Helping America Understand and Adapt to a New Energy Reality

Interview with Charles T. Maxwell (Part 2 of 2)

By on June 29, 2009 in Commentary

We caught up with Charley Maxwell, the life-long oil industry analyst viewed by Barrons’ magazine as their energy guru, and asked him for a few minutes of his time.  He shared that and much more with Steve Andrews.

ASPO: So here’s the deal-we’ll make you the Energy Czar tomorrow.  Your focus is on the year 2015.  Where would you put your investments, either private or public incentives?  Where would you put your chips?  Where would you double down?

Maxwell: We’re not going to have to help the oil industry.  They already have all the help they need.  I wouldn’t take away what they have but I wouldn’t add to it.

It’s a little difficult to answer because there are two different kinds of money we’re talking about: what will industry spend and where should government spend? Because if the industry is going to spend money on shale gas, which it is, then the government doesn’t have to spend any money there.  Shale gas is a natural answer to the near-term energy problem; it’s one of the big answers we’ve got.

In effect, by 2015 we’ve got five fuels that we’re talking about here: oil, gas, coal, and nuclear.  And the fifth one we’ll call a “fuel,” which is energy efficiency and conservation.  It acts like a fuel.  It gives you more work done at lower energy volumes.  So in that situation you have really got Hubbert’s peak operating to keep you from using the oil alternative.  The obvious easy answer politically is to import more oil, but there’s not going to be any place to import more oil from.  And the costs are going to be higher and higher, so we’re stalled out on that one.  But you go on with oil; you don’t stomp on oil because that would increase the size of your problem immensely, very quickly, and without any reasonable basis.  You just can’t emphasize it because it isn’t a solution; it’s just a maintenance story.

So then you go over to nuclear and you don’t have the time.  You can try to summon up anything you want but if you don’t get it for 10 years…the vulnerability is going to be right here between 2011 and 2021.  That decade is going to, I think, be the maximum vulnerability; that’s when we’re going to take it on the chin.  So nuclear can’t get there in time.  We should be doing something on nuclear for days ahead, but it won’t help us during the upcoming decade unless we started it today and we aren’t going to start it today because the public is not yet ready for it.  One wag said we should have a national referendum on nuclear, and everyone should be required to sign their name and give their street address and telephone number, so that if you vote no you have to turn off your lights at 6 p.m. and if you vote yes you get to keep them on until midnight.  Then you revisit the referendum a year later and see how well you do second time around.  So we can’t turn to nuclear in that time frame, though of course we have to turn to nuclear eventually.

So oil flat, nuclear nothing new, coal nothing new until we break through on both sequestration costs and clean-burning coal methodology.  So until you get those two changes, we can’t do anything with coal, which leaves you with the last two-natural gas and energy efficiency.

Shale gas is going to be huge.  Right now, shale gas is probably 15% of US production, though it’s thought to be just at 8% or 9%–the figures are behind the reality.  If you are a traditional up-and-down driller and that’s all you know, you’re probably finished because for the next two or three years it doesn’t look we’re going to have gas prices high enough to keep you solvent.  So a lot of drillers are going to either change over to shale or they aren’t going to drill.  The average today is around $6.50 [per mmcf] for ma- and pa-type vertical drilling, which is about 40% of the total gas industry.  The incremental money is all going to flow into shale gas drilling and that’s where all the growth will come from, though the regular drilling will still be bigger for a while.  And the growth is going to be huge.  Exxon, BP and the others are not pursuing the shale gas option, so you’re talking about a whole new group of companies: XTO, Chesapeake [Mr. Maxwell is a member of their board], Devon, Southwest Gas, Apache – that’s the kind of mid-size independent that you’re talking about.  The independents are substantially under-costing the majors on natural gas.  The majors are better suited to the projects like the $17 billion Qatar project or the Sakhalin projects where no independent can compete with them.

That said, the first thing you have to struggle with is that 99% of transportation fuel comes from oil.  In the industrial sector, you have a nice mix, but not in the transportation sector.  So how do we make the change?  There are two ways to do it.  You use batteries that are charged by utilities-mostly using coal, nuclear and natural gas.  And the second one is using compressed natural gas [CNG].  At first, the players will be fleet operators.  Then after that the government will force GM and Chrysler to make cars for individual drivers that use natural gas, and Honda will volunteer since they already have a CNG car.  And I think Toyota will come in to be competitive and to show how green they are.  I think there will be a lively business developing.  For the big truck fleets that represent a lot of volume, you’ll see 40 stations installed on the route from Los Angeles and New York and Seattle and New York.  So you’ll have the two choices-batteries and CNG.  And CNG will use up a lot of that extra natural gas.

