Tech Talk - The BP Energy Outlook 2035

BP begins its new forecast for the energy future with the statement:

We project that by 2035 the US will be energy self-sufficient while maintaining its position as the world’s top liquids and natural gas producer.

This illustrates the optimism which BP are projecting in their image of future production. But it carries with it a lot of inherent assumptions, some of which are relatively easy to identify in the summary graphic presentation that accompanied the initial presentation of the new report. Perhaps the most illustrative of their optimism is this plot, which shows the increasingly decoupled changes in energy supply relative to projected increases in GDP.

Figure 1. The reducing dependence on Energy growth as a control on GDP. (All figures are from the new BP Energy Outlook for 2035)

Each year there are significant projections for the future of energy over the next few decades. Recent posts have reviewed this year’s projections from the IEA and ExxonMobil. These projections, were also reviewed last year and those reviews included the previous BP projection although that only projected forward to 2030 – the current review has added five years to this.

The relative contributions of the different fuel sources to the overall mix have not changed appreciably in the past year. Oil is anticipated to continue to shrink in percentage contribution, and coal will also decline in relative contribution after around 2020. Natural gas and renewables are anticipated to make up the supply needed.

Figure 2. Relative contributions of the different fuel sources to overall global energy supply to 2035.

BP have made it a little easier to see how this breaks down by plotting the ten-year increments in fuel contribution as well as the overall totals.

Figure 3. Changes in projected fuel supplies over the period to 2035.

Changing the plot to show the ten-year incremental changes illustrates how coal, now surging as an international fuel source, is anticipated to decline beyond 2020.

Figure 4. Projected ten-year incremental changes in fuel supply through 2035.

Note that in overall total BP is projecting that global consumption will rise by 41% over today’s numbers, most of which increase will come from the rapidly-developing countries of the world.

Figure 5. Regional increments of energy consumption growth over the decades to 2035.

The reliance on the improvements in energy efficiency to stall further growth in energy demand from the OECD countries is evident in this picture.

BP notes that the decade from 2002 to 2012 saw the “largest ever growth in energy consumption in volume terms,” but anticipates that this rate will never be exceeded in the decades to come. And they anticipate that as Chinese growth fades in the decades, so the growth of the Indian and adjacent economies will almost match that of China by the end of the period. As the nations of the world complete their industrialization, so the growth in the demand for fuel will see a greater emphasis on transportation demands.

Interestingly the decline in the demand for coal that BO projects is linked to the completion of industrialization in China, and this assumption is, of course, predicated on oil and natural gas remaining available to meet the demand at a reasonable cost.

Figure 6. Anticipated primary sources for generation of electric power.

The projections for changes in liquid fuel supply are also relatively simply presented. First one can see the projected changes in demand, with the OECD countries declining, as demand increase seems to focus in the Eastern nations.

Figure 7. Anticipated changes in global demand for liquid fuels

It is where this growth in supply is to come from that is of the greatest concern, and BP suggest the following:

Figure 8. The anticipated sources for growth in liquid fuel supply through 2035.

BP note the largest sources of these gains as being:

The largest increments of non-OPEC supply will come from the US (3.6 Mb/d), Canada (3.4 Mb/d), and Brazil (2.4 Mb/d), which offset declines in mature provinces such as the North Sea. OPEC supply growth will come primarily from NGLs (3.1 Mb/d) and crude oil in Iraq (2.6 Mb/d).

One of the more interesting plots in the report shows how, over last year, the changes in US production more than compensated for the declines in production from the MENA countries.

Figure 9. The ability of increased US production to balance declines in production from the nations in turmoil in MENA.

BP anticipates that continued US increases in production will more than balance the anticipated increases in global demand, so that the continued disruptions will not significantly affect global supply even though, as they have historically, they extend for more than ten years. The US gains are anticipated to continue to such an extent that OPEC will be required to rein in their supplies in order to sustain global prices.

Figure 10. Changes in the demand for OPEC oil and the result on their production reserve capacity.

One anticipates, given that KSA has said that they will not increase overall supply much above current levels, that the increases in production that BP anticipate will likely come from Iraq, and Iran if the sanctions are lifted. Given the current situation in those parts the latter seems increasingly more likely than the former. Further BP note that the increasing populations in these countries and their consequent increases in demand for energy is likely to constrain the levels at which these countries can continue to export.

In conclusion, and to justify the heading at the top of this piece, BP anticipate a continued growth in US oil production such that, by 2035 imports are virtually eliminated, being more than offset by the gains in the export of natural gas products. BP anticipates that the latter will increase by 2025 to around 12 bcf/d and continue at about that level.

Figure 11. BP projections for changes in the US oil supply sources for the period to 2035.

Tech Talk - Predictions

From time to time I have written about the dubious assumptions that lie behind some of the predictions made by Energy Agencies and some of the larger oil producing companies as they predict the energy supplies and demands of the next few years.

It is relatively simple to make those criticisms given that one has only to compare ongoing reality with the assumptions to be able to judge that the future is unlikely to be as rosy as any of these folk imagine.

However there is this strong tradition of making the odd prediction at the start of the New Year. Yet having just spent about 2 hours digging snow out of my drive (an hour and a half for the first session which moved most of the snow and then thirty minutes to remove all the snow shifted back into the drive when the snowplow came by clearing the center of the road) my creative buds are a little slow this evening, but I would suspect that it is not hard to make one or two suggestions, and then go back and so how they panned out.

