The State of the Global Energy Supply

The State of the Global Energy Supply

Paul Alois, September 2006

 

A famous saying goes “When the shoe fits, you don’t notice it is on.” When something is working properly, one simply is not aware of it. Despite the increased cost of gas at the pumps, by and large the global energy sector is running so smoothly that one rarely stops to think about it.

In 2006 the U.S. Energy Information Administration (EIA) projected that the world’s energy consumption would increase by 2% per year until 2030.[1] The EIA and other organizations project that resources will be adequate to meet the world’s growing energy needs, but many critics disagree. Issues like peak oil and climate change undermine the prevailing sense that all is well. It is impossible to tell what the coming century holds, but hopefully by understanding the present one can get an idea of what the future will look like. This paper will map out the current state of global energy, and discuss technologies that will influence it in the decades to come.

 

1.1 Oil Reserves

Oil supplies approximately 40% of the world’s energy needs. It is one of the most geopolitically significant issues of the last fifty years, and yet hard data on oil is nearly impossible to find. Most producer countries consider statistics on oil reserves and production to be state secrets, and published numbers are often manipulated to serve a political purpose. Reserve estimates have been a problem in the private sector as well. In 2002 Shell decreased its reserve estimates by 4.8 billion barrels, effectively eliminating 20% of their overall reserves.[2] Incidents like these suggest that reported reserves are a major overestimation of actual reserves, or at the very least should be taken with a grain of salt.

Despite the broad range of logistical problems, most people in the oil industry agree that there are approximately 1.2 trillion recoverable barrels of oil in proven reserves in the world.[3] In the petroleum industry “recoverable” refers to oil that can be extracted using currently existing technology. An approximate distribution of the world’s recoverable reserves is as follows:

· 70% in the Middle East

· 7% in Africa

· 7% in South America

· 7% in Eastern Europe

· 4% in North America

· 3% in Asia

· 1% in Western Europe[4]

In 2000 the United States Geological Survey (USGS) conducted a comprehensive world wide examination of traditional oil sources. They projected a 95% chance that another 394 billion barrels of recoverable oil exist, and a 50% chance that 610 billion barrels exist.[5] However, the USGS has a history of overly optimistic projections. Jean Laherrere, an oil expert who has worked in the private and public sector, analyzed the study and found that it was “misleading… unrepresentative of the normal standards of this highly respected organization.”[6] In his analysis Mr. Laherrere stated that an estimate of 200 billion barrels left to be discovered is more accurate.

 

1.2 Oil Production and Refinement

 

Oil production refers to the process by which oil is extracted from its source. At present, global oil production is about 80 million barrels per day (m bpd). In 2004 the world’s oil production was distributed as follows:

· 31% in the Middle East

· 15% in Eastern Europe

· 14% in Latin America

· 12% in Africa

· 10% in Asia

· 10% in North America

· 7% in Western Europe[7]

Global daily production has been increasing steadily for the last twenty years. The EIA projects that by 2030 the world will be producing 123.3 m bpd.[8] The International Energy Agency predicts a production rate of 121 m bpd by 2030.[9]

Oil refining refers to the process by which crude oil (petroleum) is transformed into a consumable product. This process, called fractional distillation, involves heating the crude oil to 400 °C. As the temperature increases, different crude oil elements can be extracted. Gasoline requires a temperature of 150 °C, diesel requires 300 °C and lubricating oil requires 400 °C.

Refining is a complex industry and an integral factor when thinking about oil. Different refined petroleum products are specific to different uses, so a bottleneck in refining can have consequences that are as severe as a lack of production. When Hurricane Katrina hit the Gulf States in 2005, oil prices spiked over fears that the US’s refining capacity would be severely crippled.

1.3 Oil Consumption

 

World oil consumption is presently around 80 m bpd.[10]

· 25% of that is consumed by the U.S.

