Other Energy Issues
- Why do we have refinery difficulties? What is the outlook for refining?
- What’s the outlook for coal – is it a good investment?
- How does Hydrogen energy work?
- What will the impact of Hydrogen economy be?
Why do we have refinery difficulties? What is the outlook for refining?
Gasoline prices in the USA have risen dramatically in 2004 – mainly because of the increased price of crude oil, but also because of the new variety of high quality clean fuels required in different states and the complexity of getting the right fuels in the rights place at the right time. Meanwhile, oil refineries have been processing at close to maximum capacity. There is little spare capacity left – the main reason for this is because of the lack of investment in oil refineries in the last 15 years. Increased environmental legislation, and clean-up costs, plus the threat of litigation and issues from environmental legacies and liabilities have put a damper on refinery investments. Furthermore, a prolonged period of low refining margins due to overcapacity in the late 1990s meant many of the smaller less efficient refineries were closed. The increase in US demand driven by the strong economy in the last few years has surprised many. Again, the refinery business is very capital intensive with long lead times and uncertain future margins and capacity requirements. Refineries are finally making good returns – but how long this will last is debatable and uncertain. Until stability and the longer term economic outlook indicate sustained higher returns, it seems likely that investors will turn their backs on refinery investments. Furthermore, environmental pressures make it almost impossible to build new refineries on Greenfield sites in developed countries. Increasingly – countries with stringent environmental regulations that stifle refining capacity expansion might have to rely on imported refined products at a higher cost. The lack of refinery investment and increasing demand is likely to keep refinery margins relatively high for the foreseeable future – particularly in Asia Pacific and North America.
What’s the outlook for coal – is it a good investment?
Coal prices have doubled in 2004. The increase in oil and gas prices will almost certainly have the knock-on impact of increasing demand for coal – particularly in countries that either do not support the Kyoto accord or have a lot of leeway within these environmental constraints. New coal discoveries in Bangladesh, increasing production on India, China and expansion of coal production in Wyoming in the USA all provide interesting investment options for energy investors. The use of coal in the newest cleaner-burning coal fired power stations should stimulate demand for coal, particularly the less polluting high grade (low sulphur) anthracite. Wyoming open cast coal mining is flourishing – and with the USA keen to develop indigenous energy sources to mitigate their reliance on imported energy, the long term economic future for such high grade open cast coal mining close to markets or power stations seems very good. However, underground shaft coal mining in all but the most prolific areas seems in terminal decline – because of the high cost, complexity, labour intensity and safety. Open cast mining of lower quality brown coal of large size with economies of scale should also thrive if environmental concerns of the use of such sooty and higher sulphur coal can be overcome.
How does Hydrogen energy work?
By using hydrogen in a fuel cell to produce electricity to power an electric motor. A fuel cell is an electrochemical device that produces electricity efficiently, silently and without combustion. Hydrogen fuel (which can be obtained from methanol, natural gas, water, or petroleum products) is combined with oxygen (from air) to produce electrical energy. Fuel cells and batteries are similar as they both deliver electrical power from a chemical reaction. However, in a battery, the chemical reactants are stored within the battery, are used up during the reaction, and the battery must be recharged or thrown away. In a fuel cell, the reactants are stored externally to the fuel cell, so it will keep producing electricity as long as reactants (fuels) are delivered to the fuel cell. Therefore a fuel cell vehicle is refueled instead of recharged. A fuel cell engine is the complete set of components that integrate with the fuel cell so that the fuel cell’s electricity can power the vehicle’s wheels. Think of the fuel cell as the engine block in your automobile – in this case, it’s like a small electric power plant. As in the internal combustion engine, the fuel cell requires other systems to make it a complete energy source, including air, fuel and control systems. In a fuel cell vehicle, an electric drive system, which consists of a traction inverter, electric motor and transaxle, converts the electricity generated by the fuel cell system to traction or motive power to move a vehicle. Also, when using a fuel other than direct hydrogen (such as methanol, petrol or ethanol), an on-board fuel processor is required to extract hydrogen from the fuel.
What will the impact of Hydrogen economy be?
This is very uncertain. The Hydrogen economy is an economy where hydrogen becomes a pivotal and key part of energy requirements and hence the economy. Most technologies when invented and launched frequently fail on their first attempt. However, when customers begin to use the technology – take-up rates can show exponential growth. This is sometimes stimulated by either a crisis, changing tax or environmental legislation, a strong marketing drive or a change in people’s values. Up until now, Hydrogen has not really been promoted by governments as a serious alternative to normal hydrocarbons. Instead, renewable sources of energy have been promoted. The reason for this might be that Hydrogen energy is more difficult for customers to understand and there are some misconceptions in the market place that have not helped. Frequently muted concerns are that Hydrogen stored in tanks is dangerous – however, the Hydrogen tank is no more dangerous than a petrol tank. Similar types of LPG tanks have been installed in automobiles in Europe for many years without significant issues. The other issue is that you still need to produce the Hydrogen in the first place – this would often be through burning of hydrocarbons. However, solar can produce Hydrogen – so essentially the whole process could be clean – albeit costs and complexity are currently high. The other issue is that gasoline stations would need to be converted to supply hydrogen to automobiles. This is a significant capital investment issue – and until there is sufficient demand, the economics are not good. It’s the “chicken and the egg” syndrome – without one, you wont get the other - but until there is good coverage, most people will not feel like buying a hydrogen automobile – since they will fear running out of fuel. The technology is likely to start in bus fleets in cities and spread in highly populated regional areas with the higher environmental restrictions and tax breaks – examples could be California (LA and SF) and Germany. If oil prices sky-rocket, the US government might decide that it becomes a strategic initiative to maintain security of energy supply. The fact that methanol can be extracted from corn and sugar cane means that a combination of highly intensive corn and sugar cane agriculture with solar power to produce Hydrogen – then the fueling of automobiles from fuel cells could be feasible if enough organization, tax breaks and proactive initiative was taken. The question is – can and should the developed world rely on the promise of sustained oil supplies from OPEC countries or should they diversify away from oil into renewables, coal, gas and hydrogen (supplemented by methanol from agriculture) and possible expansion in nuclear power?
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