Last year I was quite pessimistic about the future, given the pull back in Arctic drilling following the grounding of the Shell drillship and had some question on the stability of the domestic production levels. Well a year later the situation in the Arctic has perhaps grown a little less encouraging for those who would anticipate early development of those resources, but on the other hand domestic production has continued to increase.

For next year I suspect that the situation with China, in terms of its attitude to acquiring sufficient energy reserves, will not improve. There are already suggestions that China will adjust its position in regard to the importation of Iranian oil and may increase purchases, despite the ongoing sanctions. Similarly it is refusing to recognize arbitration in its dispute over ownership of the China Seas (East and South). To keep the projection vague (and thus less likely to be too far off) I would expect that this will get worse over the next year, and the steps China is willing to take to ensure future energy supplies will become more obvious.

In this regard I suspect China will continue to beat out India in the pursuit of available resources around the world, though the consequences for this in India won’t likely become evident for a couple of years yet.

There will likely continue to be enough available crude to meet demand through next year (depending on how the various conflicts in the different countries of the Middle East develop) but it may be the last year in which this holds true. With the Kingdom of Saudi Arabia determined to hold production at a maximum of around 10 mbd, with Iraq increasingly troubled by growing sectarian violence and with other regional countries similarly destabilizing there are only a few places where increased production can be brought on line to meet demand – and that problem may become evident in 2015.

So having made a couple of relatively obvious suggestions let’s see how 2014 turns out for us all – though I hope it brings you Prosperity and Success!

Tech Talk - The ExxonMobil 2014 Outlook for Energy

Each year the large oil companies produce their forecasts for future demand and supply of fuel, and these can be compared – both with earlier forecasts and with each other and the forecasts from different agencies. Last week, for example, I looked at the IEA forecast through 2035, while today’s subject is the ExxonMobil (EM) 2014 Outlook for Energy. (See also the 2013 Outlook Review and the 2011 Outlook Review).

In conformity with the IEA review EM consider that the energy growth rate for India will be perhaps one of the more significant metrics of the future. EM note that by 2040 one third of the global population will live in either India or China and between them they amount for half the global increase in energy demand, which is anticipated to be about 35% higher than the 2010 figure. India has already become the third largest energy consumer (after China and the United States).

One of the greatest drivers to energy demand growth comes as the population moves from the farms to the city and, as EM note, China has seen the urban population grow from 25 to 50% of the total in the past 20 years increasing residential power demand 20-fold. But that growth will slow in the future, reaching 75% by 2040. India (and Africa) are however further behind this curve with India being at 30% and Africa at 40%. Thus, as they still have further to move up the ladder, EM anticipate there will be concomitant increases in demand as these changes occur.

Figure 1. Projected growth in energy demand for major groups until 2040. (Illustrations are taken from EM The Outlook for Energy:A View to 2040 except where stated) (The key growth countries are Brazil, Indonesia, Saudi Arabia, Iran, South Africa, Nigeria, Thailand, Egypt Mexico and Turkey).

One of the small niggles with this projection is that it assumes a virtually limitless source of fuel.

Ongoing advances in exploration and production technology continue to expand the size of the world’s recoverable crude and condensate resources. Despite rising liquids production, we estimate that by 2040, about 65 percent of the world’s recoverable crude and condensate resource base will have yet to be produced.

While that projection will be discussed a little further later, it should be noted that in the next decade China’s energy demand will continue to grow at roughly current rates and that they have been quite assiduous in finding new sources to provide that energy. This is already providing some of the backstory to the growing tensions between China and its neighbors in the South and East China seas.

This is noteworthy because, as yet there is not much gap in the world between the quantities of fuels desired, and those available. Yet China is moving aggressively to ensure that it will be able to get what it needs when this changes. Such is not the case either with India, which has often failed in head-to-head bids for energy supplies when going against China, or much of the rest of the world who continue to accept the assurances that EM inter alia are promulgating with reports such as this, that there is a plentiful sufficiency.

Continuing along this unrestricted “ideal world” trail that EM are laying out, they continue to foresee that there will be a substantial improvement in energy efficiency over the next decades, leading to an increased decoupling of the relationship between GDP growth and Energy demand.

Figure 2. Projected growth in GDP and Energy demand through 2040.

Some of this EM project will come from the increased efficiency of automobiles and the greater acceptance of hybrid vehicles, with a penetration of 35% of the market – up from the 1% it held in 2010. While they do not expect that natural gas will have much impact on personal vehicles they do expect some impact with commercial transportation. The changes will lift the light vehicle mileage from the 24 mpg of 2010 to 46 mpg by 2040. (This is 1 mpg lower than their projection for mileage change given last year).

Figure 3. Changes in the composition and size of the global car fleet.

In terms of electricity supply EM foresee a sharply changing picture of the composition of the fuel sources for global supply, with coal barely holding its own throughout the period, and oil declining, while the remaining sources all grow in market size.

Figure 4. Sources of fuel and market size for electric power generation through 2040.

So where will the oil supply come from? Well EM remain confident in the future growth of North American oil.

North American liquids production is expected to rise by more than 40 percent from 2010 to 2040, boosted by gains in oil sands, tight oil and NGLs. With production rising and demand falling, North America is expected to shift from a significant crude oil importer to a fairly balanced position by 2030.

Latin American liquids production will nearly double through 2040 with the development of the Venezuelan oil sands, Brazilian deepwater and biofuels.

The Middle East is expected to have the largest absolute growth in liquids production over the Outlook period — an increase of more than 35 percent. This increase will be due to conventional oil developments in Iraq, as well as growth in NGLs and rising production of tight oil toward the latter half of the Outlook period.

