Bad news: Oil prices crash through the $100 floor

For the first time in six months, oil prices dropped below the psychological $100/barrel last Monday and as of this writing, settled at $92.55 a barrel.

The sudden reversal of the oil fortune effectively scratched completely all the gains for the year. From a peak of $147 a barrel just two months ago, oil prices have lost more than 35% of its peak value.

Normally, such news would have been greeted with fireworks, and indeed, locally there have been some muted jubilation with the accelerated pump price reductions effected by fuel retailers. Reduction in fare prices may not be far behind.

The early sign of oil price rollback emerged when initial reports suggested that Hurricane Ike, while devastating a large swath of Texas, virtually left the oil platforms at the Gulf and the refineries unscathed.

U.S. authorities reported Sunday that Ike destroyed at least 10 oil and gas platforms and damaged pipelines in the Gulf of Mexico. But that number is only a fraction of the more than 3,800 production platforms in the Gulf and insignificant compared to the havoc brought about by Hurricanes Katrina and Rita three years ago.

 Oil prices continued their downward trajectory even as militants increase their attacks on oil platforms in the Niger Delta.

 Not even the expulsion of the U.S. ambassador to Bolivia which draws a similar sympathetic expulsion of the U.S. ambassador to oil-rich Venezuela, by leftist President Hugo Chavez, could halt the slide of oil prices.

But what suddenly triggered the sell-off were dramatic events in Wall Street which signals a looming economic downturn not only in the U.S., but would likely plaster much of the globe.

That is the real bad news.

In Wall Street, the venerable 158-year-old investment bank Lehman Brothers Holdings Inc., an iconic symbol of American capitalism, filed for bankruptcy after failing to find a white knight for its failing business. This came on the heels of the sale of another capitalist icon Merrill Lynch & Co. to Bank of America Corp.

The two bellwethers of the finance world, together with big institutional investors, have been the main participants in pushing the prices of commodities—not only oil but precious and strategic metals and foods as well—to stratospheric levels until signs of economic slowdown abruptly stopped the price train on its tracks.

 The upheaval in the financial sector could trigger massive liquidation of commodities amidst the fear that a slowdown could drastically cut the demand for energy and other raw materials futures.

 With the mightiest economy in deep trouble, the lesser economies, ours included, would be sucked in the maelstrom of economic downturn.

 Therein lays the dreaded looming economic crisis as if we have not suffered enough.

DENR shows pragmatism in approving Panay coal-fired power plant construction

The Panay Power Corp. has recently been given the go-signal by the Department of natural resources and the Environment (DENR) to proceed with the construction of its 164-megawatt coal-fired power plant in Barangay Ingore, La Paz district in Iloilo.

Rather than bowing to intense pressure from environmentalists and the catholic church, the DENR exercised pragmatism when it granted September 1 the requisite environmental compliance certificate (ECC) to the power plant operator.

The ECC however, carried 16 conditions for the operator to meet, including:

• continuing dialogue and interaction with stakeholders, contractors and workers on issues concerning the plant operation;
  
• establishment of a five-meter buffer zone of greenery along the plant’s periphery;
  
• provision of a 20-meter easement for the creek/river in  la Paz;
  
• continuous monitoring of temperature and other relevant parameters of cooling water from the plant before discharging;
  
• installation of additional automatic floating buoys capable of measuring water temperature within the mixing zone and boundary areas of the plant;
  
• provision and maintenance of a 900-square meter reserve area for the cooling system; and
  
• addressing climate change and global warming by putting in place a program to mitigate greenhouse gas (GHG) emissions.
  

Panay island has been reeling from acute power outages.

 Its main source of power, the decrepit 146.5 MW Panay diesel power plant owned by the National Power Corporation, is currently under the auction block through the Power Sector Assets and Liabilities Management Corporation (PSALM).

 While the island is connected to other power sources like the geothermal plants of Negros Oriental and Leyte as part of the Visayan grid, its power supply is secondary only to the demands of Cebu and Negros. 

The installed 49 MW geothermal plant of the Energy Development Corporation (EDC) which is designed to augment the power requirements of Panay, has been shut down due to operational problems in the field.

 

How to spend P49.1 billion for fuel

By any metric, P49.1 billion pesos is a huge sum of money.

 That is the sum that the government is willing to spend for the Alternative Fuels Program next year, Senator Juan Miguel Zubiri, principal author of the Biofuels Act of 2006, revealed last Tuesday.

The bulk of the allocation goes to biofuels development at P25.6 billion, which is some 21% higher than P21.2 billion budgeted for the purpose this year. Which begs us to ask the following: Has the allocation for this year been exhausted? If so, has the government anything to show for it?

