Friday, March 23, 2012

How Advances in Drilling Technology Are Creating a Revolution and Turnaround for U.S. Oil Output


"Just a decade ago, complete wells were fracked at the same time with millions of gallons of water, sand and chemical gels. Now the wells are fracked in stages, with various kinds of plugs and balls used to isolate the bursting of rock one section at a time, allowing for longer-reaching, more productive horizontal wells. A well that once took two days to drill can now be drilled in seven hours.

For instance, when the Apache Corporation began drilling in the 100,000-acre Deadwood field in the West Texas Permian basin in 2010, there had only been a trickle of production there. The deep shale, limestone and other hard rocks had potential, but for years they had not been considered economically viable. The rocks were so hard, they would have likely sheared off the usual diamond cutters on the blade of any drill bit attempting to cut through.

But new adhesives and harder alloys have made diamond cutters and drill bits tougher in recent years. Meanwhile, Apache experimented with powerful underground motors to rotate drilling bits at a faster rate. Now, a well that might have taken 30 days to drill can be drilled in just 10, for a savings of $500,000 a well.

“By saving that money, you can spend more on fracking, which translates into more sand and more stages and better productivity,” said John J. Christmann, the Apache vice president in charge of Permian basin operations.

Apache has already drilled 213 wells in the field, producing 9,000 barrels a day. With 13 rigs running, it hopes to eventually drill more than 1,000 wells, and produce 20,000 barrels a day there. “We’re having a revolution,” said Steve Farris, Apache’s chief executive. “And we’re just scratching the surface.”

HT: Dan Greller

77 Comments:

At 3/23/2012 9:06 AM, Blogger Rufus II said...

They're producing 42 bbl/day per well? Huzzah, Huzzah, we're saved.

Lessee, Net Imports of oil, and products, running a little less than 8,000,000 bbl/day divided by 42 . . . . . . 190,476 more of those well needed. No prob. :)

 
At 3/23/2012 9:55 AM, Blogger Che is dead said...

In 2011, the country imported just 45 percent of the liquid fuels it used, down from a record high of 60 percent in 2005 ...

Not only has the United States reduced oil imports from members of the Organization of the Petroleum Exporting Countries by more than 20 percent in the last three years, it has become a net exporter of refined petroleum products like gasoline for the first time since the Truman presidency ...

National oil production, which declined steadily to 4.95 million barrels a day in 2008 from 9.6 million in 1970, has risen over the last four years to nearly 5.7 million barrels a day. The Energy Department projects that daily output could reach nearly seven million barrels by 2020. Some experts think it could eventually hit 10 million barrels — which would put the United States in the same league as Saudi Arabia. -- The New York Times

 
At 3/23/2012 10:12 AM, Blogger morganovich said...

This comment has been removed by the author.

 
At 3/23/2012 10:16 AM, Blogger morganovich said...

rufus-

it's interesting that you describe these wells as of little value, but that you feel like spending $2 million per mw on wind works.

that MW of faceplate will generate maybe $50k of wholesale electricity a year, making the payback just on the initial capital 40 years assuming no maintenance.

compare that to 42bpd from that well which is 42 X 365 x $100 = $1.5 million a year (payback in 4 months). that well pays for itself at a $500k cost in 4 months.

even if you need a million dollars of fracking, it's a one year payback.

wind is a guaranteed loser, whereas that well will provide a return.

thus, drilling that well makes sense, whereas building a wind turbine does not.

that's why the europeans are shutting them down.

The Netherlands has approximately 2,000 onshore and offshore wind turbines. But even though Holland is synonymous with windmills, the installed capacity of wind turbines in the Netherlands at large has been stagnant for the past three years, according to an article in February in the Energy Collective. It was 2237 megawatts (MW) at the end of 2011. That was said to be about 3.37 percent of total annual electricity production. The principal reason for the stagnant onshore capacity “is the Dutch people’s opposition to the wind turbines.” They are up to 400 feet in height.

The Dutch national wind capacity factor is a dismal 0.186. The German wind capacity factor “is even more dismal at 0.167,” the article said.

Expanding wind power to meet the European Union’s 20 percent renewables target by 2020 meant adding at least another thousand 3 MW, 450-foot wind turbines to the Dutch landscape “at a cost of about $6 billion.” Not surprisingly, the Dutch people found that to be far too costly—“an intrusion into their lives and an unacceptable return on their investment, especially when considering the small quantity of CO2 reduction per invested dollar.”

An added 3,000 MW of offshore turbines also was rejected. The capital cost was figured at $10 to $12 billion. The cost was judged to be too much and the wind energy produced too little. “The energy would have to be sold at very high prices to make the project feasible.” The article added, “The proposed Cape Wind project in Massachusetts is a perfect example of such a project.” Environmental Lawyer Robert F. Kennedy, Jr. in July wrote an op-ed piece in the Wall Street Journal blasting the project off Cape Cod as “a rip-off.” Recently, the Netherlands became the first country to abandon the European Union target of producing 20 percent of its domestic power from renewables by 2020

http://frontpagemag.com/2011/08/28/wind-power-is-dying/

 
At 3/23/2012 10:34 AM, Blogger Rufus II said...

Where do you get $50k?

I make it (at .30 cap. utilization) 7.2 MW hrs/day X 365 =

2628 MW hrs/annually sold via PPA (Power Purchase Agreement) at $50.00 = $131,400.00/annually.

Look, I don't know anything about the Dutch, and what they like and don't like, and don't care. (after 2 wks in Amsterdam I was sitting in my hotel room sobbing from boredom.)

