Energy Shift - Natural gas

An unconventional glut

Newly economic, widely distributed sources are shifting the balance of power in the world’s gas markets

Mar 11th 2010 | HOUSTON | From The Economist print edition

SOME time in 2014 natural gas will be condensed into liquid and loaded onto a tanker docked in Kitimat, on Canada’s Pacific coast, about 650km (400 miles) north-west of Vancouver. The ship will probably take its cargo to Asia. This proposed liquefied natural gas (LNG) plant, to be built by Apache Corporation, an American energy company, will not be North America’s first. Gas has been shipped from Alaska to Japan since 1969. But if it makes it past the planning stages, Kitimat LNG will be one of the continent’s most significant energy developments in decades.

Five years ago Kitimat was intended to be a point of import, not export, one of many terminals that would dot the coast of North America. There was good economic sense behind the rush. Local production of natural gas was waning, prices were surging and an energy-hungry America was worried about the lights going out.

Now North America has an unforeseen surfeit of natural gas. The United States’ purchases of LNG have dwindled. It has enough gas under its soil to inspire dreams of self-sufficiency. Other parts of the world may also be sitting on lots of gas. Those in the vanguard of this global gas revolution say it will transform the battle against carbon, threaten coal’s domination of electricity generation and, by dramatically reducing the power of exporters of oil and conventional gas, turn the geopolitics of energy on its head.

Deep in the heart of Texas

The source of America’s transformation lies in the Barnett Shale, an underground geological structure near Fort Worth, Texas. It was there that a small firm of wildcat drillers, Mitchell Energy, pioneered the application of two oilfield techniques, hydraulic fracturing (“fracing”, pronounced “fracking”) and horizontal drilling, to release natural gas trapped in hardy shale-rock formations. Fracing involves blasting a cocktail of chemicals and other materials into the rock to shatter it into thousands of pieces, creating cracks that allow the gas to seep to the well for extraction. A “proppant”, such as sand, stops the gas from escaping. Horizontal drilling allows the drill bit to penetrate the earth vertically before moving sideways for hundreds or thousands of metres.

These techniques have unlocked vast tracts of gas-bearing shale in America (see map). Geologists had always known of it, and Mitchell had been working on exploiting it since the early 1990s. But only as prices surged in recent years did such drilling become commercially viable. Since then, economies of scale and improvements in techniques have halved the production costs of shale gas, making it cheaper even than some conventional sources.

The Barnett Shale alone accounts for 7% of American gas supplies. Shale and other reservoirs once considered unexploitable (coal-bed methane and “tight gas”) now meet half the country’s demand. New shale prospects are sprinkled across North America, from Texas to British Columbia. One authority says supplies will last 100 years; many think that is conservative. In 2008 Russia was the world’s biggest gas producer (see chart 1); last year, with output of more than 600 billion cubic metres, America probably overhauled it. North American gas prices have slumped from more than $13 per million British thermal units in mid-2008 to less than $5. The “unconventional”—tricky and expensive, in the language of the oil industry—has become conventional.

The availability of abundant reserves in North America contrasts with the narrowing of Western firms’ oil opportunities elsewhere in recent years. Politics was largely to blame, as surging commodity prices emboldened resource-rich countries such as Russia and Venezuela to restrict foreign access to their hydrocarbons. “Everyone would like to find more oil,” says Richard Herbert, an executive at Talisman Energy, a Canadian firm using a conventional North Sea oil business to finance heavy investment in North American shale. “The problem is, where do you go? It’s either in deep water or in countries that aren’t accessible.” This is forcing big oil companies to get gassier.

The oil majors watched from the sidelines as more entrepreneurial drillers proved shale’s viability. Now they want to join in. In December Exxon Mobil paid $41 billion for XTO, a “pure-play” gas firm with a large shale business. BP, Statoil, Total and others are sniffing around the North American gas patch, signing joint ventures with producers such as Chesapeake Energy. A wave of consolidation is likely in the coming months, as gas prices remain low, the drillers seek capital and the majors hunt for the choicest acreage.

Shale is almost ubiquitous, so in theory North America’s success can be repeated elsewhere. How plentiful unconventional resources might be in other regions, however, is far from established. The International Energy Agency (IEA) estimates the global total to be 921 trillion cubic metres (see chart 2), more than five times proven conventional reserves. Some think there is far more. No one will really know until companies explore and drill.

The drillers are already arriving in Europe and China, which are both expected to import increasing amounts of gas—and are therefore keen to produce their own. China has set its companies a target of producing 30 billion cubic metres a year from shale, equivalent to almost half the country’s demand in 2008. Several foreign firms, including Shell, are already scouring Chinese shales. After a meeting between the American and Chinese presidents last November, the White House announced a “US-China shale gas initiative”: American knowledge in exchange for investment opportunities. The IEA says China and India could have “large” reserves, far greater than the conventional resource.

Exploration is also under way in Austria, Germany, Hungary, Poland and other European countries. The oil industry’s minnows led this scramble, but now the big firms are arriving too. Austria’s OMV is working on a promising basin near Vienna. Exxon Mobil is drilling in Germany. Talisman recently signed a deal to explore for shale in Poland. ConocoPhillips is already there. The first results from wells being drilled in Poland, in what some analysts believe is a shale formation similar to Barnett, should be released this year.

No one expects production of shale gas in Europe to make a material difference to the continent’s supply for at least a decade. But the explorers in China and Europe present a long-term worry for those who have bet on exporting to these markets. Gazprom, Russia’s gas giant, is the company most exposed to this threat, because its strategy relies on developing large—and costly—gasfields in inhospitable places. But Australia, Qatar and other exporters also face a shift in the basics of their business.

