Plastic Fantastic
February 5, 2010
I briefly mentioned the interplay between the plastic industry and the demand for oil, well the Financial Times recently did a piece on petrochemical prices that has shed a lot of light on the subject for me. Unfortunately the piece is behind a paywall, but you may be able to get to it with a free trial subscription.
The main thrust of the matter is that the major petrochemicals that plastics are made from (naptha, benzene, ethylene and propylene) are under massive and rising demand pressure from Asia. So much so that the FT reports that an index of their prices has risen by 150% in the last year, now don’t get too excited. Just before that year started the same index as reporting an all-time low as demand stagnated during the recession. The story of surging demand is also told by this Indian site in a bit more detail.
My point is this; running oil refineries is an expensive, energy intensive, dirty (in terms of emissions) and sometimes economically uncertain business. The price volatility of the raw natural resources (including water) is multiplied by the energy intensive nature of its processing and carbon emissions pricing. Also the demand for the products is dependent on macro-economics that, to a large part, are tied to crude oil prices as well. It seems to me that the price risks that ‘oil as fuel’ users face are minor when compared to those that ‘oil as feedstock’ users face.
The demand imbalances that cause supply price shocks, like the one we are seeing now, are temporary and transient as we can see from this paper from the Middle Eastern Economic Survey, so long as they are not coupled with oil price rises. However, since most mid to long term forecasts show oil price rising steadily we can reasonably expect the price of petrochemicals to rise as a function of the raw material price rises, possibly a multiple of oil price rises.
Lets have a little context;
China currently imports around 21m tonnes of oil per month or 200m tonnes for 2009 (and rising fast). Some estimates see global peak consumption of around 100m barrels per day, thats roughly 5,000m tonnes per year, against today’s 85m barrels per day (4,250m tonnes per year).
Lets compare that to our main petrochemicals;
naptha – 215m tonnes per year
benzene – 10m tonnes per year
ethylene – 25m tonnes per year
propylene – 15m tonnes per year
That’s a total of 265m tonnes of the products per year or, in broad terms, a similar amount of oil to that which China will be using in 2010-2011. I pose the question – what happens to global oil prices if you take China out of the equation ?
So here’s where bio-plastics and biomass derived chemical feedstocks come in. China and India are the two main marginal consumers, they swing oil prices by their increases in consumption. Take ‘a’ China out of that equation and my strong guess is that your oil price volatility drops by a significant amount.
So by replacing petrochemicals with bio-mass derived petrochemicals you can actually have a disproportionate effect on energy price security, because you have taken the price and volatility multiplier that is refining out of the equation.
Of course you still need the energy and the water, but your raw material would be forestry products or agricultural byproducts. These are generally grown in climates where water isn’t a major issue, but you would need to be a little careful over both water supplies and food production.
Anyone fancy setting up a bio-petro-chemical production facility in the Canadian forests (to supply North America) or the Russian Tiga (to supply Chindia) ?
Got even more wood ?
February 3, 2010
So DECC has launched a consultation document package for its Renewable Heat Initiative (RHI)
Lots of good stuff in there, but the bit that I’d like to comment on is the incentivisation of wood chip/wood pellets for domestic heating.
Feel free to correct me if I’m wrong but to me this provision looks like a commitment to an effective long term taxation of the rural poor. Its a bit counter-intuitive at first sight, after all how could an incentive to use local renewable biomass result in higher bills ? Well, its all to do with having a limited land package available to provide that biomass.
There is a distinction in the consultation between biomass that originates from wood, that which comes from grown for energy crops and that which is the result of existing agricultural processes (such as straw), but what concerns me is the interaction between existing managed woodland and possible new energy crops such as mycanthus and willow. The problem is that the RHI incentives only relate to pellet or chip burning boilers effectively replacing fossil-fuel burning boilers and central heating. Standing hardwood doesn’t make economic sense for pelletisation or chipping, its wears the machinery and takes more time and energy to produce and harvest.
What the consultation leaves out (and I can’t find mentioned anywhere in the document package) is the economic impact on existing wood users and those who cannot replace boilers. In other words me !
