Column

Much Ado about Nothing -- Whither the Caspian Riches?

by Dale Allen Pfeiffer, FTW Contributing Editor for Energy

[Ed. Note: The unfolding drama since 9-11-01 has been closely paralleled by another, perhaps more threatening one. Evolving more quietly, unmentioned and ignored by the major media, is a coming hydrocarbon energy crisis of civilization-threatening significance. Peak oil production is a reality, and it is happening now. What was once heralded as an oil bonanza in Central Asia -- and given life by ludicrous economic and political assertions insisting that demand always creates supply -- has proven itself to be an enormous bust. As Caspian reserve estimates have been continually revised lower -- from 200 billion barrels, to 100 billion barrels, to around 20 billion barrels -- the world has witnessed a dramatic shift in U.S. foreign policy toward belligerent and unilateral doctrines aimed at Iraq and Saudi Arabia. In the meantime, both politicians and economists perpetuate a dangerous fallacy which says that if you lock scientists up in a bank vault and give them enough money and enough demand, they can produce a hot dog with mustard and relish.

And conversion to hydrogen energy, as promoted by the Department of Energy, is an impractical myth; a palliative meant to calm fears rather than solve problems. Not until technologies are made available which manufacture hydrogen at the point of use will hydrogen technologies present even a viable partial solution for the critical challenges posed by peak oil.

As FTW has said for more than a year, the "war which will not end in our lifetimes" is proving itself to be a sequential war to control the last remaining oil reserves on the planet, especially those which have not yet peaked. - MCR]

Dec. 5, 2002, 16:00 PST (FTW) -- What ever happened to all the talk of a new oil utopia in the Caspian Sea and Central Asia? Word was that Caspian-Central Asian oil reserves would dwarf the Middle East.

Yet, in the year since the Afghan War began, it seems that all the rumors of Caspian riches have died out and the center of oil interest has returned once again to Saudi Arabia and Iraq. In his exclusive FTW interview (http://www.fromthewilderness.com/free/ww3/102302_campbell.html), noted petroleum geologist Colin Campbell states that exploration in the Caspian region has been very disappointing, with the discoveries being much smaller than predicted and much of the oil discovered being of poor quality.

But the Energy Information Agency (EIA) predicted that the Caspian region would contain in excess of 200 billion barrels of oil. So what is being said elsewhere about the results of Caspian oil exploration?

At a recent event hosted by the Associated Press and the Harriman Institute, Steven Mann, the director of the State Department's Caspian Basin Energy Policy Office stated that the Caspian Sea contains only 50 billion barrels of proven reserves, a far cry from the EIA's projections. "Caspian Oil represents 4 percent of the world's reserves. It will never dominate the world's markets..."1

Likewise, a study published in PetroStrategies last July stated that the Caspian Sea contains only 39.4 billion barrels of proven oil reserves. The study, conducted by consultants from Wood MacKenzie, criticized IEA figures for the region as being severely inflated and unrealistic.2

The study states that oil production from the Caspian region should peak at 3.8 million barrels per day (bpd) by 2015, but be considerably less if the region remains politically unstable. Future discoveries might result in a production plateau extending beyond 2020.3

Only four fields are expected to make up 57 percent of production by 2010. Of these four fields, three are located in Kazakhstan: Tengiz, Karachaganak and Kashagan. The fourth field is the Azeri-Chirac-Guneshli complex in Azerbaijan.

Total Azerbaijan reserves are estimated at 6.6 billion barrels. However, drilling activity in the area has been disappointing, indicating that oil reserves are likely dispersed in small pockets.4

The Tengiz field is estimated to contain between 6 and 9 billion barrels of recoverable reserves. In 1993, Chevron paid $20 billion to Kazakhstan for the right to develop this field, resulting in the TengizChevrOil joint venture. Chevron expects production at Tengiz to peak at 750,000 bpd by 2010. Azeri-Chirac-Guneshli proven reserves are estimated at between 3 and 5 billion barrels.

