The Energy Blog

New Annual Energy Outlook Raises Projected Oil Prices

The New Energy Market Outlook Raises Projected World Oil Price Path and Adds More Coal and Nuclear Power

This is the headline announcing the new Annual Energy Outlook (AEO2006).  The lead paragraph is:

World oil markets have been extremely volatile for the past several years and the Energy Information Administration (EIA) now believes that the reference case oil price path in recent editions of the "Annual Energy Outlook" did not fully reflect the causes of that volatility and their implications for future oil prices.  In the "Annual Energy Outlook 2006" (AEO2006) reference case, released today by EIA, world oil supplies are assumed to be tighter, as the combined productive capacity of the members of the Organization of the Petroleum Exporting Countries (OPEC) does not increase as much as previously projected.  World crude oil prices, expressed in terms of the average price of imported light, low-sulfur crude oil to U.S. refiners, are projected to fall from current levels to about $47 per barrel in (2004 dollars) in 2014, then rise to $54 per barrel in 2025 and $57 per barrel in 2030.  The projected crude oil price in 2025 is about $21 per barrel higher than projected in last year's reference case.

The higher world oil prices in AEO2006 lead to greater domestic crude oil production and increase the demand for unconventional sources of transportation fuel, such as ethanol and biodiesel.  Higher oil prices stimulate domestic coal-to-liquids production
and, in some of the alternative scenarios with even higher oil prices, domestic gas-to-liquids and shale oil production.

I've been waiting to see what EIA would do in their next forecast.  It is in the right direction, a lot more realistic than previous projections, but the prices are still not as high as I would expect. Data in the report is only for the U.S.  They show an average increase of oil prices of only 1.3% in 2004 dollars and an increase in consumption of 1.1% per year.  Renewable energy is projected to increase at a rate of only 1.8% per year which is disappointing.

The tables that are available now are the guts of the full report that will be issued in February and are what most people refer to, so there is not too much to wait for in the full report.  The entire press release, which gives a very good summary of the data, with figures, can be seen by clicking the "press release" link in the lower right hand corner of the link in the following paragraph

The reference case projections from the AEO2006 and an overview of the results are available here.  The reference case represents a baseline projection under existing policies and a given set of assumptions regarding economic, energy market, and technology conditions. 

Coal Resources

Coal is the second only to oil in fossil fuel consumption and is very likely to have a greater use in the future as oil and gas production decline. The International Energy Outlook 2005 projects that coal consumption, which increased in production by 7.2% from 2003 to 2004, will increase by 2.5% per annum until 2015 and 1.3 % per annum from 2015 to 2025.  The greater growth in the first period reflects the rapid growth of Asian economies during this time which are likely to slow down in the later period.  Asia's demand for coal is expected to be moderated by increasing use of natural gas from pipelines from the Caspian Sea area that are now under construction and those that may be built in the future.  EIA expects that their coal consumption will double by 2025, which will lower China's R/P considerably, indicating either increased imports, perhaps from the Russian Federation, or a shortfall in the following period.  In the short term EIA expects U.S. demand for coal to increase by 4.5% in 2005 and remain at 2005 levels in 2006.

COAL RESOURCE DATA

Location	Proved Anthracite & Bituminous Reserves	Proved Sub-bituminous & Lignite Reserves	Share of Total Re-serves	2004 Produc-tion	Change over 2003	Con-sump-tion	R/P ratio
	million tonnes	million tonnes	%	million tonnes oil equiv.	%	million tonnes oil equiv.
United States	111,338	135,305	27.1%	567.2	3.3%	564.3	245
Russian Federation	49,088	107,922	17.3%	127.6	2.2%	105.9	>500
India	90,085	2,360	10.2%	188.8	7.4%	204.8	229
China	62,200	52,300	12.6%	989.8	13.3%	956.9	59
Australia	38,600	39,900	8.6%	199.4	5.2%	54.4	215
South Africa	48,750	-	5.4%	136.9	2.2%	94.5	201
Leading Im	porter
Japan	359	-	-	0.7	-	120.8	268
World Total	478,771	430,293	100.00%	2,732	7.2%	2,778	164

