Shell Arctic Drilling: Considerations urge caution

 

imagesThe Obama administration appears to have given green light to Shell Oil Company to resume its plan to drill in the highly oil-rich Chuchki Sea in the Arctic offshore Northern Alaska. This follows an aborted effort to commence this program in 2012 when poor preparations and mistakes led to junking the two drilling vessels then sent to the area. In particular, a containment dome designed to cap runaway wells failed a crucial test. Environmental groups have stated that an oil spill in the drilling area would or could be more costly to inhabitants and wildlife than the BP Deepwater Horizon spill offshore Louisiana is 2010, which has already cost BP and others over forty billion dollars. The International Business Times said, “The Chuchki Sea is prone to icy waters, major storms and waves that can reach 50 feet high. In the event of a spill or accident the closest Coastc Guard resource with necessary equipment is more than 1000 miles away. The Alaskan coast nearby has no roads leading to major cities or ports for hundreds of miles”. Compare this to the BP spill area immediately accessible to all types of assistance – yet spilling crude oil for weeks as a result of human error and equipment failure

An almost unprecedented campaign by people and a number of organizations is underway to try and stop Shell from this initiative. Interestingly, one group is appealing to Shell shareholders asking them to consider whether they believe Shell should be risking this amount of money or more to bolster the company’s relatively modest reserve of proven oil. In 2012, Shell stated that it had $ 6,196MM bbls of proved reserves versus 12,816MM bbls. for ExxonMobil. 10,050MM bbls for BP and 16,773MM bbls, for Russian Rosneft. Drilling down on the Shell number, it includes 1,763MM bbls, for “synthetic crude oil”, which must largely be crude derived from Canada’s tar sands. So, Shell is really lagging behind its rivals in establishing proven “normal” crude oil. Remember also that Shell was castigated not many years ago for overstating its reserves, leading to management changes as I recall.

Looking at these figures, one might ask, is the Shell Arctic initiative a sort of “Hail Mary”  pass to try and ramp up Shell’s crude oil reserves? That may be a harsh judgment? If Shell believes that its approach is as safe as an be, how do we know that all the appropriate authorities have totally vetted the proposed drilling and recovery systems to assure double or triple backup protection against unforeseen events, accidents, human error, etc?

At this time, crude oil price is around $ 50-60, far too low for justifying Shell’s potential investment. With the U.S. continuing to produce more and more oil from shale it is difficult to project when oil will steadily sell at over $ 100/bbl, Renewables are cutting into oil demand creating downward pressure on crude oil.

All of this makes me wonder whether this is a good time to go ahead with Arctic drilling. Perhaps that’s worth another look in 5-10 years.

 

 

 

 

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Crude price staying down: Thanks to fracking “learning curve” and chemicals

images Like duelling banjos, the U.S. and Saudi oil producers have been carrying out a spirited contest to see who first cries “Uncle” (My apologies for these metaphors). When crude prices first started to plunge from the                $ 100/bbl level, the Saudis, who are OPEC’s main enforcer and swing producer, decided not to reduce output to halt the decline. They assumed that fracking would not be economical below the $ 60-70/bbl level. and that the world price would not go below that. What they did not take into account is that fracking shale is a new technology. It is well known that when a new technology is commercialized, experience gained with continued use in manufacturing will almost always improve economics and yield as improvements are made. That is a good reason why “first movers” will generally have a substantial advantage over “followers” using the same original technology.  It is also the reason why the Saudis miscalculated. U.S. producers within a period of less than a year have brought fracking-based crude down to $ 40/bbl or less as new approaches and innovations were applied. This has brought severe hardship to Russia, Venezuela and most other OPEC members whose economy has been sustained on  $ 80-100/bbl crude oil.  And the glut of crude oil resulting from ever-increasing U.S. production has cut into Saudi exports as regional pricing has seen buyers (including the U.S.) shift to other sources.

The most obvious gains in fracking were due to the fact that some shale formations are easier to “mine” bringing more crude to the surface than from tighter formations. Only about half the total number of rigs are now in operation, bringing up more oil than ever before. Also, experience has allowed many more horizontal spokes from a single well, substantially reducing drilling costs.

