Sunday, May 25, 2008

How high can oil prices go? Renewables, etc.

A few days ago I went to an Apollo Kauai meeting with Andrea Brower and her mom hearing from local KIUC utility officials on the reality of prospective hydro energy projects on Kauai. There were about 50 people in attendance, a number of them I recognized from my pet issue. A lot of interesting things were covered.

The biggest contractual hurdle is something called "avoided cost pricing" which is basically the cost of using diesel fuel (as opposed to "open-book cost-plus pricing"), thus realizing no cost benefit from what otherwise should be lower cost renewable energy. State Rep. Mina Morita in attendance seemed to indicate that the State Legislature would work on "de-coupling" the older standard of pricing here that works against renewable energy projects.

The meeting also mentioned that micro-projects and net-metering are small scale projects that individuals might pursue, but that the utility feels it has to focus on meeting total community and greater development demands. Energy conservation by the individual user was the main recommendation that the KIUC officials could recommend to the audience.

On a related matter, I was talking last night with another person on Kauai writing a very interesting book. Seperate from the subject matter of that book, the question came up, could I do an analysis on the oil price per barrel at which 'the system breaks down,' particularly trucking/shipping companies and maybe a higher figure for utilities? I would have to look at that for a while to try that analysis. I told my friend that I would guess that Goldman Sachs may have done that analysis. So, I did a Google search and here is a start on what I found from a blog of a few days ago in Britian:
20 May 2008
"Why Planning for $200 Barrel Oil is so Important, or, Why Government is Failing Us in Times of Transition"

"With the oil price looking pretty settled at $126 a barrel having reached as high in recent days as $128, what does the UK Government estimate the future oil price to be? Clearly one would imagine that as the most responsible body in the land, charged with making long term decisions that affect us all, they would have their fingers on the pulse of this one. Unfortunately the official position is as insulting as it is pathetic...

So in other words, when prodded by a Parliamentary question to come up with an overall assumption, months after oil first broke $100 for the first time on January 1st 2008, since when it has not dipped back into double figures, they go for something midway between their central and high scenarios in their White Paper.

Especially as they must have been aware of the recent Goldman Sachs report that came out around the same time which said that the price was going up not down, and that $200 a barrel was not too far off. They also revised their forecast for the second half of 2008 from $107 to $141. At least someone is paying attention...

Strikes me that at this point in time, in terms of our future forecasting, we need to be seriously planning for a $200 a barrel world, and that planning for anything less is criminally negligent. Whether it is a year away or 3 years away, fact is we have left ourselves virtually no time to prepare for it at all. At $200 a barrel, expansions to airports cease to be worth the investment, and one would have to question whether anyone has questioned how viable it is to build new nuclear power plants at that cost (given the high amount of embodied energy in the materials). Indeed, planning for $200 a barrel will lead to the asking of some very hard questions, questions which business as usual will really struggle to answer...

Indeed it is not just Government who need to be planning for the $200 a barrel era. There are plenty of other organisations who develop long term plans that affect us all, principally local authorities, but also a range of others. I mentioned here the other day a talk I gave recently at Hartpury College near Gloucester, at the end of which I sat on a panel with various representatives of the South West Regional Development Agency...

Me, I long for a $200 a barrel world, as much as anything because perhaps when we get there, we will be able to sit down with the people at BERR who write this rubbish, and ask them what they thought they were doing. It should, as we sit beneath a mature walnut tree, with children running through the abundant food gardens behind us and as ripe, full walnuts punctuate the conversation by dropping earthwards and bouncing off our heads, be a most instructive conversation."

Well, that's food for thought. Be sure to click on those Goldman Sachs links. Will try to find if the analysis is available publicly at what high oil prices do things start 'breaking down.'

Aloha, Brad

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