· 18% is consumed by the European Union

· 7.5% is consumed by China

· 7.5% is consumed by Japan

· Russia, India, Canada, and South Korea each consume 2.5%[11]

Global oil consumption has been increasing at a rate of approximately 1.5% for the last several years. Barring a major disruption in oil supply, that trend is expected to continue into the foreseeable future.[12]

1.4 Peak Oil

The ‘Peak oil’ theory is derived from Hubbert’s Peak. Dr. M. King Hubbert, a geologist at Shell, put out a theory that oil production in any given geographical area follows a bell shaped curve. As technology and infrastructure is implemented, production increases. Once half the oil has been obtained, production begins an unstoppable descent. His theory has proven true in all countries – peaks in oil discovery have inevitably been followed by peaks in oil production. Peak oil refers to the point in time when global oil production reaches its highest level and begins dropping. Peak oil theorists fall into three camps: the oil plateau theorists, the late toppers, and early toppers.

Oil plateau theorists postulate that oil will not peak in the relevant future. Although they acknowledge that conventional oil sources will undoubtedly peak in the next 40 years, they believe that the marketplace will develop unconventional sources sufficient to keep pace with demand for generations to come. These unconventional sources include deepwater wells, oil sand, oil shale, coal liquefaction and gas liquefaction

Late toppers believe that oil will peak in the next forty years or so and, therefore, that the world should begin investing in alternatives now. Late toppers put their faith in published statistics, and extrapolate peak oil based on these numbers. The world has 1.2 trillion barrels of oil, with a good chance that there are another 600 billion to be found. There are presently 80 million barrels consumed a day, with that number expected to grow by approximately 2% a year. According to these statistics there is enough oil to last exactly 40 years.

Early toppers believe that peak oil will arrive within a decade. They claim that reported global oil reserves are a gross overestimation of actual reserves. They believe that the world has already consumed about half of the world’s recoverable oil, and that unconventional fuel sources will be too little too late. They also point out that there have been no significant discoveries of oil in thirty years, while production has increased dramatically.

2.1 Natural Gas

 

Natural Gas supplies around 25% of the world’s energy needs. There are between 6,000 to 7000 trillion cubic feet (tcf) of proven natural gas reserves in the world, with the difference resulting from disputes over Russian reserves.[13]

· 25 to 35% of the world’s reserves are in Russia

· 15% are in Iran

· 15% are in Qatar

· 4% are in Saudi Arabia

· 4% are in the United Arab Emirates

· 4% are in the U.S.

· 4% are in Venezuela

· 4% are in Nigeria

· 4% are in Algeria[14]

As is the case with oil, natural gas reserves are state secrets and the above numbers are rough estimates.

In 2004 the world produced 98 trillion cubic feet of natural gas.

· 28% was produced by Russia

· 27% was produced by North America,

· 12% was produced by Asia,

· 12% was produced by Europe

· 10% was produced by the Middle East

· 5% was produced by Africa[15]

Due to the difficulty of transporting a gas, most natural gas is consumed within the same region it is produced. The only notable exception is Europe, which has become dependant on natural gas imports from Russia.

According to the EIA, the world wide consumption of natural gas is expected to increase annually by 2.4% to 182 tcf per year in 2030.[16] If global consumption increases at this rate the current reserves of natural gas will be exhausted in about 39 years.

2.2 Liquefied Natural Gas

 

The biggest issue slowing the growth of natural gas is the difficulty of transporting it. Transporting natural gas typically requires a sophisticated pipeline infrastructure, which cannot be economically built under water. An emerging technology that could revolutionize the natural gas industry is liquefied natural gas (LNG). LNG is created by cooling natural gas to -163 degrees Celsius. In its liquid form it is easily transportable, requires one six hundredth of the normal volume of natural gas and contains less CO2 and sulfur.[17] LNG can be transported by specialized tankers which have the potential to unlock markets that are unreachable by current standards. However, LNG has several problems. LNG requires heavy investment in infrastructure at both the exporting and importing points. LNG plants are expensive, they are potential terrorist targets, and people do not want to live near them for aesthetic and security reasons.

 

3.1 Coal

 

Coal provides 25% of the world’s energy. There are currently 1,000 billion tons of coal reserves world wide.

· 27% is in the U.S.

· 17% is in Russia

· 12% is in China

· 10% is in India

· 8.5% is in Australia

· 3.5% is in Kazakhstan

· 3.5% is in Ukraine

· 1.5% is in Poland[18]

World reserves have been declining slowly over the past few decades, and new sources are not expected to be discovered. However, current reserves are expected to last over 100 years.

