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To: Wharf Rat who wrote (12993)1/18/2012 1:37:18 PM
From: T L Comiskey
   of 15709


The World Game 

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To: T L Comiskey who wrote (12995)1/18/2012 2:15:46 PM
From: Wharf Rat
   of 15709
I played in that in grad school. We were developing a "regenerative resource economy" (self sufficiency by closing all the loops) for St. Louis. I think my group was nuclear.
You can see how well that worked out; we recycled the Rams to StL. It's a lot harder to hate them in StL. than when in LA; just ain't the same thing.

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From: Wharf Rat1/19/2012 11:14:05 AM
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Obstacles Facing US Wind Energy Posted by Gail the Actuary on January 19, 2012 - 3:53am

In the United States, we have been working on scaling up wind energy but not getting very far. In 2010, wind energy supplied only 2.3% of electricity purchased.

Figure 1. Wind energy (dark green) is barely visible in a graph of US energy consumption by source. Based on EIA data.

Such slow progress seems strange for a product that seems to have such great promise. It can reduce CO2 emissions. It doesn’t require fuel. It is at least partly US made. It seems to have promise for protecting against rising fossil fuel prices.

In this post, I discuss a few of the obstacles facing wind energy in the United States and their implications for the expansion of wind energy.

Obstacle 1: Wind energy is dependent on large subsidies.

According to the EIA’s report, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010, wind energy received subsidies of $4.986 billion from the federal government for Fiscal Year 2010. This amount is equal to approximately half the cost of new wind power installed during that period. State and local subsidies would be in addition. (The US Wind Energy Association shows that 6034 megawatts of new capacity was installed between October 1, 2009 and September 30, 2010, so the subsidy per megawatt was $826,318. This compares to an average cost per megawatt of about $1.4 million, excluding construction and connection costs.)

Wind energy’s largest subsidy, the Production Tax Credit, is set to expire on December 31, 2012, unless Congress acts to extend it, so there is now a big rush to get orders filled before that date. A study by Navigant Consulting forecasts a large drop in wind investment, if the Production Tax Credit is not extended (Figure 2).

Figure 2. Annual Investment in Wind Energy in $ Billion, according to Navigant Consulting.

Needless to say, the US Federal Government is not flush with money for subsidies, so there is the possibility that subsidies will not be renewed or will be cut back.

Obstacle 2: Wind energy is more variable than electricity produced by fossil fuels and by nuclear energy.

Wind blows when it chooses, which is often not when it is needed most. In theory, this problem could be resolved with robust long-distance transmission of electricity and with adequate electrical storage, but in the US, these are not available. Bill Richardson, energy secretary under Bill Clinton has said, “We’re a superpower with a Third World grid.” This means that even in locations where wind energy makes up a relatively large share of the fuel mix, other types of generations must be available to supply almost the full level of demand, if the wind is not blowing.

As a result, the role of wind energy is fairly limited. What wind energy does is permit electricity generating plants, particularly those fueled by natural gas, to use less fuel. Consequently, the price of wind energy tends to compete with the price of fuel, rather than with the wholesale price of electricity.

Chis Namoviz, who is in charge of renewable energy forecasting at the EIA, explained this to me in an e-mail in 2009:

Because of its relatively low “capacity value” (a result of usually not blowing very regularly during peak load hours), wind largely competes as a “fuel saver” resource, and can generally be compared against the fuel cost of what ever mix of fuel it is displacing (whether from existing capacity or from alternative investments in future capacity). In the U.S., this is typically some mix of relatively inexpensive coal and somewhat expensive natural gas, depending on the location of the wind plant, and the resulting seasonal/daily wind and load profiles . . .[Note from Gail: Natural gas is now cheaper than when this statement was made.]

We can see the result of this situation in Figure 3, from Annual Report on U. S. Wind Power Installation, Cost, and Performance Trends: 2007. The price of wind generation tends to trade a below the wholesale band for other types of wind generation, more at the price of the fuel that is saved (frequently natural gas) than at the usual wholesale price.

Figure 3. Comparison of prices of wind generated electricity with electricity generated by other means, from US Department of Energy report, "Annual Report on U. S. Wind Power Installation, Cost, and Performance Trends: 2007."

This lower price for wind-generated electricity helps explain some of the need for subsidies.