The concern with these projections (which are substantially more optimistic than the IEA forecast, lies in their assumption of unfettered growth. As Ron Patterson just noted the EIA is anticipating that US volumes will peak in 2019, and then decline.

Figure 5. EIA projections for US petroleum production through 2040 (EIA).

Ron, has refined this plot and shows that US production may well peak in either 2015 or 2016, and go into significant decline by 2020. This is quite a contrast to the EM projection.

Figure 6. EM projection for change in liquids production through 2040

EM expect that Deepwater production will increase with major supplies coming from Angola, Nigeria, the Gulf of Mexico and Brazil, with production rising to a peak in around 2040. They expect tight oil supplies, however, to increase by a factor of tenfold from 2010 to 2040. The major new player in that field is anticipated to be Russia whose output is still expected to trail that in North America (which includes Canada and Mexico).

One of the great questions of the next decade relates to the development of the heavy oils of Venezuela and Canada. EM expects that the Canadian production will increase 200% with the rest of the total gain of 300% of the 2010 total presumably coming from Venezuela. However Venezuelan development remains a complex situation.

One of the most promising developments that EM describe is the use of extended reach horizontal wells, that are now allowing sub-sea deposits to be tapped using land-based rigs. At Sakhalin Island, for example, they note that they were able to drill one well in the Chayvo field that extended out 7 miles.

Figure 7. Illustration by EM of their extended reach well capabilities.

The other source that EM cite for increased production comes from OPEC and production gains in the Middle East. Given that Saudi Arabia have stated that 10 mbd is their intended upper limit to production (give or take a little) one presumes that the roughly 9 mbd gain is largely anticipated to come from Iraq. EM don’t actually say, nor did they last year, but it is interesting to end by comparing last year’s projection for future growth with the one shown in Figure 6.

Figure 8. The projected volumes for liquid supply growth as provided by ExxonMobil last year in their 2013 report.

On which cheerful note I wish you all the Compliments of the Season, and hopes that you have a safe and happy break.

Tech Talk - The IEA World Energy Outlook

It is the time of year again that different folk stare into their own versions of a crystal ball and project how much energy the world will need in the future, and where they think that it will come from. It is interesting to look at these various predictions as the global supply picture morphs under a changing reality.

One of the changes in reality that is likely to have significant impact in the near-term is the flow in the Alyeska pipeline. Long-time concerns over the decline in flow and the effect that heat loss has on the contents is leading to new work to change the pipe dynamics and possibly to remove the water before it is pumped, lowering the temperatures at which the line currently has to be maintained.

Figure 1. Historic and Projected flows through the Alaskan pipeline (Alyseka)

The precipitation of ice and water from the oil, within the pipeline will otherwise reach a point that flow will stop – potentially at around 300 kbd, at a date not too far into the future.

In their annual World Energy Outlook, the IEA continue to see, overall, a gain in US oil production through 2025, largely coming through the light tight oil of the sort being produced from North Dakota and West Texas.

Figure 2. IEA projections for global oil production growth in the years to 2035. (IEA)

However in the following years , out to 2035, that supply also declines so that by 2035 the US will likely be in the same sort of supply situation, relying heavily on imports, that it is today.

The IEA make the point that the only longer term places that can be relied on are Brazil, with the off-shore fields, and the Middle East. Looking first at Brazil, which continues to have some problems in bringing their fields on-line on-schedule, the IEA anticipates that the major production growth is likely to be in the next ten years, but will continue beyond that point.

Figure 3. Brazilian oil production through 2035. (IEA)

Because the IEA foresee that Brazil will continue to supply the largest portion of its energy from hydropower this means that the largest volume of the fuel can be exported, where it meets the continually growing demand from the rest of the world.

Figure 4. Anticipates sources of power for electricity generation in 2035 (IEA)

At the same time the IEA anticipate that primary energy demand will still focus heavily on fossil fuel sources through 2035, with renewable energy only slowly nibbling away at the totals so that, by 2035 fossil fuel will have dropped from contributing the current 82% down to 75% of the larger total.

Figure 5. Anticipated changes in the sources of primary global energy through 2035. (IEA)

Although, by that time the IEA foresee a change not only in the places where demand is highest, but also in the relative rankings. The major finding in this regard that they draw attention to is the anticipated greater growth rates in India than in China, as time passes.

Figure 6. Changed picture of global energy demand in the year 2035 (IEA)

Other than projecting the growth in demand there is the need to anticipate where the supply will come from, and in this regard the IEA projects that the largest growth will come from natural gas (Figure 5), although crude oil is still anticipated to grow, with refinery capacity increasing to about 104 mbd.

It is interesting that the IEA projections for oil production growth hang most heavily on increased production from the Middle East. It requires very little glance into their crystal ball to assume that this is likely based on the increased production from Iraq, an assumption that was, last year, a largely common assumption to all future projections. Unfortunately for those earlier projections in the interim the initial Iraqi targets have been cut back, with current targets being reduced below the “best case” scenario that the IEA had projected in their review of the country.

Taken with the possibility of a significant and sudden decline in production from Alaska, and the likelihood that the rate of drilling in the Bakken will decline, as prospects become more uneconomic suggests that it will be difficult to sustain the levels of crude output that the IEA are anticipating can be made available to meet their projected needs.

By the same token the growth in the global demand for natural gas is predicated on the reserves uncovered in the United States being exported, as needed, to the rest of the world. It is, however, also predicated on the price of natural gas remaining relatively stable in terms of current costs.

