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.

Lessons from Nordic countries on renewable electricity

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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.

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.

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[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.

Introducing Diana Condoros

Imagine my surprise and utter delight when I recently I stumbled across the website of a graphic artist, Diana Condoros, who has made silk-screen prints depicting a cubic mile of oil!  Check out her work at www.condoros.com.  Here's an image of one of the prints. Other artwork related to a cubic mile of oil is under the tab "Graduation 2011." 

I contacted her and found out that for her graduation in Infographics she chose to depict the energy challenge, but as she put it:

"...I struggled to find good information and how to visualize  the numbers.  As you probably know, the internet is full of it, but I needed something that would make this topic more understandable.  Most of it I rejected because I could not prove its reliability or get the essence. Until I found A Cubic Mile of Oil."

The world needs to have people from all walks of life to engage in a sustained dialog about energy choices.  I appreciate Diana’s effort, and hope her work inspires others to join in the discussion.

Fracking helps reduce CO2 emissions more than wind?

In my previous post I emphasized the need to focus on actions that could have a significant impact on greenhouse gas emissions.  I ended the post noting that shale gas, shale oil, and other unconventional resources can help us buy time to develop CO₂-free sources of electricity.  It got me thinking about the relative amounts of CO₂ emissions abated through the expanded use natural gas vis-à-vis the deployment of wind and solar technologies.  The recent Short Term Energy Outlook report by the Energy Information Agency provides an unequivocal answer:  substantially greater amount of CO₂ emissions have been avoided by displacing coal with natural gas to generate electricity than by deploying wind and solar technologies.  Here are the numbers:

Between 2004 and 2011, the annual production of electricity in the US has stayed around 4,000 TWh (0.26 CMO).  Over this period the contribution of coal has dropped from 2,000 TWh to 1,500 TWh, while the contribution from natural gas has increased by 500 TWh (from 700 TWh to 1,200 TWh).  Nuclear- and hydro-power were largely flat over this period, and a decrease of about 100 TWh from oil is offset by an increase in wind and solar power. 

Figure 1.  Total electricity generation in the US has remained largely flat since 2004 with the most significant change being a swap of 500 TWh between coal and natural gas.

The CO₂ footprint of electricity from natural gas is half that of coal, and so the amount of CO₂ abated through expanded use of natural gas is equivalent to that emitted upon producing 250 TWh from coal, about 550 million metric tons.  Meanwhile, wind and solar power in the US increased from 20 TWh to 130 TWh.  Thus the amount of CO₂ abated by fuel switching from coal to natural gas is about twice as much as that avoided by wind and solar generation.  And, that reduction was accomplished by market forces.  If our objective is to reduce greenhouse gas emissions, and it should be so, then in the short term we can achieve greater reductions by promoting fuel switching without having to decrease electrical power production, which would adversely affect the nations economic vitality. 

It so happens that there are abundant resources of shale gas also in Europe, China, and many other regions.  IF they were developed globally, we could slow down the rise of ghg emissions without reducing the total electricity supply.  Of course, they have to be developed responsibly: with best practices to avoid contaminating water or causing other environmental damage.

Don’t get me wrong; I am not against developing wind or solar systems of power generation.  However, policy makers charged with reducing CO₂ emissions have to also consider the impact of supporting commercial scale deployment of solar with feed-tariffs or renewable portfolio standards, and the attendant drag on economy, which inevitably pushes more people into poverty. 

As I write this piece, India is suffering through a major electricity crisis: 600 million people lose power for hours on end. No light, factories idle, no air conditioning, no fans, no elevators, transportation snarled. Ouch!!

What about greenhouse gases?

As many readers of this blog would have noticed, I have been in favor of developing all different energy sources—nuclear, coal, oil, wind, solar. I advocate that position because more than three billion people still do not have adequate electricity and are mostly eking out subsistence. The society has an obligation to lift them out of poverty, and provide them with ample, affordable, and clean energy so they can live healthy productive lives. 

So what happens to greenhouse gases? Aren’t we then inexorably marching towards a calamity? Not if we recognize the need for a differentiated response. For starters, societies that have high per capita energy consumption can look for opportunities to conserve and and/or adopt more efficient technologies. As we do this, our focus should be on actions that can have a significant impact on greenhouse gas emissions, preferably on the short order.

Specific actions would differ for different societies. For people currently relying on foraging wood and burning it for fuel providing natural gas or electricity to would be highly beneficial. It would improve their health by limiting the exposure to sooty open flames, reduce deforestation, and reduce the warming due to soot. Since many of them are not currently supported by grid electricity, we should consider distributed power from appropriately sized wind or PV systems. 