A related issue is the confusion caused by a comparison of the “levelized cost of wind” with the levelized cost of other types of generation, such as is shown in Figure 4 by the US Energy Information Administration.

Figure 4. EIA's exhibit showing Estimated Levelized Cost of New Electricity Generation Resources, from Annual Energy Outlook 2011.

Because wind acts as a fuel-saver, Figure 4 represents an “apples to oranges” comparison, if one makes the standard comparison of amounts in the last column. Instead, since wind energy only replaces fuel, what needs to be compared is:

  • “Total System Levelized Cost” for wind relative to
  • “Variable O&M (including fuel)” for other sources of production
In Figure 4, the Total System Levelized Cost of Wind is 97.0, and of Wind-Offshore is 243.2. These might be compared with the Variable O&M (including fuel) of coal (Advanced coal is 25.7) or of natural gas (Conventional Combined Cycle is 45.6), for example. On this basis, wind energy comes out badly, and is one reason it requires such high subsides.

Another related issue is that a person would normally want to substitute a less-scarce fuel for a more scarce fuel, but to some extent this works in reverse for wind power. At least some petroleum is used in manufacturing, transporting, installing, and maintaining wind turbines, but the energy that is provided as an output is mostly replacing natural gas, and perhaps some coal. Coal and natural gas are much cheaper (and more abundant) than oil, so even a small input/output substitution in this direction can quickly hurt the economics of the process.

While one intent of wind energy was to protect against rising fossil fuel prices, in the US those prices are not rising evenly. Oil is particularly high priced, but it is not oil that is being saved, it is other fuels.

Obstacle 3: Natural gas is now very cheap in the US, and there is a huge amount of natural gas generating capacity already built.

Since wind energy tends to compete with the cost of fossil fuels used to produce electricity (mostly natural gas and coal in the US), a low price for natural gas is a problem because even greater subsidies will be required for wind energy to be competitive.

Furthermore, natural gas generating capacity is no issue, because a great deal of natural gas generating capacity has been added in recent years.

Figure 5: US Generation Capacity by Year and Source, based on EIA Data. (The amount of electricity generated is not proportional to capacity, however. Nuclear is used at over 90% of capacity, coal a little below 70%, and wind at a little under 30% of capacity.)

Obstacle 4: In the US, we do not have an electrical grid that can provide very much long distance transport of electricity, and there are several reasons why changing this situation is very difficult.

Growth in wind energy requires very good long distance transmission capability, partly because wind resources are often located a long way from prospective users, and partly because the variable nature of wind can be “evened out” if wind energy is shared over a large area. Unfortunately, the US electrical system has grown up under a system where each locality has been expected to generate its own electricity. Under such a system, electrical transmission from city to city was originally designed to handle only occasional emergencies, and thus is very limited. I have written more about US electrical grid issues in The US Electrical Grid: Will it Be Our Undoing? and Upgrading the Grid – Many Pluses but Some Minuses Too.

The way the US electric transmission system was set up produces many anomalies. Electrical rates vary greatly from state to state. We needlessly burn large amounts of oil transporting coal to where it will be burned for electricity, rather than burning it near where the coal is mined, and then transporting the electric power over transmission lines. Nuclear-fueled power plants are sometimes located near large cities.

The problem is very difficult to fix for many reasons. Any improvement in electric transmission would tend to even out electricity rates, but this would be to the detriment of customers who currently have low electric rates. To the extent that new transmission costs more, and these higher costs are charged back in electric rates, such a change could result in higher electricity costs for more than half of the population–something most politicians would find unacceptable.

If better transmission were readily available and free, no one would want to build a power plant in their back yard, making it even harder to site new power plants than it is now.

Another issue is that a good mechanism for paying for the installation and maintenance of new long distance transmission lines has not been established. Under current procedures, a determination must be made as to which electric generating companies will benefit from new transmission lines, and the costs allocated among the beneficiaries. The government in the past has not funded long distance electrical transmission. No one really “owns” the long distance lines.

The only partial fix I can see would be to create a separate organization to build and maintain a few new long-distance transmission lines. Wind energy and other users seeking to use these lines would be charged for the use of these lines, similar to a toll road. It might be possible that more coal fired-power plants would be built near these lines, because wind usage by itself could not support these lines. Even this arrangement would likely require a change to current laws. The net effect might be more CO2, rather than less.

