“Yeager believes they will operate more like the Internet, as part of a complex web through which people will supply electricity as well as downloading it. And countries that don’t have large‑scale power networks will cease to need them. The result will be greater efficiency, less pollution and an end to power cuts… I’ll be able to go down to Wal‑Mart and pick a micro-generator off the shelf to power my house. I will take it home and connect it to the gas pipe. It will generate power as well as heating my house and producing hot water. And it will be much cheaper than using the power grid.” “Every node in the power network of the future will be awake, responsive, adaptive, price-smart, eco-sensitive, real-time, flexible, humming – and interconnected with everything else.”

MoneyWeek on 17, 18, and 19th of November 2010


Emergency power (I): The key energy issues of our time
By The Editors of MoneyWeek , November 17, 2010
 By Dr Louis Arnoux (*)

The primacy of energy

Energy is the only resource for which there is no substitute.

If we do not have enough water, but we have energy, we can use it to produce more water, for example by desalination. This is true for food, housing and all other aspects of our lives.

However, the reverse does not work, for example, we can not change a block of concrete and energy we can access energy without first consuming. While we can replace coal with oil and petroleum gas, we can not replace the energy they contain, for nothing else than the energy obtained in another way.

Energy, currency and gold

In other words, the energy comes first and is fundamental to all aspects of life and business. As such, energy is the ultimate and fundamental source of wealth and the real standard for the dollar or any currency.

For example, frequently, many advisers recommend that investors take refuge in gold. Gold is rare st becoming increasingly rare. Gold production peaked in 2001 and since then inexorably declines (1).

The hidden point is that gold is a tangible asset that is traded internationally as taking place for energy.  Indeed, one must spend a considerable amount of energy to extract and refine gold.

For decades, the ratio between gold and oil remained around 15 or 16 barrels per ounce of gold for this reason.

A barrel of oil is also taking place very crude energy in its abstract version. While the two - yellow gold and black gold - were becoming increasingly rare at a similar rate, the ratio between the two has remained relatively stable (2).

Peak Oil or the scarcity of oil
The Peak Oil, or petroleum depletion, means the highest point of oil production and more broadly of hydrocarbons (that is to say natural gas or oil sources say unconventional) while resources are depleted.

This question is still misunderstood by most non-experts and remains obscure because of publicly available data on reserves are tainted with considerable uncertainty.

For example, we know that OPEC reserves are probably overstated by 30%. This is understandable because fossil fuels are strategically important and that many public and private interests prefer to keep a soft focus on the real situation. We know that international organizations have been pressured by some governments for not publishing data that could trigger a panic. It follows that many projections are actually coded.

In most projections, the growing gap between the actual current reserves and forecast demand is met by things such as "unconventional oil", "undiscovered oil field", "oilfield yet to be developed", etc.. As you can see by looking at forecasts of the International Atomic Energy below (3).

All this is nothing more than a fig leaf to hide the naked truth: nobody knows how to bridge the gap between actual reserves (in dark blue on the graph) and rising demand.

As Matthew Simmons - probably the largest private bank in the world oil industry - has said, everything that is supposed to bridge the gap is at best wishful thinking.

Two things matter:
- The energy really available in the oil that we can really extract, and
- How there annually for each of us.

That's what we'll see tomorrow in the Daily ...

(1) Source presentation Barrick Gold to Bank of America, Merrill Lynch Global Industries Conference, New York, December 2009.
(2) is also the reason why since 1960 the dollar has lost over 96% of its value against gold and this trend continues. Most other currencies are in the same case.  
(3) IEA, 2010, World Energy Outlook, Key Graphs.


Emergency Energy (II): The real power available
By The Editors of MoneyWeek , November 18, 2010
By Dr Louis Arnoux (*)

The barrels are not equivalent according to their origin in terms of energy content.

The Dutch subsidiary of ASPO has recently emphasized express output in BTU (British Thermal Unit) or joules allowed to have a clearer view of the existence of a peak in 2008 (Oil Watch Monthly, July 2010 see figure cons).

But, moreover, since 2005, it is a relatively flat top, so, given the uncertainties in the data, we should not quibble over the year's absolute peak. What is clear is that the peak is happening.

The amount available annually for each of us
The second more important point concerns the production of hydrocarbons (that is to say natural gas included) per capita per year and, of course, its true distribution because some of us get much more than average and others much less.

 It happened in 1979 (second oil shock). Since then, the world has come a rather bumpy plateau after a series of crests of annual production, the decline began with a steep slope.

The consequences of this are obviously untenable. Therefore, in the recent past, the military of many nations, various reinsurance and a number of captains of industry around the world (USA, UK, Germany, France, China, Brazil or Japan) have expressed their concern and began to prepare strategically.