In 2004 the world consumed 6.1 billion tons of coal.

· 30% was consumed by China

· 15% was consumed by the U.S.[19]

· 14% was consumed by the European Union[20]

· 7% was consumed by India

· 4% was consumed by Russia

· 3% was consumed by Japan

· 3% was consumed by South Africa[21]

Global consumption is expected to increase annually by 3% until 2015, and then slow to 2% annual growth as the Asian economy settles. 70% of the growth is expected to come from China and India, although the U.S., Australia, South Korea, and Russia will see large increases as well.

Coal is generally recovered, produced, and consumed domestically. In 2003 only 13% of coal consumed had been traded internationally, and that number is expected to decrease to 11% by 2030.[22]

4. Nuclear Power

 

Nuclear power provides 6% of the world’s energy.[23] As of July 2006 there were 442 nuclear reactors in thirty countries, with 27 new plants under construction.[24]

· 103 reactors are in the U.S.

· 59 are in France

· 55 are in Japan

· 31 are in Russia

· 23 are in the UK

· 20 are in South Korea

Of the 2619 billion kilowatt hours generated by nuclear power worldwide in 2005,

· 30% was in the U.S.

· 16% was in France

· 10% was in Japan

· 5% was in Russia

· 5% was in South Korea

· 3% was in the UK[25]

Despite the widely publicized nuclear disasters at Chernobyl and Three Mile Island, nuclear energy has a very safe environmental record. The Nuclear Energy Institute claims that nuclear power prevents the emission of 700 million metric tons of carbon dioxide per year in the U.S.[26] Disposing of nuclear waste has been a source of serious debate, but technologies are being developed that may be able to extract more energy from plutonium and seriously reduce waste.[27]

Critics of nuclear power point to several factors. According to the Nuclear Information and Resources Service (NIRS), nuclear power is not as environmentally friendly as it is portrayed to be. Nuclear power requires an ore called uranium. The process by which uranium is mined, processed, used, and stored ultimately creates as many greenhouse gases as a natural gas plant.[28] Nuclear plants also have higher capital costs than fossil fuel plants,[29] and there is still no universally accepted method for dealing with nuclear waste.

 

5. Hydroelectric Power

 

Hydroelectric power accounts for 6% of the world’s energy. In 2004 the world produced 2747 billion kilowatt hours of electricity using hydroelectric power.

· 14% of hydropower production is created by China

· 12% is created by Canada

· 11% is created by Brazil

· 10% is created by the U.S.

· 6% is created by Russia

· 4% is created by Norway

· 4% is created by Japan[30]

Although hydroelectric dams are touted as environmentally safe sources of renewable energy, in practice they are frequently disastrous. Emblematic of this problem is the Three Gorges Dam in China, which will be 5 times larger than the Hoover Dam. The cost of the project may have already tripled expectations,[31] millions of people are being displaced, thousands of cultural sites will be flooded, and the environmental impact will be severe.[32]

Recently scientists have discovered that some hydroelectric dams create more greenhouse gases than the dirtiest coal plants. When an area filled with dense vegetation is flooded, the vegetation rots and releases significant amounts of CO2. In the years that follow, the plant matter continues to decompose underwater. The carbon released during this process has no oxygen to bond with, so it enters the atmosphere as methane. This is significant because methane traps 21 times more heat than CO2. When the emissions from hydroelectric dams are finally calculated, Brazil’s total greenhouse gas emissions may increase by as much as 7%, and other countries will see similar results.[33]

 

6.1 Emerging Energy Sources

 

Alternative energy sources account for 1.5% of the world’s total energy production.[34] Geothermal, wind, solar and most biomass energy are all used for electricity generation. Biofuels are the only alternative energy source used in the transportation sector. In order for an alternative source of energy to become competitive, it must cost as much or less than traditional sources. In 2006 the average American paid 9.81 cents per kilowatt hour (KWh).[35] Even though the cost of generating electricity from fossil fuels is far lower than this, it is useful to keep this number in mind when thinking about the viability of alternative sources.