Evidently, from your post, they installed some smaller units a few years, ago, and haven't upgraded. I could care less.

It has nothing to do with Wind in Iowa, Kansas, or Texas.

 
At 3/23/2012 10:37 AM, Blogger Rufus II said...

And, I didn't say these wells were "of little value." They, obviously, are valuable to Apache Corp.

BUT, the fact is, all of those wells that Apache has fracked to date will be, either shut down, or producing less than 10 barrels/day in 10 yrs.

Those Turbines, on the other hand, will just be getting "warmed up."

 
At 3/23/2012 11:26 AM, Blogger Ron H. said...

"Look, I don't know anything about the Dutch, and what they like and don't like, and don't care. (after 2 wks in Amsterdam I was sitting in my hotel room sobbing from boredom.)

Evidently, from your post, they installed some smaller units a few years, ago, and haven't upgraded. I could care less.

It has nothing to do with Wind in Iowa, Kansas, or Texas.
"

Rufus says: "Don't bother me with that annoying real world data.

Remember, Rufus, You often have trouble with numbers and math. You might want to recheck yours.

 
At 3/23/2012 11:30 AM, Blogger Rufus II said...

No, just make the data relevent to My world (the U.S.) If it works in Kansas, and Iowa, I don't care about The Netherlands. They can solve their own problems.

I have re-checked my numbers. So has Warren Buffet. He's buying a bunch of them.

 
At 3/23/2012 11:32 AM, Blogger morganovich said...

rufus-

1. 30% is unrealistic. i was using 20%, which is actually quite optimistic.

2. the PPA you are using is much too high. wholesale power in the US is $30/mwh, tops. in NE, it's 23. ca, $24, tx, $29.

http://www.eia.gov/electricity/wholesale/index.cfm

so, your numbers are much too high.

at 20% (higher than the dutch or german averages by a great deal) you get 365 X 24 x .2 = 1752 MWH/yr.

1752 x $27 = $47k.

so there you go.

after line loss etc, you'll be lucky to get $35 out of that. add in some maintenance, and oh boy do you have a loser.

even at .3, it's a horrid loser.

and if this "They're producing 42 bbl/day per well? Huzzah, Huzzah, we're saved." was not intended to convey that the wells had little value to the US, then what was it supposed to mean?

that was sure the only takeaway a could figure out.

in 10 years, those wells will have paid for themselves many times over, while a wind turbine will still be deep in the red on its way to never breaking even ESPECIALLY if you finance it.

say you have 6% project financing.

$50k a year in output will not even cover your interest or your opportunity cost of forgone income if you use cash.

 
At 3/23/2012 11:32 AM, Blogger Rufus II said...

The Chinese have checked my numbers, also, I guess. ONE Chines Province has installed over 6 Gigawatts max. Capacity (and is looking to Triple that amount.

But, you know how those silly "Green" Chinese are.

 
At 3/23/2012 11:39 AM, Blogger Ron H. said...

"I have re-checked my numbers. So has Warren Buffet. He's buying a bunch of them."

LOL Of course he is. They look really good from his viewpoint. How much of Buffet's wind business are the rest of us paying for?

If you want to see scams in action, look at Buffet and Pickens.

 
At 3/23/2012 11:47 AM, Blogger Ron H. said...

"The Chinese have checked my numbers, also, I guess. ONE Chines Province has installed over 6 Gigawatts max. Capacity (and is looking to Triple that amount.

But, you know how those silly "Green" Chinese are.
"

Oh Please, Rufus, let me stop laughing before you post another comment.

You are holding up the Chinese, a command economy that builds entire cities that no one lives in, as smart cookies when it comes to ifrastructure investment?

 
At 3/23/2012 11:48 AM, Blogger Benjamin said...

In the private-sector, people do more for less every year. In the public sector, including the military, people do less with more every year.

BTW, evidently there have been recent and huge strikes of natural gas in East Africa---they are talking about not elephant fields, but herds of elephants fields. The globe looks to be glutted with natural gas for generations.

And some say we are not that far from laser drills....

Leave it to the private decor to solve any "shortages." It is called supply and demand and the price signal.

Now if we can just get the GOP to stop drinking ethanol.

 
At 3/23/2012 12:04 PM, Blogger Rufus II said...

Morgan, you can make up whatever numbers you wish, but the empirical evidence is in, and .30 is about right (maybe even a bit low, going forward - as siting gets better, and the turbines become even more efficent.)

And, please Benny, give it a rest; the first thing the GOP does, every morning when it wakes up, is try to kill ethanol.)

 
At 3/23/2012 12:07 PM, Blogger Rufus II said...

Speaking of which, today on the CBOT:

84 Octane RBOB $3.38

114 Octane Ethanol $2.30

 
At 3/23/2012 12:20 PM, Blogger morganovich said...

rufus-

"
But, you know how those silly "Green" Chinese are."

oh, yeah, the chinese NEVER make bad overerinvestment decisions like building a 12th cement plant or office park where they is only demand for 5.

they are also doing it to prop up the rare earths mining businesses they run. that's a key input to windmills.

they are looking for big construction projects of any kind. return does not enter into it.