And the role of chemicals has also greatly contributed as more experience has been gained. (Chem. and Eng. News. April 13, 2015 Pp. 13-17). These include thickeners and friction reducers which allow the proppant sand – which keeps fracked fissures open – to be delivered way out in the horizontal wells. This requires a delicate approach to achieve the right balance, so that guar and cross-linkers are also added for maximum effect. Other chemicals are now used after the fracturing step to break down the thickened mixture of proppant and oil, 5000 feet down, to better allow the liberated  oil to flow to the surface. Microbes grow rapidly inside the well and can result in slime plugging, so that biocides must be used used to continue flow in “aging” horizontal sections. And since some of these chemicals (e.g. biocides) cannot be allowed to get into the cleaned-up fracking water, other chemicals must be applied to destroy the biocides, allowing their critical use inside the well.

And here is another interesting point! There is a huge amount of hydrocarbon-rich shale in the U.S. With improving fracking technology and no need to wildcat for new oil, U.S. producers can keep producing oil for many years ahead. They may decide to curtail some drilling to let demand catch up to supply and make fracking more profitable at, say, $ 60 per barrel.  U.S. can now become the “swing producer”. And it would be sensible for the government to stop banning and allow crude oil exports. It’s a brave new world of oil!

 

 

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End of an era: Dow spins off chlor-alkali

imgresDow Chemical has agreed to sell its Chlor-alkali assets and associated derivatives businesses to Olin Corporation in a transaction that in one stroke separates Dow from its main heritage business and makes Olin the largest domestic chlor-alkali producer. Dow will end up owning about half of Olin’s stock (to be eventually spun off to Dow’s shareholders) and has a 20-year contract to supply ethylene to Olin’s vinyl chloride and other chlorine derivatives businesses it will now own. Readers will recall that Dow was never a PVC (polyvinyl chloride) producer (except in a very minor way), and sold its styrene/polystyrene and polypropylene businesses a number of years ago. It remains a large polyethylene producer, where its proprietary technology and low cost ethylene production has given it some competitive advantage in this otherwise relatively commoditized business. Dow is getting closer to its announced goal to be largely a producer of specialty chemicals and differentiated consumer-oriented products.

It is hard to avoid comparing this and other Dow transactions to what happened with England’s premier chemical firm ICI over the last decades of the Twentieth Century: Yes, “breaking up is hard to do” when companies want to transform themselves from being largely a commodity producer to a producer of specialties. ICI failed spectacularly in this respect, following a different playbook than Dow. It decided to (a) divest its chlor-alkali and polyethylene businesses and (b) to split off as a stand-alone company its highly specialized and profitable pharma, ag chemicals and other businesses in a so-called demerger. As a much leaner firm, it then acquired a number of relatively specialized businesses from Unilever, making ICI, at one time one of the largest and most successful global chemical firms, a much smaller company with several partly differentiated businesses. Unable to establish itself as a important player with a bright future, ICI eventually was acquired by Dutch producer AKZO, which coveted ICI’s valuable coatings and adhesives businesses, bringing to the end a failed strategy of transformation for a storied company.

Dow followed a somewhat similar, but strategically superior path. Its transformation got off to a bad start when it acquired Union Carbide, which greatly increased Dow’s exposure to the wild ups and downs of the petrochemical industry. Then, seeing the light, it embarked on its own quest to become a much more differentiated chemicals producer. Already engaged in supporting strongly its differentiated plastics and performance chemicals businesses, it acquired Rohm and Haas, one of the world’s leading specialty chemical companies(electronic chemicals, coatings) in the process taking on so much debt that its future financial condition for a time became uncertain and its management under stress. (Dow had expected the Kuwaitis to buy part of Dow’s commodity assets but the Kuwaitis reneged on the deal, leaving Dow very short of cash to pay for Rohm and Haas). But Dow had continued and still continues to spend a lot of money on research to create and/or acquire additional differentiated businesses(e.g. batteries, solar roof panels, water treatment). It had also kept some of the excellent specialty businesses (e.g. ag chemicals) that ICI spun off in its demerger. Dow has also greatly benefited from the “shale revolution” giving it a very low cost ethylene business, as mentioned earlier. It is now financially sound and is highly diversified, smaller than before, and completely different from what it looked like in the past – no longer recognizable by the ghost of Herbert Dow, its iconic creator who started to produce bromine derivatives in Michigan in the late Nineteenth Century and who died in 1930. It is now probably time to move Dow’s headquarters from Midland to a more cosmopolitan venue, a move that was always resisted by Dow’s traditional management.