Natural Gas Resources

Natural gas is projected to be the fastest growing component of world primary energy consumption in the EIA International Energy Outlook 2005.  Consumption of natural gas worldwide is projected to increase by an average of 2.3 percent annually from 2002 to 2025, compared with projected annual growth rates of 1.9 percent for oil consumption and 2.0 percent for coal consumption.  From 2002 to 2025, consumption of natural gas is projected to increase by almost 70 percent, from 92 trillion cubic feet to 156 trillion cubic feet. In 2004 world consumption of natural gas increased by 3.3% compared to the ten year average of 2.3%. This makes the EIA forecast sound a little conservative, but that depends on whether supplies can be developed to meet a higher demand.

Natural gas prices have gone up considerably recently and are expected to remain at or above present prices for the foreseeable future.  The EIA short term energy outlook released Oct. 12, 2005 forecasts an average U.S. residential natural gas price of $12.93 per thousand cubic feet.  This compares to $10.74 for 2004 and $9.51 for 2003.  The forecast for 2006 is $15.25.  These price increases have been exacerbated by hurricanes Katrina and Rita, reflecting the sensitivity of prices to changes in supply and the price movements required to restore a balance between supply and demand.  The report states that "Complete recovery of energy infrastructure from hurricane damage will take many months. However, considerable recovery should occur by the end of 2005."  Incidental the same report forecasts the 2006 average price of West Texas crude to be $64-$65 per barrel and the price of gasoline to be $2.45.

The following table presents some of the more pertinent data for our natural gas resources.  It gives data on reserves, production and consumption of natural gas at the end of 2004.  Beyond the first six countries listed only the countries with production above 40 billion cubic meters are listed.  The table is sorted by rank in reserves.  All data was taken from the BP Statistical Review for 2004.   Several conclusions are fairly obvious from inspection of the data (combined with some data from the complete report.)    Discussion of these conclusions follows the table.  Not shown are the worlds reserves of 179,530,000 billion cubic meters with an annual production and consumption of 2,690,000 billion cubic meters for an R/P of 67.

NATURAL GAS DATA FOR 2004

Rank	Location	Proven Re-serves	Share of Total	2004 Produc-tion	Change over 2003	Con-sump-tion	R/P ratio
		Billion  cubic meters	%	Billion cubic meters	%	Billion cubic meters
1	Russian Federation	48,000	26.70%	589.1	1.80%	402.1	81.5
2	Iran	27,500	15.30%	85.5	4.90%	87.1	321.6
3	Qatar	25,780	14.40%	39.2	6.70%	15.1	657.7
4	Saudi Arabia	6,750	3.80%	64.0	6.60%	64.0	105.5
5	United Arab Emirates	6,060	3.40%	45.8	2.20%	39.6	132.3
6	United States	5,290	2.90%	542.9	-1.20%	646.7	9.8
Other	leading producers
8	Algeria	4,550	0.90%	82.0	-1.00%	21.2	55.4
12	Turkmenistan	2,900	0.30%	54.6	-0.90%	15.5	53.1
13	Indonesia	2,560	2.50%	73.3	0.70%	33.7	34.9
14	Malaysia	2,460	1.30%	53.9	4.00%	33.2	45.7
15	Netherlands	2,390	1.40%	68.8	17.90%	43.5	21.7
16	Norway	2,390	1.40%	78.5	7.30%	4.6	30.4
17	China	2,230	0.80%	40.8	18.50%	39.0	54.7
18	Uzbekistan	1,860	1.00%	55.8	4.10%	49.3	33.3
19	Canada	1,600	1.60%	182.8	-	89.5	8.8
27	Argentina	610	0.30%	44.9	9.40%	37.9	13.5
28	United Kingdom	590	1.20%	95.9	-6.70%	98.0	6.1

How to Live Without Oil

New energy sources could make petroleum obsolete.  Automobile efficiency could be increased to 92 mpg, light truck mileage to 66 mpg.  This could be done with lightweight construction and hybrid vehicles.  Better aerodynamics and materials could greatly improve the efficiency of 18 wheelers and jetliners.  20% of fuel could be replaced with biofuels.