The cost of long distance electric transmission is likely to be fairly high–at least several cents per kWh, for wind energy transported over long distances. Over time, the price can be expected to rise as the price of oil rises. Some maintenance may become very difficult, such as that currently done by helicopters in remote locations.

Obstacle 5: A high proportion of funding for wind energy is up front.

Oil, coal, and gas all started out as fairly high EROEI investments, and much of the investment took place as the fuel was extracted. In such a situation, the investments threw off a high level of profit which could be used to fund further investment.

Fossil fuels are gradually shifting away from this model, with higher up front investment, and lower profit available to fund further investment. Wind turbines represent the extreme end of this continuum with most of the investment up front, and the return trailing many years behind.

As a result of this shift in timing, it is becoming more difficult to fund projects with huge up-front investment. In the “good old days,” we had the low price of fossil fuels which made other investments easier to afford. We also could count on a being always able to add more debt, but we are reaching limits on sustainable debt. I wrote two posts on The Link Between Peak Oil and Peak Debt ( Part 1 and Part 2). More recently, I talked about how Net Savings is dropping dramatically in the US, so that non-debt sources of funding are also disappearing.

Figure 6. US Savings and Investment Ratios, based on US Bureau of Economic Analysis Data.

The net of all of this is that if we are reaching limits with respect to finite resources, it is going to be increasingly difficult to fund projects that require large up-front investment and provide a return later. We will likely have to give up some investments we really need (such as replacing worn out roads, pipelines, and school buildings) in order to ramp up investments in projects that require large front-end funding, like wind turbines.

Obstacle 6: Adding wind energy to the electric grid adds complexity which may be difficult to manage with declining resources.

The job of balancing supply with electrical demand and keeping all sources of electricity “in synch” becomes more difficult, as more variable sources of supply come on line. While it is theoretically possible to find technical solutions to these issues, it is not clear that we will in practice.

Furthermore, one approach that is being tried in order to avoid the cost of adding new electricity generating capacity and new electric transmission is to use the Smart Grid to help limit demand when at times when demand would normally be high, such as when temperatures are high or low. In the words of Smart Grid R & D: 2010-2014 Draft 2, “Smart grid can improve asset utilization and thereby avoid the need for new capacity.

The expected effect of avoiding new capacity is that components are operated at closer to maximum capacity. Since adding new capacity is avoided, assets will over time tend to be older as well. While theoretically everything should go well, operating older units at closer to their theoretical capacity adds stresses to the system. Because of these factors, Smart Grid enhancements add efficiency to the system, but may reduce resilience.

According to the same report, the Smart Grid is being built as it is being planned. The amount of funding is not clear; costs must be recovered from customers based on cost recovery laws which vary by state. There are a huge number of details that need to worked out, such as necessary cyber security measures. It would be easier to rest easy if the Smart Grid had all been planned out in advance, tested on a small scale and pre-funded.

The grid with the new enhancements will work until at some point it doesn’t work–for example, an unplanned event causes a major failure within the system, or a needed system upgrade is too expensive to afford, or a replacement part from overseas is unavailable. Hopefully, failures of this type will be temporary and local, but if resources are limited, the time may come when the high cost of maintaining the system becomes unsustainable.

Further Thoughts about Wind Energy

I have not been able to touch on more than a few issues in this post.

One of the big issues with wind is that hopes have been raised for its widespread use, without really working through feasibility issues. If we are already having trouble with the electrical grid not being able to accept more wind energy in popular wind-generating areas when wind energy constitutes only 2.3% of total electricity supply, then wind energy is going to be difficult to scale up quickly. The issues I point out in this article suggest that the cost problem is still large, and the fixes needed to add long-distance transmission are likely to make the cost problem even worse.

The government needs to be able to show it is “doing something” about our energy problem, so it makes statements such as “Wind generation added 30% of all US generating capacity in 2007.” (See Figure 5 above.) Few people are energy literate enough to realize that even this progress is very slow, because relatively little new capacity is added in a year, and because wind, with its low-capacity factor, requires a disproportionate share of total new generation capacity, to make much progress. If wind turbines have an average life of 20-30 years, and other types of generation last for 40+ years, this will also affect the amount of new generation needed for wind, compared to other units.