My situation is as follows: I live in a little village in Cornwall that is a good 10km from the nearest gas main. Most houses in the village use coal or wood to supplement Economy-7 electric heating. In many ways its a typical granite-built miners village. No cellars, very little outside space, houses are well over 100 years old (so low ceilings) and built of thick solid stone walls. Speaking for myself only; I don’t have a boiler, just an immersion heater that I turn on if and when I need hot water. I don’t have central heating, just a single electric storage heater that is powered by Economy-7 over-night. I rent the cottage and have only a small amount of space outside. I am not unusual in this county.
What I do have is a nice big fireplace that I can settle down in front of in the evening. I burn wood in that grate and buy my wood from local suppliers or one of the many local shops who sell 5kg bags of split logs over the counter.
My concern is that if pelletised or chipped wood becomes a lucrative product, managed woodland in the area will shift towards those products and away from larger trunked species suitable for splitting and domestic use. It’ll take time, I don’t expect to see the price that I pay for wood to rocket overnight, but the house that I live in will be around for at least another 100 years so the issue is not gong to go away. Over the 20-50 year timescale, by shifting the forestry from bulk wood to processed chip you will see a price differential mount that penalises those living in houses that cannot be physically altered to accommodate pellet burning boilers. These houses are generally smaller, cheaper and occupied by those less able to cope with price rises. Effectively this is an incentive that will put the rural poor at a greater disadvantage than ever.
I like the idea of increasing biomass use as I previously stated in Got Wood ?, but this particular policy seems poorly devised.
Energy Security = Energy Interdependence Addendum
January 20, 2010
Interesting presentation by Jeff Rubin at the Business of Climate Change conference in Toronto in Sept 2009
Its 45 mins long, but well worth it to see how an experienced (and charismatic) financier sees the issues connecting energy, trade and globalisation. I think his timings are wrong, but otherwise its a reasonable reading of a potential future.
You’ll note that he never once mentions energy independence, only alludes to energy security but never uses the phrase, and speaks about the development of regional economies as oil costs erode labour price advantages currently experienced by emerging economies. Don’t misunderstand, its all about energy security, but he doesn’t fall into the rhetorical trap of invoking overtly nationalistic tendencies. He uses protectionist measures (carbon tariffs) to get to his view, coupled with internal carbon pricing, but everything is in believable economic terms.
If we consider Canada, and specifically British Columbia (BC), as a thought experiment in this context its interesting to see the North American western seaboard as an emerging power in Rubin’s new re-jigged, less global economy. Yes, there is a focus on resources for export in BC, but with the amount of hydropower and BC’s commitment to zero carbon electricity there may well be a competitive advantage to base a regionalised economy along that seaboard, with population and industrial centres served by natural resource flows north and south of the 49th Parallel.
Apart from BC, the combined regional energy policies are supportive of a low-carbon transition with gubernatorial and state-level initiatives favouring low carbon energy sources in California, Oregon and Washington State. A cursory reading of their respective policy positions shows that energy independence is not a rhetorical standpoint that is used strongly, except by the Governor of Oregon. There are good (and reasonably obvious) reasons for this. BC and Washington State have excellent hydro power resources, and both have potential to raise the electricity production from small and medium-sized hydro. This reduces their dependence on energy imported from outside the region. California is known for its innovative technology and progressive policies in the energy field, so has much to gain by driving a new industrial sector.
But lets take a step back to Jeff Rubin’s point about localising production of goods. That implies localising non-energy natural resource production as well as energy. The western seaboard is in an enviable position to do this. Pretty much every kind of natural resource can be found in this part of the world; timber, fish, metallic ores, agriculturally productive land. As a region it’s got it all. But !
But on its own BC doesn’t have a large enough consumer-base to support a fully vertically integrated economy. Apart from the 3 million folks in the Vancouver area, its mostly forests and mountains. Likewise it doesn’t have the full range of agricultural products that most of us have come to expect in the last few decades, due to its climate. It has an excess of low-carbon power and raw materials (and no shortage of ingenuity). It could be energy independent, but it would end up paying over the odds for the food and manufactured goods that it seems likely would be produced in California in this new regional emergent economy. The binding cross-border factors could be water and electricity, but BC should also look at processing of those raw materials to add value to them prior to export.
So an internal drive to a progressive energy policy fits with a regional strategic economic vision. Energy security is allied with food and water security and internal economic coherence.
