Sunday, July 13, 2014

No Time for Energy Complacency

The United States produced 11 million barrels of oil and natural gas liquids per day in the first quarter of 2014,  overtaking Saudi Arabia as the number one producer in the world. Already, in 2010, the US had made its mark as the number one producer of natural gas. This enormous accomplishment, unthinkable just a decade ago, was a product of  technical, operational and commercial tenacity and innovation, coupled with the efforts of a skilled and available workforce, a solid supply chain foundation, the availability of capital and a fiscal and mineral ownership system that incentivizes production.

Meanwhile, this past year,  the world’s reserve base continued to grow,  even while demand continued to increase. According to the BP Statistical Review of 2014, global oil reserves rose by 600 million barrels to 1,688 billion barrels in 2013, an increase of 27% over a decade earlier, despite cumulative production of 332 billion barrels during this same period. Gas reserves grew by 19%,  while production grew by 29%. Resource growth was enabled by unconventional oil and gas success, engineering innovation, delivery of new projects, successful new exploration plays, technical advancements across the entire exploration and production value chain, significant investment over the past decade and improved access to prospective basins.

Global energy consumption growth also accelerated in 2013, from 1.8 percent to 2.3 percent, slightly below the 10 year average growth rate of 2.5 percent.  BP’s annual review revealed that consumption and production increased for all fuels, reaching record levels for every fuel type except nuclear power. Somewhat alarmingly, for all fossil fuels,  global consumption rose more rapidly than production.

Still, with all the success in adding resources and production, and even with significant progress in renewables, it's no time for energy complacency.

Today, some see a future with so much oil and gas resource, and so little need for that resource given its carbon footprint, that trillions of dollars of carbon-rich assets will be left stranded.  Perhaps. But such scenarios heavily discount some elements of current reality: the dominance of oil, gas and coal in today's energy use ( more than 80% of primary energy consumption), the future energy needs of people in undeveloped countries striving to lift themselves from energy poverty ( 1.3 billion people today have no access to electricity), the magnitude of new oil and gas resources required to simply replace existing production decline in developed fields ( ~ 6% per year), and the growth of existing economies and emerging economies built on affordable, available and reliable energy.

World energy demand is likely to increase by around 40% in the next two decades, driven largely by the needs of emerging economies, and despite the best efforts of conservation and energy efficiency.  All energy sources will be required to meet this demand. Energy scenarios which minimize the role of oil, gas,  coal and nuclear to help meet these needs require a rate of market penetration of renewable energy at an unprecedented pace. Even with the welcome possibility of disruptive technologies, breakthrough acceleration of market share for renewable energy is an especially challenging task given 1) the enormity of the global energy scale, 2)  the incumbency and residency times  of planes, trains, automobiles, ships, trucks, heavy equipment, power plants, furnaces, smelters, factories, homes, hospitals, schools, businesses and infrastructure already in place relying on fossil fuels, 3) the magnitude of projects currently under construction ( for example, 1900 coal-power plants planned around the globe), 4) the often lower economic returns of renewable projects relative to other investment opportunities and consequent difficult availability of  large amounts of capital and 5) the low operational and high retirement costs for already built assets. For these reasons (and cost, availability and reliability)  the demand for fossil fuels today is increasing, not decreasing worldwide.

Massively increased research, innovation and investment across the entire energy sector  – solar, wind, battery storage, hydrogen,  coal ( clean coal, CCS), oil, gas and, yes, nuclear – is essential to meet the energy needs of our growing population while reducing the carbon footprint of that necessary energy. Energy pragmatism also helps. Low carbon scenarios become more plausible  when they embrace technologies like CCS and clean coal and step changes in energy efficiency. The scenarios gain more substance when natural gas is considered a key component of the solution rather than a problem, and the revitalization of nuclear power is again placed in the mix. And every new technology and breakthrough in renewable energy implemented on a commercial scale and providing cost competitive power to consumers provides more credibility and momentum than a hundred op-eds. We should support these efforts through investment.

Given the ever expanding energy demands of the world’s growing population, and the energy poverty in which so many live, our greatest concern should be the complacency with which so many view our energy supply. If supplies were constricted, whether by choice, depletion, natural or man-made disasters or geopolitics who would  want to have to choose between the energy haves and have nots?

On the demand side, some low carbon scenarios envision startlingly low levels of energy consumption, especially in the developing world.  Currently, the IEA defines “modern energy access” for those living in energy poverty in places like sub-Saharan Africa as 50 to 100 kWh/person/year - almost enough to power a  60W light bulb for five hours per day for a year. The average American would use that much energy in just three days. So, while a laudible first step on the energy ladder, would you want that for your own children?  Clearly, more energy will be required.

Even the IEA low level of modern energy access is considered high by some searching for more pragmatic energy solutions to help those living in energy poverty. In a recent report from the Sierra Club, Clean Energy Services for All (CES4All),  the first tier of energy access provides a person just 10 kWh of electricity per year -  less than 0.1 % of the  average American’s consumption of 13,000 kWh of electricity per year.  Is it realistic or desirable to assume this kind of level of energy use in energy planning? Shouldn’t we aspire for more?

The CES4All report clearly sees 10kWh per person per year as only a starting point  in alleviating energy poverty, recognizing the urgent need for implementing off grid solutions and the limited availability of investment capital. You have to start someplace.  But the point here is that to truly help those most in need will ultimately require significantly more energy – not less.

The people of the world need energy now. Complacency regarding meeting energy resource requirements when and where they are needed should be a greater concern now than concern over such issues as future stranded assets.  The  great challenge across the energy sector will be meeting continually growing demand in a timely fashion, without significant economic and societal disruption, and while reducing CO2.  The next article in this series will take a deeper look into this challenge, starting with oil and gas.

Additional posts on related topics by David Lawrence:

Energy Pragmatism

Who Determines  Energy Haves and Have Nots

Reserve Life, Resource Life and Meeting World Energy Needs

1 comment:

  1. Alleviating energy poverty is indeed a huge need. Many of those in this category are the rural poor in Africa and the Indian sub-continent who use non-commercial energy, gathering wood or burning animal waste. This can cause serious local environmental degradation. Over time increasing urbanisation will eat into this category as it is easier to deliver commercial energy in cities than in rural areas. Access to energy is strongly correlated with improvements in public health, education and other social indicators. We should beware of unthinkingly creating new impediments to energy production and delivery from any source if we want to continue to improve human wellbeing