They are being developed by the Azerbaijan International Operating Company, and are expected to peak at 800,000 bpd by the end of the decade.5 With reserves estimated at 10 billion barrels, the Kashagan field accounts for 25 percent of the regional total.6 This area is being developed by the Agip Kazakhstan North Caspian Operating Company (Agip KCO, formerly OKIOC), lead by the Italian oil major Agip.

Though Agip has been disappointed by exploration, in June of 2002 they stated there might be as much as 38 billion in probable reserves yet to be found in the Kashagan region.7

This author has been unable to locate data on the proven Karachaganak reserves, but the literature would seem to indicate that they are probably a little smaller than the Tengiz reserves.

Even the EIA has revised its report on the Caspian region, stating that although it is not another Middle East, it is... "comparable to the North Sea in its hydrocarbon potential."8

Additional discoveries have been reported in recent months, most notably by ExxonMobil9 and Nelson Resources.10 However, none of these discoveries are of sufficient size to alter the picture presented here.

In contrast, ExxonMobil does seem to be growing more cautious about the region. ExxonMobil announced in June that it was closing one of its Caspian offshore projects, the Oguz oil field, due to the poor results of exploratory drilling.11

Abandon Ship

As this article went to press, there are several new reports about oil investments in the Caspian region. ChevronTexaco is withdrawing from the Tengizchevroil venture. Corporate representatives and Kazakh government officials have offered contradicting explanations for the failure of this enterprise.

The nominal reasons for the move involve financial disagreements between ChevronTexaco and the Kazakh government. Disputes seem to center around distribution and reinvestment of profits and taxation.

Obviously, there are some hard feelings between Chevron and the Kazakh government. But the contradictory explanations offered by both sides may indicate that -- beneath all the disputes -- the venture simply isn't profitable enough.12

The Tengiz field has proven very expensive to pump and deliver to market. Aside from the engineering problems of extraction and transport, Tengiz oil has a high sulfur content (as much as 16 percent). Disposal of the waste sulfur has proven to be a major headache.13

Furthermore, following on the announcement that Chevron was shelving any further development of Tengiz, Kerr McGee has announced its intention to sell off all of its interest in various Caspian region projects, including mineral rights in the Kazakh sector of the Caspian Sea shelf and its interest in the Caspian Pipeline Consortium (1.56 percent). The company explained that it is seeking to rid itself of inactive profiles and leave projects where it only holds a minority investment.14

Finally, Agip KCO is also reported to be considering a delay in developing the Kashagan oil field.15 BP-Statoil has already withdrawn from the project, leaving Italian Agip to soldier on in the lead role. The Kashagan oil deposits also have a high sulfur content, and the geology of the deposits indicates that the oil may very well be contained in many small deposits as opposed to one large platform.16

When all of this is added to ExxonMobil's withdrawal from Azerbaijan and Russian Lukoil's recent announcement that it intends to sell its interest in the Azeri-Chirac-Guneshli complex, one has to wonder why all the major oil companies are leaving the Caspian region.

What About the Pipelines?

There has been very little talk lately about the trans-Afghanistan pipeline. This project seems to be floundering due to continuing instability in Afghanistan, and diminishing interest in the region's oil prospects. It has also been reported that the Caspian Pipeline from the Tengiz fields to the Russian port of Novorossiisk has been hit by a number of high costs, including port charges, taxes, and tariffs.17

The one pipeline which has remained in the news is the Baku-Ceyhan pipeline. Estimated to cost about $2.9 billion, this 1,090-mile pipeline network will link an existing pipeline from Azerbaijan to the Turkish Mediterranean Port of Ceyhan. To reach its destination, this pipeline will have to cross high mountain ranges and traverse territory occupied by disaffected Kurds, who may prove hostile to the project.