"The increasing penetration of wind power has exacerbated the problems of delivering reliable power to users. “Because wind energy is unstable, it is a pollutant and affects the safety of the power grid,” said Hu Xueha, the deputy chief engineer of China’s Power Grid Research Institute. Furthermore, the transmission capacity of the grid hasn't kept up with the growth of China's wind farms. According to recent data from the China Power Union, only 72% (8.94 GW) of China’s total wind power capacity was connected to the grid.[19] In addition, increasing China's wind power capacity means increasing coal use as well, to provide power when the wind isn't available. "China will need to add a substantial amount of coal-fired power capacity by 2020 in line with its expanding economy, and the idea is to bring some of the capacity earlier than necessary in order to facilitate the wind-power transmission," according to Shi Pengfei, vice president of the Chinese Wind Power Association.[20] Shi is also concerned about the high cost of wind power, which makes the industry dependent on the government's willingness to subsidize renewable power. "It isn't that wind power is showing signs of over-heating. It has already overheated."[21]"

http://en.wikipedia.org/wiki/Wind_power_in_the_People%27s_Republic_of_China

look at the actual numbers.

in 2009 they had 25gw of faceplate and produced 25,000 gwh of power.

25gw x 365 x 24 = 219,000 gwh of faceplate.

that makes yield 25,000/219,000 = 11.4%.

show me ANY even vaguely plausible way to get a turbine to be economic at 11.4% yield.

this is going to be a financial disaster for them.

nice try rufie, but these appeals to authority are going nowhere.

i presume you saw what happened to t-boone and his wind projects?

NO ONE is making money generating wind power. the guys who make the turbines, blades, do construction, mine the rare earths etc are (in some cases) but literally no one can make turning wind into electricity pay.

the physics are always going to be the physics. power over sweep for wind is a third power function of velocity. unless you can alter that physical law or make the wind blow at one speed all the time, wind is never going to work.

 
At 3/23/2012 12:26 PM, Blogger morganovich said...

rufus-

30% is nothing like right. it's a made up number.

holland gets .186. germany .167. china .114.

believe in the magical wind unicorns of iowa if you like, but that does not make them real. 30% yield does not happen, but even if it did, wind is still a huge loser.

you'd get 3.5% annual ROIC. that would not even cover funding costs assuming zero maintenance (and wind turbines need serious maintenance).

you are the one making up numbers, but even when you do, the math doesn't work.

what is it about this you find so difficult to grasp?

wind cannot make money unless electricity wholesale price jump from $27 to maybe $100/mwh.

even then, it's a lousy, inconsistent way to make power than can NEVER be a part of baseline power.

 
At 3/23/2012 12:27 PM, Blogger Rufus II said...

T Boone got short on money, and he couldn't get his "water scheme" approved.

Wiki on China Wind Power? really?

It doesn't matter, Morgan. Old turbines in China, or The Netherlands, or whatever else the deranged "experts" at wiki can come up with.

I'll go with what the American Utilities are paying to the American Wind Producers; and that is a heck of a lot more than your numbers.

 
At 3/23/2012 12:48 PM, Blogger Breaker Morant said...

Rufus...BUT, the fact is, all of those wells that Apache has fracked to date will be, either shut down, or producing less than 10 barrels/day in 10 yrs.

Those Turbines, on the other hand, will just be getting "warmed up."<<<

If by getting "warmed up" you mean maintenance problems starting-then you might be right. Remember these wind towers only have an estimated life of 20 years.

I attended a seminar on appraising wind towers this winter and the gist of it was -If you are a land owner who has leased land to wind towers -you do not want to be an owner of a wind tower after 10 years because of maintenance issues. The companies tend to offer the landowner to become part owners of the tower (trading some of their land lease payments) just about the 5 and 10 year time frame-which are major maintenance points. Things start to go wrong then.

 
At 3/23/2012 12:56 PM, Blogger juandos said...

"I have re-checked my numbers. So has Warren Buffet. He's buying a bunch of them"...

Apparently the only real math being considered by Buffet and others is how leech off the taxpayers...

Wind power wouldn't pay but for tax subsidies...

 
At 3/23/2012 1:10 PM, Blogger juandos said...

"I'll go with what the American Utilities are paying to the American Wind Producers; and that is a heck of a lot more than your numbers"...

So what is the American Utilities cut on this theft of private wealth in this redistribution scheme?

From Bloomberg: Making the Wrong Case for Renewable Energy: Severin Borenstein
Feb 13, 2012

 
At 3/23/2012 3:32 PM, Blogger VangelV said...

compare that to 42bpd from that well which is 42 X 365 x $100 = $1.5 million a year (payback in 4 months). that well pays for itself at a $500k cost in 4 months.

Careful. The cost of a typical horizontal well runs $5 to $7 million a pop, not $500K. For that well to pay back investors it needs to produce enough barrels that would offset the drilling costs and cover all of the costs of creating the equipment required to gather and transport that oil. The model failed for shale gas even though people like Mark were hyping shale gas as a game changer. At this time the same promoters have moved the hype to shale liquids but if you look at the 10-Ks you find that the shale producers are having a hard time self financing. If you listen to the conference calls you hear a lot of mention being made of funding gaps and challenges that will require asset sales.

Now you could argue that it is different this time but I doubt that for 90% of the shale formations you can make any profit. While there is some hope for a few areas in the better shale formations in California and Texas the total output will be limited. And if you look at the depletion rate math you find that you need massive amounts of new investment just to offset the production declines even if you do not want to grow production by much. (An optimistic estimate would have a drop of 65% by the end of the first year with a further 35% decline by the end of the second year. Do the math. If you are optimistic forget the shale producers and go with the drillers. If you are a skeptic like me go with the undervalued coal, and conventional producers.

