The Weekly Wrap — March 9, 2012

Nuclear power — alive and well 1 year later: Technologist Bill Gates well explains why the nuclear power renaissance lives on despite the Fukushima earthquake-tsunami disaster: We simply know of no other mass, non-carbon source of baseload electric power. So it is that, a year after the Japanese nuclear accident (pictured above, precautions in the Fukushima area), there is hardly a blip in the total number of planned new nuclear reactors around the world. Just two of Japan’s 54 nuclear plants are up and running, and Germany has closed eight of its 17 plants. Yet the rest of the world is different: China and India appear to have slowed their respective plans for a large-scale buildup of nuclear power in order to accommodate their booming economies, but neither seems likely to actually cancel any of the construction. And, according to the World Nuclear Association, 60 nuclear plants are currently being built (list) around the world, about the same number planned prior to the March 11, 2011, Fukushima accident. Gates argues that, given the unreliable nature of wind and solar power, the sole current substitute for the energy density of fossil fuels is nuclear power. He explains: "Nuclear power provides 1 million times the energy as hydrocarbons." A simple enough calculation.

Finesse and fracking: Hydraulic fracturing has seized the imagination of oilmen and politicians, who believe it will much-reduce the U.S. reliance on outside fossil fuel supplies, and has triggered similar hopes in Europe and China. But this crowd seems to exclude Andrew Gould, chairman of Schlumberger, the world’s largest oilfield services company. Gould, who in May becomes chairman of the oil and gas giant BG Group, laments that "fracking," as the drilling practice is usually called, lacks grace, is too dirty and inefficient, and simply doesn’t get enough out of the ground. Compared with how the industry typically operates, fracking is mere "brute force," he told a Barclays Capital Commodities conference in New York. It cannot go on long this way.

Go to the Jump for more on fracking, and the rest of the Wrap.

Fracking of oil and gas shale is all the rage, and is not going to stop. Nor does Gould suggest it should. He merely points out that, as it is, oilmen are almost completely lost in a shale field, unable even to determine which is the ideal place to drill: They simply put up large numbers of rigs at even distances across the landscape, hoping to hit "enough sweet spots to make the development economic." Even so, production in the average oil shale well in North Dakota’s Bakken formation plummets in only its first year from an initial volume of 1,200 barrels a day to 400 barrels per day. That is "not the best production profile one can imagine," Gould deadpans.

Gould’s answer? Return to the industry’s roots by "applying a little science, technology and workflow process." The aim would be the ability to better model where to drill. Once that is done, far fewer rigs would be required, and by extension far less water, and so on down the environmental scale. He says:

We would never develop any conventional reservoir today without thorough understanding to be able to estimate long-term ultimate recovery — a key input to the economic evaluation. Why should shale gas not require a similar approach?

If Gould is right, fracking as we know it today is not the energy industry’s salvation, but the first stage of how this newly accessible fossil fuel source will be exploited.

Outside of the Arab Spring, dark clouds for gasoline- and oil-price worriers: Quite apart from jeopardizing the jobs of rulers, the Arab Spring has had a pernicious impact on their state budgets: Petro-states such as Iran, Russia and Saudi Arabia need much higher oil prices in order to break even — in all three cases, north of $100 a barrel. That is where prices are now, which has resulted in dire forecasts of a fresh global recession, a new economic plunge triggered by crushing oil and gasoline prices. Yet the misery is even broader, according to Paul Horsnell and Amrita Sen at Barclays Capital. They write that oil companies are now in the same boat. Today, say Horsnell and Sen in a note to clients, oil companies, too, need $109-a-barrel oil to break even after accounting for expenses and shareholder dividends. That is 14.7 percent higher than the $95-a-barrel figure from last year, the Barclays team says.

Someone is going to be on the losing end of this game: Motorists will probably be paying mostly sky-high gasoline prices past the middle of this decade. But oil prices are cyclical, and when motorists are not suffering, the oil companies will be, especially if there is a "sustained lurch down in prices," write Horsnell and Sen. As a further caution, the Barclays team says not to expect a White Knight in the form of the much-promoted boom in U.S. shale oil (see item above). "The decline rates in oil shale wells are very high [and] the infrastructural constraints are significant," they write.

The last decade in energy has been a story of price and supply turbulence. There is no consensus on what happens next, but the current decade is certainly shaping up to be even more volatile.