Critics have questioned whether there are sufficient oil reserves in the Caspian Sea to support the pipeline. It is also possible that heavy tariffs will render the oil transported along this pipeline uneconomical. ExxonMobil, ChevronTexaco and Russia's Lukoil have all declined offers to join the Baku-Tbilisi-Ceyhan (BTC) construction consortium.18

The project did receive a boost when BP announced that the Azeri fields held more oil than previously believed and would be sufficient to fill the link. Following this announcement, ConocoPhillip's and French TotalFinaElf both bought into the project.19 However, even with the increased reserves in the Azari, the BTC pipeline would have to rely on exports from Kazakhstan in order to be viable over the long-term.

Kazakhstan has vacillated in its support for the pipeline. Kazakh President Nursultan Nazarbayev has stated that he believes the best way to transfer Kazakh oil and gas to market is via Turkmenistan and Iran.20 President Nazarbayev has at various times indicated that Kazakhstan would pledge oil to the BTC pipeline, but has backpedaled afterwards.

During a speech at the James A. Baker III Institute for Public Policy at Rice University in Houston in late-December 2001, the Kazakh president stated that the efficiency of the BTC pipeline was not proven and that oil companies would choose the export route for Kashagan oil. This speech reflects the opinions of the Agip KCO consortium, which believes that the Iran route is the most cost-efficient way to transport Kashagan oil to market.21

The Kazakh President finds himself in a very difficult position due to U.S. opposition to a pipeline route through Iran. Kazakh statements in favor of the BTC pipeline would properly be viewed as attempts to placate the U.S.

Critics believe that political factors are blinding the U.S. to financial risks in the pipeline deal. Not only would the pipeline deny Iran a lucrative role as energy exporter, it would also reduce dependence of Central Asian states on Russian pipelines. Furthermore, the pipeline would bolster regional economies in Azerbaijan, Georgia and Turkey. The pipeline would help alleviate Turkey's current financial depression.

A U.S. government source has stated, "The BTC has been politically motivated, more than any other oil project in the world."22

In light of recent reports of industry majors pulling out of the region mentioned above, it is possible that Kazakhstan will push for the Iranian route. Presently, Agip is the only major left in the country, and they certainly prefer the Iranian route.

Troubles with the Tengiz and Kashagan consortiums could leave the BTC pipeline without enough oil to even make the project worth completing. If plans are announced to transport Kazakh oil through Iran, it will be very interesting to see how the U.S. responds. There are already influential voices urging Bush to go on to Iran as soon as he is finished with Iraq.

Whether or not the project will prove viable, construction of the BTC pipeline began on Sept. 8.23 On hand for the start of construction was U.S. Secretary of Energy Spencer Abraham, who touted the project as "one of the most important energy undertakings."24

One has to wonder whether part of the reason for U.S. interest in the pipeline is an effort to destabilize OPEC. The Lebanese Daily Star recently ran an editorial by Middle East Analyst Patrick Seale which stated that Arab oil is currently worried about the triple threat of U.S. imperialism, Russian and Caspian imports, and hydrogen fuel cells.25 It is to be wondered if Arab oil knows that the only portion of this triple threat which really has teeth to it is U.S. imperialism.

Spencer Abraham's Hydrogen Dream

The media was all aglow recently with Spencer Abraham's announcement that the U.S. now has a roadmap for making the transition to a hydrogen economy. Secretary of Energy Abraham announced the plan at the Global Forum on Personal Transportation held in Dearborn, Mich. In his presentation, he touted the line that hydrogen produced from renewable resources can provide unlimited energy with no impact on the environment. Secretary Abraham noted that the transition to hydrogen would be a long-term process, which will require the participation of both industry and government.

As a first step, in January 2002 Secretary Abraham, along with officials from the automotive industry and Congress, unveiled a FreedomCAR partnership to develop hydrogen fuel cell vehicles.26

The National Hydrogen Energy Roadmap is available on the internet in pdf form (http://www.eren.doe.gov/hydrogen/pdfs/national_h2_roadmap.pdf). This roadmap glows with positive energy. In all areas of production, delivery, storage, conversion and applications, the document beams about what we can achieve if we put our minds to it, but inevitably winds up by saying that we have a long way to go in order to make it a reality.

