Wednesday, December 11, 2013

A Misleading Ad from ExxonMobil

Today’s NY Times carried an ad from ExxonMobil that perpetuates a myth about US energy independence.  The ad featured appears on two pages.  On the first it asks where the US gets most of its energy, and answers it two pages down, from the US itself.  It says, “New technologies have unlocked abundant resources right here.”  The statement falsely gives the impression that were it not for the new technologies, most of the US energy would have come from foreign sources. 
The US has always obtained most of its energy from domestic sources of coal, oil, and natural gas, and to a less extent from nuclear and hydropower.  The US used to be a net exporter of energy, but since the early 1990s it has been a net importer.  The energy imports increased through 2005 to 32% of the total energy consumption.  Since then, energy imports have been on a steady decline such that in 2012 the US imports amounted to 20% of the consumption.  In absolute terms, the US imports decreased from 0.19 cmo in 2005 to 0.11 cmo in 2012.
The tight gas and tight oil resources unlocked by the new technologies like horizontal drilling and hydraulic fracturing have brought about the reversal in the trend, and their impact has been more pronounced on the oil imports. The US oil imports were at their highest at 13.5 million barrels per day (mbpd) in 2005, but in 2012 oil imports were down to 9.7 mbpd.  (See my previous post of Oct. 15, 2013 for charts and other numbers.)

Tuesday, October 15, 2013

Pattern continues to change — slowly

BP published its 2013 Statistical Review of World Energy a couple of months ago, and it is worth looking at how the global energy scene has changed since the publication of A Cubic Mile of Oil.  Since BP does not provide numbers for biomass use, I will assume it hasn’t changed from last year’s and look at the changes in the other sources of energy (see my comments on the post of March 10, 2013).  
Global Energy Pattern
Marked increases in the installed capacity for wind and solar (PV) power occurred between 2006 and 2012; 2006 being the year whose data formed the basis for the analysis in the book.  Installed capacity for wind power capacity increased four-fold from 74 GW to 284 GW, and that for PV increased from 6.9 GW to 100 GW, a 14-fold increase. The total contribution of energy generated from wind and solar has risen 2.5-fold since 2006.  That is good progress towards weaning us from the reliance on our inherited sources (fossil and nuclear) to income sources, but it is also sobering.  In absolute terms the contribution of wind and solar increased from 0.02 CMO in 2006 to 0.05 CMO in 2012.  Meanwhile, coal usage increased to almost 1 CMO, registering 0.99 CMO in 2012, and oil use increased to 1.09 CMO.  Gas use increased to 0.79 CMO.  Nuclear power declined another notch to 0.12 CMO.  Here is the pie chart showing the contribution from various sources in 2012.
It does not look all that different from the one from last year, or for that matter from 2006.  That just goes to show that changes in the energy industry don’t happen overnight; they take decades.
US Oil production
A major energy story has been the rise in the US oil and gas production.  In the March 10 blog I noted that the recent IEA prediction (IEA World Energy Outlook, Nov 2012) of US oil production surpassing that of Saudi Arabia by 2017 seemed extremely optimistic. US oil production in 2012 increased by another million barrels per day (bpd) reaching almost 9 million bpd, but the Saudi production also increased by about half a million bpd.  Whether or not the US production exceeds that of Saudi Arabia depends not only on US production capability, but also global demand and the response of other countries including Saudi Arabia.