Choked

These producers are already getting a taste of the global gas glut. Almost in tandem with the surge in American production, recession brought a slump in world demand. The IEA says consumption in 2009 fell by 3%. In Europe, the drop was 7%. Consumption in the European Union will grow marginally if at all this year and will not be sufficient to clear an overhang of supplies, contracted through take-or-pay agreements signed in the dash for gas of the past decade. IHS Global Insight, a consultancy, reckons that the excess could amount to 110 billion cubic metres this year, almost a quarter of the EU’s demand in 2008.

The glut has been exacerbated by the suddenly greater availability of LNG. Importers with the infrastructure to receive and regasify LNG can now easily tap the global market for spot cargoes. This is partly a product of the recession, which dampened demand from Japan and South Korea, the leading LNG buyers. But another cause is that many exporters, not least Qatar, the world’s LNG powerhouse, spent the past decade ramping up supplies aimed at the American market. That now looks like a blunder.

America is still taking some of this LNG, but the exporters’ bonanza is over before it ever really began. “You’ll always find a buyer in North America,” says Frank Harris, an analyst at Wood Mackenzie, a consultancy, “but you might not like the price.” And LNG will grow increasingly abundant as new projects due to come on stream this year add another 80m tonnes to annual supply, almost 50% more than in 2008.

Gas out, money in

Qatar’s low production costs mean it can still make money, even in North America. Others cannot. In February, for example, Gazprom postponed its Shtokman gasfield project by three years because of the change in the market. Some of the gas from that field, in the Barents Sea, was to be exported to America. But Shtokman’s gas will be costly, because the field is complex and its location makes it one of the world’s most difficult energy projects to execute. Some analysts now wonder whether gas will ever flow from Shtokman.

China offers some hope for ambitious exporters, but even there the outlook has become cloudier. The Chinese authorities want natural gas to account for at least 10% of the country’s energy mix by 2020 and are building LNG import terminals. With that target in mind, Australia, which has its own burgeoning conventional and unconventional gas supplies, has been busily building an LNG export business. But warning lights are coming on. In January, PetroChina let a deal to buy gas from Australia’s Browse LNG project expire. The original agreement was made in 2007, when LNG prices were soaring in Asia, but China can afford to be picky now. “Too many Australian LNG plants are chasing too little demand,” says Mr Harris.

The shift in the global market has left China well-placed to dictate prices. This will be another blow to Gazprom, which has long talked of exporting gas to the country. Indeed, while the Chinese and the Russians have squabbled over the terms, Turkmenistan has quietly built its own export route to China. Even if Beijing’s shale-gas plans come to nothing, supplies from Central Asia and new regasification terminals along its coast may allow China to reach its natural-gas consumption targets without pricey Siberian supplies.

The glut has weakened Gazprom’s position in Europe, too. It has been losing market share to cheaper Norwegian and spot-market supplies. In 2007 Gazprom talked of increasing its annual exports to the EU to 250 billion cubic metres. Now, says Jonathan Stern, of the Oxford Institute for Energy Studies, Gazprom will probably only ever supply the EU with 200 billion cubic metres a year (it shipped about 130 billion in 2008). The company forecast in 2008 that its gas prices in Europe would triple, to around $1,500 per 1,000 cubic metres, on the back of rising oil prices, which help set prices in long-term contracts. But the price dropped to about $350 last year and is expected to fall again in 2010. The weak market could last for another five years, believes Wood Mackenzie. Gazprom has been renegotiating with leading customers, injecting elements of spot pricing into contracts to make them more attractive.

Shtokman shtymied

Moreover, Europe’s need for new pipelines to guarantee supplies suddenly looks less pressing. Construction of Nord Stream, Gazprom’s flagship project to export gas directly to Germany through the Baltic Sea, will begin next month. It is due to come on stream in 2011. The scheduled doubling of its capacity to 55 billion cubic metres a year is in doubt, says Mr Stern, because Shtokman was to have supplied the gas for it.

Demand is a bigger problem. Even without recession or European shale, the assumption that Europe’s consumption will keep growing is looking shaky, because the EU’s efforts to boost efficiency and reduce carbon emissions are making gradual headway. Edward Christie, an economist at the Vienna Institute for International Economic Studies, says the EU could be importing a third less natural gas in 2030 than the European Commission forecast in 2005. That makes the case for additional supply lines much less compelling. The IEA expects rich European countries’ demand to grow by only 0.8% a year in the next two decades, against 1.5% for the world as a whole (see chart 3).

An age of plenty for gas consumers and of worry for conventional-gas producers thus seems to be dawning. But two factors could reverse the picture again. The first surrounds the uncertainty about how fruitful shale exploration will be outside North America. A clearer understanding of the geology will emerge from pilot wells in the coming months. Second, there are reasons for caution above ground, too. Despite natural gas’s greener credentials than oil’s or coal’s, shale drilling has critics among environmentalists, who worry that water sources will be poisoned and landscapes despoiled.

The industry says cement casing of wells and the depth to which they are drilled make the practice safe and relatively unobtrusive. But so far it has been drilling mainly in North America, where land is plentiful and people are accustomed to the sight of oilmen’s detritus. In densely populated Europe, the rapacious rate at which shale plays must be drilled to sustain production is less likely to be tolerated.

