Feb
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Making Sense from Nonsense
February 2, 2010 | 11 Comments
I have come to admire Robert Rapier; just last week we had a look at one of the best pieces he’s presented. As if there is some signal a good turn deserves a bad one, Mr. Rapier came up with a post that is nonsense.
The article, called the “Price of Energy,” picked up by the ready oblidgers at the Oil Drum, and even at the estimable Forbes website, is senseless propaganda. The point – I assume and hope Mr. Rapier meant to make – is that raw sources have a wide range of prices, to no particular surprise. But as an engineer, Rapier should know better, and those of you out there with some know-how might sense a little pandering to ignorance and prejudice – and likely a lot of political economic posturing. Ah, nonsense.
The list that follows will furrow a brow, its mostly fuels, priced pretty close to the raw source, but getting it to where its used, how its used and what the work production is, are points simply missing. It’s the “simpleton’s way to persuade,” and it sucked in so very many, even the capitalists at Forbes. As you check it over, note that Rapier includes electricity, which is energy not a fuel, and an incentive “price” for ethanol. Here goes, then we’ll straighten it out some.
Energy Prices per Million BTU
- Coal – Powder River Basin1 – $0.56
- Coal – Northern Appalachia1 – $2.08
- Natural gas2 – $5.69
- Ethanol tax credit3 – $5.92
- Propane4 – $13.28
- Petroleum5 – $13.43
- #2 Heating oil4 – $14.74
- Jet fuel4 – $15.48
- Diesel4 – $15.59
- Wood pellets6 – $17.33
- Gasoline4 – $17.81
- Corn ethanol7 – $23.46
- Electricity8 – $26.31
- Cellulosic ethanol from corn cobs9 – $30.92
Here’re Rapier’s source notes:
Sources for Data
- U.S. Energy Information Administration (EIA), Coal News and Markets Report for the Week Ending 1/15/2010. (Link).
- EIA, Natural Gas Futures Prices for 1/15/2010. (Link).
- U.S. Department of Energy, Volumetric Ethanol Excise Tax Credit (VEETC). (Link).
- EIA, Spot Prices for 1/15/2010. (Link).
- EIA, World Crude Oil Prices, U.S. average price for 1/15/2010. (Link).
- WoodPelletPrice.com, typical premium wood pellet prices in New England for premium hardwood pellets on 1/15/2010. (Link).
- CME Group, Chicago Board of Trade Ethanol Futures for February 2010 Contract. (Link).
- EIA, Wholesale Day Ahead Prices at Selected Hubs for New England 12/31/09. (Link).
- POET, POET Announces Cost Reductions in Cellulosic Ethanol. (Link).
It’s a ferociously absurd perspective. Here’s why. Take that seemingly cheap coal, rail it across the country, feed it into a boiler making dry steam that blows through turbines turning generators, electricity goes out onto the grid, on through a charger that will refill a battery in a vehicle. Later someone will discharge the battery and use electricity to move some stuff. Solid evidence says that system will move units of mass, be it people or goods, at one quarter to one tenth the cost of gasoline or diesel. Something is way wrong with Rapier’s perspective – it’s the missing sunk investment in scale and commercial viability. You might note now that the sunken investment is dirt cheap compared to the fuel inputs and the carried interests of taxes and other rent seekers.
Moreover, spot-pricing markets isn’t how the rational world works. Next up is natural gas. Big buyers, utilities and power generators agree to long-term contracts for supplies. They might “sell or release” unused natural gas or need to make up short term short falls, or work out ways to secure those needs through the futures market, but the “market” is only a guide, it sets out the marginal or “last cubic foot” price, only a very small part of the total gas delivered runs through the markets.
The petroleum group, including propane, heating oil, jet, diesel, and gasoline are in a non-rational market. Here OPEC and the Axis of Oil countries dominate by managing the marginal last barrel close to demand to support a high price. There’s a lot of complaining across the whole fuel spectrum for natural gas being too cheap compared to oil, (furrowed brow: matching rational and non rational market prices for btu’s?) Then there’s the cheer brought to the alternative world with high marginal prices worked into the entire market structure.
What does make sense?