US Energy Independence
Another item much heralded in the media is the US march towards energy independence. Media reports often give the impression that the US has historically imported a large fraction of its energy, and now it is poised to be an energy supplier.  No doubt that increased oil and gas production coupled with increasing fuel efficiency have reduced domestic consumption, and reduced the demand for energy imports.  But again, let’s be quantitative and take a look at the historic data. 
In 2000 the US energy deficit was 0.17 cmo.  Since then, the deficit first increased to 0.19 cmo in 2005 and is now down to 0.11 cmo.  In percentages, the deficit amounted to 28% in 2000, 32% in 2005, and in 2012 it was 20%.
As I wrote in the book, A Cubic Mile of Oil, I think the focus on energy independence is misplaced. We should worry about energy security, which means making sure we have good and healthy relations based on strength and mutual respect with our trading partners.  The foundation for that comes from, to use the words of ambassador Richard Haass, getting our internal affairs in order.  Haass makes a strong case for that in his latest book “Foreign Policy Begins at Home. Those words ring especially true in view of the current state of dysfunction in our government.

Tuesday, April 30, 2013

The shale phenomenon: fabulous miracle with a fatal flaw

A friend recently pointed out this article by Randy Udall In The Christian Science Monitor (Feb. 22, 2013). It provides further support for my position that shale gas and oil that I expressed in a post last April:  the developments are fine, but one should keep them in perspective. Bakken is no Ghawar.

Tuesday, March 26, 2013

Lessons from Nordic countries on renewable electricity

Elizabeth Rosenthal wrote an article, “Life After Oil and Gas,” published in the NY Times Sunday Review of March 24, 2013.  She begins by questioning the mantra that we need fossil fuels.  She cites examples of countries like, Iceland, Norway, Canada, Sweden, and others that now generate over 50% of their electricity from renewable resources and conveys the impression that renewables are a lot closer at hand, and more could and should be done.
I certainly do not disagree with the need to transition to renewables, but as I have maintained, it will take many decades of consistent effort to achieve any significant market penetration.  There are several points that I would like to make with respect to the article to rectify the impression the article conveys.  

First, while electricity production consumes a substantial portion (30-40%) of primary energy use, it by no means consumes all.  By offering examples of renewable electricity and questioning the need for fossil energy, the article conflates the two.  Even in Iceland they drive their cars and trucks with oil!  Second, the countries that generate most of their electricity from renewable resources rely mainly on large hydroelectric power. For Iceland, which generates 100% of its electricity from renewables, geothermal adds 25% to the 75% from hydro.  Both hydro and geothermal systems produce power that can serve as base load, which is not true for the wind and PV systems.

A second point worth noting is that the overall energy consumption in the countries with high renewables component tends to be small. Per capita energy consumption in Iceland is high, but the total energy use in Iceland is less than 0.25% of the US consumption and the country is not even listed in the BP Statistical Review of World Energy. Denmark uses about 1% of the US energy, while Sweden and Norway consume about 2% of the US energy use.  Germany, which is considerably larger economy and uses about 25% of the US energy, has aggressively supported renewables through feed-in tariffs is now generating 13% of its electricity—which comprises 17% of total primary energy—from renewable resources: 30% hydro , 63% wind, and 7% solar. However, as noted towards the end of the article by Rosenthal, it is re-evaluating its policy towards renewable energy, which has increased the cost of power, in the face of economic uncertainty.  It is one thing to achieve high renewables percentages when the overall demand is limited, but quite another to do it on a massive scale.

An important lesson that we can draw from the success of Nordic countries is that we should make best use of the resources available. Denmark finds itself conveniently situated between Norway, with a lot of hydroelectricity and Germany with a fairly substantial demand. Denmark has installed almost 4 GW of wind power, and when there is excess power available it can easily send it to Germany, and in times of low demand send it to Norway for storage as pumped hydro.  Now that’s taking full advantage of one’s situation.