 

6.2 Biomass Energy

 

Biomass energy refers to any type of energy that comes from a biological source. Although fossil fuels are technically biological in origin, they are not in this category. Most of the energy produced by biomass comes from burning wood. In many poorly developed areas of the world wood fires are still necessary for cooking and heat. In the United States biomass creates 3% of all energy consumed. 70% of that energy comes from wood waste, which is usually burned by the producer of that waste to generate electricity.[36] 28% of U.S. biomass energy is created by municipal solid waste (MSW). MSW is either burned to create electricity, or the methane released by decomposition is trapped and sold.

The most publicized aspect of biomass energy is biofuels, which can be used as an alternative source of transportation energy. There are several types of biofuels, the two most common being ethanol and biodiesel.

Ethanol fuel can be made from corn, sugarcane, switch grass, and hemp. Ethanol is a particularly promising technology because it can make use of the existing petroleum infrastructure. Many gasoline companies already blend some amount of ethanol into their product, and any car can run on a blend with up to 10% ethanol. With some minor modifications it is possible for a car to use much higher blends. A disadvantage of ethanol fuel is that it has 34% percent less energy than pure petroleum, meaning it gives less miles to the gallon. In the U.S. in 2006, ethanol was cheaper than regular gasoline, but it cost more to go the same distance.[37]

Brazil is leading the way with this new technology. Brazilian ethanol is derived from sugar, which is 30% cheaper than the U.S.’s corn derived ethanol.[38] Brazil is a large country in a tropical climate with a cheap workforce, an ideal location for producing sugar. Currently 30% of all transportation fuel in Brazil comes from ethanol, compared to 2% in the U.S.[39] In Brazil gas stations sell petroleum blends with at least 26% ethanol, although many sell pure ethanol as well. The pure ethanol is selling for half the cost of the blend. Car manufacturers are getting on board, and in 2005 half of the vehicles sold in Brazil were able to use pure ethanol fuel.[40]

Biodiesel is a form of diesel fuel made from vegetable or animal fat. The most common sources of biodiesel are soybeans and rapeseed, although a variety of other plants are being tested. Of particular interest is a form of algae, which can potentially yield 100-300 times more biodiesel per acre than soybeans.[41]

Biodiesel has a lot of promise, but it is still not competitive with conventional fuel. Biodiesel can be mixed to any degree with petroleum generated diesel, and can be used in unmodified diesel engines. In the U.S. in 2006, biodiesel cost $4.13 per gallon, versus $2.98 for regular diesel.[42]

 

6.3 Geothermal Energy

 

Geothermal energy is inexpensive and reliable, although currently it is only responsible for .3% of the U.S.’s energy production.[43] Geothermal plants are located at places where the heat from the center of the Earth reaches the surface in the form of steam or magma. This heat is harnessed to spin a turbine, which generates electricity. Geothermal plants create very little waste, can be located in urban areas, and can run at 90% capacity year round. Electricity from a geothermal plant costs around 5.5-7.5 cents per kilowatt hour, making it very competitive with traditional sources.[44] Despite their advantages, geothermal plants do not have the potential to dramatically affect global energy. There are simply not that many sites where a plant can be constructed.

 

6.4 Wind Energy

 

Wind power is the cheapest alternative source of energy at 4 cents per kilowatt hour.[45] It is expected to be the world’s second most common source of renewable energy by 2030.[46] 1-3% of the sun’s energy that hits the Earth is turned into wind; 50 to 100 times more energy than is turned into biomass through photosynthesis.[47] The sun hits the Earth unevenly, warming some places more than others. This difference in temperature creates a difference in air pressure. Since air tries to fill out a space with equal pressure on all sides, the air in our atmosphere is always rushing from high pressure areas to low pressure areas. This creates the phenomenon called wind. Wind power is created by attaching fans to a turbine. When wind spins the fans, they turn the turbine, and electricity is generated.