From what I observed, a point of view emerges: unless a miracle - which no sensible person believes - some 10 million barrels per day (mbpd) will likely miss the market in 2015. That is more than 11% of demand (1).
Analysts consider that 1% drop in oil supply pipe to 1% decrease of global GDP.

Mega-depression or economic chaos?
As the institutions to which I referred have belatedly realized, this means a high risk of economic chaos in the relatively near future (2015) given the extreme dependence on oil from any economic activity vaguely. The only realistic alternative is that this crisis will become a mega-depression.  Whatever the scenario, the outcome is bleak.

In my view, these trends mean that, as the precautionary principle, any business needs to be shielded from now, review and adapt its processes, strategies and funding and ensure its energy independence, and also vis-à-vis the transport and communications.There is not a company - let alone an individual - who is not deeply affected by what is happening.

As usual, there will be winners and losers, but probably no half-measure, from what I can tell. The consequences will be very contrasting and, of course, is extremely important for investors. On this point, understand what will follow is vital.

The energy return on energy investment or EROI
As we all know "free lunch does not exist."  For energy, we must first invest in energy, that is to say, use of energy to drill an oil well, mine coal, run a power plant, etc..

The important ratio is the return on energy investment and energy EROI. The absolute key parameter is the net energy available, or the energy available to carry out all our economic activities (including the food we eat to stay alive) once all direct and indirect energy costs were removed . This may sound elementary, but the accounting principle is ignored by most accountants and financial prefer to calculate in dollar rather than joules.

Elsewhere, in countries in the developing world, as we said at the time, the EROI was generally very low, typically 2 to 1.  But no one cared because the major economies were still largely immune.

In our globalized world says, the situation has radically changed.  As the crisis began in 2007 was widely highlighted, all economies are closely intertwined.

Now is the EROI comprehensive account and professionals (2) of this sector estimate that 3 to 1 and tends rapidly to 1 to 1.

We estimate that at current rates, an EROI of 1 1 ("ground zero") will most likely be reached before 2030 (3).
A 1 for 1, there is more energy available and everything stops. Of course, 1 on 1 is never really touched, events become very chaotic before (4).

In short, for about 50 years, developed and industrialized world has lived well above his means in terms of net energy that can consume each year. Basically, this crisis is a huge backlash against the stubborn fact of thermodynamics. The money in the world is no longer convertible to joules of energy per year and its net value is declining rapidly and inexorably in comparison with the available energy.

The peak oil reviewed in light of the EROI
These trends are central EROI consequences of peak oil. Reserves the easiest to use are first exhausted, the most difficult are discovered and brought into production.  During this sequence, the production is growing rapidly and demand is quickly satisfied.

However, once past the peak, satisfy a growing demand calls quickly switch to reserves ever more difficult to exploit that require energy costs ever increasing and decreasing the EROI. For example: drill ever deeper into the oceans, the hazards recently updated by the explosion of the BP platform in the Gulf of Mexico.

This is the situation we find ourselves today. And we'll see how we are in a race against time and what future technologies.

(1) See for example: "Washington considers a decline in world production from 2011" Oil Man - Blog LeMonde.fr July 19, 2010. http://petrole.blog.lemonde.fr/
See Charles AS Hall, Stephen Balogh and JR Murphy, 2009, "What is the minimum EROI that must have a sustainable economy" Energies, 2, 25-47, doi: 10.3390/en2010025
(2) Economically, it's never a good idea to spend more than you earn.  But you can always temporarily borrow from a bank. For the total energy, however, there is no bank from which to borrow. We simply can not consume more energy than what is in a.The outcome is fatal.
(3) For example, Robert Ayres, Professor Emeritus at INSEAD, has shown that the largest economies and most developed economies, the United States works with only 13% efficient, meaning that it wasting 87% of primary energy it consumes - Robert U. Ayres and Edward H. Ayres and Edward H. Ayres, 2010, Crossing the Energy Divide: Moving from Fossil Fuel Dependence to a Clean-Energy Future, Pearson Prentice Hall. Ayres, 2010, Crossing the Divide Energy: Fossil Fuel Dependence from Moving to a Clean-Energy Future, Pearson Prentice Hall.
 (4) A historical example is the collapse of the Western Roman Empire when the Roman aristocracy, the bureaucracy and the military have used more energy than what the slaves could provide (in the form of food, wood, clothing, etc.. since the economy was based on solar and biomass).
 

Emergency energy (III): Invest in tomorrow's technologies
By The Editors of MoneyWeek , November 19, 2010
By Dr Louis Arnoux (*)

Yesterday we saw the need for energy was critical and that the EROI was the only ratio that allowed you can not go wrong investment.

A race against time
This situation rapidly worsening, had been anticipated in early 1970 (including the Meadows and their team into the orbit of the Club of Rome). These warnings - and other issued since more and more pressing - were widely ignored and even ridiculed by policy makers who are far from understanding energy and its vital importance in economic development.  Now the clock is ticking.

Technologies, alternative energy, infrastructure, transport and telecommunications which have been developed and deployed since the 1970s are missing. Infrastructure change takes about 40 years and the window of time to redress the balance is less than 20 years.

Climate change is a reality and other environmental degradation that we face because of the massive use of fossil fuels of the twentieth century until today. The consequences are extremely serious, far more serious than what people think.

However, these consequences will grow mainly in the long term. However, the issue of energy is now an immediate danger.

The Energy Technology
It is in this race against time there will be winners and losers. In my view, an orderly transition to sustainable development is more feasible for everyone. The keyword of our time is now "energy emergency".

However, any reservoir of energy, be it a pile of coal, a barrel of oil, a m3 of gas, or sunlight, is useless without the appropriate and cost-effective technology for converting energy usable.  . In response to the economic, ecological, and fossil energy, new technologies that can lead to sustainable use of renewable sources of energy are now emerging as new sources of wealth.

In this new environment, sustainable energy technologies condition all other sectors.

The picture is very mixed at this point.  None of the emerging technologies that lead to some form of viability (solar direct or indirect, such as wind, hydro or biomass) can not come in competition with fossil fuels without the heavy government subsidies.

Nuclear power is not even eligible because of its price and its poor energy efficiency. In this regard, the infrastructure inherited from fossil fuels have also features an execrable performance.

Few people realize that the overall energy efficiency of our electricity networks is currently below 20% (1).
The model of large centralized power plants is obsolete (2).

Investment Perspectives
To be winners, investments should focus on some new technologies that can achieve a high EROI viable ways.
This leads almost exclusively to technologies that provide access to solar energy directly or indirectly, in a distributed form - as viable resources are inherently distributed, that end users are scattered, and that the centralized model can lead to high yield in this model because a large amount of energy wasted can be recycled.
The challenge of these new technologies is to produce energy flows that require end users on their own sites (that is to say not only electricity but also hot and cold streams or means of transport) .

Another range of critical new technologies is required to prevent deficiency in each of energy in which we are going to fall. These information technologies to distribute energy generation in an integrated way in local area networks intelligent.

This is the only way to achieve high efficiency, low cost and durability are needed now in the window of time left.
The paradox is that while the table of fossil fuels is a terrible shortage, the outlook for solar are those of an almost unlimited abundance. The solar energy falling on earth annually is far greater than anything humanity can consume. Technically, it is perfectly feasible to achieve an abundant renewable energy comes with a high EROI.

However, this requires a radical change in our way of thinking about energy technologies and infrastructure developments in an industry that is very conservative.

The know-how exists - I am part of an international community of scientists, engineers and entrepreneurs who develop it.

The race I'm talking about time it takes to get these new methods are accepted and that new infrastructure be deployed in the window of opportunity is left.

We foresee a bright future, literally, however, it requires swift and pointed, particularly from investors lucid.
[Our specialist raw materials, Sylvain Mathon oversees all areas of the energy sector: oil & gas ... Renewable Energy & Environmental ...

(1) For example, Robert Ayres, Professor Emeritus at INSEAD, has shown that the largest economies and most developed economies, the United States works with only 13% efficient, meaning that it wasting 87% of primary energy it consumes - Robert U. Ayres and Edward H. Ayres and Edward H. Ayres, 2010, Crossing the Energy Divide: Moving from Fossil Fuel Dependence to a Clean-Energy Future , Pearson Prentice Hall. Ayres, 2010, Crossing the Divide Energy: Fossil Fuel Dependence from Moving to a Clean-Energy Future, Pearson Prentice Hall.
(2) See Frank Klose, Michael Kofluk, Stephan Lehrke, Harald Rubner, June 2010, Towards a distributed-power World: renewable energy and smart grids will transform the energy sector, Boston Consulting Group.

(*) Holds a Master of ENSIA Paris and a doctorate from the Sorbonne, Louis Arnoux has 40 years experience in industrial development and R & D in the field of new technologies and energy networks. Expatriate New Zealand, he advises Australasia in his transfer energy through a public-private partnership.
If you want to respond to his articles, you can be contacted at the following address: lara "at sign" indranet.co.nz (remember to replace the "at sign" with @)