I think I’ve just convinced myself to move to Vancouver 
Superconductors – Part Four A New Hope
January 11, 2010
Superconductors have been around in the labs for decades now. They have been a mainstay of high-end scientific research and niche medical applications for decades, but on the industrial scale they have always been a bit to expensive to run in mass market applications, like the energy sector. Theirs has been a story of potential energy efficiency boosts, power savings, zero transmission losses and all the first order energy system changes that no-one is against. Its time to take a look at them a little closer since I dismissed them so off-handedly in my previous post regarding the North Sea super grid.
Crash course
Superconductivity was discovered 99 years ago.
Different materials become superconductors at different temperatures.
HTS (High Temperature Super-Conductors) are defined as having a transition temperature above 30K (-243C), and the highest temp superconductors have a validated operating temperature around 135K. The boiling point of liquid nitrogen is 77K, so this has made HTS much more accessible and practical as nitrogen is commonly used as a liquified gas.
However, recently an HTS material that operates at 254K (-19C) has been claimed. This would clearly be a massive leap forward as standard compression-cycle refrigeration techniques could be used rather than immersion in liquified gas. Obviously these are lab findings and there is no guarantee that production of these materials could be scaled up to industrial quantities (they use some relatively commonplace elements, so there shouldn’t be any resource availability problems for once). The standard 10 years+ from first publication warning applies here i.e. no field application will arise from a lab discovery within 10 years of first publication.
So industrially we are looking at the 135K materials, which is still OK, but not the massive jump that we’d all like to see.
Energy Applications
Cabling – Zero transmission losses over long distances, or high capacity transmission without the current massive infrastructure (overhead pylons) are the main lures.
Power:Weight improvements – instead of copper conductors, using HTS in motors greatly increases their power:weight ratio. The applications in electric vehicles are obvious, so I won’t labour that point, but also consider all those static motors in air-conditioning units, factory assembly lines, and my personal favorite the conveyor belt. The infrastructure to hold these in place could be smaller and lighter, their maintenance quicker and safer as well as their operating costs lower.
For ‘motors’ also read ‘generators’ and you see the application for wind turbines and other renewable generating technologies. Smaller lighter nacelles means smaller lighter towers, means cheaper generating capacity and lower maintenance costs.
Renewable Energy Focus has done this two parter (Part One & Part Two) which covers all these much better than I ever could. You’ll need to subscribe for free to access the full articles, but its worth it.
The take home from these two articles is that super conductors should be on the shopping list of industry. I was too quick to dismiss them for the North Sea grid. With 150 times the carrying capacity per unit weight and 1/3 of the transmission losses superconducting cabling should be the first option for mega projects, not the last.
When/if those properly room temperature super-conductors reach the supermarket shelves a revolution will take hold.
Big Wind Movements
January 9, 2010
Round three of the UK offshore wind tender process totaled 32.2 GW of nameplate generating capacity. That’s a lorra lorra windmills and well above the expected 25GW power output. Lets be middle of the road and say for the sake of convenience that 3.22 MW turbines exist, that’d be 10,000 turbines located between 22km and 190km from the nearest landfall.
The London Array has started to hand out contracts. Nexans, the submarine cable specialist, has won the power export (windfarm to shore) cable contract. It is 100M Euro for 4x 53km long 150kV capacity copper cables to carry up to 1GW of power from 175 turbines.
If we do a quick bit of maths on that for 32 times the power, roughly twice the distance and 57 times the number of turbines, if the Round Three windfarms use the same technology as the London Array, the export cables alone should cost in the order of 6.5bn Euros (not including inflation or commodity risk). Using my previous estimation of the intensity of copper use in wind power, 10,000 offshore turbines and their associated cabling will use around 310,000 tonnes of conductor grade copper. Copper’s current price is around US$7,200 per tonne giving an embodied copper cost today of US$2.23bn. By the time these windmills get built, that figure looks cheap to me.
Perhaps that’s why the North Sea Supergrid got a bunk up the probability ladder by the nations next to the water. For an estimated one-off cost of 30bn Euro you get a ‘local’ connection, cutting the need for those expensive connections to shore and you get the ability to load balance using Norway’s hydro power excess.
If I had an extra billion or two I’d be looking at building a submarine cabling capacity right now. Not just the cable factory but the cable laying vessel and some upstream capacity in copper recycling. It’d be nice to think that we’d be at super conducting cables for this job, but at 6,000km total length and multi-GW capacity I’m not sure that the tech will be with us in time. Looks like HVDC instead, shame.