 According to Zubiri, P8.7 billion will go to the Natural Gas vehicle Program for Public Transport; the autogas program, or the conversion of fuel engines to LPG use, P4.4 billion; and the hydrogen development program, P10.4 billion.

 The Alternative Fuels Program is a key component of the Arroyo administration’s Energy Independence Agenda, which aims to make the country 60 percent energy self-sufficient by 2010.

 Why such a big budget for biofuels development, when this activity should rightfully belong to the private sector? Financial incentives for the developers such as income-tax holidays and tax breaks for capital goods importation do cost money, but it would be in the form of reduced taxes for the government, not an upfront cost.

 The only huge expenditure that can be thought of is when the government gives a huge dole-out for its biofuel from jathropa program which is being carried out by the government’s PNOC Alternative Fuels Corporation to buy or lease huge tracts of land, machineries and seeds or seedlings. Even then, jathropa cultivation for biofuels is still highly iffy; and according to some UP Los Baños agriculturists who should know what they are talking about, it will not be cost-effective if grown in peripheral soils as envisioned.

 Not much enthusiasm for large-scale cultivation has evolved throughout the world. There is some development in Brazil, but ironically, India—to which local enthusiasts are looking up to for seeds and technology—is now keenly watching how the Philippine program is progressing.

 As for LPG conversion, the amount may be just right if the plan is to simply replace the thousands of polluting motor cab engines with those using LPG at no cost to the owners and operators. This is a dole out, plain and simple. A complete phase-out of these polluters from major streets and highways to improve our breathing space would only cost a fraction.

 As for the P10.4 billion for hydrogen development program—is the government trying to leapfrog over the countries most active in hydrogen power development like the U.S., Germany and Japan, in commercialization of hydrogen-powered cars? Those who allocated this amount are completely clueless to the scientific and technological barriers needed to be hurdled to make the hydrogen car commercially viable.

 I wouldn’t be surprised if part of the money would be simply spent to buy a fleet of hybrid cars like Toyota Prius for our congressmen and cabinet officials to test-drive and show off.

 If a few millions each would be given as research grants to some science or engineering departments who have alternative energy programs in top universities such as UP. Ateneo, La Salle or Mindanao State University, or even to regional schools like Bicol University or Silliman, the results would likely to be more productive than the current allocation plan.

How to ruin an economy, Chavez-style

Venezuelan President Hugo Chavez effectively got his wish to nationalize the country’s oil industry completely when his rubber stamp legislative assembly voted to pass a bill putting the wholesale oil trading into the hands of the state.

 Under the newly passed bill, the wholesaler oil distributors are mandated to turn over their businesses to Petroleos de Venezuela S.A. (PDVSA), the state oil company within 60 days or face forcible expropriation.

 The order covers the local subsidiaries of oil giants including Chevron, Exxon Mobil and BP as well as those of local retailers big or small, and allows PDVSA monopoly control of wholesale fuel distribution. PDVSA becomes the sole oil supplier of two-thirds of Venezuela’s privately-owned retail gas stations.

 Apparently, Chavez was emboldened to take further steps to nationalize the whole oil industry when Exxon Mobil lost to Venezuela in March when a London court ordered the lifting of an earlier freeze order on US$12 billion in assets of Venezuela’s state oil monopoly firm.

 The freeze order was granted to Exxon by  a court in January so cash would be available should it wins in an arbitration case involving compensation when Chavez nationalized an oil project in the Orinoco basin in which Exxon was involved. Other companies including Chevron, Total SA, BP and StatoilHydro ASA had negotiated deals to continue as minority partners in the nationalized projects rather than fight it out in courts.

 Venezuela’s latest antics signal a return to state control and a tightening grip of basic industries in that country. Already, control of its telephone system has gone back to state hands.

 Venezuela ranks fifth largest oil exporting country and oil accounts for 90% of its exports revenues. At $0.18 a gallon for premium fuel, Venezuela's highly-subsidized pump prices are among the lowest in the world

 In the short term, Chavez would endear himself to the poor masses, but in the long term, it would be ruinous to the economy in general, as the government coffers would accumulate deficits over time.

 The slide to perdition won’t be felt immediately as long as its oil fields—now in government hands—continue gushing crude to pay for Chavez’ populist policies.

 LEST OUR LEADERS start to entertain parallel ideas, let us remind them that we have been there, done that.

 We have had an oil price stabilization fund which for a time tamed the oil price spikes in the 70s and 80s, but the country ended with a yawning fiscal deficit.

