Oil at $140 is Still a Modern Miracle
Over the weekend, I was reading an article about T. Boone Pickens' energy plan, a thinly disguised strategy to grab government subsidies for his wind investments. And I started to think how amazing it is that electricity from wind has to be subsidized to compete with electricity from fossil fuels. Here's what I mean:
- To get electricity from wind, one goes to a windy area, and puts up a big pole. I presume that there are costs either in the land acquisition or in royalty payments to the land holder. Either way, one then puts a generator on top of the pole, puts a big propeller on the generator, add some electrical widgets to get the right voltage and such, and hook it into the grid.
- To get electricity from petroleum is a bit more complex. First, it's not immediately obvious where the oil is. It's hidden under the ground, and sometimes under a lot of ocean as well. It takes a lot of technology and investment just to find likely spots where it might exist. One must then negotiate expensive deals with often insanely unpredictable foreign governments for the right to produce the oil, and deal day to day with annoyances up to and including rebel attacks on one's facilities and outright nationalization once the investments have been made. Then one must drill, often miles into the ground. Offshore, huge, staggeringly expensive platforms must be erected -- many of which today can be taller than the worlds largest skyscrapers. Further, these oil fields, once found, do not pump forever, and wells must be constantly worked over and in some cases have additional recovery modes (such as water flood) added.
The oil, once separated from gas and water, is piped and/or shipped hundreds or even thousands of miles to a refinery. Refineries are enormously complex facilities, each representing billions of dollars of investment. The oil must be heated up to nearly 1000 degrees and separated into its fractions (e.g. propane, kerosene, etc.). Each fraction is then desulpherized, and is often further processed (including cracking and reforming to make better gasoline). These finished products are in turn shipped hundreds or thousands of miles by pipeline, barge, and truck to various customers and retail outlets.
To make electricity from the oil, one then needs to build a large power plant, again an investment of hundreds of millions of dollars. The oil is burned in huge furnaces that boil water, with the steam driving huge turbines that produce electricity. This electricity must then go through some electrical widgets to get to the right voltage, and then is sent into the grid.
Incredibly, despite all this effort and technology and investment required to generate electricity from fossil fuels, wind generators still need subsidies to compete economically with them. In a very real sense, the fact that fossil fuels can come to us even at today's prices is a modern day business and technological miracle.
Of course, in the press, the wind guys begging at the government trough are heroes, and the oil companies are villains.