This would only require a $180 billion investment that starting in 2025 would save $155 billion every year.

Newsweek had the complete article at the above link in their 8/8/05 issue.

I believe they had the numbers to put this plan together.  When are market forces and our legislatures going to put it all together?  Maybe by 2025.  This article makes it sound so easy.  Wouldn't it be nice if we could just wave a magic wand. Even if all their assumptions were right, which I don't dispute, some of the technology would take until 2025 to be fully developed.  I hope the hybrid vehicle part comes true a lot sooner and that biofuels are ramped up by that date.  The general population and industry are going to have to have a bigger shock than we have had so far in convincing them that the oil shortage is permanent. 

Technocrati tags: energy policy, peak oil

Where Does The Energy Revolution Stand?

The Energy Revolution has met some major milestones In the six months since I have been writing this blog, in that there there have been several key developments relating to energy technology and policy which I would like to review and comment on. 

Transportation Fuels

My focus immediately became on transportation fuels, as I soon found out it was our most immediate concern. The development of technology and “roadmaps” that could lead to independence from foreign oil imports for the US and other countries have made significant progress in the last six months.  Although funding to accelerate usage of biofuels is totally inadequate, further evidence of the availability of potential resources is a major step.

• The refusal of congress to institute new mileage standards for passenger vehicles and light weight trucks is a major disappointment. Causes of this complacency include: 1) Congress is unconvinced of the urgency of the problem 2) Lobbyists that are opposed to these standards are much too influential and 3) Congress would rather let market forces create a demand for biofuels and hybrid vehicles rather than getting involved.
• Release of the Hirsch report which presented three scenarios for mitigating a decline in oil production. This report clearly indicates that if aggressive action to mitigate peak oil is not taken at least 10 years before it occurs we will face grave economic impact.  A must reading for all concerned about peak oil and the mitigation thereof.
• Record quantities of ethanol are being produced in Brazil with 40% of new cars sold capable of burning 100% ethanol and all gasoline sold contains at least 25% ethanol. The country is nearly independent of oil imports and is becoming a major exporter of ethanol. Brazil is a model in the use of renewable fuels for the rest of the world.  Please take note!
• Release of the Oak Ridge report stating that up to 30% of our liquid fuels could be produced from cellulosic materials.
• Announcement by DOE that enzymes have been developed that permit using any cellulosic material as a feedstock to the production of ethanol. This development makes possible meeting goals for producing 30% of our liquid fuels from cellulosic materials. This occurance was anticipated in the previously item and makes biofuels a major, realistic alternative.
• Announcement by CleanFuels that it was in the process of commercializing production of biodiesel from algae using smokestack emissions as fuel. This is significant in that it complementary, not competitive with other biodiesel production routes. At the same time the process also reduces CO2 and NOX emissions from power plants.  Though not nearly as far along in development as ethanol, algae biodiesel would make it possible to be the major biofuel.
• Increasing sales and announcement of hybrid vehicles, which is our main means of conservation of gasoline.
• Announcement by scientists at the University of Wisconsin that they had developed a process for producing Alkane based biodiesel from any carbonaceous material.
• A new Renewable Fuels Standard in the new Energy Bill requiring a doubling in the use of biofuels to 7.5 billion gallons a year by 2012.  Biomass was redefined to include any organic material grown for the purpose of being converted to energy.  This is not nearly a large enough program to allow ethanol and biodiesel to replace our oil imports in a timely manor, but it is a step in the right direction.

Proven Technology for the Next 20 Years

With oil probably peaking in less than 20 years, if not five years, the more I think we need an alternative to the emphasis being placed on the hydrogen economy.  Demonstrated and emerging technology as listed below likely to be the dominant technologies in the next thirty years.  None of these technologies alone can get us there but together but in some combination they make sense.