Even in America, opposition to shale gas is rising. New York state has imposed a moratorium on drilling in its portion of the Marcellus Shale, which it shares with Pennsylvania. Lawmakers in Congress want to study the ecological impact of fracing. The Environmental Protection Agency, a federal body, also raised concerns about “potential risks” to the watershed.

The path of demand in gas’s new age is hard to predict, but abundant new sources could bring about profound change in patterns of energy consumption. Some of the downward pressure on price will ease: despite sedate growth, the LNG glut should dissipate, probably by 2014, says Mr Harris; and low prices will kill more projects, clearing the inventory. France’s Total thinks global demand will recover strongly enough to require another 100m tonnes a year of LNG by 2020, on top of plants already planned. However, the Energy Information Administration, the statistical arm of America’s Department of Energy, predicts decades of relatively weak prices.

If this is correct, it makes sense, for both environmental and economic reasons, for the country to gasify its power generation, half of which comes from coal-fired plants. This could be done cheaply and quickly, because America’s total gas-fired capacity (as opposed to production) already exceeds that for coal. Put a price of only $30 a tonne on carbon, say supporters, and natural gas would quickly displace coal, because gas-fired power stations emit about half as much carbon as the cleanest coal plants. The IEA agrees that penalising carbon emissions would benefit natural gas at the expense of dirtier fuels.

There would be political obstacles. The coal lobby remains strong in Washington, DC. Climate legislation struggling through Congress even includes provisions to protect “clean coal”, a term covering an array of measures, so far uncommercial, to reduce emissions from burning the black stuff. Ironically, oil companies that were once suspicious of proposals to control carbon now regard a carbon price or even a carbon tax as a potential boon to their new gas businesses.

A more radical idea, and one that would have ramifications for the global oil sector, is to gasify transport. T. Boone Pickens, a corporate raider turned energy speculator, has launched a campaign to promote this, and has support from the gas industry. By converting North America’s fleet of 18-wheeled trucks to natural gas, says Randy Eresman, boss of EnCana, a Canadian gas company, America could halve its imports of Middle Eastern oil. EnCana is promoting “natural gas transportation corridors”: highways served by filling stations offering natural gas.

All this is some way off. The coal industry will not surrender the power sector without a fight. The gasification of transport, if it happens, could also take a less direct form, with cars fuelled by electricity generated from gas.

A gasified American economy would have profound effects on both international politics and the battle against climate change. Displacement of oil by natural gas would strengthen a trend away from crude in rich countries, where the IEA believes demand has already peaked as a result of the recent spike in oil prices. Another consequence of the energy market’s bull run, the unearthing of vast new supplies of gas, could bring further upheaval. If the past decade was characterised by the energy-security concerns of consumers, the coming years could give even the world’s powerful oil producers reason to worry, as a subterranean revolution shifts the geopolitics of global energy supply again.

Signs of Detroit's Revival

February 14, 2010

In Detroit, Is There Life After the Big 3?

By PETE ENGARDIO

DETROIT

CRUISE the blighted streets that shoot off in either direction from 8 Mile Road, and the scars of the automotive crisis abound. “For sale” signs adorn the front of long-shuttered metal, paint and tool-and-die shops. And at factories still in business, the small number of cars in the parking lots testify that the shops are working below capacity.

But pull into the bustling headquarters of W Industries, a compound of imposing black structures at 8 Mile and Hoover Street, and you’ll encounter a more hopeful vision of Detroit’s future. Once an exclusive supplier to the auto industry, this machine tool and parts company is rolling in new business.

In one section of the cavernous shop floor, machinists use powerful lasers to slice thick steel plates. They’re making parts for Humvees and Stryker combat vehicles destined for Afghanistan and Iraq.

Elsewhere, they are assembling a 60,000-pound apparatus for testing the Orion space module by simulating the violent vibrations of liftoff. Other workers are finishing a steel mold that will be used to make 70-foot-long roof sections of Airbus A350 passenger jets.

Dozens of Michigan manufacturers like W Industries are discovering there is indeed life beyond the auto industry. Over the last two years, multinationals and start-ups alike have been coming to the state to build, buy or design a hodgepodge of products, whether aircraft parts, solar cells, or batteries for electric cars.

In September, for instance, NTR, a solar energy company from Ireland, awarded contracts to two Detroit-area auto suppliers, including the race-car engine developer McLaren Performance Technologies, to make components for thousands of SunCatcher solar dishes.

“It should be no surprise we went to Detroit,” says Jim Barry, NTR’s chief executive. “The standard of manufacturing in the automotive industry is extraordinarily high, and that is the only place you can find such a concentration of skills.”

Of course, nobody expects Michigan to regain anytime soon all of the estimated 216,000 auto-related jobs lost in the past decade. Most of the new projects create 50 to 100 jobs at a time, while auto plant closures have shed tens of thousands.

“You could bring a whole new industry in here, and it may replace one auto plant,” says David E. Cole, chairman of the Center for Automotive Research in Ann Arbor.

THE economic impact of the new industries is also hard to gauge: Michigan has few statistics on revenue from industries like clean technology and aerospace. Much of the new work, moreover, is limited to machining and developing prototypes. Mass production will most likely head elsewhere to save costs or to be closer to end customers. In short, the full payoff of the investments outside the auto industry is unlikely to be felt for several more years.

“What we really are talking about is R&D, pilot projects and early-stage production,” says Peter Adriaens, a University of Michigan entrepreneurship professor tracking the trend. “There is virtually nothing we can do to keep large-scale production here.”

Still, Mr. Cole and Mr. Adriaens say, the opportunities for auto suppliers are huge and could leave the state with a healthier, more diverse industrial base.

