding and utilizing fossil fuels that appear in abundance from today’s perspective. Yet, I would argue like many others, that as much as it was a great choice for humanity to do it for over 100 years, going forward our dependence on fossil fuels as an energy choice should be progressively and quickly replaced with renewable energy and majority of hydrocarbons should be preserved for future generations. At the same time, I also believe that the oil and gas industry can have a great long term future but, not as an energy supplier, but as a supplier of hydrocarbons (plastics, carbon fiber etc) for everyday, long life cycle products that are sustainable, safe, can be infinitely reused, recycled, repurposed and kept as a source of material for every aspect of life and for a very long time. If we use hydrocarbons in this manner they will become a virtually inexhaustible resource, unlike if we were to continue using them as we do today, primarily as a one time source of energy.

Efficiency of Use

For me the turning point was when I realized how inefficient using fossil fuels as an energy source actually is. In the process of using fossil fuels (a nonrenewable resource that can have other uses) we only recover and utilize only around 18% of the energy. This looks to me like a long term, dead-end strategy at the expense of the generations to come.  You are probably thinking that I am out of my mind; the fossil fuels we use for energy today are clearly used with greater efficiency than 18%, and yes, this is what I thought until I did the math.

The Math

Let me explain using the efficiency of gasoline and diesel consumption for vehicles as this is the most common use of petroleum products today. Around 70% of every barrel of oil is converted to gasoline and diesel as per Chart 1 below

To extract crude oil, transport it to the refinery and to produce gasoline we require energy.

Lets follow the path based on U.S. Department of Energy, Argonne National Laboratory study (https://greet.es.anl.gov/publication-high-octane-various-shares):

Energy Efficiency
Crude Extraction	98.0%	equivalent of 2% of energy in crude is used to extract oil from the ground.
Crude Transportation	98.5%	equivalent of 1.5% of energy in oil leaving the oilfield is used to transport oil via pipeline, rail car or truck to refinery.
Crude Refining	87.50%	equivalent of 12.5% of energy in the oil arriving at the refinery is used to refine oil into various products. Each of the steps above uses combustion within the process, which is only 30% efficient at best. Hence at each step there is a loss of 70%.
Fuel to Distance Traveled	21.5%	78.5% of gasoline/diesel energy in the vehicle tank is lost due to thermodynamic limitations of cyclic engine, internal friction and parasitic losses

https://www.fueleconomy.gov/feg/atv.shtml

Another way to look at this…...

15.5% of energy in crude oil is used to get it from the reservoir to the tank in the vehicle (1-(0.98 x 0.985 x 0.875)) = 0.155 = 15.5%).  This energy is generated with combustion, direct or in stationary ICE, which at best is 30% efficient in converting energy to work. So in the end, most likely only 4.7% is actually used to convert crude oil into gasoline, and 10.8% is lost as heat (wasted).

Once the fuel is in the tank of the vehicle, due to the thermodynamic limitations of ICE we harvest on average only 21.5% of the energy of the fuel in the tank and convert that to distance traveled, again the rest is lost mostly as heat. From the original crude to distance travelled the overall efficiency is 18.2% (0.98 x 0.985 x 0.875 x 0.215= 0.182)

So in the end around 18.2% of crude energy is converted to distance travelled, 4.7% of crude energy is used to convert crude to gasoline and diesel, 10.8% of energy is wasted during the process of conversion and 66.3% is wasted in the vehicle. Total waste is (66.3% + 10.8% = 77.1%). That means that 77.1% of the energy is wasted in the process! AND the energy obtained is from a non-renewable and finite resource.

Even if  we had 100% efficient internal combustion engines due to the thermodynamic limit of 37% (The Carnot Limit, http://newsoffice.mit.edu/2010/explained-carnot-0519, https://en.wikipedia.org/wiki/Carnot_cycle ) we could never get more than 37% of energy from hydrocarbons to power our cars and trucks.

FUELS OTHER THAN CRUDE

Biofuels?

We could use biofuels to power our ICE or fuels generated from CO2  rather than gasoline, diesel, CNG or LNG. However, the efficiency of making biofuels and the land requirements are dependent on the type of source biomass.  Let's first look how much land we would need to produce enough biomass to produce the energy required today to power all internal combustion engines. I will use U.S. data to demonstrate.

Typical sources of biomass for biofuel are: soybeans, corn, sugarcane and algae. To produce enough soybeans to replace all gasoline and diesel in U.S. we would require 150% the area of the United States, corn - 15%, sugarcane 7% and algae 1.2%. Even using algae would require an area roughly between the sizes of the state of Arkansas or Main (http://biofuel.org.uk/land-use.html). Growing biomass to produce biofuels not only requires land, but also fertilizers, water and energy. It would be much more sensible to use the land to grow food, for recreation or nature reserves to preserve biodiversity and for the benefit of everyone rather than producing biomass and converting it to fuel.

On the other hand, producing biofuels from all waste biomass is a great idea, but the total amount of waste biomass is significantly too small to make any sizeable dent in our energy needs.

E-diesel from renewable power?

There are companies that plan to produce synthetic diesel or E-diesel using renewable power to generate hydrogen from water and capture CO2 from the air (https://en.wikipedia.org/wiki/E-diesel). I did not perform an efficiency calculation but considering that the process will be energy intensive as it is based on the Fischer-Tropsch process (http://www.elobio.eu/biofuels/fischer-tropsch-diesel/) and burning E-diesel will only be 19% efficient (just as in the original process) this approach will not fix the problem. Additionally, it seems like a very silly idea to use clean, renewable energy and convert it to a very inefficient and dirty fuel.

If the United States (I do not have good data from Canada) would replace all gasoline and diesel use with solar power electricity and convert to electric cars with 80%+ efficient powertrain and lithium-ion batteries, they would only require around 3,700 sq mi for the installations (or 0.1% of the total area of the US or an area the size of the Delaware and Rhode Island, http://www.nrel.gov/docs/fy13osti/56290.pdf). Amazingly, this area can be a barren desert or roofs of existing buildings, will never require water, fertilizer, additional energy etc. Batteries can be recycled and material from old batteries can be used to produce a new ones. Yes, the storage/battery technology is already available, all we lack is political and social will to go ahead.

More and more people make choices that will result in long term improvements to our environment, our quality of life and profitability of our businesses. But to achieve our goals we need to reject the status quo, no matter how comfortable it is, and pursue sound opportunities for change. So, when investigating new technologies I come across an idea that requires combustion (especially ICE), it is quickly clear to me that investing in anything that uses such an inefficient and wasteful process will not get us closer to our goal, but will actually perpetuate the status quo.  By understanding the process it is easy to critically assess ideas/technologies and to make sound decisions that consider PLANET and PEOPLE and PROFIT.

It is time to embrace a more sustainable uses of hydrocarbons!

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