Sunday, March 10, 2013

Five-year energy review: Sifting reality from rhetoric

Since the 2012 Statistical Review of World Energy came out last year, I have been poring over it.  As always, the review is chock-full of data and offers an opportunity to examine historic trends.  For the book, A Cubic Mile of Oil, we used the data from the 2007 edition of the Statistical Review of World Energy, and this latest edition provides an opportunity to see what has really changed in the last five years beyond the rhetoric about energy supply, which surely has changed dramatically. But this post is about sifting rhetoric from reality, and when we look at the big picture, we see that reality falls far short of the rhetoric. Things weren’t as dire as they were being portrayed in 2007, nor are they as rosy as we may want to think they are today.
In 2007, the news was dominated by the impending oil and gas shortages.  Memories of the “glut of oil” predicted around 2000 when oil was trading around $15/bbl were fading in distant past.  While we were in the process of making the final revisions to the book in 2008, oil price spiked to $148/bbl, and dire predictions for future energy supply were making headlines.  In “Twilight in the Desert’” Matthew Simmons described how Saudi Arabia was experiencing difficulties in keeping its oil production at 9 million barrels a day. Production from the world’s largest oil field Safiya, which had been producing about 5 million barrels per day, required ever increasing amounts of water to be pumped in to maintain pressure and productivity.  The likely decline of Saudi production and the fact that there hadn’t been any new major oil field discoveries since the Alaskan oil in the 1970s meant that global oil production was heading down.  In 2006, the US imports of oil amounted to about 60% of its consumption of 20 million bpd.  Gas supplies were also low, and the US was building new terminals for importing liquefied natural gas.  The International Energy Agency (IEA) had downgraded its prediction for global oil production in 2020 from 130 million barrels a day to 110 million bpd.  It also estimated that investments on the order of a trillion dollars a year would be needed to achieve that level of productivity.
Contrast those dire messages with the prevailing news reports that recent developments in shale oil and shale gas developments the US will soon be an energy exporter.  In its 2012 World Energy Outlook, the IEA predicts that by 2017 US oil production will likely exceed that of Saudi Arabia. 
So, how has the global energy picture changed in these five years?  The pie charts below illustrate the breakdown of energy from various sources in 2006 and 2011.  The total energy consumption increased 12%, from 3.14 CMO to 3.49 CMO.[1]  Somehow through the various financial crises in 2008 that threw the economies of many countries into a recession, global energy consumption has continued its seemingly inexorable steady rise of about 2.4%/yr, and increased by 0.35 CMO in five years. Sure, there was a temporary decline in total primary energy consumption in 2009, but that decline was all wiped out by 2010.  
The contribution from oil increased about 5%, while contribution from wind and solar (mostly wind) increased 100%.  But in absolute terms oil consumption increased by 0.05 CMO while energy production from wind and solar increased by 0.02 CMO. The biggest increases in energy production came from coal and gas—0.17 and 0.09 CMO respectively. Nuclear power production was down by 0.01 CMO, with most of that happening in 2010-2011 following the decisions by Japan and Germany to turn off nuclear power in wake of the Fukushima disaster. 

Figure 1.  Primary sources for global energy in 2006 and 2011.