Then on the conservation side, to give you one example, we think that the savings from co-generation are going to be greater than the total of wind and solar, at a quarter of the cost.  So co-generation is an area I would emphasize.  But there are lots of other areas: insulation of houses, new types of appliances-like a breakthrough 43-inch screen that can use just 35 watts of electricity, vs. 350-400 watts for the standard plasma or LCD screen.  We’re going to see military applications that will be self-sustained for long periods of time.  We’re going to see a lot of this.  And when you don’t use a barrel you don’t just save that one barrel, you save about 1.4 barrels because you don’t have either to use the barrel or process it and transport it, store it and so on.  And it will be the same with the smart grid which will save huge amounts of electricity.

So, if I were the Energy Czar, I would put the money into subsidies, efficiencies and conservation, plus money in the R&D that are required to bring them about.  I don’t think you have to put money into shale gas because it will attract a lot of money.

We’re all very interested in these subjects for long-term reasons.  I do find that there is a huge amount of misinformation out there.  People have no idea what the problems are, and that we have to find our way out of this morass by solving natural gas and conservation problems because we’re not going to allow ourselves the luxury of doing it with nuclear.

ASPO-USA: I asked about 2015, so I’ll stick with that, because your answer would probably be a lot different for 2030 and 2050 and 2100.

Maxwell: The answers would be different the farther out you go.  Let’s look at heating oil.  The burning of heating oil is the lowest possible category of use for a complex hydrocarbon.  That we do it, to the tune of 2.5 million barrels a day during the winter, is a very harsh judgment on us; we act as if we have all the oil in the world and it is just going to go on forever.  A higher use is to create work in engines, or to use ground-source heat pumps that cut heating use by over 50% compared to what we use now.

ASPO-USA: So a lot of your money would be spent on R&D to achieve breakthroughs and to make them cheaper in order to stimulate massive demand.

Maxwell: Yes. We’re living this nightmare, and these steps would help move us forward.

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  • Tech

    Maxwell and the others sitting on the board of CHK know the score. They may be old fossils like David Rockefeller and the Trilateral, CFR boys but you have Breene M. Kerr who goes way back to his dad and tells the Brookings institute what to tell the graft sucking bums in Congress and installs front chimps like GW Bush, Cheney, and Obama. Kerr was sold out to Anandarko Petroleum a few years ago but Kerr still manages the money for MIT corporation and sits on boards that really matter. These boys know all about peak oil and the situation and while I may not agree with some of their methods I totally agree with their views on the potential nightmare we could be facing. Natural gas is a temporary solution but a real solution is a sustainable way of life and a saner one. Sure you can launch a fraud “war on terror” and occupy the “low hanging fruit” in the middle east and control the Caspian to obtain leverage over the Chindians and Russia but endless wars, a police state, playing games with Israel and the Arabs doesn’t solve things. The money flushed into the ever expanding military is a net drain and will bankrupt the USA drive down the dollar as oil goes up in price. As the dollar is backed by oil being sold for it at 300 dollars a barrel figure it out. The way I see it 2013 is the outside for global oil production seperating from the demand graph and from then on getting worse every year. For investors be long oil and the basics and own the supply chains to all the useless eaters in the northeast like NYC, New Jersey, DC etc. CHK will be right up there and SE etc. and the pipelines they need will do well. As the oil gets more expensive the dollar will lose more of it’s value so gold, silver, water and food will rise. As the “government” is just a bunch of graft sucking bums you pay off there won’t be much money to help the little people so expect only the security state to be taken care of. Already you have one out of every 100 in San Francisco homeless and Obama or whatever stooge they stick in won’t invite them to live in the White House. The main media is tightly controlled so it won’t be televised.
    What we should have done is a crash program for high speed rail, electric trolleys, cars, solar houses, heat pumps and insulation retrofitting structures and community gardening. Tidal and wave generators, more wind turbines, transmission lines from the midwest(underground) and geothermal. Another overlooked? area is hydrogen HHO gas from water. You have people experimenting with add ons now and in Beloit Wisconsin they have the city fleet hooked up. Police cars, garbage trucks etc. and freshman engineering students at U of Wisconsin. Until these old oil boys die off I suppose we will continue to have wars and baloney and fight over the last drop but there’s hope! They’re old!!! Even David Rockefeller is around 95 and unless the conspiracy people are right about them being reptiles they will be gone soon with the most of the oil. If we can survive the next 100 years I see a potential brighter future for mankind, or a horrible nightmare world of total control by a few elitists. Our choice-maybe.