For example, virtually all of the $50 million in engineering projects at the Detroit campus of Ricardo Inc., a British engineering services firm, are for products like remotely piloted military aircraft, construction equipment and lithium-ion batteries. And Global Wind Systems, a developer of wind farms that is based in the Detroit suburb of Novi, says it is working with 18 local suppliers to design next-generation turbines to be assembled nearby in 2012.

General Electric, meanwhile, is investing $100 million in a 1,000-worker research and manufacturing facility for wind turbines outside Detroit, and Aernnova, a Spanish company that is a supplier to Boeing, Airbus and Bombardier, is planning an engineering center in Ann Arbor that will eventually employ 600. New plants to make lithium-ion batteries are in the pipeline from A123, Johnson Controls and LG Chemical.

“There is a lot of business out there that is really suited to Detroit’s automotive skills,” says Edward Walker, the chief executive of W Industries, a privately held company.

Among all the projects, the biggest is in Wixom, Mich., just northwest of Detroit. There, a mothballed Ford plant that had turned out millions of Thunderbirds, Town Cars and GTs is getting a $1.5 billion facelift. Two investors — Xtreme Power of Austin, Tex., and Clairvoyant Energy of Santa Barbara, Calif. — plan to hire 4,000 workers by late 2011 to make solar panels and battery systems for utilities.

“As the alternative-energy space builds out, we expect these plants will create a lot of opportunities for Michigan suppliers,” says Greg Main, the chief executive of the Michigan Economic Development Corporation, the state’s investment promotion agency. Mr. Main estimates that at least 100 auto suppliers already have secured contracts in other industries and that at least 250 have bid for work.

Federal and state tax credits, loan guarantees and grants certainly help stimulate investment. But the main allure of the Detroit area is its ability to quickly turn designs into workable products that can be economically mass-produced. The region remains the country’s premier precision manufacturing base, with 2,500 auto suppliers and tens of thousands of highly skilled, underemployed mechanical engineers, machinists and factory managers.

“We have the best manufacturing resources on the planet here in Michigan,” says Chris Long, the founder and chief executive of Global Wind Systems. “We just need to get aligned.”

IN 1981, W Industries was founded by Robert Walker, Edward’s father, to make wooden crates used to ship car windshields and windows. It eventually expanded into a wide range of machine tools and metal parts for car frames and bodies.

The younger Mr. Walker, a 42-year-old with a fondness for wearing black, started working on the shop floor as a teenager and took the helm in 1993. To give the company a distinctive look, he adopted a bold red “W” logo and had all the buildings redone in red and black.

The only way W Industries could grow, Mr. Walker soon concluded, was to diversify. He started with military contracts. By law, most of the work must be done on American soil. And by manufacturing within Detroit’s city limits, W Industries benefits from federal policies requiring that a certain portion of military contracts be given to companies in depressed areas.

Another lure is abundant and cheap industrial space. Mr. Walker says he spent around $20 a square foot to buy and upgrade factories from bankrupt auto suppliers, about one-fifth of the cost of new buildings.

Since landing its first military contract in 2004, the company has secured jobs to make hundreds of heavy steel parts for the frames, bodies and gun mounts of vehicles like the Stryker and the mine-resistant Cougar, both made by General Dynamics. Demand for such vehicles surged as the military sought to replace Humvees, which proved vulnerable to roadside bombs.

Such work “requires a different mind-set and an entirely different way of operating your business,” Mr. Walker says.

Rather than cranking out high volumes of parts for years, jobs come in small batches and are highly customized. Each month, for example, W Industries builds a dozen 25,000-pound frames for rough-terrain military vehicles that the Kalmar Corporation, based in San Antonio, builds for the Army.

To win such business, W Industries has spent $50 million on modern machinery since 2006. The mold for the Airbus sections, which it is building for Spirit AeroSystems of Kansas, is being made with one of the world’s largest computer-controlled machine tools. It moves along a 200-foot-long rail shaving steel to create a super-polished surface. Spirit selected W Industries largely because it offered “an attractive combination of fabrication and expertise,” says Ken Evans, a Spirit spokesman.

W Industries also got the Orion simulator project in part because it was one of the few companies in the United States with the right equipment. The Orion space program aims to send human explorers to the moon by 2020 and then to Mars and beyond. But NASA hasn’t built a space capsule since the Apollo program ended in 1975.

Five years ago, W Industries had $15 million in annual sales. This year, it expects at least $150 million, two-thirds of it from military and aerospace contractors. It has bought three old factories in the area and is looking for more, and it plans to double its work force to 500 by 2011.

Dowding Industries, a family-owned company in Eaton Rapids, is also wagering its future on diversification. It was founded in 1965 as a tool-and-die shop for Oldsmobile and later expanded into metal auto parts. The company branched out into tractor and rail car parts in the 1990s, as the Big Three pinched costs to compete with overseas rivals and “started getting real brutal” on suppliers, says Jeff Metts, Dowding’s president.

He said that after Dowding had invested in new machine tools and perfected a part, the work was often shifted to China six months later. “There seemed to be a real effort to remove our profit,” Mr. Metts recalls.

In 2006, he attended a wind-power trade show in Los Angeles. “We were really shocked at how big this industry was becoming,” he says. That year, Dowding won a $5 million contract from Clipper Turbine Works of Cedar Rapids, Iowa. Other wind customers followed.

After the recent recession, in which it laid off 130 of its 280 workers, Dowding made a bigger bet on wind, forming a venture with MAG Industrial Automation Systems in Sterling Heights to develop tools for turbine components.