 
At 3/23/2012 3:37 PM, Blogger VangelV said...

BUT, the fact is, all of those wells that Apache has fracked to date will be, either shut down, or producing less than 10 barrels/day in 10 yrs.

Those Turbines, on the other hand, will just be getting "warmed up."


Both are losers and could not exist for long in a market environment that is free of subsidies and excessive central bank money printing. Wind power is not competitive today and will not be competitive for years. Without subsidies it would die. Shale gas and oil are not economic but can keep going for a while as long as the Fed is flooding the system with liquidity and oil prices remain elevated and attractive to those that do not understand the economics of production.

 
At 3/23/2012 3:47 PM, Blogger morganovich said...

rufus-

"I'll go with what the American Utilities are paying to the American Wind Producers; and that is a heck of a lot more than your numbers."

then you're going to keep getting the wrong answer.

the numbers you cited were projections and estimates, not real numbers.

holland etc were using far newer equipment that that iowa farm

you are using imaginary electricity prices as well.

i gave you a link right to the EIA for electricity wholesale prices. they are around 1/2 the number you are trying to use.

you have not yet cited a single piece of hard data.

you are also mistaking huge taxpayer subsidies for economic viability. sure, with feed in subsidies etc, maybe you can make a turbine pay. the UK is particularly egregious in this regard, but the countries with the longest experience like holland and germany are all phasing them out, making wind a huge loser.

you keep ducking the key issue which is that even at your overly optimistic assumptions, the math still does not work without huge subsidies.

i notice you are repeatedly silent on that.

even at 30% yield, which does not happen, they don't pay.

$2mm a megawatt for 2628 mwh a year is always going to be a loser.

that's $70 k worth of power a year at $27/mwh. 3.5% yield before line loss, maintenance, land costs etc will never, ever pay.

you can't even break even over a 20 year useful life.

the math here is very straightforward.

you can try to ignore it all you want, but the facts are the facts. wind cannot pay for itself absent subsidy.

 
At 3/23/2012 3:50 PM, Blogger morganovich said...

v-

i hear you. i was not really trying to argue that shale oil is a great investment, just playing with the numbers in the piece.

if that $500k number is real, then the payback could be significant. at $4-5 million, it's going to depend a ton on how the flow holds up, and that's not terribly clear.

 
At 3/23/2012 5:13 PM, Blogger Ron H. said...

Rufus: "It doesn't matter, Morgan. Old turbines in China, or The Netherlands, or whatever else the deranged "experts" at wiki can come up with.

I'll go with what the American Utilities are paying to the American Wind Producers; and that is a heck of a lot more than your numbers.
"

"I don't care what you say," says Rufus. "That's my story, and I'm sticking to it. You keep trying to confuse me with actual data, but I like my AWEA estimates better."

Buffet and Pickens know a good thing when they see one.

But! That could be changing if Congress takes its grabby hand out of my pocket.

The "Witchita Eagle" reports:

"An industry executive said plainly that losing the subsidy will kill almost all new construction because it makes the power too expensive. One wind energy manufacturer in Colorado is promising large layoffs if the subsidy isn’t renewed."

Hmm. What was that about "what works in Kansas"?

 
At 3/23/2012 10:04 PM, Blogger Rufus II said...

Morgan, you keep using that very low "wholesale" number. However, many time the wholesale price of electricity will be 10 times as high, or higher. It's also predicated on an unnatural glut in nat gas that will fairly soon turn into an Acute Shortage.

Anyway, these turbines are almost all set up under long-term (usually 20 years) Power Purchase Agreements. As a result, the price they're getting is much higher than the wholesale prices you're quoting.

For instance, if you had carefully read the link to the Iowa Wind Farm you would see that they're receiving $100.00/MW hr.

 
At 3/24/2012 12:47 AM, Blogger Larry G said...

This comment has been removed by the author.

 
At 3/24/2012 12:55 AM, Blogger Bogey Juan Kenobi said...

Wind and/or solar are not grid-ready and won't be in our in the next 30 -50 years barring a huge technology gain. The physics does not work and has never worked. Feasible for self-generation only.

 
At 3/24/2012 12:56 AM, Blogger Bogey Juan Kenobi said...

Wind and/or solar are not grid-ready and won't be in our in the next 30 -50 years barring a huge technology gain. The physics does not work and has never worked. Feasible for self-generation only.

 
At 3/24/2012 12:56 AM, Blogger Bogey Juan Kenobi said...

Wind and/or solar are not grid-ready and won't be in our in the next 30 -50 years barring a huge technology gain. The physics does not work and has never worked. Feasible for self-generation only.

 
At 3/24/2012 1:18 AM, Blogger OBloodyHell said...

>>> it's interesting that you describe these wells as of little value, but that you feel like spending $2 million per mw on wind works.

Yes, well, he figures his favorite politicos will always have a job, if mere mindless bloviating can provide electric power.

"Per se".

 
At 3/24/2012 1:27 AM, Blogger OBloodyHell said...

>>> Those Turbines, on the other hand, will just be getting "warmed up."