Although wind power is a rapidly growing technology, it is still in its infancy. Wind turbine installations need to be somewhere that has strong, steady wind. The best sites are mountain tops, large flatlands, coastal areas, and offshore. These types of locations are often appreciated for their natural beauty, and many wind installations have met with local resistance. Offshore installations are becoming the standard, with Germany, Denmark, and the UK taking the lead.[48]

The current 2-dimensional three blade turbines only utilize 10-20% of the wind potential. An unanticipated problem with these turbines is that their tips can spin at over 100 kilometers per hour, making them notorious for killing birds. 3-dimensional vertical axis turbines like the Darrieus model can use as much as 35% of the wind potential, and since they spin at wind speed birds can avoid them.[49] However, 3-D vertical axis turbines are currently too difficult to maintain, and all current wind farms projects are focusing on horizontal axis models.

 

6.5 Solar Energy

Solar energy is poised to be the dominant alternative energy source in the future, although at present it is too expensive to compete with traditional sources. In the U.S. in August 2006, the price for a kilowatt hour of electricity generated by solar energy averaged 21.5 cents in the industrial sector and 37.33 cents in the residential sector.[50] If solar power is to become economically viable it will have to undergo a vertical leap in technological development.

There are two ways of generating power from the sun. The first, called concentrated solar power (CSP), involves concentrating sunlight on to a container of liquid, heating the container. Steam is created, which spins a turbine. The second technique is called photovoltaic energy (PV). PV energy is created by connecting the front and back of a cell, traditionally made of silicon, with a wire. When sunlight hits one side of the cell electrons are knocked loose, altering the charge on that side. This creates a current that runs through the wire and is harnessed for electricity.

The CSP method creates more energy than PV, and is favored by the energy industry because it can be easily integrated into the current energy infrastructure. PV cells, because of their size and cost, are the only feasible solar energy technology for individual homes and businesses. The future of solar energy will probably come from combining nanotechnology with PV cells to dramatically increase cell efficiency.

7. Conclusion

 

Less than 250 years ago, a mere blink of an eye in human history, the Industrial Revolution was born. James Watts had invented the modern steam engine, and it required a new fuel source: coal. By harnessing the hidden power of carbon, the Industrial Revolution literally reshaped the face of civilization. The way people structured their societies, economies, governments, lifestyles and even wars was transformed.

Today, over 80% of the world’s energy is generated by three fossil fuels: coal, oil, and natural gas. Modern society developed under the assumption that there would always be adequate supplies of these fuels, and today the global community is completely dependant upon them.

In the coming century the two issues that will shape global energy policy will be peak oil and climate change. Oil supplies more energy than any other source, but it is a finite resource that will one day run out. It is a universally held belief among scientists that the burning of fossil fuels is causing global warming. Although the long term effects are hard to predict, the world has recently seen an increase in droughts, heat waves, and catastrophic weather. From an economic standpoint it would be a disaster if oil peaked, but from an environmental standpoint it would be a disaster if it did not.

It is time to start thinking about new ways to power the developed world, and new ways to help the developing world advance out of poverty. Viable forms of alternative energy have been developed that give people the opportunity to generate electricity in their homes. With experimental technologies like cold fusion and zero point energy on the horizon, the possibilities for change are endless. Where there is a will there is a way. Today there is a way, one can only hope we find the will.

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[1] Energy Information Administration World Energy Outlook 2006, pg 7

[4] OPEC 2004 Annual Statistical Bulletin, pg 18

[7] OPEC Annual Statistical Bulletin 2004, pg 22

[8] Energy Information Administration, International Energy Outlook, Table E4

[9] IEA, Key World Energy Statistics 2006, pg 46

[13] http://www.eia.doe.gov/emeu/international/gasreserves.html

OPEC Annual Statistical Report 2004, pg 20

[15] Energy Information Administration, International Energy Annual 2004, 2.4 World Dry Natural Gas Production, 1980-2004

[16] Energy Information Administration International Energy Outlook 2006, pg 37

[19]http://www.eia.doe.gov/emeu/international/coalconsumption.html

[25] Energy Information Administration International Energy Annual 2004 2.7 World Net Nuclear Electric Power Generation, 1980-2004

[30] Energy Information Administration, International Energy Annual 2004, 1.5 World Net Hydroelectric Power Consumption, 1980-2004

[34] Energy Information Administration, International Energy Annual 2004, Table 11.1 World Primary Energy Production by Source, 1970-2004

[42] US Department of Energy, Clean Cities Fuel Price Report, Table 2