Ask the right questions. The first is choosing how to heat or cool a space or move you and/or your stuff. The sunken investments for all of today’s choices are in, you only choose the tool, with the risks of the fuels needed to determine the price of the energy to get the work done. You want a gasoline fueled 13-passenger limo or a two passenger electric vehicle; the choice is yours to make. You want a ground source heat pump or an oil burner boiler to heat your space; the choice is yours. The investment you sink matters, it’s the most important one of all – both to you and all those sunken investments supplying fuels and energy now and the investments to come.
The second question is realizing the entry point of new technology in the various energy systems. The tools you use, the entry point at the end, which convert the energy and fuels can be highly efficient or not – you choose. Current sunlight, the sources of fission, fusion and geothermal are available for economic investment, with lots of political interference that could greatly change the cost for using energy for the better. In most places there is some means to access alternative energy and get fuels, be it a solar panel, using ethanol, or geothermal, nuclear sources or some of the astonishing innovations seen on this site.
As noted in the coal to moving vehicle example, power from energy and fuels work in systems. Its not likely we’re going back to a system where everyone gathers wood for campfires to cook and stay warm overnight, except for recreation. Societies are going to sink more investment into sources of fuels and storage for energy, just whether or how they fit in – is a market choice. Risk takers are going to work on developing new ways to harness energy itself, invent new ways to make fuels, and innovate new storage methods so energy can be saved back for later.
You’ll decide, by buying the tools, investing your savings or choosing investments, and by participating in the political discourse. You have two systems – your dollars and you vote – make ‘em count and you’ll be making the sense that matters. Fortunes will be made, discoveries for now and the future will appear, new jobs and opportunities are coming, and the world will be a better, cleaner and richer place. And if you’re smart and well informed in using your common sense, BTUs won’t matter, the price to get the job done under the terms you choose – will.
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Just what is your full time job? Janitor or possibly taxi driver? Sunken investment? What drives fuel costs?
There are different classes of fuels in the list – coal compared to electrical for example – OK İ think we can figure that out.
You did a wonderful job of trying to confuse everyone and seem to say nothing more that it is impossible to compare fuel costs – which is nonsense. You might have to use a bit of intelligence to compare them though.
Robert Rapier’s list can be useful as a bare starting point resource. As you say, decision makers have to go far beyond such a list. But that does not make such a list useless — or even confusing if you understand it for what it is, a basic point of reference.
Rapier was pilloried at The Oil Drum for not taking into account hidden costs such as “climate change” and pollution. But that wasn’t what the list was for.
Market price contains a lot of hidden information. But policy debate within the Obama administration ignores all of the hidden information in the market — it pretends the market doesn’t even exist. That kind of educated foolishness will sink us all.
Thanks for the criticism. Nonsense is a hard word, but I checked and looked, it fits. Proficient decision making requires the full cost do the chosen powered work, the investment then the energy input. Buy an electric drill and plug it in or buy your own coal burning boiler, steam turbine, generator, etc. – that’s just nonsense for individuals.
When reading Rapier’s comments with the list, one sees ethanol targeted, but imagine there were no ethanol plants. Would there be so much funding, research and development in other paths to biofuels? Not likely.
Al is right, i.e. price signals tell utilities not to burn oil, burn coal – the resource choice at scale is a very different thing. Its also clear that without mandates of law the wind power business would still be quite small, but mandates are giving us scale and driving storage research.
Russ, please think energy systems. You and everyone else control the efficiency of consumption in all energy systems. Getting consumers lower costs for powered work starts with us. If all powered work was 25% more efficient, then the last marginal units would be dirt cheap. The quickest alternative is to buy a buffer, such as the US strategic petroleum reserve and the quiet Chinese effort to do the same. Those too are ‘sunken investments.’ Alternative fuels will be buffers too, and someday will influence market pricing in important ways.
Market signals are information. They are only costs when you buy energy and fuel. Snap shots are useless, a multiyear average is more useful, but a 25% efficiency gain in consumption is real and will payoff sooner or later as well as play a role driving down energy and fuel prices.
So here – using BTU comparison snapshots, as Rapier does, to guide decisions is still nonsense. Including electricity and leaving out uranium or thorium is nonsense. The cost to convert a fuel to a product and what the product might be worth in getting the job done, well, that’s what we need to know.
A btu used 25% efficiently is four times as expensive than a btu used 100% efficiently, no matter the source.
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