Indeed, by that time, they'll have fully killed off the endangered Golden Eagles and California Condors, and be well on the way to eliminating a wide range of slightly less endangered species, including bats:

"It would take 167 pairs of local nesting golden eagles to produce enough young to compensate for their mortality rate related to wind energy production," said field biologist Doug Bell, manager of East Bay Regional Park District's wildlife program. "We only have 60 pairs."

and


…Bats are getting whacked, too. The Pennsylvania Game Commission estimates that wind turbines killed more than 10,000 bats in the state in 2010.

and

Last June, the Los Angeles Times reported that about 70 golden eagles are being killed per year by the wind turbines at Altamont Pass, about 20 miles east of Oakland, Calif. A 2008 study funded by the Alameda County Community Development Agency estimated that about 2,400 raptors, including burrowing owls, American kestrels, and red-tailed hawks—as well as about 7,500 other birds, nearly all of which are protected under the Migratory Bird Treaty Act—are being killed every year by the turbines at Altamont.

Links for above here and here

So you're perfectly correct, they'll JUST BE STARTED on the eliminated species...

 
At 3/24/2012 1:39 AM, Blogger OBloodyHell said...

>>> Those Turbines, on the other hand, will just be getting "warmed up."

Actually, no, they'll at least halfway through their life span of 20 years:

Modern wind turbines [are] designed to work for 120 000 hours throughout their estimated life-span of 20 years. This would be the turbine operating for approximately 66% of the time for two decades.


And here's the beautiful stat I bumped into while searching for the above:

47 windturbines to power a [Dutch] household....An average American household consumes almost 3 times as much electricity as a Dutch household.

source here

 
At 3/24/2012 1:50 AM, Blogger OBloodyHell said...

Rufus: "Wiki on China Wind Power? really?"

[head]{-------------}[rectum]

substantially more separation is called for


It's widely known, all I did was search for: "billions wasted wind power china

here's one:
Chinese Waste Billions Building Unused Wind Power Capacity

Well, i grant it's not widely known in that place you keep your head and pull your stats and figures from, but, hey, if you pull it out and look around a bit more, you might actually get some real information.

You're clueless. Hell, you're the POSTER CHILD for "Clueless Anonymous".

 
At 3/24/2012 7:21 AM, Blogger Larry G said...

Here's an interesting chart:

http://en.wikipedia.org/wiki/File:Levelized_energy_cost_chart_1,_2011_DOE_report.gif

 
At 3/24/2012 7:30 AM, Blogger Larry G said...

and another:

http://en.wikipedia.org/wiki/File:Levelized_energy_cost_chart_2,_2011_DOE_report.gif

source data:

http://goo.gl/6GW96

 
At 3/24/2012 8:45 AM, Blogger Rufus II said...

The small turbines used at Altamont are dangerous to various raptors that hunt California Ground Squirrels in the area. 1300 raptors are killed annually, among them 70 golden eagles, which are federally protected; in total, 4700 birds are killed annually.[3] Considered largely obsolete, these numerous small turbines are being gradually replaced with much larger and more cost-effective units. The larger units turn more slowly and, being elevated higher, are claimed to be less hazardous to the local wildlife. This claim is supported by a report done for the Bonneville Power Administration.[4]

As of 2010, a settlement has been reached between the Audubon Society, Californians for Renewable Energy and NextEra Energy Resources (who operate some 5,000 turbines in the area). Nearly half of the smaller turbines will be replaced by newer, more bird-friendly models. The project is expected to be complete by 2015 and includes $2.5 million for raptor habitat restoration.[5]


BTW, those small (0.12 MW,) fast-turning turbines are 40 years old, and are only being replaced to increase efficiency, and lower the number of bird kills.

Kinda puts that 20 yr life expectancy claim for new turbines into doubt.

 
At 3/24/2012 8:47 AM, Blogger Rufus II said...

Source

 
At 3/24/2012 9:42 AM, Blogger morganovich said...

rufus-

that's a bogus comparison.

the new turbines are much, much larger. they have vastly more stress on bearings, towers, etc. the size of the blades and the forces have gone up by multiples. the tensile strength of steel and aluminum have not.

the blades are now carbon fiber and and have a 300ft+ rotor diameter.

here's a quote from the vestas website. (they are the biggest manufacturer of wind turbines)

http://www.vestas.com/en/wind-power-plants/operation-and-service/service.aspx#/vestas-univers

"Wind turbines need to be continually serviced to perform consistently at their best. Harsh weather conditions over the course of a turbine’s typical 20 year service life can reduce the overall performance of a site, resulting in a loss of earnings and a poor return on your investment."

you seem determined to try to find bad comparisons and ignore the outright data here. why the deep commitment to making up facts to try and make wind work?

 
At 3/24/2012 9:53 AM, Blogger morganovich said...

this is from the v164-7.0, the most advanced and biggest turbine they make.

"Maximising the business case certainty and return on investment thanks to the 25 year structural life time – outstanding by industry standards."

25 year life is the current pinnacle of durability.

http://www.vestas.com/en/wind-power-plants/procurement/turbine-overview/v164-7.0-mw-offshore.aspx#/vestas-univers

of course, that assumes regular maintenance, and maintenance on an offshore turbine is VERY expensive.

imagine servicing a 164m rotor that is situated offshore and i suspect you can imagine why.

note that these are not even available yet. they hit the market in q4 2012 as prototypes.

they BRAG about a 25 year design life.

this seems to pretty much put paid to your notions that 40 years is normal.

 
At 3/24/2012 10:03 AM, Blogger morganovich said...

rufus-

"For instance, if you had carefully read the link to the Iowa Wind Farm you would see that they're receiving $100.00/MW hr."

and you have just nailed the issue.

power from other sources is $27. these guys are getting feed in subsidies that pay them $100 (and still lose money).

where to you think the difference is made up?

it's our tax dollars rufie.

they are getting nearly 4X the going rate for power by taxing you and me (or at least me, i have no idea if you pay taxes).

this is not wind farming, it's subsidy farming. it makes ethanol look like a fantastic program in comparison, and ethanol has been a disaster.

you just unwittingly sunk your entire ergument.

sure, it might make sense for ME to build a turbine if i am guaranteed a price 300% above market, but as a society, it's a huge loser.

you never prosper by paying $4 for something that costs $1.

 
At 3/24/2012 10:45 AM, Blogger Rufus II said...

You're obfuscating, Morgan. They will also be getting paid $100.00 when the wholesale price is $350.00

Surely you understand that the current very low wholesale price is a function of a very warm winter, and an Enormous Bubble in the availability of Nat Gas.

I know you understand that the price of nat gas in a year, or two, is liable to be back in the $15.00 range.

 
At 3/24/2012 11:19 AM, Blogger morganovich said...

rufus-

"You're obfuscating, Morgan. They will also be getting paid $100.00 when the wholesale price is $350.00"

no, you are both obfuscating and wrong.

1. a jump to $350 during the useful life of those turbines is so unlikely as to be essentially impossible.

2. if the wholesale price of power did, by some outlandish turn of event, jump by 1300%, they would take the wholesale price. i doubt they are locked in. they may have a purchase guarantee, but but i doubt they are required to sell to anyone in particular.

in many places (like the UK) the feed in subsidy is just a set $ value per kwh. they sell at market, then get a 3-5X that from the government on top. i just spoke a few weeks ago to a company looking to capitalize on just that. they freely admitted that wind was totally uneconomic, but the subsidies were guaranteed, so they saw a great business case for themselves, even if it's a big net loser to the economy as a whole.

to use such an absurd example while accusing me of obfuscating seems pretty disingenuous.

if i gave you a 10 year deal to buy honda accords from you for $100k each, would you really feel worried that you'd wind up losing out?

would accords jumping to $350k in price be your big concern?

i really don't get it. how can you argue that paying 4X the going rate for electricity is a good thing for an economy?

why push a technology that is more expensive and less reliable than the existing ones?

technologies get adopted when they make sense. trying to force them into use when they do not just creates huge deadweight losses.

 
At 3/24/2012 11:34 AM, Blogger morganovich said...

"I know you understand that the price of nat gas in a year, or two, is liable to be back in the $15.00 range."

huh?

no, i do not understand that. i'd happily make a bet with you right now that it won't be anything like that. that's an outlandish claim, and factually inaccurate as well.

wellhead prices have NEVER been $15.

http://www.eia.gov/dnav/ng/hist/n9190us3m.htm

there have been a couple blips to $10, but it's never been there on a sustained basis and has been dropping like a rock for 4 years.

further, the electricity price at wholesale during last year's extremely cold winter was maybe $35. and note that that's PEAK usage price for trading, not the actual costs, which are considerably lower.

http://www.eia.gov/electricity/wholesale/index.cfm

these are the prices for traded power. you only trade power when you are near peak use. if you are running at 60%, you don't buy.

that's a far cry from $350.

you seem to have some very odd ideas about pricing in these markets.

 
At 3/24/2012 12:32 PM, Blogger Rufus II said...

Texas got to $350.00 last summer, I believe.

Nat gas was trading for $13.50 on the futures market in '08, I think it was.

Rigs have been leaving the gas fields for the oil fields for a couple of years, now. Nat gas will overshoot just like it always does. They don't call it the "widowmaker," for nuthin.

 
At 3/24/2012 1:45 PM, Blogger morganovich said...

rufus-

prices in TX were not $350. they were not even close to that.

might there have been one small trade during a peak surge that traded there? possibly, but i doubt it.

but average power prices were NOTHING like that.

you have to realize that you can get a monstrous spike in power prices if demand goes over output int he very short term, but that such spikes (often supplied by fast start natgas which is very inefficient) have little effect on the overall rates.

texas has very expensive power, but you are off by close to an order of magnitude if you are looking at average rates, not a 1 hour spike for a little overpeak power.

 
At 3/24/2012 1:46 PM, Blogger morganovich said...

also:

futures are henry hub prices. that had more to do with pipeline capacity issues for delivery than anything else.

so, you wanna take this bet on $15 NG in 2 years?

i'll happily take that bet in any size you like including simply a gentleman's wager.

 
At 3/24/2012 3:14 PM, Blogger Rufus II said...

Jousting at strawmen, agin?

I said "got to," not "average."

Morgan, you have no more idea how high the next spike in nat gas can go than I do. But, I think we can agree that we won't be looking at $2.70 next Summer.

 
At 3/24/2012 3:15 PM, Blogger Rufus II said...

I ain't no gennulman. I used to work for a living.

 
At 3/24/2012 4:57 PM, Blogger morganovich said...

rufus-

that's an incredibly disingenuous argument.

you put out a data point at $300 that is wildly out of line with averages as an attempt to slant the debate on electricity prices, then cry foul when someone points out that it's not representative?

give me a break.

your calling that a straw man is a de facto admission tjhat the data-point you first used was irrelevant when you used it and that you did so deliberately.

your logic is coming apart here rufie. you can't have it both ways. attempting to cry "rhetorical trick" on me to try to weasel out of getting caught in your own bad rhetoric isn't going to work.

i'm terribly pleased to hear you are not interested in a gentleman's wager (note: i never called you a gentleman).

ho much money would you like to bet that nat gas prices are over $15 in 2 years?

i'm sure we could set up an intrade contract.

 
At 3/24/2012 5:04 PM, Blogger morganovich said...

ps,

"Morgan, you have no more idea how high the next spike in nat gas can go than I do"

yes i do. i have been doign a not insignificant amount of work of late on nat gas and dual fuel engines. no one in that industry or the nat gas industry is predicting anything like the move you are and i see absolutely nothing in the basic supply demand situation that makes me thing you are even close to right.

in fact, i'd be willing to bet on it. how about you?

you registered to trade futures?

seems to me you are just running your mouth based on absolutely no information at all.

 
At 3/24/2012 10:25 PM, Blogger Ron H. said...

"The larger units turn more slowly and, being elevated higher, are claimed to be less hazardous to the local wildlife. This claim is supported by a report done for the Bonneville Power Administration."

It's not clear why taller turbines would make any difference to raptors, who can and do hunt at both higher and lower altitudes than wind turbines of any size. And, although newer turbines may turn slower, the ends of the blades travel at well over 100mph, something that is outside the bird's previous experience. If anything, it would seem like the much greater amount of air movement in the vicinity of the towers would cause birds even more trouble.

We shall see, I guess, but my bet is on more bird kills.

 
At 3/24/2012 10:30 PM, Blogger Ron H. said...

"The project is expected to be complete by 2015 and includes $2.5 million for raptor habitat restoration."

That's a laugh. they don't need restored habitat, they need fewer massive objects rushing through the air toward them at more than 100mph. Soon they may not need any habitat at all.

 
At 3/24/2012 10:56 PM, Blogger Ron H. said...

Rufus: "Texas got to $350.00 last summer, I believe.

Nat gas was trading for $13.50 on the futures market in '08, I think it was.
"

You need to do better than that to be taken seriously.

 
At 3/25/2012 8:17 AM, Blogger juandos said...

"t's not clear why taller turbines would make any difference to raptors, who can and do hunt at both higher and lower altitudes than wind turbines of any size"...

That reminds me ron h of a conversation I had with the daughter of a friend of mine...

We were sitting around in my friend's 'entertainment room' watching Syracuse lose Ohio state and at half time the subject of windmills for juice came up...

The daughter who's in some sort of post grad agronomy/biology track is doing field work (apparently dozens of others are also doing the samething all over the country) studying the habits of raptors and what they normally feed on...

What was I thought interesting is that many of the field workers are wondering if the field critters raptors normally feed on are starting to figure out that its safer to make their burrows near the base of these windmills...

So there's that proverbial silver lining again...:-)

 
At 3/25/2012 8:36 AM, Blogger Rufus II said...

Morgan, you saw that chart that Dr. Perry put up; half of the rigs have left the gas fields, and are now drilling for oil.

You've also seen what Vange has written about the Decline rates in those fracked fields.

That is all lining up for an explosive move upwards in the price of nat gas. If you want to bet the other way, Good Luck.

 
At 3/25/2012 8:53 AM, Blogger morganovich said...

rufus-

translation-

you actually have no confidence in your prediction at all, nor any understanding of how gas works.

1. there are still A LOT of gas rigs.

2. there is still a huge amount of "stranded gas". so long as there is more gas available for sale than can go in the pipelines, the price is going nowhere.

3. you are now making a straw man argument and tying to change your bet. you are the one who said it was clear that prices were going to $15. but, when pressed, you back away. the simple fact is you made a ridiculous claim and are now trying to get out of it without admitting so. might gas prices rise a bit, yes, but $15, that's just fantasy land like most of the rest of the numbers you have been throwing out trying to justify wind.

 
At 3/25/2012 8:58 AM, Blogger Rufus II said...

Here, Ron, and Morgan:

Nat Gas $15.38 in Dec of '06


With another spike to $13.50 in the Summer of '08.

 
At 3/25/2012 9:01 AM, Blogger Rufus II said...

That was really tough. I typed: natural gas hist . . . into the old bingo machine, and it completed the heading for me. That was the first item to pop up.


About that "fantasy-land" . . . .

 
At 3/25/2012 9:04 AM, Blogger Rufus II said...

Make that $15.38 in Dec. '05

 
At 3/25/2012 9:26 AM, Blogger Rufus II said...

Gee, they wuz here just a minute ago.


They musta went to church, I guess. :)

 
At 3/25/2012 9:47 AM, Blogger morganovich said...

rufus-

as you seem to be ignoring, that's a henry hub price, inflated by contango and distorted by other issues.

well head prices (which is what were were discussing) have never been there.

http://www.eia.gov/dnav/ng/hist/n9190us3m.htm

they are a much better gauge of supply/demand than henry hub which has numerous other effects from pipeline issues, contango, etc.

further-

you leave something very important out of your rig count notions:

sure, the % of NG rigs has dropped, but the number of overall rigs is exploding.

actual rig count in the US is up over 13% from a year ago.

this means the drop in the absolute number of rigs drilling gas is not as large as you might think.

further, even the futures markets don't think much of your notions either.

the 4/14 contract has lost nearly a dollar of value in the last 4 months.

in fact, the march contract is now in backwardation relative to feb etc. sure, this warm winter has held prices low, but using typical contagno rate from now to then, the 2 year out spot price is being predicted at about $3.00-3.50, a far cry from your $15 notion.

nat gas production in the US is up 20% from 2006.

http://www.eia.gov/dnav/ng/ng_prod_sum_dcu_NUS_a.htm

and net storage remains significant at 1.4% of consumption.

http://www.eia.gov/dnav/ng/ng_sum_lsum_dcu_nus_a.htm

it's going to take a great deal to flip that over. there was net storage even in 2010 despite the bitterly cold winter.