It is easy for readers to become confused, when confronted with the many technology possibilities available, when they don’t understand the time, cost, and scale involved. Dr. Robert Hirsch, in the January 9, 2012, issue of the ASPO-USA Peak Oil Review writes:

The foregoing are realities that many people fail to understand, which means that they can be trapped into advocating energy changes that are not practical in the short term. Examples of some of the current common traps: 1) Assuming that wind and solar systems – electricity producers – can be a near-term solution to high gasoline prices; 2) Assuming that natural gas from shale is a near-term solution to our dependence on foreign oil; 3) Assuming that wind and solar can be a near-term means to lower the emissions from vehicles now powered by oil products; etc.

If transitions to new energy sources and new technologies could be made cheaply and quickly, then many options that appear to be feasible in fact would have a reasonable chance of working out. But there is another issue as well. Based on technology today, we need fossil fuels to make wind energy, and we need fossil fuels to transport wind turbines to the locations where they are to be installed. We also need fossil fuels to repair wind turbines and to maintain transmission lines. So wind energy and other proposed replacements for fossil fuels are deeply imbedded in the fossil fuel system, and dependent on it.

I expect that at some point grid problems will become overwhelming, so at least the long-distance portion of the grid will be lost. It is possible that adding more wind energy to the grid will make that date come sooner, rather than later, because of the complexity issues I mentioned. Unless the limiting factor on the life of the electric grid is the amount of coal and natural gas available, and wind energy somehow delays running out of these, I have a hard time seeing how wind energy will make the electric grid last longer.

There are so many obstacles for wind to overcome in the US that I am not sure that we should even try to push for higher wind penetration levels. The only exception might be in areas where wind energy is cheap to produce and the grid can readily accept the electricity.

Since the world is finite, there is a good chance that at some point we are going to have to get along with less electricity as well as less oil. Instead of focusing on delaying the inevitable, perhaps we should start thinking about preparing people for simpler lives that use less energy of all types. Such an approach might solve multiple problems at once–too much CO2, too little oil, and too little capital to tackle all the problems that need to be tackled at once.

This post originally appeared on Our Finite World. 

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To: Wharf Rat who wrote (12997)1/19/2012 11:29:01 AM
From: T L Comiskey
   of 15709
Prehistoric bear skulls found underwater in Mexico 

19 January 2012
The ancient remains of four prehistoric bears have been uncovered by archaeologists diving in underwater caves in Mexico.

Scientists think the extinct species lived in the caves in the ice age before they became filled with water.

Human remains were also found.

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To: Wharf Rat who wrote (12997)1/19/2012 11:34:24 AM
From: Wharf Rat
   of 15709
The peak oil crisis: cold fusion update
by Tom Whipple

There have been enough developments in the cold fusion story during the last two weeks to warrant revisiting the subject. For those of you who came in late, cold fusion, also known as Low Energy Nuclear Reactions (LENR), is a phenomenon in which hydrogen, under proper conditions, is combined with palladium or nickel to produce heat. If the reaction can be developed to the point at which it makes lots of heat safely, then the world will change forever as the ingredients for the process and the costs of the reactor appears to be very inexpensive. The process leaves behind no adverse products such as greenhouse gases, ionizing radiation, radioactive waste or even ash.

Should the phenomenon prove economically viable, it has the potential of eliminating the need to burn fossil fuels for heat, light, industry, and transportation. In short LENR seems too good to be true and therein is the problem, for there is much skepticism that a new way of energy that has the potential to render all other forms of energy production - oil, coal, gas, wind, solar, biofuels -- obsolete can possibly be real.

Leaving aside for the moment the sometimes acrimonious debate that is going on between true believers in the phenomenon and the hard-core skeptics and the lack of mainstream media coverage, let's review some recent developments. Last week at a meeting of the UN's World Sustainable Energy Conference in Geneva representatives of the International Society for Condensed Matter Nuclear Science gave presentations on the state of research on the LENR-Cold Fusion phenomenon. In short, numerous scientists from all over the world have conducted experiments in which they observed excess heat coming from combining either palladium or nickel with hydrogen. These reactions have been repeated many times and cross-verified by other labs, so there is now little doubt that the cold fusion or LENR can really take place.

In the hindsight of years of experiments we have learned two things about this phenomenon. The first insight is that getting the reaction to occur is more difficult than thought 23 years ago. This is the reason why other labs were unable to reproduce the Pons-Fleischman experiments that caused so much excitement back in 1989, leading to the whole concept being pronounced a failure. The second discovery is that the reaction seems to be different from the fusion of hydrogen or deuterium into helium that takes place in the sun or a hydrogen bomb. This suggests that endless comments from physicists that "fusion" can only take place at extremely high temperatures are missing the point. Critics are comparing apples with oranges.

With LENR we seem to be dealing with a new natural phenomenon which is not as yet understood although there are numerous theories which attempt to describe what seems to be happening. These theories involve the dense mathematics of nuclear theory and are for the most part incomprehensible to the layman.

The second development of recent days was the release of a video on a NASA website touting the future of LENR. This video was released as part of a U.S. patent application by a NASA scientist that seeks to patent LENR reactions for the U.S. government. The video can best be described as effusive for it says that a nickel-hydrogen reaction has demonstrated the capability of making excessive amounts of energy cleanly and will someday be able to replace fossil fuels. The NASA video is so strong in its endorsement of the concept that the NASA scientist involved was forced to issue a statement pointing out that there is much work still to be done and that without further proof, he does not endorse the claims being made by the Italian entrepreneur Andrea Rossi and his Greek competition Defkalion Green Technologies.

So long as cold fusion was restricted to lab-bench amounts of heat, few people paid much attention to a phenomenon which was generally perceived as discredited junk science. However, the current controversy started early last year when the Italian/American entrepreneur Andrea Rossi claimed that he was not only making heat from a low energy nuclear reaction, he was making so much heat that commercially viable cold fusion was already here. The problem with Rossi's announcement was that he, like Thomas Edison, wants to make some money from his claimed discovery that by putting finely ground nickel powder together with hydrogen in the presence of a catalyst, lots of heat is produced. As Rossi still refuses to release the details of his process or let other independent laboratories examine and reproduce the phenomenon, even several semi-public demonstrations of heat production have not been enough to quell the cries of "fraud," "scam," or "impossible under the laws of physics."

Rossi has dismissed the disbelievers and announced that he was going to validate his discovery by selling devices to the public that would produce useful amounts of heat while consuming only tiny amounts of powdered nickel. Those of you who have seen the video of a hydrogen bomb going off should be aware that nuclear fusion produces millions of times more energy than the simple combustion of a fossil fuel so that only very small amounts of nickel need to be consumed in making large amounts of heat.

Over the past weekend Rossi granted a rare interview to a friendly blogger in which he released considerable new information on his progress towards commercializing his process. During the interview he reiterated the concern the Chinese or others who do not take intellectual property rights seriously would reverse engineer and make off with his discovery if he were to release details of his process prior to having a marketable product.

With LENR we seem to be dealing with a new natural phenomenon which is not as yet understood.
This, of course, continues the controversy as to whether or not he has made a major breakthrough. Interestingly, Rossi has repeatedly said that the first prototype unit was sold to a "customer" in the U.S. - speculation is that it could possibly be DoD's DARPA. This device now has been in the hands of the unknown "customer" for two months who should have had time to figure out if it works or if he has just paid $2 million for a fraud. This of course assumes that there really is a "customer" which some still doubt as no one has stepped forward to acknowledge purchasing such a device.

In his new revelations, Rossi describes a home sized unit under development with a core about the size of a cigarette box that contains the nickel, some form of hydride that contains the hydrogen and the catalyst. This box takes about an hour to heat up before it starts producing excessive heat. Rossi says the reaction between the nickel and the hydrogen generates gamma rays which are turned into heat by the lead shielding of the box and must be carried away by a cooling system or the core will melt into a hot, but harmless, puddle of lead and nickel.

Rossi says he is working with the US firm of National Instruments to design a control system for his nickel-hydrogen reactor and with Underwriters Laboratory to certify the device as safe for home use. Interestingly, National Instruments has confirmed that they are working with Rossi, but refuse to release any details of the arrangements. Another interesting development is that Rossi now hopes to be selling the newly designed 10 Kwh home heating units in the U.S. later this year for $400-$500.

The question as to whether commercial cold fusion is as imminent as Rossi hopes is still open. As the story develops, more labs verify the phenomenon, and Rossi does not ask for money for other than actually selling a device, the cries of scam and fraud have largely melted away to be replaced by assertions that it is too good to be true and certainly nothing will be marketable in the foreseeable future. Rossi says he is preparing to contract with two European Universities in the near future to test and certify his device soon as many onlookers have been demanding.

The most interesting facet of this seemingly bizarre story is that while we are dealing with a technology that, if it works as claimed, will clearly be as significant to the course of civilization as the development of agriculture, steam power, electricity, and flight, it has been barely mentioned in the mainstream media. As more details are released, however, it is becoming apparent that if it is verified, we are dealing with a rather simple and cheap technology that could see widespread adoption in a very short period. As prices of fossil fuels increase, the attraction of an extremely cheap energy source obviously will prove irresistible despite opposition from those having much to lose from its widespread adoption.

It must be reiterated that while it seems likely that LENR reactions are a real phenomenon, it has yet to be proven that commercial products which can start replacing fossil fuels are only months away. We should have some answers to this question - one way or another -- before the year is out.

Tom Whipple is a retired government analyst and has been following the peak oil issue for several years. 

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From: Wharf Rat1/19/2012 12:32:59 PM
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Can we invest our way out of an energy shortfall?
Posted on December 19, 2011by gailtheactuary

The world has many ideas for solving our energy shortfall, but they all seem to involve investment:

  • Drill for more oil and gas;
  • Develop alternative energy sources;
  • Build more efficient gas-powered cars or electric cars;
  • Fix homes and offices so they are more energy efficient.
I thought I would check through government data to see if we really have a chance of being able to invest enough money to solve our problems.

What I found was more than a little disturbing. United States’ “Net Savings,” as a percentage of Gross National Income has dropped greatly and is now below zero. This is a situation one website described as implying an “unsustainable path”.

Figure 1. US Net Savings as a Percentage of Gross National Income, based on Bureau of Economic Analysis Data (Table 5.1)

Back in the 1950s and 1960s, when the Interstate Expressway System was built and the electric grid that we are still using today was built, Net Savings averaged close to 10% of Gross National Income. It has dropped since then, and is now negative.

Let me explain “Net Savings” by showing a second graph.

Figure 2. US Savings and Investment Ratios, based on US Bureau of Economic Analysis Data.

In the United States, investment is made in many kinds of long-lasting goods, including everything from buildings, to roads, to oil and gas drilling, to pipelines, to wind turbines, to equipment for factories. Gross Domestic Investment (blue) is the total of such investment made in a given year, shown as a percentage of Gross National Income.

Some of this Gross Domestic Investment comes from an increase in debt; some of it comes from savings. Gross Savings (red) is the portion that comes from savings (foregone consumption), rather than an increase in debt.

Each year, some long-term assets wear out or are destroyed. Net Savings (green) is what is left, after subtracting the portion that relates to these assets which are lost (“Consumption of Fixed Assets”). So basically Net Savings is the amount of investment during a given year in long-lasting goods that was not financed by an increase in debt, and is not simply a replacement for something that has worn out. If Net Savings is negative (as it is today), we are not even replacing things that wear out, except through the use of more borrowed money.

Quarterly data shows that Net Savings is still negative in 2011.

Figure 3. US Net Savings as a Percentage of Gross National Income on a Quarterly Basis, based on BEA Data.

When Does High Net Savings Occur?

High Net Savings occurs when companies in general are quite profitable–in other words, when invested capital can be expected to yield a high rate of return. In such an environment, most companies will be earning enough profit that they can invest in additional plant and equipment, if desired. In such an environment, real wages are likely to rise. Governments will have little difficulty obtaining enough taxes for schools and roads, and other governmental investment.

The term “ bankable project” is sometimes used to describe a project with an expected high rate of return, since this is something that a bank might be willing to lend money on, if asked. An economy with high Net Savings will have many bankable projects.

Why would Net Savings Decline?

I can think of four reasons for the decline:

1. Declining EROI.Much of the infrastructure of the United States was built in the day when oil was cheap because the Energy Return on Energy Invested (EROI) was very high. Over time, EROI has dropped, and as a result, the price of oil has risen. When the price of oil was inexpensive, new infrastructure could be added cheaply. Oil and gas companies made good returns, even with low oil prices. Now oil costs have risen but wages have not risen correspondingly, creating a mis-match. With the relatively lower wages now, it is harder for workers to afford oil-based products and goods manufacturers make.

2. Human Labor Has Been Mostly Replaced.At one point, it was possible to create substantial efficiency gains simply by replacing human labor by fossil fuel labor. For example, a ditch digger could be replaced by a machine that dug ditches, and the cost of digging ditches would go down quickly, creating a profit for the entrepreneur buying the machines and the company making the ditch digging machines. The biggest opportunities for efficiency gains have already been taken.

3. Decline in Protectionism / Rise of World Market.In the early days, domestic industries were protected with tariffs. As tariffs were lifted and world trade increased, there was increased competition from areas with lower wages. Capital was attracted to parts of the world where returns on capital appeared to be better, leading to a loss of investment in the US.

4. Limits to Growth.As we reach Limits to Growth (of the type described in the 1972 book by that name), completing claims for limited resources can be expected to raise costs for basic materials relative to wages. As a result, bankable investment projects can be expected to become less numerous. Herman Daly talks about a lack of bankable projects, not only in the US, but around the world, in this recent post. In his view, the low returns on projects today may be related to ecological limits to growth.

Will There be Enough Funds for the Investments that will be Required to Solve our Energy Shortfall?

It is difficult to see that there will be enough funds available for such investment.

At this point, we need increasing debt just to stay even in terms of replacing infrastructure. We cannot expect ever rising debt to continue, however. Instead, we should expect reduced debt, as I described in my post The Link Between Peak Oil and Peak Debt – Part 1. Private debt is already declining and is under further pressure, because of European banking problems and Basel III rules reducing the amounts European banks are able to lend. The US Government keeps increasing its debt level, but this continued growth in debt is unsustainable, and is the reason behind threatened governmental shut-downs.

With reduced debt levels in the future, Gross Domestic Investment will drop below Gross Savings in Figure 2, above, leaving even a smaller amount of funds available for investment than we have today. We may very well, in the aggregate, reach the point where we are not able to maintain current infrastructure with the funds that are available for investment. This means that will need to make choices on which things we maintain–schools or roads or oil distribution pipelines or electric grid or our housing stock. If we suddenly want to spend a lot more on new oil and gas drilling, or on an upgraded electrical grid and more wind turbines, this would seem to reduce funds available for investment in other things, which are also quite necessary.

If we think of investment as requiring the use of resources such as oil, steel, copper, and fresh water, it would stand to reason that there is an upper limit on how much we can invest each year. If we are in fact reaching “Limits to Growth,” or even “Peak Oil,” the total amount of these resources available in world markets will be declining. Even if the amount of resources extracted each year does not decline, but stays close to flat, the share of these resources that the US is able to obtain and use for infrastructure building is likely to decline, because of more-rapid growth of emerging market nations.

The Way Forward

The only way around this difficulty that I can see is adding high EROI, quick payback, energy projects such as oil wells from the 1930s. Unfortunately, there aren’t any of these left (and of course, they have environmental issues as well).

We have deluded ourselves into thinking that projects that require government subsidies and that theoretically will produce an adequate return over a long period (20 to 60 years) are an acceptable way of replacing high EROI, fast payback projects. This might be true, if we still lived in a world in which fossil fuels would provide enough of a subsidy to the system that we could live without favorable cash flow returns from other investments.

The problem is that now, even fossil fuel investments require a lot of up front funding (think oil sands extraction in Canada, and fracking of oil and gas wells in the US), and don’t necessarily have all that good a long-term return, regardless. This is especially the case if the government needs to take an increasingly large share of this return, in order to fund its infrastructure requirements.

And increased debt is less and less of a solution.

Somehow, we need to be looking at the overall picture. How can we get enough profitable cash flow to get the cash we need to buy the resources needed to maintain essential parts of infrastructure? If we are looking at energy-related investments, what do they really provide in terms of cash flow? They may supposedly have a high EROI, if viewed over a long enough period, but this in itself is not all that helpful, if cash flow is not positive in a fairly short time-period–probably seven years or less.

My expectation is that the majority of energy investments will be terrible in terms of cash flow, and thus make our “Net Savings” (and Gross Domestic Investment) even lower over time. Installation of wind turbines and solar panels is likely to fail in terms of providing quick cash returns.