The document does mention the various challenges to each area of fuel cell development, but makes little of the obstacles and instead comes off sounding like a pep talk. Buried in the text, they admit "The transition to a hydrogen economy... could take several decades to achieve."27

The document speaks of wind, solar and geothermal production, biomass, nuclear-thermo-chemical water splitting, photoelectrochemical electrolysis, and bioengineering. But they admit that all of these processes will require a great deal more research.

The intention is to bootstrap the move by first developing small "reformers" that will run on natural gas, propane, methanol or diesel. But the authors admit that even this technology requires further refinement for improved reliability, longer catalyst life, and integration with storage systems and fuel cells.

The document also includes a short list of people who are in charge of various areas of development and transition. The list includes: Frank Balog of Ford Motor Company, Gene Nemanich of ChevronTexaco Technology Ventures, Mike Davis of Avista Labs Energy, Art Katsaros of Air Products and Chemicals Incorporated, Alan Niedzwiecki of  Quantum Technologies, Joan Ogden of Princeton University Systems, and Jeff Serfass of The National Hydrogen Association.28 This team will ensure that the new technology remains firmly in the hands of the top corporations.

The document is at least 80 percent public relations. While admitting that in all areas there are serious problems to be overcome before we will be able to make a transition to hydrogen fuel cells, nowhere does this document take a serious look at the obstacles. Instead, this paper paints a pretty picture of our hydrogen future and leaves the details to future research and investment. So let us look at a few of the difficulties of developing a hydrogen fuel cell economy.

First off, because hydrogen is the simplest element, it will leak from any container, no mater how strong and no matter how well insulated. For this reason, hydrogen in storage tanks will always evaporate, at a rate of at least 1.7 percent per day.29 Hydrogen is very reactive. When hydrogen gas comes into contact with metal surfaces it decomposes into hydrogen atoms, which are so very small that they can penetrate metal. This causes structural changes that make the metal brittle.30

Perhaps the largest problem for hydrogen fuel cell transportation is the size of the fuel tanks. In gaseous form, a volume of 238,000 litres of hydrogen gas is necessary to replace the energy capacity of 20 gallons of gasoline.31

So far, demonstrations of hydrogen-powered cars have depended upon compressed hydrogen. Because of its low density, compressed hydrogen will not give a car as useful a range as gasoline.32 Moreover, a compressed hydrogen fuel tank would be at risk of developing pressure leaks either through accidents or through normal wear, and such leaks could result in explosions.

If the hydrogen is liquefied, this will give it a density of 0.07 grams per cubic centimeter. At this density, it will require four times the volume of gasoline for a given amount of energy. Thus, a 15-gallon gas tank would equate to a 60-gallon tank of liquefied hydrogen. Beyond this, there are the difficulties of storing liquid hydrogen. Liquid hydrogen is cold enough to freeze air. In test vehicles, accidents have occurred from pressure build-ups resulting from plugged valves.33

Beyond this, there are the energy costs of liquefying the hydrogen and refrigerating it so that it remains in a liquid state. No studies have been done on the energy costs here, but they are sure to further decrease the Energy Return on Energy Invested (EROEI) of hydrogen fuel.

A third option is the use of powdered metals to store the hydrogen in the form of metal hydrides. In this case, the storage volume would be little more than the volume of the metals themselves.34 Moreover, stored in this form, hydrogen would be far less reactive. However, as you can imagine, the weight of the metals will make the storage tank very heavy.

Now we come to the production of hydrogen. Hydrogen does not freely occur in nature in useful quantities, therefore hydrogen must be split from molecules, either molecules of methane derived from fossil fuels or from water.

Currently, most hydrogen is produced by the treatment of methane with steam, following the formula: CH4 (g) + H2O + e > 3H2(g) + CO(g). The CO(g) in this equation is carbon monoxide gas, which is a byproduct of the reaction.35

Not entered into this formula is the energy required to produce the steam, which usually comes from the burning of fossil fuels.

