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. 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. 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.
 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.
 BP Statistical Review of World Energy 2012.