WIND ENERGY WEEKLY

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Vol. 15, #684, 12 February 1996, published by the American Wind Energy Association. The full text of the WEEKLY is available in hardcopy form for $595/year and is recommended for those with a serious commercial interest in wind (the electronic edition contains only excerpts). A monthly hardcopy publication, the WINDLETTER, more suitable for those interested in residential wind systems is included with a $50/year individual membership in the Association. AWEA's goal is to promote wind energy as a clean and environmentally superior source of electricity. Anyone sharing this goal is invited to become a member. For more information on the Association, contact AWEA, 122 C Street, NW, 4th Floor, Washington, DC 20001, USA, phone (202) 383-2500, fax (202) 383-2505, email "windmail@mcimail.com. Or visit our World Wide Web site at "http://www.econet.org/awea

. ENERGY OUTLOOK

World oil production to peak soon; price shocks foreseen

TRADE NEWS

Zond turbines survive 117 mph winds at CSW plant

ZOND TURBINES WITHSTAND
BRUTAL WEST TEXAS WINDS

Zond turbines installed at Central and South West Services' (CSW) 6-MW wind plant in west Texas survived a wind storm with 117 mph gusts January 19.

The project, comprised of 12 Zond Z-40 turbines, operated as expected during the storm. "These were high wind speeds, but you occasionally see such extremes, and the Z-40 is designed to withstand even greater winds," said Zond's vice president of operations, Tom Biernat. The Z-40 is designed to meet ECI Class One standards, he explained, which require turbines to endure a 50-year extreme wind of 157 mph and an annual wind speed of 117 mph. According to Biernat, winds at the west Texas site average about 15 mph.

The CSW project was dedicated on September 29, 1995 (see WIND ENERGY WEEKLY #666, October 2, 1995). According to CSW's Ward Marshall, minor startup problems have been ironed out and the project has been operating as expected.

The plant was developed under the Utility Wind Turbine Performance Verification Program (sponsored by DOE and the Electric Power Research Institute), which is meant to encourage commercial purchases of advanced wind turbines by providing data on their performance and giving utilities firsthand experience with them. According to Marshall, the turbines are now going through "acceptance testing." To be accepted, each turbine must operate without any mechanical glitches for 30 days. Once each of the turbines has made it through this trial, they will be accepted as a group.

NEW OIL PRICE SHOCK SEEN
LOOMING AS EARLY AS 2000

If present economic and oil industry trends continue, future price shocks appear likely as early as the year 2000, with the world facing permanent increases in the price of oil, two new studies have concluded.

The first study, THE WORLD OIL SUPPLY 1990-2030, which was completed in late 1995 by the prestigious Geneva, Switzerland- based group Petroconsultants, deals with the realities of the statistics, pointing out that the world is finding only about seven billion barrels of oil each year in a falling trend, while producing 23 billion barrels a year in answer to rising demand. The study describes this situation as a recipe for bankruptcy.

The second report, prepared by Oak Ridge National Laboratory for the Office of Transportation Technology of the U.S. Department of Energy and made public in mid-January, suggests that the OPEC (Organization of Petroleum Exporting Countries) nations, in control of two-thirds of the world's reserves, will soon have the ability to regain monopoly power in world oil markets.

"Price shocks can be very profitable to oil producers, and consuming nations appear to have developed no adequate defense against them," the report warns.

A summary of the studies' findings was released January 30 by Fuels for the Future, a Washington, DC-based public relations organization.

Another warning signal came February 5, as Japan's Ministry of International Trade and Industry (MITI) reported that the level of Japan's crude oil imports from the Middle East reached a new high in 1995 of 78.6 percent of the country's oil imports. Japan imported slightly more than 1.3 billion barrels of oil during the year from the Middle East. Imports from Indonesia and China shrank, partly because of increased consumption within China itself, the Ministry said.

The Petroconsultants study concludes that while the world may not be running out of oil, it is running out of cheap oil. And nothing, it states, contributes more to the high cost of living than high energy prices.

The study emphasizes that a country's or region's peak oil production comes at the midpoint of depletion, when half of its oil has been produced. Then oil production declines to zero at its depletion rate. North American production peaked in 1974, and the world will hit its midpoint around 2000, the consultancy estimates. Although detailed numbers from the Petroconsultants study were not made public, the group previously predicted in 1994 that production would peak in the year 1999 at 65.6 million barrels a day, and decline to 52.6 million barrels a day by 2010. By 2050, the 1994 report said, world oil production would drop to 17.5 million barrels a day, or slightly more than it was in the 1950s.

Interestingly, the Petroconsultants analysis appears to track fairly closely the projections made in the 1950s and 1960s by Dr. M. King Hubbert, the petroleum geologist who first predicted the eventual exhaustion of U.S. and world oil supplies. Hubbert forecast that U.S. production would begin to decline in about 1970 and that world production would crest in 1995. U.S. crude oil output did in fact peak in 1970 at slightly over nine million barrels a day and has declined substantially since.

Dr. Colin Campbell, another oil analyst and author of THE GOLDEN CENTURY OF OIL, 1950-2050: THE DEPLETION OF A RESOURCE, pegs cumulative world oil production through 1993 at 718 billion barrels, with remaining reserves at 932 billion barrels. At the world's current production rate of 23 billion barrels a year, the midpoint between past output and remaining reserves (about 826 billion barrels) should be crossed sometime before the end of the century.