MAG also makes machines used to fabricate carbon-composite airframes for planes like the Boeing 787 Dreamliner. In October, the venture will introduce a system that Mr. Metts says can make better-performing wind turbine hubs in one-fifth the time of current methods.

The next goal is a machine for carbon-composite blades that, he says, will be 30 percent lighter than fiberglass blades and last 20 years or longer. Mr. Metts says Dowding has commitments from several turbine makers, and he sees opportunities to use similar machines and technologies for bridges, expressways and ships — for which production methods and materials haven’t changed much in decades.

“This will be as big as the shift from metal to plastics,” Mr. Metts says.

The need to turn prototypes into real products is what lured NTR to the Detroit area. The company, based in Dublin, is installing the first 60 of its SunCatcher dishes, which cost $50,000 to $60,000 each, in Phoenix. If all of its solar-plant deals with California and Texas utilities are completed, it expects to sell 65,000 of them over the next two years.

In 2008, NTR’s manufacturing arm, Stirling Energy Systems, hired Tower Automotive in Novi to develop modules with mirrors that will reflect the sun’s energy. It also enlisted McLaren in Livonia to help design and build the motorized units that will convert concentrated sunlight into electricity. Founded in 1969 by Bruce McLaren, the New Zealand-born auto racer, and bought in 2003 by Linamar of Canada, the firm is best known for developing turbocharged engines for race cars.

Five years ago, all of McLaren’s business was with carmakers. Now, nearly a third is in developing motorized devices for the solar and wind industries. McLaren’s engineering team redesigned the SunCatcher engine and each of its 100 parts to make them more efficient, less expensive and easier to mass-produce.

“We put everything on a wall,” recalls Phil Guys, McLaren’s president. “We got 500 suggestions from engineers.”

McLaren has shipped its first batch of power-conversion units to Stirling and is developing new prototypes.

A BIG question is whether the new work will sustain Detroit’s manufacturing ecosystem if auto assembly keeps migrating elsewhere. As suppliers close, more managers and engineers could move away.

To illustrate how difficult that talent would be to replace, Bud Kimmel, vice president for business development at W Industries, points out Jason Sobieck. A 30-year-old machining whiz sporting a green tattoo, gray T-shirt and jeans, Mr. Sobieck manages the Spirit and Orion projects.

“Jason is like an artist,” Mr. Kimmel says. “We built our whole program around him.”

Mr. Sobieck began work at 17 at a small Detroit welding shop. He then worked for tooling companies, where he learned to program automated systems and manage projects. “These skills really aren’t taught in school,” Mr. Sobieck says, dragging on a cigarette. “This is a trade you learn on the shop floor.”

That’s one reason that W Industries wants to snap up as many good machinists and engineers as it can afford.

“If we don’t re-engage the automotive workers soon in major programs,” Mr. Kimmel says, “this set of skills will be lost.”

This article has been revised to reflect the following correction:

Correction: February 21, 2010
An article last Sunday about the transformation of former auto-related operations in the Detroit area misspelled the name of one of the companies that is investing in a mothballed Ford plant in Wixom, Mich. It is Xtreme Power, not Extreme Power.

Automobiles and Electric motors in the US!

Electric Motors, Made to Order

By LINDSAY BROOKE

THE electric motors that drive today’s hybrids and electric vehicles are not so different from those pioneered by Nikola Tesla and George Westinghouse a century ago.

Like their predecessors, modern electric machines, to use the engineers’ preferred term, are composed of two elements: a fixed housing that contains copper wire wound around an iron core, called the stator, and a rotor that spins within the stator’s open center.

The interaction of electric current and magnetic fields between the stator and rotor create rotational torque to spin the motor’s shaft — and turn the wheels.

Tailoring electric motors for duty in vehicles has necessitated the development of new materials, sophisticated electronic controls and some clever design variations, said Heath Hofmann, an associate professor of electrical engineering and computer science at the University of Michigan in Ann Arbor.

“The auto companies are focusing on machines capable of operating over a much wider speed range than typical fixed-speed industrial motors,” he said. Two primary designs for electric machines, A.C. induction and permanent-magnet, prevail in today’s hybrids and E.V.’s. They differ mainly in the construction and operation of their rotors.

The magnetic field of the rotor in an induction motor is generated by an electric current flowing through its copper windings.

In the rotor of a permanent magnet design — the type of motor the Chevrolet Volt will use — the field is generated entirely by strong magnets, without the need for current. More powerful motors can be built by making the magnets of rare-earth metals like neodymium, which increases the rotor’s magnetic flux (its total amount of magnetic field) and enables it to make more power.

Each motor type has its benefits and drawbacks. Permanent-magnet motors generate less rotor heat than inductive types, which aids efficiency. But as the motor’s size grows, magnetic losses increase proportionately, reducing efficiency.

Because permanent magnets tend to be brittle, Professor Hofmann said, General Motors, Toyota and others embed the magnets in the rotor, and the magnets are fairly expensive. There are strategic concerns: China has a near-monopoly on known rare-earth metal sources.

Induction motors do not suffer proportionate losses as size increases, and their design makes them capable of generating high power by operating at high speeds; the motor of the Tesla Roadster spins up to 14,000 r.p.m. They are generally less expensive to produce than permanent magnet types.

Specialist motor companies began improving automotive e-motors long before hybrid cars became popular. Remy, for example, invented a new stator-winding design that uses rectangular wire, rather than round wire, with windings that are arranged in multiple layers. The company says its design reduces heat.

