Thursday, February 02, 2006

Cellulosic Ethanol to the Rescue?

Shell said total oil and gas production fell 9% to 3.5 million barrels of oil equivalent a day from 3.84 million a day a year earlier.—Wall Street Journal

How the mighty have fallen.

During the last oil crisis—1980—when I was putting together the data to be used in the “Monthly Petroleum Review” for my boss in the equity research department of a large and fondly-remembered brokerage firm whose name rhymes with “Feral Winch,” Royal Dutch Shell was probably the best-managed of the seven international oil companies.

Exxon in those days was dealing with, among other things, a failed diversification program into, believe it or not, integrated circuits (I am not making that up: Exxon had purchased Zilog for some bizarre reason), while British Petroleum was still partly owned by the UK Government, which was not exactly a value-added board-member, and also managed to top-tick the entire 1970’s inflation cycle by buying Kennecott Copper in 1981.

Royal Dutch, meanwhile, was focused on gaining control of its U.S.-based affiliate, Shell Oil, which was the best-run of the domestic majors, and building a mind-boggling worldwide portfolio of oil and gas assets—all based on its original 1890 franchise: exploiting Sumatra oil fields in the Dutch colony of the Netherlands Indies.

But that was then, and this is now, as reported in today’s Journal:

The company [Royal Dutch] said it expects its closely watched reserve-replacement ratio – the rate at which a company finds new reserves of oil and gas to replace the energy it pumps out of the ground each year – would be between 60% and 70% in 2005. Companies typically try to achieve 100% reserve replacement...

Yes, no kidding oil companies "try to achieve 100% reserve replacement": anything less and they are a depleting asset.

Meanwhile, the best our current administration can come up with is something called “cellulosic ethanol.”

I don’t know about you, but even my dog Lucy knows that “cellulosic ethanol” is not the answer to anything in a world demanding 84 million barrels of oil each day.

Back when I was crunching those numbers for the “Monthly Petroleum Review,” China was a net exporter of oil while Indonesia—which two years ago followed China’s example and started importing oil products—was a major oil exporter and key OPEC member…and the entire world consumed a modest 55 million barrels a day.

A 60-70% reserve replacement ratio is not, for any extraction-dependent company, a good thing. For an oil company as large and important as Royal Dutch, it is a bad thing.

And for the world at large, it is a terrible thing.

Jeff Matthews
I Am Not Making This Up

© 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.


Its_strange said...

Please...i have to go shopping and our pols need to get reelected

tahoe kid said...

My favorite Big Oil diversification move was the savvy purcahse by Mobil of that retail dog fomerly known as Montgomery Ward.

ron s miller said...

The future is in Canada's oil sands. I hold Suncor Energy stock (SU).

Sterling, Massachusetts said...

You could use a quick education in cellulosic ethanol.

I suggest you start here:

I makes alot more sense than you give it credit for.

ChewYourGrouse said...

Hard to say. One could argue that the world at large is, indeed, too large. If the rate at which emissions spew into the atmosphere is made to diminish by natural shortfalls, how bad is that? There could be a homeostatic thing going on. Eventually, we'll either figure something else out, or people will get out of their cars. More likely, both.

Ron said...

Ethanol from Cellulose and Gas Hydrates
re Ethanol from Cellulose-
It takes time to develope a technology and it would have been difficult for a company subject to a quarter by quarter earnings review.
Just a biotech, enzyme and engineering problem. Small companies have tried to do it in the states but nothing of sustained duration. Finally a productive use for the NY Times.
If the President were serious he would tell Scty. Rumsfeld “put a few up for next years harvest (using the Canadian technology) and put them on a couple of Army bases” so as to avoid the NIMBY problem.
Now that the President has laid out an energy plan that is more than "put on an additional sweater and drive less, someone should raise the question of the gas hydrates (methane) off of both US coasts. Supposedly there is a multiple of US proven gas reserves off the coasts.
The Japanese have drilled in their gas hydrate deposits, off their coast, 16 wells in the last two years in order to beta production.
Being Cynical I would imagine that OPEC will find new oil reserves to pump in order to lower the price of oil and to make the cellulose into ethanol project moot. I wonder how ADM and the corn producers will react with the possibility of competition from waste cellulouse.
Back to Cellulose to ethanol

You might want to look at

It is a private company with RD, Petro-Canada and DSM as partners.

“Established in the 1970s, Iogen Corporation has become one of Canada's leading biotechnology firms. Iogen is an industrial manufacturer of enzyme products with a focus on products for use by the pulp and paper, textile and animal feed industries. It also is the world leader in technology to produce cellulose ethanol, a fully renewable, advanced biofuel that can be used in today's cars.
Iogen is a privately held company, based in Ottawa, Ontario, Canada, with a rapidly growing work force. Public and private investment in Iogen has totaled approximately $130 million over the past 25 years. Major investors include the Royal Dutch/Shell Group, Petro-Canada and the Government of Canada. Iogen employs a staff of approximately 180 people, with over half involved in research and development, and engineering; one fifth in manufacturing; and the balance in sales, marketing, and administration.”

Aaron Koral said...

Hi Jeff - after reading your post, a thought which came to mind was/is oil extraction technology. What does oil extraction technology have to do Shell's reserve replacement ratio? If companies like Shell, for example, are utilizing the extraction technology to pump existing energy resources from the ground quickly and slowly finding little in way of reserves to replace what is being depleted, wouldn't that be a signal that companies like Shell are extracting oil out of the ground faster than the oil can be replaced? If that is indeed the case with Shell, could it be possible that other oil and gas production companies are suffering a similar fate? I could be wrong, though....

the management said...

Now that the President has laid out an energy plan that is more than "put on an additional sweater and drive less"

Guys I hate to be the bearer of bad news, but any sensible energy plan is going to involve putting on a sweater and it is going to involve driving less.

BernsteinIsRight said...

I agree with the notion that Canada's oil sands are potentially a burgeoning oil resource; however, until there is a more expeditious and reliable method of extraction, or a catastrophic decline in global oil reserves, there will not be much happening up there.

Its_strange said...

SIRI 10K due soon . I hope we can get a serious review of it here . I'm dying to see what Howard did .

rvb1977 said...

SIRI - there has been incredible selling pressure on it the whole month. I am guessing Howard's cashing out.

OIL - We need to delay consumption as long as we can. Canada helps but not forever. Hybrids can reduce oil consumption by HALF if every car were a hybrid - but how long can that possibly take? 20 years?

Avellanas said...

Fill Kansas back up with hemp instead of corn. There's alot more cellulose and faster growing.If only ADM had a field or two.

Jeff Matthews said...

Regarding oil sands: their development has just one big problem...oil sands require almost too much natural gas to extract to be economical unless oil stays where it is, and natural gas stays where IT is, which is unlikely in the long run, in my opinion.

Regarding SIRI--

I have been surprised by what I hear. Sounds like the Howard-effect is lasting longer than his January start-up date. The word-of-mouth impact appears to be keeping sales up post-Christmas.

Might be worth a follow-up blog.

Its_strange said...

To bad we have the Kudlow types telling all the followers that conservation is " liberal " or for fruit cakes . .. He reminds me of the first Bush President . One day i was thinking about my grannies advice to put money away for a rainy day when Bush got on the tube damn near begging the people to spend thier money so the economy would pick up and he would beat Clinton......says it all ..

smitty said...

Something fishy with your oil consumption data. Increase from 55mm bbl/day in 1980 to 84mm bbl/day in 2005 is only 1.8% annualized growth rate. Seems WAAAAAY too low. You might want to check your numbers.