 We tried creating a national oil company to counter a perceived oil monopoly by select multinationals, but market forces were simply too strong to resist. The country was simply helpless against oil prices dictated by world events.

 We have already learned bitter lessons about the folly of state control over businesses. Let us hope we won’t be backsliding into that rut.

Compact fluorescent lamps: Green or clean?

When the Department of Energy (DOE) recently launched its Palit Ilaw program which essentially enjoins government offices and projects to replace incandescent lamps and other energy-hungry lighting fixtures with compact fluorescent lamps (CFLs), there was hardly any ripple of approval even from energy efficiency campaigners or consumer advocates.

This is not really surprising because advocating a support for such a move from our politicians would hardly land them in front of the klieglights of publicity. For consumer advocates it would hardly endear them to the masses who would be asked to replace their dirt-cheap incandescent lamps with expensive compact fluorescent lamps. The masses who are desperately trying to make both ends meet on a month-to-month, or even day-to-day basis wouldn’t have the time or the wherewithal to figure out the long-term economic benefits of the move.

 The environmental crusaders on the other hand are somewhat split. The global warming enthusiasts embrace it like a teddy bear, for they have already calculated the amount of carbon dioxide that would be displaced from emissions by fuel-based generators. The ultra-pure green advocates while not openly declaring opposition, snickered when in the course of promoting Al Gore’s opus An Inconvenient Truth, supporters were asked to buy compact fluorescent lamps to replace their incandescent lamps.

 They have a point.

 CFLs do contain the toxic element mercury, albeit in milligram amounts. The lamp works by exciting mercury atoms to generate UV light. The light in turn strikes at the phosphor coating which gives off the white light we enjoy. Without mercury, there is no light.

 Other green campaigners stretch the anti-stance by arguing that disposal of the used CFLs poses environmental hazards and even pointing out that the transport of these mercury-containing lamps emit greenhouse gases (GHG).

 The latter is probably stretching the argument too much. We have been using millions of standard linear or circular fluorescent lamps, and CFLs are no different. There will always be some accidents due to breakage and mercury will be spilled and may actually pose some hazards. But simple precautions like not handling the broken glasses containing phosphor and immediate ventilation of the contaminated area should eliminate most of the danger.

 There are other household items that contain more mercury such as the common glass thermometer, sphygmomanometer and pressure gauges that have escaped scrutiny from our dear green watchers

 Nothing is aseptically clean or immaculately green, whether it is baby products or energy sources. It is just a matter of degree how much dirt or inconvenience we accept or tolerate.

 Even the most accepted clean energy sources have their detractors.

 A nuclear renaissance has not taken hold mainly because of the dim memories of Three-Mile Island near-disaster and the catastrophic Chernobyl accident. But the former was avoidable while the latter used  Soviet-era safety standards and obsolete technology. Some environmental activists even prefer nuclear over fossil fuels power sources.

 Even the concern of nuclear waste disposal is probably overblown when the current “temporary” storage could pass the most stringent safety standards ever. So are the new-generation designs of reactors.

 About the only serious objection of nuclear power is nuclear proliferation in this age of Al Qaeda.

 Geothermal is also a favorite target practice of environmental activists. Sure the wells emit some hydrogen sulfide and carbon dioxide most of which are dissipated through or absorbed by the foliage and soil. Literally along the same breath, the same critics daily inhale from far more dangerous gas emissions from ill-tuned up car engines, motor cabs and diesel-gushing jeepneys.

 Well-meaning opposition to geothermal points to some disturbance to vegetation when roads are made and pads are prepared, forgetting the fact that coal mining strips down whole forests and mountains—not in China, or Indonesia but in the most advance country on earth, the United States.

 They also point to disturbance to forest dwellers. In the meantime, the rare bats within the Bacman geothermal reservation have not left the area and continue to doze off during the day while the power plants churn electrical power. The snakes and monkeys in Kidapawan have not yet attacked the engineers manning the geothermal plant as an act of environmental revenge.

 Even the cleanest of them all—wind power—have critics. Some complain about the extra decibels these turbines are generating completely forgetting that the levels are far lower than a normal traffic. And if some groups object to these structures because some rare migratory bird species from Siberia are disoriented by the low frequency humming—what shall we put up?

 SO would, or wouldn’t you shift to CFLs?

The alternative to the modern conveniences is a nomadic life or cave-dwelling. Just be sure to know enough taxonomy to avoid eating rare and protected root crops and using natural herbs listed as endangered by WWF.