For automakers, choosing a design boils down to a horses-for-courses decision. Induction motors appear to be the choice for battery E.V.’s where high performance is a main requirement, Professor Hofmann said. For economy-focused hybrids, permanent magnets may be better.

“I think it will be application-specific,” he said.

Energy: Article that highlights trends in the energy sector...

US's natural gas reserves are growing rapidly due to technology change. The trend leads further credence to the wisdom of the Pickens plan...
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February 17, 2010

Energy Company Mergers Are Expected to Rise

By JAD MOUAWAD

Energy companies are on the prowl again.

After a two-year slowdown in mergers and acquisitions in the industry, companies are once again looking for ways to use their checkbooks to expand their reserves, buy new technology or snap up promising oil and gas fields.

Unlike the round of mergers that created today’s behemoths in the late 1990s, the current round is not expected to form new giant companies like Exxon Mobil or ConocoPhillips. This time, companies are focused on buying fast-growing small companies, or on acquisitions that expand their reserves in an era when it is hard for them to find new places to drill.

The targets include companies that own new fields in nations like Ghana and Sierra Leone, independent gas producers in the United States, and companies that control fields in the deep waters of the Gulf of Mexico.

“In this industry, where you’re in the business of increasing your reserves, there are two ways to do so — to drill or to acquire,” said Christopher W. Sheehan, director for mergers and acquisitions research at IHS Herold. “There is an intense competition for access to resources through mergers.”

This latest wave of consolidation comes amid fresh enthusiasm for natural gas production, especially in the United States, where new technology has significantly expanded the nation’s reserves. The huge potential of new gas fields has driven most mergers in the North American energy sector in recent months, with more to come this year, according to bankers and analysts.

Buying interest is particularly strong among the international oil majors, which sold off many of their onshore assets in the United States over the last decade and are now eager to come back. Anthony B. Hayward, the chief executive of BP, said last month at the World Economic Forum in Davos, Switzerland, that the gas being extracted from beds of shale was “a complete game-changer. It probably transforms the U.S. energy outlook for the next 100 years.”

The biggest deal in that sector was announced in December, when Exxon Mobil said it would buy XTO Energy for $31 billion. Shortly after, Total of France said it would pay $800 million for a minority share in Chesapeake Energy’s Barnett shale gas portfolio. Chesapeake has raised about $11 billion from joint ventures for its shale gas assets in the last two years; BP and Royal Dutch Shell have struck similar agreements in recent months.

In a humorous note to investors, Bernstein Research analysts quipped recently: “Frankly, you can virtually plan your gym sessions around these deals, they are becoming so regular. Thinking about it, isn’t it about time for another Statoil deal?”

Statoil, the Norwegian national oil company, recently struck a deal with ConocoPhillips to trade some of its assets in the Gulf of Mexico for acreage that Conoco holds in the Chukchi Sea of Alaska; in November, Statoil agreed to pay $3.4 billion for a 32.5 percent stake in Chesapeake’s assets in the Marcellus shale formation in the Appalachian region.

“The growth opportunities from shale gas are something we haven’t seen in the United States for decades,” said Roger D. Read, managing director and senior energy analyst at Natixis Bleichroeder in Houston. “The United States, which had been a static market, now has the chance to grow its production.”

Bankers and energy consultants expect deals to pick up this year after a two-year lull. There were 244 deals in the global oil and gas industry last year, down from 285 in 2008, and 336 at the peak in 2007, according to data from IHS Herold, a consulting and advisory firm.

While the number of transactions was down, the size of the Exxon-XTO transaction helped raise the total value of last year’s mergers to $144 billion, up from $104 billion in 2008. (Merger values peaked at $200 billion in 1998, a year when many of today’s giant companies were created.)

Analysts point to a wide range of companies that are potentially on the market, including EOG Resources, Southwestern Energy, PetroHawk Energy, the Encana Corporation, Chesapeake Energy, Devon Energy and Anadarko Petroleum.

“There will be a shakeout there. It will be eat, or be eaten,” said James Bogues, who leads Accenture’s North America energy mergers and acquisition unit. “Given Exxon’s reputation as a very deliberate, cautious company, the fact they made such a bold move with XTO will no doubt inspire others that a price has been set for shale gas assets and technology.”

Outside of the United States, the pace of mergers has also picked up. Suncor Energy of Canada bought Petro-Canada in a deal valued at $18 billion at the time to form a national giant and stave off possible bids from foreign buyers, particularly Chinese companies. In West Africa, Exxon has offered $4 billion for a stake in an offshore field in Ghana, though that deal could fall through given the government’s threat to block the transaction; international firms, including Eni of Italy, are battling over some prospective fields in Uganda.

Chinese companies have also been particularly active. In August, Sinopec, one of China’s biggest oil companies, closed a $9 billion acquisition, buying Addax Petroleum, a Geneva-based oil explorer that is most active in Nigeria, Gabon and the Kurdistan region of Iraq.

Sinopec, formally known as the China Petroleum and Chemical Corporation, said the deal “represents the largest successful acquisition of overseas oil and gas assets by a Chinese company.”

The interest of national oil companies, like Sinopec, could prove a powerful and lasting driver for mergers.

“The mandate of national oil companies is to go and find reserves around the world,” said Jon McCarter, the oil and gas transactions leader for the Americas at Ernst & Young. “They have been very active and very aggressive.”