The price of wind and photovoltaic systems has fallen dramatically to the point that in many places it is cheaper than grid power. Indeed, of the 200 GW of new generation capacity added in 2012, about half was from renewable sources. Photovoltaic systems accounted for almost 30 GW and new wind systems 40 GW, with remaining 30 GW being mostly from large hydroelectric plants.  For reference, global electricity production capacity is over 5 TW, about 3.5 TW of which are conventional thermal systems. Although the total wind power capacity of 200 GW is only half that of nuclear, its low availability reduces the amount of wind-generated electricity to be only one sixth of that from nuclear.
The carbon footprint of the world from the use of fossil fuels increased from 32 billion metric tons of CO2 to 34 billion metric tons.[2] The global economic recession in 2008 had held the CO2 emissions in check around 31 billion MT in 2008 and 2009, but in 2010 and 2011 the emissions increased. The good news here is that while energy consumption over the last five years increased by 12%, carbon emissions increased by only 6%. As discussed in an earlier post, the increased availability of natural gas (from fracking) in the US had allowed the US to switch about a quarter of its electricity production, or 500 TWh annually, from coal to natural gas with the net effect of reducing CO2 emissions by about half billion metric tons. Overall the US emissions of CO2 decreased from a high of 6.5 billion metric tons in 2005 to 6.0 billion metric tons in 2001.
The big news lately has been the IEA’s prediction that the US will soon be an energy exporter and that its oil production will exceed that of Saudi Arabia.  The news coverage of this story has been even more bullish, and paints a sudden dramatic change. Changes in the energy industry tend to be slow, and so let’s take a closer look at what has actually transpired.
I have plotted the annual US and Saudi oil production, and US oil consumption for the years 2000 to 2012.  The first impression one gets from the trend lines is one of flatness—relatively small changes but nothing dramatic. The US production decreased from 7.7 million barrels per day (mbpd) in 2000 to 6.7 bpd in 2006, and in the last three years has climbed back to 7.8 mbpd. The US consumption has hovered around 20 mbpd, and the Saudi Arabian production declined from 9.4 to 8.9 mbpd between 2000 and 2002, then climbed to 11 mbpd by 2005. It again took a dip to 10 mbpd in 2009 and 2010, but was back up to over 11 mbpd in 2011. For the US oil production to exceed that of Saudi Arabia either the Saudi production must drop by 3 mbpd in the next four years, or the US production must increase by that amount. That’s assuming that the production in the other country holds steady—a very big assumption.

Figure 2. Consumption and production and of oil in the US and Saudi Arabia (2000-2011).
For the US production to increase by 3 mbpd by 2017, substantial investments will have to be made. That can happen but only if the investors feel bullish about the future oil demand. It would require them believing, that there will be no economic downturn in the EU (Euro crisis notwithstanding), the US (ignore the sequester and the government gridlock), or China (forget the real estate bubble). Remember that the shale gas and shale oil are more expensive to produce than conventional gas and oil, and should the demand fall for any reason, the marginal price of oil will drop and the investors depending on production from the relatively expensive resources will be the big losers. It is when the oil demand drops that countries with cheap conventional resources have the greatest incentive to increase their market share by cutting price and delivering a crippling blow to the competition.
So what accounts for the change from imports being 60% of the US consumption in 2006 to 45% in 2011? The short answer is exports. The US has exported about 1 mbpd refined petroleum products, and this amount should be subtracted from the total oil imports. In 2006 the difference between the 20.8 mbpd of consumption and 6.8 mbpd of production was made up by importing 13.9 mbpd, which would correspond to about 67% of consumption.  However, the US also exported 1.3 mbpd of petroleum products, thus reducing the net imports to 12.6 mbpd or about 60% of the consumption. In 2011, the exports increased to 3.0 mbpd, and so while the total imports were 11 mbpd, the net imports were only 8 mbpd. That’s the reality—the net imports to the US have decreased from 12.6 mbpd to about 8 mbpd as a result of the increase in US exports made possible by a combination of reduced domestic consumption and increased refinery output, which in turn was spurred by low prices and increased availability of natural gas for refining operations. Most of the decline in US consumption was result of slowing economy, and not the increased efficiency of US vehicles. The CAFE standards for US vehicles are set to increase sharply, from the current 27 mpg to 34.5 mpg by 2016 and to 54 mpg by 2025. These increases in mileage efficiency will reduce US oil consumption, but the rate of market penetration of high fuel economy vehicles is too low to have impacted the reduction in consumption since 2007.
As I pointed out in an earlier post, “You can’t have your gas and burn it too,” the shale oil and shale gas resource may seem large when compared to current consumption rates, but if we find more ways of using this resource, and increase it’s production, it will not last very long. This resource is a gift of time, and we should use it to build the infrastructure necessary for the next generation of technologies.

[1] For the book, we had considered only the commercially traded biomass energy (0.19 CMO in 2006) based on estimates by the World Bank.  The IEA and the IIASA estimated closer to 0.3 CMO of biomass energy, which is what I used for the analysis on this post. 
[2] BP Statistical Review of World Energy 2012.