The problem of gradually tightening world oil supplies is exacerbated by a growing concentration of remaining reserves in the Persian Gulf. All other producing countries but the five Persian Gulf states (Saudi Arabia, Iran, Iraq, Kuwait, and the United Arab Emirates) will peak before 2000. The Oak Ridge report points out that by the turn of the century only OPEC will have the capability of developing and producing energy in the quantity required. The report says the problem is not one of the United States running out of oil, but that a handful of nations, which today control about two-thirds of the world's reserves, will have the monopolistic power of a cartel as early as the turn of the century.

During the 1970s the OPEC cartel was able to raise prices dramatically, extracting billions of dollars from consuming nations. But higher prices spurred drilling activity worldwide, and newer technologies reduced consumption to the point that the world had excess capacity for more than a decade. Now supply and demand are nearly in balance and the advantage is swinging to the oil producers. With world demand increasing and the reserves of most producers gradually diminishing, the OPEC cartel with its many resources appears ready to control the market for oil during the early days of the new century, the Oak Ridge analysts said.

The Oak Ridge report, in emphasizing the problem, points out that while farm commodities can increase production within a year, it takes 10 to 20 years to develop and produce oil, lending far greater power to an oil cartel's monopoly in the short run.

The Petroconsultants study suggests that few new petroleum sources will be found in the future, and that therefore, most oil production will have to come from existing fields. Established oil well reserves are currently at about one trillion barrels, but the report does not make the error of dividing this figure by current production to suggest wrongly an extended period of supply-demand balance. The scene, the researchers conclude, is set for another major oil price shock. With a chronic shortfall in supply, the world faces a permanent increase in the price of oil.

The data supplied by Petroconsultants lend support to the conclusions reached in the Oak Ridge report that deal largely with economic consequences to the United States and its standard of living in having to deal with a cartel and its pricing power.

One of the factors that has brought about the increased demand for oil -- estimated to increase by more than two million barrels per day over the next seven years to more than 80 million barrels per day -- is transportation. The growing demand for automobiles in China, India, South Korea and other Asian nations pinpoints the fact that oil production provides 97 percent of the fuel used in transportation. The 600 million motor vehicles worldwide will eventually consume as much as 60 percent of the world's oil.

Simply put, demand for oil is outpacing the world's ability to produce it. Nations unprepared to handle the shortfall will be paying a significantly higher price for oil.

Although wind energy is used predominantly to produce electric power, and competes primarily against gas, coal and nuclear power, its future prospects will also be affected by tighter world oil supplies and rising prices. If compressed natural gas (CNG) becomes the substitute of choice for gasoline as a transportation fuel, then gas producers, too, are likely to find themselves facing supply problems. And to the degree that public attention is focused on energy issues, a pollution-free alternative that now costs only slightly more than conventional sources can only gain.


                       LEGISLATIVE ALERT
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              *             from the               *
              *  AMERICAN WIND ENERGY ASSOCIATION  *
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                          May 13, 1996
Contact: Karl Gawell, Director of Governmental Affairs, (202) 383-2500

On Friday, May 10, the Texas Sustainable Energy and Economic Development (SEED) Coalition issued a statewide Action Alert urging renewable energy advocates to write to Governor Bush and urge the adoption of "minimum benchmark goals" for the incorporation of renewables and energy efficiency in the state's Integrated Resource Planning (IRP) process.

The SEED Coalition action follows the announcement that Governor Bush's "Vision Texas" plan, which has been issued to all state department heads and to the Public Utilities Commission, includes a plan for a benchmark for "renewables as a percentage of total energy used." This is a very positive development in a pivotal state for wind energy, and must be encouraged.

The Renewables Portfolio Standard (RPS) that AWEA has been championing as a means of preserving a market for electricity generated from renewables after utility restructuring fits well with the "minimum benchmark for renewables" concept. We therefore strongly endorse SEED's position that the Governor should be asked to urge the Public Utilities Commission to incorporate the benchmark for renewables as a requirement in the IRP, which governs acquisition of resources by utilities.

We call on AWEA members and other renewable energy supporters in Texas to join in responding to the SEED initiative, quoted in part below:

"Take five minutes and write a letter to the Governor. The letter need not be fancy. Please make the time now--he has to hear from you in the next seven days for your letter to have the most impact. Here's the message we want to send him:

"1) Thank you for including renewables in your Vision Texas plan.

"2) I encourage you to further support energy sustainability by asking the PUC to require that utilities use a portfolio of resources, including renewables and conservation, to meet energy needs.

"3) Texas also needs to adopt minimum benchmark goals for the incorporation of renewables and conservation.

"4) Ask him to respond. A 'Please respond' as your last sentence will do nicely. Don't forget your return address!

"Address your letter to the Governor at:

The Honorable George W. Bush, Governor
Capitol Building
Box 12428
Austin, TX 78711

"Or fax your letter in: (512) 463-1849

"And make a phone call: (512) 463-2000!"

You may also want to stress the fact that the State of Texas owns sizable amounts of land in west Texas that are suitable for wind development and could provide a substantial amount of income from land rents. Gary Mauro, the state's Land Commissioner, noted at a recent meeting in Austin that the Land Office had recently received its first monthly check, for $29,000, from a wind plant in west Texas. Mauro said the state expects to realize $3 million in rents over the life of the wind project.

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