Transister size, the big differentiator in Semiconductors (45nm, 32nm, 28nm, and 22nm)

Last February, Intel made some changes and adaptations to its processor roadmap in what was generally perceived as a sensible move in light of the current economy: It's expediting its move from the 45 nm to the 32 nm generation of CPUs with increased investments in facilities, but then extending the market lifespan of the 32 nm generation to compensate, and to help reap back the costs incurred. That extension will include the introduction of a "mainstream" 32 nm architecture code-named Westmere, as part of its continued strategy -- successful so far -- to introduce certain elements of its newer designs to a broader market of buyers first.

That strategy was confirmed Monday during Intel's quarterly conference call -- where it also revealed sharply lower profits on much lower revenue: "We have pulled in Westmere, our first 32 nanometer product family, and will now be shipping those products later this year," reported CEO Paul Otellini (our thanks to Seeking Alpha for the transcript). "We have shipped thousands of Westmere samples to over 30 EOM customers already. We also look forward to the launch of our new consumer ultra-low voltage products, which will enable many new...light notebooks at very compelling price points."

The IBM-led Technology Alliance needs any opening it can get, and whether this is the one or not, it's going to try for it. For the group that now includes Global Foundries, the spinoff producer of CPUs for AMD, Intel's move is an alteration of its self-named "tick-tock" timing. The Alliance will try to take advantage of that phase shift, if you will, by accelerating the pace at which it moves its members to a new 28 nm low-power generation, according to an IBM announcement this morning.

"Through this collaboration, IBM and its alliance partners are helping to accelerate development of next-generation technology to achieve high-performance, energy-efficient chips at the 28 nm process level, maintaining our focus on technology leadership for our clients and partners," stated IBM R&D chief Gary Patton in this morning's prepared statement. The key to this move will be more rapid implementation of high-k-plus-metal-gate (HK+MG) technology, a breakthrough formula obtained in a race-to-the-finish with Intel that resulted, in January 2007, in Intel beating IBM to the announcement by less than two hours. From the beginning, both IBM and Intel promised that their respective formulas would enable foundries to shrink die sizes without overhauling their production processes...but Intel's needed the overhaul anyway with the Nehalem generation (the first to use HK+MG across the board), so it's never had the opportunity to put that theory into play.

IBM, with partners such as ST Microelectronics, Global Foundries, Samsung, and Chartered Semiconductor, will now actually give this theory a try. Today, the Alliance is saying it will introduce partners to a process that lets them go ahead with their 32 nm production plans, while safely transitioning the back end of their 32 nm roadmaps to become 28 nm products.

The Alliance already shipped its first evaluation kits to potential implementers last December, following that up with a public evaluation kit last month. This morning's signing on of Global Foundries means that the producer of AMD's CPUs has already made the evaluation, and could soon announce it's ready to go.

The goal for the Alliance for now is to enable "early risk production" versions of 28 nm processors to be made next year. That's a term that's one step removed from "early adoption tests" -- it means something that could be introduced to high-class customers, maybe not yet the mainstream. Last November, AMD introduced its own revised roadmap, which featured the intention to produce a 32 nm "Liano" architecture CPU in 2011. If this plan goes through as the IBM Alliance suggests it will, that architecture could conceivably become the 28 nm generation without shaking up AMD's roadmap a second time.

And that would mean AMD has a 28 nm CPU for the mainstream while Intel is still burning out its 32 nm generation. It's not a certainty by any means -- success depends on any number of factors turning out in IBM's and AMD's favor. But we know what the tunnel looks like now, because someone, somewhere, just turned a light on.

UAE and Economic Diversification

Interesting website on Industry in the UAE. Interestingly, most of the industry mentioned are producing things that can't be effectively exported because of weight (cement) or require a large amount of cheap energy to produce (aluminum and fertilizers). All leaves the question: does this diversification really help remove the contries dependency on oil & gas? I suppose only if they're able to develop efficient alternate energy (which they're working on - see Masdar City).

Importance of consolidation in the car industry

The car industry

Small isn't beautiful

Carmakers have escaped calamity. Now they face a big, long-term problem: people are moving to smaller vehicles

Sep 17th 2009 | FRANKFURT | From The Economist print edition

AFP

BIG motor shows are good barometers of the car industry’s mood. Twelve months ago in Paris, in the wake of the collapse of Lehman Brothers, the mood was dread—the knowledge that something terrible was about to happen. At the beginning of this year, at the show in devastated Detroit, and a few months later in Geneva as Chrysler and General Motors prepared for bankruptcy, it was all about the struggle to survive. This week in Frankfurt the industry gave a sigh of relief, confident that the worst was over but painfully aware there would be no return to business as usual any time soon, if ever.

The sense of relief is understandable. After the collapse in sales and savage production cutbacks that took place in nearly every big market nine months ago—with the huge exception of China—volumes have started to rise as inventories are cautiously rebuilt. Balance-sheets appear to have been stabilised if not repaired. There is even a good chance that in the final quarter of this year some of the big carmakers will return to (very modest) profit, while others will do so next year. Credit, the lifeblood of the industry, is flowing again, albeit somewhat anaemically. Particularly in Europe, government-sponsored scrappage schemes have brought buyers back into the market. And manufacturers are now enjoying reduced costs, partly from lower raw-material prices and partly because they have laid off workers.

What has not happened is any substantial reduction in capacity, particularly in Europe where factories are capable of churning out 4m more cars than the market can take even in a good year like 2007 (see chart). Not long ago it was widely assumed that the downturn would be sharp enough to take out more than one big carmaker. For better or worse, governments have done their utmost to stop that happening. Like the bailed-out banks, GM was probably always too big to be allowed to fail. But few expected sickly Chrysler to survive in anything like its present form. The removal of Opel/Vauxhall, one of the weakest big producers in Europe, would have done the industry a power of good.

