Wednesday, October 5, 2011

The Ultimate in Greenwashing

Yesterday I was alerted to a news story that Chevron announced a wonderful green project at their oil field in Coalinga California. Coalinga is famous for the Coalinga earthquake of magnitude 6.5 on May 2, 1983. I moved to San Francisco in 1982 and the Coalinga shaker was my first good one. I was working in the Embarcadero Center on the 12 floor and felt the earth move under my feet on that May day. Chevron has some old oilfields in Coalinga that have reserves of heavy oil. They use steam to allow the oil to “thin” and be pumped to the surface. Transporting and refining this heavy oil is an energy intensive process and probably has 25% more associated carbon emissions than the extraction, transporting and refining of light sweet crude. Of course Chevron makes money out of the extraction and refining of this crude and they want to show the world that they are green. So they dreamed up a real Rube Goldberg scheme for boiling the water to produce steam for their “enhanced oil recovery” in Coalinga.

The scheme entails using solar reflecting mirrors and a tower boiler system they purchased from a company they partially own. That company is Brightsource the company our Department of Entropy recently gave $1.6 billion of loan guarantees to for their solar thermal project in the Mojave Desert. Brightsource provided Chevron the solar mirrors and a solar heated tower boiler to produce 29 megawatts of heat in the form of steam for the enhanced oil recovery project. Sounds like a great project and something Chevron can proudly publicize for being part of their “Power of Human Energy” tagline. But let’s examine the project to determine if the steam cleaning is just greenwashing?

The solar system will have an uptime of 2,500 hours per year so the system will provide 247,370 million BTUs of steam energy per year. Chevron could have used natural gas in a standard boiler for this energy and gas at the wellhead has a value of about $4 per million BTUs. Chevron therefore saves $989,000 of natural gas cost each year. The system total installed cost is estimated at $20 million although Chevron paid only half as Brightsource took a $10.3 million loss on the system. This is stated in their S1 filing for their upcoming IPO. If the smoke and mirrors boondoggle cost $20 million to install, it will take 20.2 years to payout the capital cost of the project. The project will save the planet 15,000 tons a year of CO2 emissions had the steam been produced with natural gas. Chevron and Brightsource are industrial companies that should return profits and should expect to recover capital expended on projects in 4 years or less. So the opportunity cost of the project is at least $4 million a year after accounting for the fuel saving. This means the marginal cost of avoided CO2 emission is approximately $265 per ton. But wait Chevron emits 58 million metric tons per year of CO2in its global operation. If they apply this value to each of those tons of CO2 emissions they would bear a cost of $16.9 billion dollars each year. I suggest that we tax Chevron at this rate for their carbon emissions and they will stop the window dressing of this dumb project really fast. Chevron paid $12.9 billion in income taxes in 2010. Adding another $16.9 billion to their tax bill may be a good idea.

As for the other shareholders of Brightsource such as Google, Morgan Stanley and BP the Coalinga demonstration projects cost them $10.3 million to subsidize Chevron. This is small potatoes compared to the $1.6 billion the bright sparks in Washington loaned them for the bigger smoke and mirrors power generation project in the Mojave. My old C 280 needs to have its engine steam cleaned and I expect to have a solar powered steam boiler at my nearby Chevron station soon. I will gladly pay the service station operator an extra five dollars for this greenwashing service.


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