• The hybrid is here and can be ramped up as fast as anything.
• Diesel technology can be used now, and should be, as lower sulfur fuels are brought to market in 2005-2006. They will reduce the environmental impact of diesels significantly.  What we need is more models to choose from as there are very few.
• Electric cars and plug-in hybrids for commuting and shopping will be more attractive, with greater range, as gasoline prices go up and battery technology gets better as it is starting to.
• Unconventional oil is already starting to ramp up and will continue as oil companies cannot meet the demand.
• Ethanol production is already significant with 3.4 billion gallons produced in the US in 2004.
• Production costs for biodiesel can be reduced by using newer technologies.
• The Fischer-Tropsh process can be used to produce both ethanol and diesel in larger quantities, at lower cost, than current biofuel producers.  It can handle a much wider variety of feedstocks, like switchgrass, corn stover, wood chips, willows and poplars which are less costly.
• Coal liquefaction is a proven technology and could supply all of our needs, but not in the required time period.
• We can increase our electrical production from renewables like wind and solar systems.
• More rapid development of unconventional oil in Canada and Venezula.

Further Elements of the Energy Revolution

The energy revolution is not limited to extending our liquid fuel resources.  We must find a replacement for the internal combustion engine in most vehicles, we must start building power plants powered by coal, solar and wind and we must not build any new natural gas power generation plants as this is the next fossil fuel to face depletion.  The following are the additional elements of a comprehensive energy policy¹:

• Aggressive development of cost effective efficient fuel cells.
• Development of a hydrogen supply infrastructure.
• Continued development of improved standards for LNG unloading facilities. 
• Development and implementation of standards for higher efficiency insulation systems for buildings. 
• Continued development of advanced clean coal power plants.
• Incentives to promote increased use of wind power which is a proven, economical technology.
• Larger demonstrations of concentrating solar power systems. 
• Continued research to develop less costly photovoltaic solar systems.
• Continued development of a new generation of safer nuclear power plants. 

Elements of the Energy Revolution

There is not a single answer to the complex problems of our energy supply. Both the urgent short term problem of providing adequate supplies of liquid fuels for our transportation vehicles and the longer term problems of transitioning to permanent alternative energy sources must be addressed in a single comprehensive energy policy.  This post will provide an overview of the required transportation fuels policy.  The next post will introduce the elements of the long term solutions.  All of the elements will be addressed in more detail in future posts.

Elements of an energy policy that are urgently needed to increase our supply of liquid fuels are¹:

Increased federal fuel efficiency standards

Incentives to accelerate production and sale of hybrid vehicles.

Providing an environment in which the use of diesel powered vehicles will be made more attractive

Encouragement of a coal liquefaction industry in the US

Encouragement of development of unconventional sources of energy such as a gas to liquids policy and encouragement of enhanced oil recovery and production from heavy oil resources.

Increased emphasis on producing more ethanol and bio-diesel.²

None of these items require significant technological development.  What they need is legislation that requires new standards, incentives for adoption and large scale demonstration of the technologies.

The Energy Revolution Has Begun

The start of the energy revolution is evidenced by continued high prices of energy and the successful introduction of hybrid cars by several manufacturers.  The revolution is fueled by the tight supplies and resulting price volatility of petroleum products and natural gas. These tight supplies are going to continue over the next 20-30 years, accompanied by further increases in prices, until reliable alternative supplies of energy are found, especially for transportation vehicles. This transition period, in which we have tight energy supplies, while we are continuing to develop vehicles that run on a new energy supply, as well as while we are developing alternate and improved energy sources for electrical generation defines the energy revolution.

Foreward

Welcome to The Energy Blog

Energy is a subject that has created a lot of attention lately, especially regarding the price of petroleum products.  This blog is intended to help both you and the writer have a greater understanding of the causes and possible results of the oil shortage that is inevitable.  I have dubbed this period while we are reaching maximum production of oil and transitioning to alternate energy sources as "The Energy Revolution".

As an engineer who spent his career working with both government and private clients in fields that were all affected by energy costs, I started off this quest having a familiarity with the technology.  I have spent nearly three months researching the subject and feel that I now have a good understanding of some of the causes and potential remedies of the pending oil shortage.  However the more I dig into the subject the more I find that I don't know.   I hope by publishing this blog I will get some constructive feedback that will help all of us understand the revolution better.