While a few U.S. chemical companies (Westlake Chemicals comes to mind) are still in commodity petrochemicals, most of the other large firms (think Eastman Chemicals, Ashland, Huntsman) have largely transformed themselves into producers of differentiated chemicals. Dow, always considered a leader, has now come around to recognize that commodities cannot be an important part of its future even though the shale revolution briefly gave the U.S. petrochemicals industry a typical exciting interval.

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California water crisis deepens: Graphene membranes could provide a breakthrough

imgresThis blog has recently featured articles on the growing worldwide water crisis and on the potential of a new material called graphene which has exhibited amazing characteristics (strength, chemical resistance, flexibility) that could lead to breakthroughs in a number of areas. It is therefore big news that researchers at the Department of Energy’s Oak Ridge National Laboratory have found that this material, when acting as a membrane in reverse osmosis desalination, can substantially reduce the energy required to make fresh water out of salt water. This is because a thinner and more porous membrane greatly reduces the pressure required to push the (fresh)water through. If the use of graphene in this application can be commercially proved out, desalination would become a much more attractive technology for providing fresh water to regions that desperately need it, not least California.

Getting a little technical, the one atom thick membrane was constructed by flowing methane through a tube furnace at 1000 degrees C over a copper foil that catalyzed its decomposition into carbon and hydrogen. The chemical vapor deposited carbon atoms that self-assembled into adjoining hexagons to form a sheet with a thickness of one atom(!). This sheet was supported on a silicon nitride chip. Oxygen plasma was used to knock carbon atoms out of the nanoscale chicken wire lattice to create pores.

The membrane allowed rapid transport of water and rejected nearly 100 percent of the salt ions. The Center for Nanophase Material Sciences, another DOE unit, assisted with this research. It was published in the March 23 online issue issue of Nature Nanotechnology. (People who know me would attest that I am probably not an avid reader of this journal).

Commercial application must prove  out structural stability and resistance to biofouling. which may prove to be a high bar.

 

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Humanity’s Critical Resources: Planning for Interactions

EnWaFoScientific American magazine’s February 2015 issue contained a very interesting article explaining the interaction of what may be the three most important problems confronting planners for the future of humanity. In particular, it stressed the urgent need for planners normally considering only one of the three issues to fully understand the relationship between the three as capital spending decisions are made. And to add to the puzzle, decisions involving the reduction of carbon emissions should also be informed by the continuum of energy-water-food system interactions. Unfortunately, decisions in the three areas are usually made by completely separate governmental or private entities, which makes intelligent decision-making (taking the interactions into account) extremely difficult. To add to the problem, many of the world’s population centers are hit with or facing drought, energy production is encountering increasing environmental restraints and the world’s food supply is straining to keep up with demand, with decreasing amounts of arable land available.

To frame the problem, consider California now suffering the worst drought in its history while still producing much of this country’s fruits and vegetables. The need for more water, the largest percentage of which is for farm use, is becoming almost desperate.  California shut down two nuclear reactors in part for lack of cooling water. Still, environmentalists opposed the construction of a salt water desalination plant near San Diego (see my January 31st post) because the process is so energy intensive. And who will decide whether it makes sense for California to produce oil or gas via fracking (a water-intensive process unless exceptionally well managed) when other parts of the country (e.g. Pennsylvania, parts of Texas) have plenty of water.

Uruguay provides another good example of these interactions. The Uruguay River, which has a dam capable of generating as much electricity as the Hoover Dam was at very low levels in 2008.  Eventually eleven of the fourteen turbines were shut down because of the need to store large quantities of water above the dam, as needed for farm irrigation and consumer use. Effectively, the citizens had to choose between food, water and electricity! Lake Mead may soon face a similar problem.

The article identifies some interesting choices, based on recent studies. As an example, intermittent wind power is more economically valuable when it is used to produce relatively clean water via (low energy-intensive) desalination of brackish water rather than producing electricity. This water can then be used to irrigate crops.

To look at another interaction, nuclear power plants and carbon capture installations at coal-based power plants are prime choices to avoid carbon dioxide emissions. However, both are very high water users. How to balanced the carbon problem against the growing shortage of water? These are the kind of tradeoffs that planners should take into account when new plants are being considered and where regional choices exist.