Figure 7. Anticipated components of the costs of US LNG when shipped to either Asia or Europe (IEA)

The underlying flaw in that assumption is that the costs of purchasing the natural gas in the United States are now starting to rise to a more realistic level relative to the costs of production from tight shales. This week's OGJ, for example has noted the EIA Short Term Energy and Winter Fuels outlook that notes that prices are expected to rise 13% this winter over last (on constant demand) to $3.62 per kcf. Given that the EIA is expecting the price to inch upwards towards $5.00 per kcf over the next year this makes the IEA report appear a little over-optimistic on costs and hence market share.

Figure 8. Natural Gas Prices in the United States (EIA)

This is likely to be particularly true as some of the older gas fields, such as the Haynesville, appear to be in decline even at prices in the $4 - $5 per kcf range.

Figure 9. Natural Gas Production from the Haynesville Shale (OGJ )

Increasing the price of natural gas will reduce its competitive advantage over coal and in consequence I would anticipate that power generating companies will continue to build boilers that can handle both coal and natural gas, and that the longer-term continued switch to natural gas will become more of an economic choice dependent on how much LNG finally comes onto the market from the United States and at what price. I am not convinced that this will be quite the bargain and cornucopia that it is anticipated to become. In other words I still find the IEA view of the future to be a somewhat optimistic one, given the realities that are now unfolding before us.

OGPSS - The Pope, Poverty and Power

The new Pope Francis comes from Latin America and has an understanding of the true depths of poverty that is not that common in the United States and Western Europe. Outside the very Western urban part of downtown Buenos Aires lie the barrios and the shanties of the Argentinian poor. Life is more transient in neighborhoods where there is a lack of water, food and opportunity, and where sanitation is a sometime thing. Government programs do not extend far enough, or help many at the bottom of the ladder and government statistics seem to hide much of the problem.

This holds true in many parts of the world. I was struck, at the time of my first visit to China in 1987 by the contrast between the opulence of the walled community in which the “Western” hotels were located in Shanghai and the desperate poverty of the communities just the other side of that wall. Move forward some fifteen years and the cities of China are much different, across much of the landscape. It is a transition that has been effected through large-scale industrialization and the vast quantities of power that is expended in the growth and continuation of that industry. Such a transition is the vision for many countries in the world, but the role of power in that change, and the increasing costs that it imposes, must be recognized. Just having a nominal power available is not, in itself, enough. Consider the case that India, a potential challenger to the Chinese in the market place, now finds itself in. As with China the country has desperate poverty, but it also has a developing industrial base that is driving change. But the rate of that change has, for some time, been limited by the amount of power available.

Power cuts in India are so commonplace that the Times of India recently ran an article detailing some things to do during these “incessant” cuts. And while it is only the major blackouts, such as the power failures at the end of last July that garner global headlines because of the scale, some 600 million people being without power in that event, it is the daily, smaller scale events that are making it increasingly difficult to run a business. In Coimbatore, for example, a city of some 3.5 million people, power outages can last up to 14 hours a day, and “load-shedding”, where power outages are rotated around the neighborhoods is an accepted part of daily life in the country. The ubiquity of these cuts mean that many folk have purchased stand-by generators, which in turn drives up the demand for fuel. But it is difficult to run a business – whether it be a factory or a restaurant, if you don’t have a reliable source of power. And if cuts are frequent enough, and the alternative power costs are too high, then business either closes or moves somewhere else. It is such a decision that is apparently facing small business owners in places such as Coimbatore, but it has the potential to spread to the larger, and now more dependant communities such as Bangalore, the third largest city in the nation, and the Silicon Valley of India.

The city consumes some 2,300 MW a day which it draws from the state grid. About 1,000 MW is generated in the state from nuclear power stations, with the majority of the rest coming from coal, gas and diesel power plants. Because of the prestige of the community it is likely that the city won’t see the worst of the anticipated power shortages this summer, which already have the state trying to buy an additional 1,500 MW. Current supply shortage is around 180 MW but is expected to grow as the weather warms into summer. And since overall Indian supply is challenged by a greater demand, the state can only hope to acquire 1,000 MW to meet the expected demand. They hope that this will be enough to keep the lights and power on in their “Valley.”

This is one of the drivers, expanded to a national scale, that is facing India as it decides what to do over sanctions on Iranian oil. Earlier in that debate India switched out of paying for the oil with US dollars to paying in gold. Given the volumes involved, India imported around 285 kbd from Iran in January, this does nice things (if you are a gold miner) for the price of gold, in dollars. But that can only go so far, and there are suggestions that the payments are becoming more about barter. As a result India has become Iran’s top customer and it is a difficult relationship to change, since some of the Indian refineries are designed only to take Iranian crude. However, as sanctions are growing to include insurance companies, Indian refineries that process the Iranian crude are threatened with the loss of coverage. Whether this will force a change in source of supply, or whether the Indian Government will find a way around the dilemma is an ongoing debate, complicated by the “good deal” that India is getting as a price.

The other fuel on which India is critically dependent is coal. And although the country has large reserves of coal, it is not developing them fast enough to meet demand, and thus must increasingly import both thermal and metallurgical coal.


Figure 1. Indian Coal Statistics (Energy Export Databrowser )

By 2017 imports are anticipated to rise to some 266 million tons of coal, in total. And while much of the press has focused on the Chinese development of new coal-fired power plants, India is planning some 455 new plants, while China has only 363 on the books. This comprises the majority of the 1200 plants currently being planned around the world.

Apart from challenging the opinions of those who suggest that coal demand has, or will soon peak, this speaks to the burgeoning need for fuel sources as nations struggle to bring their poor into a better standard of living. It may well be a debate that now acquires a religious overtone.