  • captain Rick

    I like the article, very thought provoking.
    Back in the 1970s, Jimmy Carter could have won a second term if his message was one of more, more and more growth. Although the carter Doctrine provided for military intervention by US , into the middle East oil fields was a national security issue, he lost to Regan.Carter proposed conservation. Smaller cars were more popular, reduced speed limits energy efficient appliances, solar panels on the White House roof and many More. Since then, We as a country sold ourselves out to greed and over consumption.If car companies never produced the SUV, American quality of life would be just fine.
    The first and best strategy for the coming decade is conservation. Much like the 1970s were.The 55MPH speed limit must be reintroduced.No amount of corn will power Americas car fleet. , But we can slow down.now.I don’t think that the current administration will get itself into trouble espousing the reduced speed limit, revival of the rail road, smaller in town buses instead of these ridiculous badmouths running around cities at night with one passenger in them, and turn off those stupid sky scraper lights after midnight.

  • Bill Nowotney

    CNG will be just one of the REQUIRED measures to be taken to help alleviate the liquid fuels needs of transportation. People underestimate the growing needs of Asian middle classes. Indeed, new technologies will be quickly developed to handle the fueling of cars using CNG (that is the least of the problems when compared with lack of liquid fuels). Anyone that doesn’t see the “big picture” that Maxwell does a good job laying out, has rocks in their head. CNG is not the only answer as Maxwell points out. Electric cars with new innovations in battery technology will also be big. It’s going to take several different and diverse technologies to help society make it through the next decade as Peak Oil dawns on the market consensus ignoramuses. Obama is the leader of these ignoramuses as will soon be evident with his “Cap and Trade” tax and just the wrong time.

  • Tony Aluknavich

    Well, around the turn of the century (1900), many oil refiners didn’t make gasoline because it was too dangerous to handle. I would guess that when CNG becomes necessary as a motor fuel then refueling stations will have safeguards and possibly someone paid to do the refueling. I appreciate the concern for personal safety, but changing times will consider it.

  • Robert Spoley

    Interesting. I live in Oklahoma, a very dusty state. There’s always some dust blowing somewhere. Just ask my wife when she cleans the house, and we have a very tight house. High pressure connections are always plagued by dust which makes them “less than perfect”. Wait till you see what happens to these connections in a couple of years. Oh yes! Drop the hose and put a dent in the bushings. Riiiiihgt. If you think CO2 ia bad as a greenhouse gas, wait till you see methane in the atmosphere. Good Grief, they’re even talking about taxing ranchers for cow flatulance! One bad gassssss connection at a couple of thousand pounds per square inch and you’ve got all of texas cows with indigestion. Don’t get me wrong. Gas is a great fuel — in a pipeline, not as a mobile fuel. If you think I’m nuts, you stand next to any pipeline compression station and take a good deep breath, and these are secure connections. When your teenager parks this high pressure gas tank in the garage and the connection is not perfect, see what happens the next A.M. when you fire the beast up, if you can find the pieces.

  • Scott Benson

    Not to mention BP already tried outfitting multiple stations with the required $500,000 compressor units, and closed them all down within a few years becuase of the electrical and maintenance costs. CNG is very clean and cheap, but the high pressure in normal use isn’t for the faint of heart, nor for the underfunded gas station who can’t afford the compressor costs.

  • Scott Benson

    As a person who dealt with CNG pickups in the 1990s, I think Mr. Maxwell has rocks in his head thinking the average 50 year old female driver is going to “CLAUMP” that unwieldy natural gas hose to a vehicle, and then listen to the noise of stress and strain that that dispenser and cylinder are going thru, pushing that 3,600 psi gas thru the hose, without being scared out of their wits.

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