In fact, anything that requires a subsidy is likely to have serious cash flow issues. But even new nuclear power plants and new coal-fired power plants will have such issues. Adding scrubbers to coal-fired power plants without them is a great idea from an environmental point of view, but further adds to the need for additional infrastructure investment, without ever generating additional cash.

Perhaps we need to be figuring out which infrastructure investments we can eliminate, that won’t bring down the whole system. Which roads do we turn from asphalt to gravel? Can we eliminate purchase of military jets? Do we stop building and upgrading schools and universities? Do we stop building new homes and office parks?

I will admit I do not fully understand this whole issue. If we could suddenly convince the world that US has more opportunities for profitable investments than anywhere else in the world, theoretically our problem could be solved. But I don’t see this happening. Some have claimed that the recent improvements in oil and gas drilling make the US a more attractive place for investment, but I am doubtful that this is a true solution. Many of the assessments seem to be based on very optimistic estimates of future oil and gas production from “fracked” wells. And the amount of the effect is likely small.

I am afraid that the lack of cash flow funding for investment in infrastructure is what will eventually bring the system down. This is not an issue that researchers have looked at much, to my knowledge. This connection has the potential to pull the whole system down quite quickly–I would guess in 20 years or less.

Perhaps we need to be thinking more about what infrastructure investments can truly last beyond the system itself. The names “Renewables” were given to our current high-tech wind turbines and solar PV to give us the impression that they can last beyond the system themselves, but I am doubtful that this is really the case, since they depend on the availability of the electric grid and other support systems. Perhaps we need to be focusing more on lower tech applications that can be repaired with local materials and will truly provide lasting benefit. 

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To: T L Comiskey who wrote (12998)1/19/2012 3:38:45 PM
From: Travis_Bickle
1 Recommendation   of 15709
Scientists think the extinct species lived in the caves in the ice age before they became filled with water.


well they sure as hell didn't live in the caves AFTER they became filled with water

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To: Travis_Bickle who wrote (13001)1/19/2012 3:45:45 PM
From: T L Comiskey
   of 15709
might have...dropped in and


its the human stuff that needs research

dating them..before the end of the ice age..would be...

big news

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To: Wharf Rat who wrote (13000)1/19/2012 3:49:58 PM
From: T L Comiskey
   of 15709
no mention of less people .................???

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From: Wharf Rat1/20/2012 11:08:50 AM
   of 15709
Summary of Weekly Petroleum Data for the Week Ending January 13, 2012

U.S. crude oil refinery inputs averaged just under 14.6 million barrels per day during the week ending January 13, 352 thousand barrels per day below the previous week’s average. Refineries operated at 83.7 percent of their operable capacity last week. Gasoline production increased last week, averaging nearly 8.8 million barrels per day. Distillate fuel production decreased last week, averaging about 4.5 million barrels per day.

U.S. crude oil imports averaged just under 8.3 million barrels per day last week, down by 1.6 million barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 9.0 million barrels per day, 259 thousand barrels per day above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 553 thousand barrels per day. Distillate fuel imports averaged 219 thousand barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 3.4 million barrels from the previous week. At 331.2 million barrels, U.S. crude oil inventories are in the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 3.7 million barrels last week and are in the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 0.4 million barrels last week and are in the middle of the average range for this time of year. Propane/propylene inventories decreased by 1.1 million barrels last week and are in the upper limit of the average range. Total commercial petroleum inventories decreased by 2.1 million barrels last week.

Total products supplied over the last four-week period have averaged about 18.1 million barrels per day, down by 7.2 percent compared to the similar period last year. Over the last four weeks, motor gasoline product supplied has averaged 8.4 million barrels per day, down by 6.1 percent from the same period last year. Distillate fuel product supplied has averaged about 3.6 million barrels per day over the last four weeks, down by 4.4 percent from the same period last year. Jet fuel product supplied is 5.6 percent lower over the last four weeks compared to the same four-week period last year.

[new] Pollux on January 19, 2012 - 12:35pm Permalink |
Gasoline demand fell below 8 mb/d (7.996 mb/d).

Weekly U.S. Product Supplied of Finished Motor Gasoline (Thousand Barrels per Day)

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