Reining in fugitive natural gas during oil and gas production and from landfills is another important factor. Earlier this year, Shindell et al. published an article in Science pointing out the need to look at methane and black carbon sources. The paper showed that strategies to reduce methane and black carbon emissions would reduce the projected global warming by about 0.5°C. The paper emphasized the need for a differentiated response, as regional differences are important. For example in the US, natural gas emissions are mostly associated with municipal waste (ca. 50%), and less so with oil and gas operations (ca. 12%; additional 12% from coal mining). Methane from O&G operations contributed much more in Russia, Middle East, and Central Africa. While the new EPA regulations on methane emissions from shale gas are important to ensure that this energy source does not become a major culprit, we should not lose sight of methane emissions from landfills. Innovations to economically use landfills as a resource for electric power production would have a larger impact on reducing greenhouse gases. 

Another leverage point for reducing greenhouse gases is agriculture. As we discuss in our book, reducing beef consumption in our diet can make a very large difference by impacting at multiple levels. Fewer cattle would burp out less methane and require less feed—feed that is in turn produced by using energy intensive fertilizers, etc. By using controlled-release fertilizers or by using biochar as soil amendment, we can further reduce both the amount of fertilizer used and the efficiency of its uptake by the plants.  These measures are not as exciting or trendy but they can have a substantial impact on GHG emissions and are deserving of our attention.

In an Op-Ed in the NY Times (May 9, 2012), James Hansen declared that if Canada develops its tar sands resources it is “Game Over” for climate change. His point is that developing tar sands and other unconventional sources such as shale oil would detract from efforts to “phase out our addiction to fossil sources.” I see the recent rise in the production of unconventional resources as a welcome relief from the energy crunch that we were facing. It takes decades to develop alternate energy sources like solar, wind, and geothermal, and with the recent closure of nuclear plants in Japan and Germany, there is increasing pressure to find CO₂-free sources of energy. At present they are significantly more expensive, and it would take further innovations to bring their costs down and get them ready for widespread commercialization. Shale gas, shale oil and other unconventional resources are helping us buy time to develop CO₂-free sources of energy. It would be criminal to waste this precious gift of time.

You can't have your gas and burn it too!

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Lately there is much talk of the surge in natural gas supplies, their falling prices, and predictions of greatly expanded use. Two key technologies, hydraulic fracturing (fracking) and horizontal drilling, have made accessible enormous quantities of an unconventional resource shale gas. The Energy Information Administration of the Department of Energy estimates technically recoverable shale gas resource at 827 trillion cubic feet (tcf), almost four times the proved reserves of natural gas of 245 tcf. There are also an estimated 1500 tcf of unproved conventional resources, and a good fraction of these may also become available at some pint in the future.

When expressed in CMO units (cubic mile of oil equivalents) the proved reserves, shale resource, and unproved resources are only 1.6, 5.4, and 9.8 CMO respectively, and it is clear that they can only make a modest contribution to the overall global energy scene.

The unleashing of natural gas from shale is good news. About a third of the natural gas is used for producing hydrogen, which in turn is used industrially to refine fuels or produce fertilizers. The large availability of natural gas at relatively low cost has allowed US refineries to increase their output. Monthly exports of finished petroleum products hovered around 25 millions barrels per month for 20 years between 1985 and 2005. Since 2005, the monthly exports of finished products from the US have grown to about 80 million barrels per month, which has also helped with the balance of payments.

The shale gas provides the US with an energy resource that is much cleaner than coal and has about one-half its carbon footprint. Natural gas-fired power plants operating in combined cycle mode (NGCC) emit less than 400 g CO₂/Kwh, whereas a typical coal-fired plant emits 850 g for the same kWh. Natural gas power plants also have low capital expense: about $700/Kw capacity compared to $1400-$2000 per kW for a coal-fired plant. In the past, the gas price was high, and so the natural gas was generally used for providing power during periods of peak demand, while the coal-fired or nuclear plants were used for base power. However, if the gas price is low (<$2.00/MMBtu), there is no reason why NGCC plants could not be used to provide base power.

A few years ago the US was slated on becoming a major gas importer, in anticipation of which facilities from handling liquefied natural gas (LNG) were being built. Now it appears that US could make use of those facilities for exporting LNG.  Since shutting down most of their nuclear plants, Japan and Germany have increased import of natural gas. LNG export represents a likely expansion market for US natural gas.

Apart from its use in electric power production, natural gas can also be used to fuel transportation. Although its lower volumetric energy density than gasoline or diesel may pose challenges to its use in certain types of vehicles, there exist ample opportunities for its use in delivery vans, buses, and even long-haul trucks where its operating cost advantage could outweigh the initial outlay for conversion and installing a larger tank or the inconvenience of more-frequent fueling.

The current annual consumption of natural gas in the US is around 22 tcf, and the added shale gas is a very welcome relief as is portends a supply of about 38 years—but that is at the current rate of consumption. If the consumption continues to increases at its historical average of 2.0%/yr this amount would be exhausted in 29 years, and even sooner at a higher growth rate as is expected from the opening of newer markets. The best part of it is that it buys us time to develop alternatives that can make a lasting impact.