“Return on Investment” (ROI) is used in industry to select projects for funding

Essay by S. Tom Bond, Retired Chemistry Professor and Resident Farmer, Lewis County, WV

Part 1 considered “energy return on energy invested” (ERoEI). Unfortunately, there is typically a single value which determines where investment money goes in our economic system. It is how fast an initial investment will grow, including returns less costs, and including increase in value of investment. This is the subject of Part 2 here, “return on investment” or ROI.

Individual investors seek their own advantage, not what is best for society, goals often quite pointedly at odds. In the most extreme argument, if someone becomes wealthy, it “trickles down” to the rest. This is the way jobs get formed, this provides cheapest goods, and this gives the most taxes paid, etc. Beautiful idea, that even the most stupid and careless can be convinced.

However it is totally wrong. Read on. One reason is because the money may be invested in the wrong industry. It makes money without creating real wealth (usable goods and services) or a satisfied population. The idea of a closed world of limited resources has no place in this thinking. The result, as we now see, is the concentration of wealth — and worse.

So it has been, with energy. The increase in use of energy is a determinant of national and personal wealth, with those using the most achieving the greatest real wealth. Real wealth trickles up, not down.

The original source of non-muscle energy was fire. Wood was widely dispersed and free for the labor of taking it, at first. As population increased, the supply of wood became more restricted. Rome had apartment houses where the poor lived, some several stories tall. People ate at a kind of fast-food joint on the ground floor, or close by, in part to minimize the need for wood for cooking, which had to be hauled for miles in carts. Although coal was used as far back as the Bronze Age, it was only used locally. The first large scale use occurred in the Industrial Revolution in the 18th century.

Not so oddly, our energy still comes from compounds (containing carbon and hydrogen) that are burned, producing carbon dioxide and water vapor and heat energy. Very few kinds of devices can turn heat into mechanical energy. The primary ones are the piston engine used for transportation and other small engines, the steam turbine, which uses expanding steam, and is used mostly for generating electricity, the gas turbine and the various kinds of jet engines which are used to propel airplanes at very high speeds. So there are four ways to use burned fuel, with a great variety of designs. This runs our civilization at the present time.

The investment in this system is huge. Extraction, transportation, conditioning or refining and distribution are involved. Each involves huge amounts of capital and the objects and people “owned” are not readily adaptable for other purposes. It is mind boggling to think of any large part of that huge system being abandoned, but it must, almost all of it, to stop increasing carbon dioxide in the atmosphere.

What investors want to do is double down, dump more money into production and accept the inefficiencies that are resulting from having used up all the “easy stuff” that was mined first, and ignore the effect on climate from the effluvia.

The “return on investment” promised to be good from shale drilling at the beginning, particularly since the return was so fast. Huge initial production was assumed to decline like conventional wells. Unfortunately, it took several years to find this is not true, the decline in production is swift and sure. Also unfortunately, everybody wanted to get into the big money seen at the beginning. The result was that only a few specialized operators, like those who took leases and then sold them to the too-eager, made out well.

Now well head prices in some areas of $1.58/Mcf (Marcellusgas.org cloud sourcing for September) have put the industry under stress. The oversupply is huge. An investment newsletter says, “natural gas remains near-bidless, as we enter the traditionally strong winter heating season. Just imagine where we’ll be in April if December is at $2.38.” Some companies face bankruptcy.

With the climate change problem caused primarily by burning carbon, and with the over invested production of oil and gas, this must be a classic case of mistaken investment of capital. It should be going into renewable energy. This would allow the U. S. to be a leader in a forthcoming series of technologies, out-distancing other developed nations in technology and protection of the earth. These technologies could replace burning fossil fuels for electricity generation and for personal transportation.

What our economic system has been good at is aggregating capital. This article lists some figures. Exxon Mobil Corp has $320 billion for potential acquisitions. Chevron is next with $65 billion in cash and its own shares tucked away, followed by BP Plc with $53 billion according to data from corporate filings. Royal Dutch Shell Plc has $32.4 billion available, almost all of it in cash. others include ConocoPhillips with $31.5 billion and Total SA with $30.5 billion. The article speculates that it will go to gobble up companies in trouble. More of the same. “Hope springs eternal in the human breast,” not least so in investors.

High immediate return has deflected much recent investment to carbon burning industry and away from more widely useful projects. No doubt that has slowed considerably of late.

There is one more large point to be made that holds government favor for oil especially. The US oil reserve is vitally important to preserve the operations when needed of the US military, a huge organization that runs principally on petroleum (oil) products.

(Did you know West Virginia’s gross domestic product, the total value of all goods and services, in 20 13 had the largest rate of growth in the nation while adding no new jobs and actually had negative income growth? The increase in GDP is sent out of state. Another demonstration “trickle down” doesn’t work. See here.)

See also: Top 5 Facts Your Utility Company Won’t Tell You

WVU Sierra Club Presentation

Student presentation compares coal, natural gas, renewable energy sources

From the Article by Corey McDonald, WVU Daily Athenaeum, December 3, 2014

The Sierra Student Coalition, a student branch of The Sierra Club – the nation’s largest and most influential grassroots environmental organization – held a presentation Tuesday. The lecture compared the economic impacts of coal energy and energy created by natural gas on the mining industry, along with the potential future benefits of solar energy.

The presentation was by Grant Speer, a senior mining engineering student at West Virginia University and a member of the student coalition.

Prior to the 1990’s, coal energy was the most valuable source of energy for the country economically. However, recent economic directions have shown trends toward natural gas as a more efficient source of energy, economically speaking. “In the 90’s they further developed the combined cycle gas turbine system, which is similar to your open cycle system in your car engine,” Speer said. “That technology became more marketable which furthered investments.”

Starting around 2007, new technologies were applied to the already existing gas drilling technologies that aided in the economic significance of natural gas. These new advancements propelled investments even further for this industry.

Coal-related energy, on the other hand, has shown a declining trend economically, showing a significant reduction in shares.

“Coal-fired power generation has decreased by up to 52 percent from a 2008 high,” Speer said. “There is this so-called ‘war on coal’ that the President is waging with the EPA on coal miners that has basically been created by the mining sector. If there’s a war on coal being waged, it’s being waged by natural gas.”

Further examination into coal technologies shows costs to maintain coal usage have increased. Carbon-capture technologies along with additional regulations to emissions other than carbon – such as mercury and sulfur – have been imposed on the industry, but these regulations are not economically favorable.

“Right now there are 32 facilities that are expected to close, there’s another 36 that are on the fence,” Speer said. “They may decide transition into natural gas; for some it’s a good decision, for others it’s smart to cut their losses.”

Natural gas has its own costs as well. Many documented instances have shown a danger in pumping natural gas. Wells designed to pump natural gas have shown a tendency to fail, causing leakage into the surrounding environments, which in turn creates hazardous environmental issues, most notably to drinking water.

“While the costs and benefits between coal and natural gas remain debatable, other under-utilized energy resources remain a viable and foreseeable option that could not only become economically achievable within the next decade, but has also proved to be effective in different countries including Germany and Spain,” Speer said.

Comparing insolation graphs, Speer demonstrated the potential for Solar production for the United States. “On May 11, 2014, Germany was able to meet 74 percent of their daily demand solely on renewables, primarily solar while also using gas,” Speer said. “If the Germans are able to do it, there’s no reason we should not be able to meet the same standard here; 22.9 percent of Germany’s electrical grid comes from solar. By contrast, gas right now in the U.S. is at 25 percent. Right now the Germans are able to do with solar what we’re trying to do with natural gas.”

Speer explained while renewable energy been progressing in different countries, it has gotten off to a slow pace in the U.S., as subsidies granted by the government are more favorable toward the natural gas industry.

“According to the Energy Information Agency, in 2010 the oil and natural gas industry received over 500 billion dollars in subsidies, renewable resources got 10 billion,” Speer said.

At-home solar technologies are on the rise and are predictably a strong capital investment. “In parts of the southwest right now, the solar panels have already reached price parity with gas. They’re at 7.2 cents per kilowatt hour versus the 6.6 for coal and 6.1 for gas,” Speer said. “Once you get the proper subsidies in there – or if you take subsidies out of the coal and gas areas – it will become more economic to transition to solar.”

Speer said presenting the lecture was important to help educate those who may not know much about the issues.

“I wanted to present this to everybody because the economics of why we utilize certain fuels and not others is something the public doesn’t necessarily understand,” Speer said. “I’m opposed to burning coal but in favor of gas because I think we can do it the right way to help transition to renewables by 2050.”

The hydrocarbon pressure cooker is changing our planet

Part 1 of a Three Part Series, S. Tom Bond, Retired Chemistry Professor and Resident Farmer, Lewis County, WV

Forces are building to displace hydrocarbon burning as the primary energy source. Will the change come in time to save us from economic collapse?

I The Uncounted Costs are Increasingly Recognized

Extreme energy extraction such as mountaintop removal, shale drilling, deep water drilling, and Arctic drilling represent the conjunction of population pressure, increasingly high technology, and extreme social organizations. The pressure is building, and those who are aware must have an ominous sense of the future building toward a breakdown of the systems of civilization.

Science is only beginning to develop energy sources other than heat engines that burn hydrocarbons, using air as an oxidizing agent. Corporate structure and financing of production lack diversity. In short, we have a world society built on energy obtained by almost a single method, by a single type of production organization, a situation not very resistant to perturbation.

What are the perturbations affecting this hydrocarbon burning – big business nexus? Let’s list some of them.