OGPSS - Thoughts on the Precautionary Principle

As Michael Brander tells it, in his book on the Scottish Highland Regiments, the Scottish Highlands produced, between 1740 and 1815 men for some 86 Highland Regiments who travelled around the world to strengthen the British Empire. But, towards the end of that period sheep were introduced into Scotland and the great land clearances began that replaced the crofters on the estates with the occasional lone shepherd and his flocks. Thus, by the time of the Crimean War when the Duke of Sutherland tried to raise a regiment he got no volunteers. As an old man explained to him:

I am sorry for the response your Grace’s proposals are meeting here today, so near the spot where your maternal grand-mother, by giving some forty-eight hours notice, marshaled 1,500 men to pick out the 800 she required. But there is a cause for it, and a genuine cause, and, as your Grace demands to know it, I must tell you, as I see that none else is inclined in the assembly to do so. These lands are now devoted to rear dumb animals which your parents considered of far more value than men . . . . your parents, yourself and your Commissioners have desolated the glens and the straths of Sutherland where you should find hundreds, yea thousands of men to meet and respond to your call cheerfully had your parents kept faith with them. How could your Grace expect to find men where they are not?

The anecdote illustrates that are long-term consequences to policy decisions, often not fully recognized when the original decisions are made. I was reminded of the Scottish situation as I contemplate the great race to renewable energy and natural gas, and the rapid replacement being urged for coal-fired power stations and nuclear power plants. And there are some grounds for seeing an analogy to that earlier situation.

Coal and uranium are found underground and while there is a large surface mining component to mining, as these reserves are exhausted, or embargoed for environmental or other political reasons, the need, over time will move increasingly to the development of the deeper reserves. Mines, however do not spring up overnight. Just as you cannot get a baby in a month by making nine women pregnant, so the process of discovery, raising capital, permitting and development can mean that over a decade can pass before coal is produced in commercial quantitites. And that assumes that the Administration is somewhat favorable to the idea. As a candidate, now President Obama said "If someone wants to build a new coal-fired power plant they can, but it will bankrupt them because they will be charged a huge sum for all the greenhouse gas that's being emitted."

As President he appointed Dr. Stephen Chu to head the Department of Energy, an individual who has said “Coal is my worst nightmare.”. And to follow on his statement as a candidate, the President appointed Lisa Jackson to the EPA who issued a finding that greenhouse gases constitute a threat to public health and welfare, with a series of actions to reduce carbon pollution. In such a political climate it is unlikely that applications for new mines and plants will receive an accelerated resolution. (Just consider the case of decision on the Keystone Pipeline, which continues to drag on.) If there is a sudden discovered need for new coal and nuclear power plants they will not (as with the Highlanders) be there to answer that call, and nor can they be for over a decade after the call is made.

Now it is not my intention here to argue the logic of a current change to natural gas, as the large reserve within the United States becomes available and, at low cost, provides a source of energy that helps keep the nation’s industry competitive. But what I would like to do is to invoke the same Precautionary Principle that has been used as an initial basis for action on control of power plant emissions and other factors with environmental impact. (see for example principle fifteen).

The precautionary principle can be briefly stated as:

the theory that an action should be taken when a problem or threat occurs, not after harm has bee inflicted; an approach to decision-making in risk management which justifies preventive measures or policies despite scientific uncertainty about whether whether detrimental effects will occur.

There is a significant scientific question as to the long-term reliability of the production levels for oil and natural gas that is being produced from the shales of the United States, and it has been articulated well both by Art and Rune, among others at the Oil Drum.

And as China draws an increasing amount of fuel out of Turkmenistan, Iran and the Middle East, with the potential for an additional increase in the draw from Russia, there is some concern that as China buys for the long-term, that tightening supplies will begin to limit the availability of fuel for Western Europe and the United States.

With the occasional collapse of the odd wind turbine, and the difficulty in seeing how solar power can help in the blizzards and snow storms I have gone through in the last week, there is some concern over the size of the contribution that these technologies can make into the energy mix of the next decade.

In those circumstances, a wise application of the Precautionary Principle to future energy supplies, in both Europe and the United States, might suggest that sufficient legacy power systems be left in place to ensure that neither community is left short of energy in the years ahead. This is to guard against the proposed replacements being either inadequate or insufficient to meet the future need.

And yet, unfortunately this is not likely to occur. As with many arguments and tools used in political debate, once a position or an argument has been adopted it is extremely rare for it to be renounced. The consequences of current decision making rarely come back to haunt those politicians who make them, since they often occur past the current elective term and are thus of less interest to those who are more focused on the next election.

Yet longer-term events do eventually arrive, and time having passed, the day of reckoning is becoming visible. It is likely that the Bakken will peak before the end of the current Administration. Ofgem has already raised concerns over an over-reliance on imported natural gas into the UK, and warned of possible shortages by the end of 2015, and urged a diversification of supply types. The IEA recently issued a chart that shows their projections for the energy future to 2035.


Figure 1. Past and future distribution of energy demand for the different sectors of the world (IEA )

The writing is beginning to appear on the wall. And while the Precautionary Principle is aimed more at less obvious, high risk scenarios – the risks to the world of a failure in the global supply chain, or even a national one is of such a high impact that even with a lower probability of occurrence than is becoming evident, it would be wise to start looking for answers. It is likely already far too late, and the world remains replete with folk denying the existence of a problem (even as gas prices continue to rise) but it will be interesting to see how the new Secretary of Energy addresses the situation.

