Gold News

Less Energy Better Than Renewables

Fossil fuels less damaging than some, too...

TODAY, over $1 trillion has been invested in "renewable energy," backed by government programs, ESG nonsense, etc etc, writes Nathan Lewis at New World Economics.

I think this is a lot like the battery EV car. It is different, but not obviously much better. Maybe it is a little better ("better" here meaning: uses less energy) Plus, there are other issues.

Even despite amazing declines in the cost of solar panels, solar and wind power remain somewhat like EVs: different, but not obviously better. Both have major problems with intermittency, which are not really solvable.

Actually, all of this is apparent at the level of the single off-grid home. You don't just replicate the energy use patterns of an on-grid home, using solar and wind. That would mean a LOT of solar and wind power, plus very large batteries to deal with the intermittency.

Batteries, in particular, are very expensive and wear out. Rather, the typical solution for an off-grid home involves using a lot less electricity. Maybe 80% less. The end result is not shivering in the dark, but living comfortably, with new systems that inherently use a lot less energy.

I looked into this in 2009 ('A Bazillion Windmills'). Since then, we really have spent trillions of Dollars building a bazillion windmills, and other "green energy transition" solutions. It didn't work very well, just as I expected.

To give an idea of what we have learned in that time, below is some commentary by energy and commodity specialists Leigh Goehring and Adam Rozencwagj.

"Nothing demonstrates this better than what Chevron did back in February. Rattled by Engine No.1's Exxon success, Chevron committed to invest $10bn to reduce its carbon emissions through 2028 and be completely carbon neutral by 2050. As a first step, Chevron announced the acquisition of Renewable Energy Group, an Iowa based producer of biodiesel and renewable diesel, for $3bn.

"Biodiesel is a renewable fuel that is manufactured from vegetable oils, animal fats, and recycled restaurant grease. Although 'advanced biodiesel' and 'renewable diesel' might earn Chevron some ESG bone fides, we should stress that biodiesel will do little to reduce the overall level of CO2 in the atmosphere. Furthermore, the energy efficiency of biodiesel is so much worse than traditional hydrocarbons that both society and the environment are ultimately left worse off.

"Consider this: Chevron spent $3bn to acquire Renewable Energy Group. The acquisition will produce 32,000 b/d or 11.5 mm barrels per year of biodiesel. Assuming the assets last 20 years, Chevron will produce 230 mm barrels of biodiesel over the coming two decades.

"How does this compare to a traditional upstream investment? Assuming Chevron instead invested this $3bn in their prime Permian basin acreage, and that a Permian barrel can be drilled, completed, and produced for $12, a comparable investment would produce 250 mm barrels of oil equivalent – 9% more than the biodiesel. These figures do not tell the whole story. With the Permian investment, 80% (or 200 mm bbl) are produced within the first four years. In other words, it will take the biodiesel plant 17 years to produce what the conventional oil and gas investment produces in four.

"Furthermore, manufacturing biodiesel is incredibly energy intensive. The hydrocracking process used to turn waste fats and oils into biodiesel requires a huge amount of energy as does growing, harvesting, and processing feedstock crops (ie, soybeans, dates, sunflowers, seeds, etc).

"We calculate the total energy returned on energy invested (EROEI) for manufacturing biofuels is only 2.5 or 3:1. By comparison, the production of diesel from crude oil is extremely energy efficient. For every unit of energy used to drill, produce, transport, and refine a barrel of oil into diesel, 30 units of energy are released when it is consumed – diesel has an EROEI of 30:1.

With 6.1 GJ contained in every barrel of oil (or diesel), were Chevron to invest $3bn in the Permian, it would produce 1.2bn GJ of energy in just the first four years. Assuming a 30:1 EROEI, Chevron would expend only 40 mm GJ of energy in the process, leaving 1.16bn GJ of net usable energy in the first four years.

By comparison, Chevron's $3bn investment in Renewable Fuels would yield spectacularly less. In the first four years, Chevron's biodiesel investment will produce 50 mm barrels of biodiesel with gross contained energy of 300 mm GJ – already 75% less than the Permian. However, the EROEI is so poor, 100 mm GJ will be consumed just to produce this already diminished output. Therefore, Chevron's biodiesel operation will produce only 200 mm GJ of net usable energy over the first four years, compared with 1.16bn GJ in the Permian – a reduction of nearly 85%."

Changing the energy inputs, to a vastly inefficient and also rather ugly and troublesome system, doesn't accomplish very much. Rather, a solution is a better system which inherently doesn't use as much energy. If you reduced energy use by 80%, which is not that hard, then it wouldn't matter if that remaining 20% came from coal, natural gas or wind power. It wouldn't be that much either way.

To give an example of what I mean, a popular new item these days is the battery-powered electric cargo bicycle. This should be combined with segregated bicycle lanes on streets.

This is a new system, that maybe would allow people to get things done around town, or commute to work, even in the context of mostly-automobile-dependent Suburbia today, while using very little energy. Even if the family still owns a three-row SUV, it doesn't get used very much.

Formerly a chief economist providing advice to institutional investors, Nathan Lewis now runs a private investing partnership in New York state. Published in the Financial Times, Asian Wall Street Journal, Huffington Post, Daily Yomiuri, The Daily Reckoning, Pravda, Forbes magazine, and by Dow Jones Newswires, he is also the author – with Addison Wiggin – of Gold: The Once and Future Money (John Wiley & Sons, 2007), as well as the essays and thoughts at New World Economics.

See the full archive of Nathan Lewis articles.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn



Market Fundamentals