First, resource limitations – the easy stuff has been mined and drilled until most of it is gone, particularly in the nations that were earliest to adopt hydrocarbon fuels. That has involved going elsewhere to get it – overseas colonization – and that is running short, too. Not only is the easy stuff mined out, but the natives in former colonies now realize they have something of value and wish to benefit from it themselves. All of the natives in these former colonies, not just the leadership, now understand the benefits, which previously could be obtained by leaving a portion for the leaders alone.

A second limitation is that the atmosphere is getting too much carbon dioxide in it. We have previously treated the atmosphere as a dump for the principal waste product of burning, carbon dioxide. Trillions of tons of it. The earth’s temperature is being disturbed. A NASA funded study says “industrial civilization is headed for irreversible collapse.”

The American Association for the Advancement of Science has recently started a counter offensive against climate change deniers and presents this authoritative  report which summarizes the vast amount of evidence.

There is another authoritative document which also carries the weight of recognized science.

And still another big report with similar conclusions came from the UN on March 31st.

Finally, geochemist James Lawrence Powell went through every scientific study published in a peer-review journal during the calendar year 2013, finding 10,885 in total (more on his methodology here). Of those, a mere two rejected anthropogenic global warming.

A third perturbation is the amount of solid and liquid waste being generated. It is now known that ten barrels of waste is produced for each barrel of oil (or oil equivalent fuel) in shale drilling. The same article says, ” Even though this waste is hazardous to human health and the environment, EPA is going to exempt it from the federal laws written to protect the public from toxic waste because the problem is so massive (billions upon billions of barrels) that it would make it literally impossible to drill for oil and gas in the U.S. if the industry had to pick up the tab for remediating the contamination it creates.” (This authors emphasis.) Think of that! Treating the waste from shale drilling like other polluters must treat theirs would make shale drilling uneconomic!

Where to put it is a big problem, too. Shale drilling operates on a wing and a prayer anyway, because the development is so over funded that prices are driven below production costs. Mountaintop removal is also excessive, except the waste is piled up where the coal is removed.

A fourth problem is the fact that on dry land the industry doesn’t have to put up sufficient bond to plug the wells when they are drilled. No other provision is made to cause the wells to be plugged at some future date by the companies that drill them, either. This is a scheme between the industry and regulators to cast that expense on the public at some future date when it will be much more expensive. For coal the objective is to stabilize the surface and minimize erosion – no accounting for production of land services, such as forestry, hunting, farming, removal of carbon dioxide from the air and so on. Not cleaning up after itself is the hallmark of the extractive industries. For old wells, old mines, old timberland neglect is an almost universal experience. “[West Virginia] received $20 million to $25 million a year before a 2006 change in the way reclamation taxes are distributed to the states. In 2008 and 2009, the state got about $40 million, then about $50 million in 2010 and 2011. The current rate of about $67 million is in place this year and next, and then it drops down again.” From a 4/27/2012 article titled “Billion Dollars Needed to Reclaim West Virginia’s Abandoned Mines,” in the Hur Herald of Calhoun County, WV.

This time far more surface is affected, for oil and gas and also for coal, including some 100,000 square miles of the Marcellus and Utica shales alone.

A fifth perturbation is the health effects. Thousands of people have problems, but science is thwarted. Investigations were not done in the early stages when more extreme methods were in use. The industry is not cooperative to third party investigations.

The industry buys into universities with substantial donations and promises of more to come, to discourage scientists who might investigate health claims. Here is a site that lists over 5100 persons with health effects from fracking. Four states have acknowledged water contamination from fracking now. Also here. Think of BP’s Gulf of Mexico fiasco. Think of what  mountaintop mining does to people in those areas. How do you think Arctic drilling will go?

A sixth issue is the danger extreme methods of hydrocarbon extraction cause. Drilling is eight times as dangerous as other industries. Even with extensive safety intervention by OSHA, coal mining is dangerous. Shipping of hydrocarbons by trains causes a lot of wrecks and explosions and sidetracks other shipping. And,  pipelines result in almost weekly sensational explosions. Also here.

Last (seventh issue) we mention the potential for social disruption. Almost half (46 percent) of [WV Governor] Tomblin’s $7.6 million in campaign contributions amassed in recent years has come from industry pockets, according to data compiled by the Sunlight Foundation, a nonpartisan group that tracks campaign finance. Nearly one in four Texas lawmakers, or their spouses, has a financial interest in at least one energy company active in the Eagle Ford, a Center for Public Integrity analysis of personal financial disclosure forms shows. Here is an example of the Public Relations approach to control hydrocarbon burning’s global warming problem. Another example of public relations run amuck is when the little ol’ Clarksburg WV newspaper is tripled in size for two days in a row with ads lauding the natural gas revolution. This real state of shale drilling is described here.