OGPSS - Coal power and air pollution

Fifty years ago I began my undergraduate studies at the University of Leeds in the UK. It is not something I particularly dwell on, but the stories out of Beijing this week, describing the air pollution in the Chinese capital, brought back a memory. The story on CNN notes that visibility in Beijing has been cut to under 200 yards. Back in Leeds in December of 1962 the air quality had registered the highest levels of sulfur dioxide in the air that had ever been recorded, as air conditions generated smogs that covered large parts of the country. What made it personal for me was that I lived about a mile from the University and had to walk there through the smog that covered the city. Despite it being daylight there came a point where I could not see (and I still remember doing this) my hand when held at the full stretch of my arm. Crossing the Park to the University there were cries in the mist, as folk fell over some of the, now invisible, decorative iron edging along the walkways. From that time on the air quality regulations took increasing effect, and before long the black buildings that I had walked past on my way through town were being cleaned and brought back to their original white condition, which they have retained in the years since.

Immediately after the Second World War Britain needed the coal to power the reconstruction of the country, but in the time that I was in college it was already clear that the days of unrestricted mining were over, and the transition to other fuels had already begun. It was not, however, the air pollution in Leeds that was the driving force for the regulations, but more likely the presence of similar smogs in London and the South, where those who governed the country lived. The major legislation began after the Great Smog of 1952. In a four-day period at the beginning of December the combination of a fog, an inversion in the immediate atmosphere, and the increased use of coal fires to provide additional warmth generated a smog that is blamed for the immediate death of around 4,000 people and a strong influence on the consequent death of some 8,000 others.

I bring this up because the air pollution in both Beijing, and in New Delhi is reaching levels where the government is beginning to move to help abate the immediate problem. In both capitals it is a combination of vehicle exhaust and power generation that is generating the problem, whereas back in the UK, fifty and sixty years ago, vehicular exhaust was not nearly as much of a problem as burning coal. Yet, I suspect that those problems in Asia are not yet at the levels that they reached in the UK, they may be less tractable of solution.

Burning coal to generate power remains a relatively simple process, as does mining of the coal, for which a realistic estimate would suggest that there remains, for now, a plentiful sufficiency. (That latter point is, however, disputed by some). The EIA has recently pointed out, that we are at a point where China is about to consume about half of the global supply of coal each year.

Figure 1. Chinese coal consumption relative to that of the rest of the world. (EIA)

At the rate of increase reported, it is likely that the two lines will cross before the end of this year. However it should also be noted that India has been importing more thermal coal than China (a projected 118 million tons for 2012, in contrast with the 102 million tons imported by China). And as Mongolian coal becomes more available, so India may take over parts of the international supply that now flows to China from Australia, Indonesia and Africa.

The need for increasing levels of power to sustain the growth rates of India and China are most often discussed in terms of the oil and natural gas that these two countries are consuming, but it has been estimated that India has a shortage of around 10% between the level of demand and actual supply, leading to crippling blackouts, such as that of last July.

It should be noted that the levels of air pollution from power generation can be controlled. The United States uses most of the roughly billion tons of coal a year that it produces for power consumption, but air quality has been successively cleaned to higher standards over the decades, so that smogs are now only a historic curiosity.

Figure 2. Coal consumption in the United States by end use. (EIA )

The efforts of the EPA, among others, have had a considerable impact on American Air Quality. This, for example, is the median air quality index for the District of Columbia over the past 30 years. (I am not sure where to get earlier data).

Figure 3. Median Air Quality Index for Washington D.C. (EPA )

It is thus, demonstrably possible for China and India to clean up their air, even as they increase their demand for coal. It should also be noted that over those past 30 years the miles that Americans drive has also increased, as I recently commented, and so, based on the above, the argument applies also to vehicular exhaust.

It is true that part of the imposed solution to date, in terms of the American coal used, has transferred demand to the lower sulfur coals of Wyoming, rather than the higher calorific value, but also higher sulfur contents of more Eastern states, but as regulations have changed the power plant requirements, so some of that earlier loss to Wyoming is being recovered.

Figure 4. The top coal shipping and receiving states in the third quarter of 2012 (EIA )

Based on American experience it is thus demonstrable that both China and India could clean up their air to American standards, while still generating the power that they need through burning coal. Unfortunately, however, as the experience with mine accidents in China has shown, there are still too many operations too far from Beijing for central regulation to be, as yet, fully enforced and complied with.

Addendum The Air Quality Index should be described. As the EPA Airnow site explains:

EPA calculates the AQI for five major air pollutants regulated by the Clean Air Act: ground-level ozone, particle pollution (also known as particulate matter), carbon monoxide, sulfur dioxide, and nitrogen dioxide. For each of these pollutants, EPA has established national air quality standards to protect public health .Ground-level ozone and airborne particles are the two pollutants that pose the greatest threat to human health in this country.

Figure 5. The gradation of the Air Quality Index. (EPA)

OGPSS - Iranian oil and the global future

There is a lot going on in the Middle East at the moment. There is the revolution in Syria which seems now to be entering some form of end game, and there are the riots in Egypt. There are some signs that these events might move on to countries such as Jordan. Increasing levels of turmoil in the Middle East do not help stabilize the future flow of oil and natural gas around the world, and there are underlying tensions, brought about in part by the need to sustain sanctions against Iran.

Turkey, for example, which is caught up in dealing with Syrian refugees and the adjacent civil war is also largely dependent on Iranian fuel to get it through the winter. In October Turkey is reported to have imported 75 kbd of Iranian oil with larger portions of the total 417 kbd import coming from Iraq (105 kbd) and Russia (103 kbd). The volumes that continue to flow are now becoming a source of friction, since US law demands that countries continue to lower their imports every six months . While Turkey continues to work to lower their need for Iranian oil (and may increase imports from Russia) in the interim the U.S. Government is not increasing pressure but apparently moving to extend the waiver of sanctions not only to Turkey, but also to a total of 21 countries, a list that includes China, India and South Korea.