For this reason, we do not escape the production of carbon dioxide and other greenhouse gases. We simply transfer the generation of this pollution to the hydrogen production plants. This procedure of hydrogen production also results in a severe energy loss. First we have the production of the feedstock methanol from natural gas or coal at a 32 percent to 44 percent net energy loss. Then the steam treatment process to procure the hydrogen will result in a further 35 percent energy loss.36

It has often been pointed out that we have an inexhaustible supply of water from which to derive hydrogen. However, this reaction, 2H2O + e = 2H2(g) + O2(g), requires a substantial energy investment per unit of water (286kJ per mole).37 This energy investment is required by elementary principles of chemistry and can never be reduced.

Several processes are being explored to derive hydrogen from water, most notably electrolysis of water and thermal decomposition of water. But the basic chemistry mentioned above requires major energy investments from all of these processes, rendering them unprofitable in terms of EROEI.

Much thought has been given to harnessing sunlight through photovoltaic cells and using the resulting energy to split water in order to derive hydrogen. The energy required to produce 1 billion kWh (kilowatt hours) of hydrogen is 1.3 billion kWh of electricity.38 Even with recent advances in photovoltaic technology, the solar cell arrays would be enormous, and would have to be placed in areas with adequate sunlight.

Likewise, the amount of water required to generate this hydrogen would be equivalent to 5 percent of the flow of the Mississippi River.39 As an example of a solar-to-hydrogen set up, were Europe to consider such a transition, their best hope would lie in erecting massive solar collectors in the Saharan desert of nearby Africa. Using present technology, only 5 percent of the energy collected at the Sahara solar plants would be delivered to Europe. Such a solar plant would probably cost 50 times as much as a coal fired plant, and would deliver an equal amount of energy.40 On top of this, the production of photovoltaic cells has a very poor EROEI.

The basic problem of hydrogen fuel cells is that the second law of thermodynamics dictates that we will always have to expend more energy deriving the hydrogen than we will receive from the usage of that hydrogen. The common misconception is that hydrogen fuel cells are an alternative energy source when they are not.

In reality, hydrogen fuel cells are a storage battery for energy derived from other sources. In a fuel cell, hydrogen and oxygen are fed to the anode and cathode, respectively, of each cell. Electrons stripped from the hydrogen produce direct current electricity which can be used in a DC electric motor or converted to alternating current.41

Because of the second law of thermodynamics, hydrogen fuel cells will always have a bad EROEI. If fossil fuels are used to generate the hydrogen, either through the Methane-Steam method or through Electrolysis of Water, there will be no advantage over using the fossil fuels directly. The use of hydrogen as an intermediate form of energy storage is justified only when there is some reason for not using the primary source directly.42 For this reason, a hydrogen-based economy must depend on large-scale development of nuclear power or solar electricity.

Therefore, the development of a hydrogen economy will require major investments in fuel cell technology research and nuclear or solar power plant construction. On top of this, there is the cost of converting all of our existing technology and machinery to hydrogen fuel cells. And all of this will have to be accomplished under the economic and energy conditions of post-peak fossil fuel production.

Based on all of this, I submit that Secretary of Energy Spencer Abraham does indeed have ulterior motives for his Hydrogen Energy Roadmap. First, I suggest that this distant goal will help to pacify the public once they begin to suffer from the effects of fossil fuel withdrawal. Secondly, this project will allow the elite to transfer more money from the general public to the pockets of the rich. Third, in the words of Karl Davies, this proposal will deflect a stock market collapse once news of declining oil production becomes generally recognized.

Tied to this, it will brace stock prices of the auto corporations and oil majors to help them survive well into the era of oil depletion. And finally, the idea that we are working on a transition from fossil fuels to a hydrogen-based economy will help to destabilize OPEC, hopefully making it easier to deal with that organization and the Arab oil states.

ENDNOTES: