Sunday, October 30, 2011

The Next Big Thing: It's Not Alternative Energy, It's Traditional Energy Through the Miracle of Fracking

From the Bloomberg editorial "Energy Revolution Keeps Carbon on Top," by Nathan Myhrvold, former chief strategist and technology officer at Microsoft and the founder/CEO of Intellectual Ventures:

"A remarkable thing happened in Silicon Valley during the past decade. Venture capitalists and entrepreneurs set their sights on clean energy as the Next Big Thing. They audaciously hoped to reinvent energy by harnessing the incredible innovation that had transformed information technology and biotechnology. 

Some of the best venture capitalists in the business detached from their computing roots and focused on energy startups. The result was a staggering surge of capital into clean-energy technologies. Worldwide, from 2006 to 2010, about $535 billion in venture capital, private equity and initial public offerings as well as mergers and acquisitions flowed into 4,236 clean-tech businesses, according to a recent analysis by GlobalData.

Venture-capital investing is inherently high-risk, so it shouldn’t surprise or bother anyone that many of these startups failed -- some rather spectacularly. Solyndra, the solar-cell company, for example, went bankrupt even after receiving a $535 million in loan guarantees from the U.S. Energy Department. But similar failures happened during the dot-com bubble. Remember and its infamous sock-puppet TV ads?

What is worrying is that almost a decade of energy investing hasn’t produced any home runs -- no green-energy equivalents of eBay, Amazon, Google or Facebook. The modest, incremental advances we have seen don’t perceptibly move the needle on the energy problem.

In the meantime, however, a real revolution has happened in traditional energy -- one that poses a serious challenge to companies and investors betting on alternative energy. This breakthrough is arguably one of the greatest advances in energy production since the 1960s. And it came not from a Silicon Valley company, or from MIT or Stanford, but from George Mitchell, the son of a Greek goatherd who immigrated to the U.S.

After graduating from Texas A&M, Mitchell tinkered with a variety of long-known techniques that had never been used in combination. One of these was horizontal drilling, which originated in the 19th century, was adapted for oil production by the Soviets in the 1930s and was perfected by oil drillers in the 1980s. A second idea was to inject fluid into the rock to fracture it into lots of pieces, thus allowing the gas and oil inside to flow more easily. 

A third technique that Mitchell tried was adding sand to the water to help prop open the cracks that formed in the rock. Together these approaches, collectively called hydraulic fracturing, or “fracking,” allowed drillers to inexpensively recover gas from tight shale rock.

Not so long ago, many people believed that the cost of oil and gas would rise indefinitely, thus supporting the market for alternatives. Mitchell’s miracle has changed that calculus, much to the chagrin of the Silicon Valley venture capitalists who caught the green-energy bug."


At 10/30/2011 5:52 PM, Blogger VangelV said...

Mitchell’s miracle has changed that calculus, much to the chagrin of the Silicon Valley venture capitalists who caught the green-energy bug.

Changed how? The shale gas producers are still chewing through huge amounts of cash and the energy return on the energy invested still does not make the process economical.

In the end, this debate will come down to profit. So far there isn't much profit for the shale gas and oil industry. While players that are in the sweet spots of the best formations can make a lot of money the average shale producer can only lose money.

At 10/30/2011 7:14 PM, Blogger Don said...

It is unlikely that the investors in alternate energy didn't place a significant amount of faith in government subsidies. If so. they more than deserve the total loss of their investments.

Regards, Don Lloyd

At 10/30/2011 9:22 PM, Blogger Rufus II said...

Those corn fields of North Dakota will be producing energy long after the fracced wells of ND are capped, and the pipelines rusted away.

At 10/30/2011 9:29 PM, Blogger Hydra said...

I was working on fracking technology back in the 80's.

It consists of hard work more than it consists of miracles.

Vange: to make the nergy return proactical, maybe we need to run the fracking pumps with wind or solar. ;-)

When I worked on this we used enegetic materials to fracture the rock and drive the fracking fluid. Once you got everything ready it was over in seconds instead of weeks. All you need is the right price.

I can just imagine what the environmentalists would say about that today.

Don: Some people invested by buying solar panels using government subsidies. they pocketed the subsidies and still hae the panels, so they won;t have a total loss. But an investment in Solyndra would have been different.

I think the nxt big thing is localized cogeneration, which can already be profitable - if you can get the permits.

At 10/30/2011 9:52 PM, Blogger Hydra said...

Beacon Power Corp filed for
bankruptcy on Sunday just a year after the energy storage
company received a $43 million loan guarantee from a
controversial U.S. Department of Energy program.

The move comes about two months after solar panel maker
Solyndra also filed for bankruptcy, setting off criticism of the government loan program.


At 10/31/2011 5:41 AM, Blogger rjs said...

kuwait is committed to 10% solar, abu dhabi & the saudis a bit less...

At 10/31/2011 8:39 AM, Blogger VangelV said...

Vange: to make the energy return proactical, maybe we need to run the fracking pumps with wind or solar. ;-)

Don't laugh. I read a piece by a physicist who made the argument that we should use cheap coal or nuclear produced energy to extract oil and gas from shale not because of the energy returns but because the hydrocarbon feedstock for many industries was far more valuable as raw material input than for the energy that it contained.

At 10/31/2011 8:40 AM, Blogger VangelV said...

kuwait is committed to 10% solar, abu dhabi & the saudis a bit less...

I am sorry but even in the desert where sunshine is plentiful solar may not make any sense. To anyone who has not forgotten that we live in the real world the reason should be obvious.


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