Two officials said an announcement of the six-month extensions was expected from the State Department on Friday. The officials spoke on condition of anonymity because they were not authorized to publicly preview the step. In addition to China, India and South Korea, the waivers will apply to Malaysia, Singapore, South Africa, Sri Lanka, Turkey and Taiwan. All nine were originally granted six-month renewable exemptions from the sanctions in June.

The exemption means that banks and other financial institutions based in those places will not be hit with penalties under U.S. law enacted as a way of pressuring Iran to come clean about its nuclear program.

A total of 20 countries and Taiwan have been granted the waivers. The others—Belgium, Britain, the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland, Spain and Japan—will come up for review in March.

Yet Turkey, which gets some 20% of its natural gas from Iran, taking roughly 90% of Iran’s natural gas exports is resisting pressure to lower its gas purchases, since the fuel is the primary source for most Turkish electricity. And further, with estimates of Turkish needs estimated as rising to 655 kbd by 2016, the ability of the country to sustain an adequate supply of power supply may become more difficult without reliance on Iran.

There is a somewhat similar argument made in South Korea, who, while they have cut demand by some 30%, continue to import around 186 kbd of Iranian oil as of October, though the volume varies, depending on who is doing the counting. Similarly one sees that both China and India are reported to be lowering their purchases so that there is a projection that Iran might not ship more than 834 kbd in December. Some of the problem in sustaining even this level of supply is apparently coming from the lack of available tankers, and with Iran now being willing, apparently, to use false shipping transponders in co-ordination with Syria rather than just changing names; events seem moving toward some form of a Bond movie.

Oil is a recognized critical component in building energy supply and the current ongoing effort to contain Iranian exports seems to take much of the headline, relative to overall supply questions. But the game is being played in the margins of balance of overall oil supply and demand. The arrival of significant supplies of natural gas, whether real – as in the United States – or potential – as in most of Europe – has moved the focus away from concerns over oil supply as an issue.

Yet China does not seem to be cutting back on overall oil use, demand rose 6.6% in October 2012, over that in October 2011, and averaged 9.76 mbd. If that continues, then China must find an additional source for 644 kbd next year, over and above current suppliers and volumes. And so, with the country still growing, that demand will also continue to grow. But there are not a lot of places that can provide for that increased need. The slow economies of the United States and Europe have dropped demand from where it could have been. And while the European economy is likely to struggle on through next year, that of the United States (lunatics no longer being allowed in Washington) is on the path to recovery, which may well swell energy demand more than anticipated, and absorb any increased domestic supply without much further change in import needs.

And thus one comes back to the aggressive nature of the Chinese in regard to the hydrocarbon resources of the China Seas. The ASEAN nations seem powerless, whether by inclination ore real power, to do much to protest the Chinese position. The Chinese are also working to minimize the American presence, and treaty obligations, that involve them in these discussions. China has just authorized seizure of foreign vessels in their waters (which they, disputedly, claim include most of both China Seas). At the same time India has taken notice, and is more than just expressing concern.

Although India doesn’t have any direct territorial claim in the area, the waters are strategically important to New Delhi for three reasons. First, like for any trade-dependent country, the South China Sea represents an important global shipping route and freedom of navigation must be maintained. Second, India’s state-run Oil and Natural Gas Corporation (ONGC) owns a stake in waters claimed by Vietnam. And third, and perhaps most importantly, the South China Sea represents an opportunity for an Indian riposte against China’s ‘string of pearls’ naval encirclement of the Indian subcontinent.

Overall the world does not seem to be heading in the direction of a peace-filled future. The underlying imperative of energy supply to meet national needs has brought the world to war before now, remaining unconcerned about the situation means that we remain unwilling to learn the lessons of history.

The 2012 version of BP Energy Outlook 2030

There are many unintended consequences as fuel supplies become more scarce, and expensive. (With a h/t to Rune Likvern), I see that those Greeks who are being starved of affordable fuel are starting to chop down trees for warmth and income. This sort of desperation has devastated the countryside all over Albania, Africa and Asia, and is extremely difficult to recover from. To stop that practice spreading the world expects that fuel must be available at an affordable price, and one of the ongoing questions is as to whether it will continue to be.

In that regard BP has just released its Annual Energy Outlook 2030 looking at how the world energy supply, and mix, will change in the years up to 2030. The booklet is an update from the study that it released last year, and which was reviewed at the time. This year the introductory speech by Bob Dudley focused on energy demand in China and India; Middle East exports and transport fuel demand. BP see overall energy demand growing some 40% over the next two decades, with virtually all growth coming from the developing countries. More than half will come from China and India alone. And of that energy, they anticipate that the supply will break out as follows:

Summary of energy supply source contributions (BP Energy Outlook 2030)

Demand will grow across virtually all sections, apart from that of transportation in the OECD, which is expected to fall over the next two decades.

Demand changes in the next two decades (BP Energy Outlook 2030)

Oil will still be the basic source for transportation fuel, and though growth in demand is anticipated to be only 1% a year that turns into another 16 million barrels a day by 2030. One has to be careful therefore in assessing the contributions of the different sources of fuel, as percentages, since, while these may be falling relative to the whole, the actual volumes that are being consumed may still be rising.