 
At 3/25/2012 9:57 AM, Blogger Rufus II said...

Bullhockey. You don't pay "wellhead" price. I don't pay "wellhead" prices, and your local utility doesn't pay "wellhead" prices.

You were just flat wrong.

As for "futures contracts:) If you're buying'em, you better ask yourself who it is, ezzackly, that's "selling'em" to you?

 
At 3/25/2012 10:01 AM, Blogger Rufus II said...

U.S. Natural Gas Rig Count Drops to 10 Year Low.


Down to 652 rigs (from a high of, what, about 1,100?)

 
At 3/25/2012 10:20 AM, Blogger Rufus II said...

The Gas rig count actually got up to 1,600 in '08

 
At 3/25/2012 11:09 AM, Blogger juandos said...

"Bullhockey. You don't pay "wellhead" price. I don't pay "wellhead" prices, and your local utility doesn't pay "wellhead" prices.

You were just flat wrong.
"...

You know this how rufus?

Mind you I'm not disagreeing with you I'm curious as to your line of information on natural gas pricing structures for consumers...

 
At 3/25/2012 11:12 AM, Blogger Rufus II said...

Well, who do you buy YOUR nat gas from, J?

 
At 3/25/2012 11:19 AM, Blogger Rufus II said...

A lot of stuff has to happen between the wellhead, and customer, Juandos. Morgan was just trying to salvage an untenable position.

 
At 3/25/2012 6:41 PM, Blogger morganovich said...

rufus-

you are just plain wrong.

you think utilities use futures to buy gas? that would be insane. why pay the contango?

they are minuscule relative to the market.

may open interest is 300k contracts.

open interest for the next 12 months is maybe 4% of US annual consumption.

further, contracts are denominated in millions of BTU, not the cubic feet that the market actually works on.

you are trying to use a flea to stand for the dog and mixing up your units as well.

you are either trying to obfuscate to hide how wrong you are or you really have no idea what you are talking about.

if you really want granular consumer data, you need to use city gate prices. (down over 40% from 2008 and has NEVER had an annual average in the double digits)

henry hub is utterly irrelevant to consumers. why mix in the price to get it to Louisiana? that has ZERO to do with most consumers whereas wellhead is the feed price for everyone. it's centered on export, not US consumption.

nice try, but you are just flat wrong. perhaps if you spent less time grandstanding and more actually learning what you are talking about, this would not happen to you.

you sure seem unwilling to put your money where you mouth is for someone so opinionated.

further, trying to use rig count as a proxy is just more foolishness.

it's well count and production that matters. you can easily gauge supply vs demand by how much is getting stored. nat gas production was up over 6% last year. consumption was up 3%.

if that strikes you are a recipe for big price jumps, you have some very strange ideas about the slopes of supply and demand curves.

 
At 3/25/2012 7:06 PM, Blogger Ron H. said...

juandos: "What was I thought interesting is that many of the field workers are wondering if the field critters raptors normally feed on are starting to figure out that its safer to make their burrows near the base of these windmills..."

Wow. Hadn' thought of that, but it makes perfect sense. Those that live near towers don't see as many raptors.

Ain't natural selection great?

Wait till towers start tilting from the sponge-like quality of the ground underneath them.

 
At 3/25/2012 7:16 PM, Blogger Ron H. said...

juandos: "What was I thought interesting is that many of the field workers are wondering if the field critters raptors normally feed on are starting to figure out that its safer to make their burrows near the base of these windmills..."

Wow. Hadn' thought of that, but it makes perfect sense. Those that live near towers don't see as many raptors.

Ain't natural selection great?

Wait till towers start tilting from the sponge-like quality of the ground underneath them.

 
At 3/26/2012 12:50 AM, Blogger juandos said...

"Well, who do you buy YOUR nat gas from, J?"...

Lacled Gas rufus and have been for over thirty years...

Yet they still can confuse the hell out of me with regards to gas pricing...

 
At 3/26/2012 12:58 AM, Blogger juandos said...

"Wait till towers start tilting from the sponge-like quality of the ground underneath them"...

Hmmm, interesting point...

ron h I've actually only seen one tower put in and it used a four point anchor system of a sonotube that was four foot in diameter and 30 foot long which of course was filled with a rebar (inch & 3/4) structure and cement...

It was out by Plano, Tx a couple of years ago and the company doing it said that's how they did all their towers for this one 'no name company but belong to T. Boone Pickens shell company'...

Made me wonder if the who scam wasn't some sort of money laundering scheme...

 
At 3/26/2012 8:17 AM, Blogger Rufus II said...

Yeah, Morgan, I guess you're right; I guess we should have gone ahead and shorted that $7.50 Corn.


. . . . Oh, wait, . . .

You wanted the "Long" end, didn't you?

Oh well. :)

 
At 3/26/2012 11:12 AM, Blogger morganovich said...

rufus-

you have now devolved into babbling non sequitor.

what in the world does corn have to do with any of this?

 
At 3/26/2012 1:21 PM, Blogger Rufus II said...

Because last year I said corn would be going down from there ($7.50/bu,) and you spent quite a lot of time telling me I was crazy, and wanting to "bet me."

 

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