The article recommends funding research on energy technologies that are “water-lean”; water technologies that are “energy-lean”;  and food production and storage that reduce energy and water use. Even without research, we already know how to make electricity distribution more efficient(e.g. smart grids) and how to reduce water use by eliminating leaks with wire sensors – allegedly 10-40 percent of flowing water is lost through leaks. Israel is a leader in this area – not surprising in a country short of water.

 

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All solar; all the time

imagesCan a sentence including the words “solar” and “Tesla” make sense. Cars can not run on solar roof panels, but such a sentence would make sense if it also includes Elon Musk who is the CEO of both his eponymous car company and of Solar City which is responsible for a quarter of America’s residential solar panel installations and which just announced the acquisition of high efficiency cell manufacturer Silevo for             $ 200MM. Musk believes that prices of solar panels are coming down fast enough to disrupt the entire electric utility industry. His vision is backed up by his proposal to build an enormous battery plant in Nevada which is integral to providing solar energy around the clock. So, when solar energy provides enough power to become a major factor for electric utilities, Tesla cars would run on solar energy!

Is solar a realistic large scale source of electric energy? A Tunisian company, Nur Energy, together with British investors, is developing a 2000MW export project that will generate solar power on the North African coast, which will be delivered by high voltage direct curren underwater cable across the Mediterranean to Italy and from there via underground cable inland and to other countries. Its capacity is large enough to serve 2.5 million households.

In another development, Abengoa Solar, a Spanish firm which uses solar panels to heat circulating oil or molten salt to generate high pressure steam at supercritical pressure, claims that its technology is already competitive with natural gas-based power plants. The company completed a 280 mw plant in Arizona and is building other plants in the Middle East and elsewhere. (A somewhat similar plant, Ivanpah, in California, has had problems with bird kills as they fly into hot mirrors.)

Back to Elon Musk, there has been speculation that Musk will sell Tesla to Apple, which has already announced serious intention to get into the automobile business, as electronics for cars are now a top research goal in Silicon Valley. Musk, as owner of both solar energy and battery companies, is also deeply involved in developing space travel rocketships for private parties. ( A successful test launch was just announced today) A sale to or joint venture with Apple would seem to make a lot of sense for this century’s leading inventor and entrepreneur who, like the rest of us, has only 24 hours each day to move his many visions forward. Musk has been in discussions with Apple and has hired a number of Apple employees, but the companies may be far from entering any kind of agreement.

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Nanocrystals for tagging: A possible breakthrough

imagesResearch carried out at MIT and funded by the National Science Foundation, the Army Research Office and National Institute of Health has led to the successful development  of tiny, smartphone-readable particles that, inventors say, could be used to authenticate currency (see also my Jan 13th, 2013 post), electronic parts and luxury goods, among other products. These invisible particles contain colored stripes of nanocrystals that glow brightly when exposed to near infrared light. The new particles are about 200 microns long and include several stripes of different colored nanocrystals doped with rare earth elements such as ytterbium, gadolinium and others.  These microparticles can be dispersed within the manufacturing or packaging process, incorporated into 3-D-printed objects or printed into currency notes, the inventors have stated. They can withstand extreme temperatures, sun exposure and heavy wear. To authenticate bank notes to fight fraud, the particles would be incorporated in the printing ink.  They could also be mixed into the paint used by artists, again allowing for authentication. ( P.S. note: Auction houses like Sotheby’s and Christie should be interested in this work)

The similarity of this approach to current bar coding techniques is striking. Using the above procedure, a very large variety of unique tags can be created. With six stripes,              1 million different color combinations can be created. If more than one particle is used, there would allegedly be enough combinations to coat every grain of sand on earth(!).

“What separates our system from other anti-counterfitting technologies is this ability to rapidly and inexpensively tailor material properties to meet the needs of very different and challenging requirements, without impacting smart-phone readout or requiring  complete redesign of the system.”

The invention is further described in the April 2014 issue of Nature Materials magazine and in the Fall 2014 issue of XCurrents, a publication of MIT’s Chemical Engineering Practice School.

We have entered a new era where coding methods are really changing our life. It is now possible to shop at stores and supermarkets like Stop-and-Shop and use a smartphone to price items as we look at them and keep a running tally of the total price of all items in our shopping cart before reaching the checkout counter. Chemistry and electronics keep making an ever larger impact.

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