Taking electricity systems losses seriously--email from Romania

I found your two blogs on the Philippines caps for system losses very interesting, so thanks for providing them. Couldn’t agree with you more; negative incentives produce negative results. And I’ve always wondered about the Cooperatives being able to supply electricity efficiently.

You refer to pilferage as a factor in calculating system losses, and that is important. But I am in Utility Vegetation Management (UVM), and I am wondering if contact with vegetation is calculated into the equation in Philippines. My industry focuses on proactive UVM maintenance to control tree-caused outages, but there is not much focus on system losses through daily tree/powerline contact.

Trees can come into contact with powerlines and not cause an outage for years. The trees will simply brush against the lines day after day, burning the foliage as a result of electricity tracking down into the tree. I spent a number of years in New Zealand (I notice you were in Wellington when I was in Christchurch) and many of their DU networks have thousands of trees in this condition. They are not causing outages, so they are not prioritised – in reality, much of New Zealand UVM is reactive rather than proactive. But what I have always maintained is that if a tree is ‘burning’ on powerlines 24-hrs a day and for year after year, this has to be a large contribution to a DU’s system losses.
. . . . .
Just so that you know what I’m talking about, I’ve attached from my documents some pics of New Zealand trees in contact with 11kV conductors, as these are examples of what I’m speaking of. One pic is of fast-growing willow trees that have been burning for at least five years. The other is of slow-growing NZ native trees that have been burning for at least 10 years. I’m just trying to get a rough idea of that kind of contact multiplied by thousands of contacts in terms of systems loss.

Frank

Biochemistry lessons from landfills

In a recent disclosure to the Philippine Stock Exchange, listed firm Basic Energy Corp. said it is planning to enter into a memorandum of agreement with two local firms, namely New Kanlaon Construction Inc., and Integrated Environmentwaste Processors Corp., and two South Korean firms ReTech Solution Co., Ltd. and Eco-Frontier Co., to conduct a feasibility study for a landfill gas to power project in San Mateo.

The project would harness methane from a closed dumpsite to generate electricity with revenues coming from power sales and carbon credits.

Earlier, in July, Montalban Methane Power Corp. in cooperation with Carbon Capital Markets, a UK-based financier and carbon credits trader, is developing an initial 2 MW power plant using methane coming from the Rodriguez, Rizal landfill at a cost of some P 1.5 billion.

A few years back, I remember some company was looking for methane at the Payatas dump site, but apparently nothing came out of that project.

How could a despicable place where all sorts of waste are thrown in generate enough methane to produce electricity?

Elementary, my dear Watson; it is bacterial decomposition.

The whole process is a wonderful symphony of cooperative bacterial processes which, for tracking purposes can be broken down into four phases.

Phase 1 begins with aerobic (oxygen-loving) bacteria breaking down long molecular chains of complex carbohydrates, proteins and lipids in waste into simpler compounds. In the process, carbon dioxide is produced while oxygen is depleted.

In Phase 2, anaerobic bacteria begins to proliferate in the absence of oxygen and converts the compounds created by the aerobic bacteria into acetic, lactic and formic acids, as well as alcohols like methanol and ethanol. This makes the environment acidic. Under these conditions, certain nutrients are dissolved liberating nitrogen and phosphorous, which are key growth factors of another kind of bacteria which produce carbon dioxide and hydrogen as byproducts of respiration.

Now, if the landfill is disturbed at this stage, the environment becomes oxygenated again and one goes back to Phase 1. This is probably happening at Payatas, where hordes of scavengers continuously disturb the landfill.

No wonder no sufficient methane was found.

We have a little lesson here: human scavenging does not promote decomposition.

In Phase 3, the remaining organic acids are consumed, forming lactates which cause the landfill to become neutral. This promotes the formation of colonies of methane-forming bacteria. The methane- and acid-producing bacteria become symbiotic, delicately waltzing together to the music of a biochemical orchestra. The symbiosis is so well coordinated that the amounts of methane and carbon dioxide produced are near 50-50 in most landfills. The rest of the gases comprising of hydrogen sulfide, nitrogen and hydrogen mostly, does not normally exceed 2 %.

Phase 4 occurs when both the composition and production rates of the gases remain relatively constant. This constancy is used to determine whether a landfill is ripe for picking for methane.

The methane gas can be produced at a stable rate for about 20 years; but can sometimes last up to 50 years after waste has been initially placed. This is the best time to put up that gas-to-power project.

It is an inspiring microbiological and biochemical symbiosis. Years ago, all I thought biochemistry was an unending parade of DNA base pairs. amino acid sequences, and metabolic pathways too complicated to trace, but nevertheless, required to be understood partially to pass the course.