Yet, thanks to President Obama’s auto task-force and a shotgun marriage with Fiat, Chrysler motors wearily on. German government largesse paved the way for Magna, an auto-parts firm, and Russia’s Sberbank to buy a majority stake in Opel/Vauxhall from GM on the condition that no plants will be closed in Germany. GM even found buyers for tiny Saab in Koenigsegg, a boutique Swedish sports-car firm, and China’s Beijing Automotive. Volvo, which is bigger and healthier than its Swedish rival, may be sold to Geely, China’s biggest privately owned carmaker. Far from consolidating, the European industry has instead gone in the opposite direction.

Although cuts at GM and Chrysler have removed some (though not enough) excess capacity in America, not a single car factory in Europe has closed so far. That is one reason why the carmakers assembled in Frankfurt believe that the normal strong, cyclical rebound may not happen this time. There are plenty of others.

One worry is the effect of withdrawing scrappage incentives. These have propped up demand this year, especially in Germany where they drove volumes to record levels. Optimists say that at least 70% of the scrappage purchases were incremental sales made to people who would not normally have bought a new car. But car-company bosses fear that volumes in Europe could slide next year unless “normal” new car buyers—well-off people and companies—return to the market. Even if scrappage schemes are continued or tapered, there may not be many buyers left who meet the qualifications.

Although the scrappage schemes have kept factories going, most of the action has been geared towards cheap, small vehicles which are less profitable for carmakers. They have thus weakened the “mix”—the balance of small and large vehicles sold—and reduced margins. The balance may swing back slightly next year, but the mix is threatened on a number of fronts in the longer term, raising doubts as to whether margins will return to their previous levels over the next few years.

To understand the importance of the mix, says Max Warburton of Bernstein Research, compare the cost of producing a small car such as the popular Fiat 500 with that of making a hulking sport-utility vehicle such as the Audi Q7. Mr Warburton calculates that the fixed costs are nearly identical, whereas the variable costs of making the Q7 (labour, raw materials and so on) are only about €10,000 ($14,700) higher for the Audi. Yet the Fiat sells for as little as €10,000, compared with a sticker price of at least €40,000 for the Audi. So a permanent shift toward smaller cars would devastate industry profits.

One big reason to expect such a shift is that the very cheap lease finance that manufacturers have relied on to stoke demand for their more costly cars, especially in America, Germany and Britain, is probably a thing of the past. Credit is unlikely to be so easily available again. Also, one of the ways leasing made more expensive cars seem affordable was by attributing to them high second-hand values after the lease was over. But higher volumes have dimmed the aura of exclusivity on which high residual values depend. BMW in particular has been badly hit by losses on returned cars and has cut the number of lease contracts it writes by a third.

A second threat to the mix, especially for the German premium makers, is demographic change. Arndt Ellinghorst of Credit Suisse says that by 2020 40% of new car buyers in developed markets will be over 60, compared with less than 30% today. Although the affluent old like premium brands, particularly Mercedes, they tend to want smaller, cheaper cars. Being mostly retired, they are generally buying a car with their own, rather than with a company’s, money. Empty-nesters do not need much carrying capacity. Over-65s also drive 45% fewer miles than the average, which means their cars last longer. Together with the growing durability of modern cars, Mr Ellinghorst reckons that underlying sales in developed markets could fall by as much as 30%. For growth in the sales of big, powerful prestige cars, manufacturers will have to rely on emerging markets.

A third threat to the mix is the ratcheting up of emissions legislation in almost every important car market as governments struggle to meet ambitious carbon-reduction targets. That seems certain to reverse the trend in recent years toward ever heavier and more bloated vehicles. It is also forcing manufacturers to invest abnormal amounts to develop clean technologies in the hope that their bigger vehicles can be made socially acceptable and escape penal taxation.

The executives gathered in Frankfurt this week were aware that threats to the mix, and therefore profits, are long-term and structural rather than short-term and cyclical. They also acknowledge that the industry will have to wean itself from the habit of using profits from bigger cars to subsidise smaller ones, and find a way to start building downsized vehicles that make money. Nick Reilly, who heads GM’s international operations, says that part of the answer is to adopt low-cost manufacturing techniques and not to load cheap cars with unnecessary technology. By contrast, Lewis Booth, Ford’s chief financial officer, reckons that the solution is to make small cars that are as good to drive as bigger ones and charge accordingly. Half of the Fiestas sold by Ford in Europe come with the top-of-the-range Titanium specification and are decently profitable, he says.

The problem confronts everyone (with the possible exception of Fiat, which has problems of its own), but it is most acute for the German premium makers, which dominated the Frankfurt show with their huge displays. Mercedes and BMW have enjoyed the best margins in the business, but they have lost lots of money on their small cars. BMW struggled to make a profit until recently even on its very successful Mini. Their rival Audi, being part of the massive Volkswagen Group, already has access to the technology and platforms it needs to make profitable small cars. To compete, Mercedes and BMW may have to do the unthinkable and join forces—either that, or risk their brands by forming partnerships with high-volume producers.

At the same time, the industry must tackle the problem of overcapacity in mature markets. Paradoxically, that may be easier once economies have emerged from recession and unemployment is no longer quite so high on the political agenda. More than anything, overcapacity undermines pricing power. The industry may feel it has come through a near-death experience in better shape than it could have hoped at the beginning of the year. But a return to health will take a lot longer.