Expected changes in the relative sources of energy supply prediction from last year (left) to this (right)through 2030 (BP Energy Outlook 2030)

On a minor note, the role of coal, some 20-years from now surpasses that of oil, while last year the two were about equivalent. Even though BP expect that, by 2020, coal’s share of the global market will begin to fall, though less steeply now than they anticipated last year. And BP expects that some of the change in the mix will be brought about by technical change.

Technology underlies many of the trends apparent in this report. For example, the supply of gas has been accelerated as a result of technologies that unlock shale gas and tight gas. In the transport sector, we believe the efficiency of the internal combustion engine is likely to double over the next 20 years. And that will save roughly a Saudi Arabia’s worth of production. By 2030, we expect hybrids to account for most car sales and roughly 30% of all vehicles on the road.

The interesting question is, of course, where BP think that all the oil will come from. Last year, when they projected the same growth rate, the sources were expected to be Saudi Arabia and Iraq. This year they project that more will come from Deep water, rising from the 9% of supply anticipated last year, to 10% in the current review. (Currently it is at about 7%) But, more interesting is that they see the roles of energy efficiency and technical exploitation of indigenous resources leading to a great change in the international fuel market.

we foresee both the Americas and Eurasia - or Europe including Russia and the former Soviet Union - achieving self-sufficiency in energy, while the Middle East will generate surplus supply for Asia’s surplus demand. In the US for example, oil imports have dropped by about one-third since peaking in 2005 and are likely to be half of today’s level in 2030. The US now produces over 50% of the liquid fuel it uses – as opposed to importing the majority, as was the case a few years ago.

For the U.S. and European pictures to change as much as they anticipate, cellulosic ethanol still appears to be the flag pole on which they have hung their future, and in which they remain heavily invested. Yet when one looks at the make-up of the sources for fuels in 2030, as projected this year over that suggested last there has been a slight gain in overall volumes required.

Anticipated sources of fuel in 2030 – last year’s projection (left) and this year (right)

The interesting changes come in the changes in the Non-OPEC growth, with the contribution from bio-fuels diminishing, growth in US production replacing that anticipated from the FSU (wonder where that went?) and a drop in the Non-OPEC declines. To answer my own question, I suspect that the growth in FSU supplies (which I am covering elsewhere) has been melded into the need to sustain production at current levels, and that may be a part of the reason for the drop in the Non-OPEC declines.

When one considers that BP are forecasting an increase in demand of 8 mbd from China, 3.5 mbd from India, and 4 mbd from the Middle East, with the non-OPEC decline being at 6 mbd, there is a total of 21.5 mbd of new production being forecast, over the next 20 years. And of this 12 mbd will come from OPEC, namely Saudi Arabia and Iraq, but with a significant contribution, 4 mbd, from NGLs.

At which point I cough gently and draw your attention to recent remarks (h/t Stuart Staniford) of the Saudi Oil Minister, who suggested that they have flexibility up to a full production of 12.5 mbd, with a little time, but, on the other hand, they will drop production to keep the price over $100 a barrel. And so there is a suspicion that as Libyan oil production returns to normal, Saudi production may fall, in balance. The upper limit on Saudi Production had earlier been set at 12 mbd, but both these figures are now coming under increasing question, particularly since Aramco has had problems in finding a market for their heavier crudes, which make up almost all of the surplus over current production. (And the Saudi refineries to treat them are still a couple of years away). Yet if the refineries to treat those oils do come on line, and that increases Saudi capability by 1 mbd of marketable product from Manifa, it will still only bring them up to about 11 mbd. And it may be that they will raise production that much, to offset increasing domestic use, and maintain the volume of exports that they need to sustain their economy. But how long they can do that, relying on their ageing major reservoirs remains, of course, the other big question. BP anticipates that they will increase production by 3 mbd over current levels, and still have a cushion of a million or so barrels a day.

And as for Iraq, the country exported 2.14 mbd in December having risen 275 kbd or 14.4% over the year. Whether that can be sustained in the face of continued troubles is not clear. The Al-Ahdab field has come on stream and is ahead of schedule, at 120 kbd, though it may well be that all that oil ends up in China. BP, however, are assuming that Iraq can double production, to 6 mbd, by 2030.

Growth in production in the Americas is anticipated to come from the oil sands (up 2.2 mbd); the Brazilian deep waters ( another 2 mbd) and U.S. shale oil ( at 2.2 mbd). Total biofuels growth of 3.5 mbd balances out the anticipated supply and demand at just under 105 mbd.

The continued growth in natural gas is divided into two parts, that which is shipped through pipelines, and that sent as LNG in tankers. Total demand will rise about 50% with the Middle East, China and India providing most of the increase in demand, and with supply coming from a number of sources.

Changes in natural gas demand and supply over the next 20 years (BP Energy Outlook 2030)

The growth in use will be across all sectors of the economy, but if I do an eyeball comparison it seems as though there is a significant drop in LNG increase over the numbers that BP were using last year. Back then they were seeing an increase of around 70 bcf/day over the interval, now while they are projecting a growth of 4.5% p.a. the overall volume is somewhat less.

Coal demand will continue to rise, largely due to increased demand for power and industrial use in China and India, while western nations slowly ease away from the fuel.

Changes in coal use over the next 20 years. (BP Energy Outlook 2030)

BP summarizes the changes that they have made, relative to last year’s forecast as:

Changes in BP forecasts from 2011 to 2012. (BP Energy Outlook 2030)

Overall it looks to be a rather optimistic view of the future.

El Niño, La Niña and Regional US temperatures

Changes in the temperatures in the Pacific that are described as El Niño and La Niña events.(NOAA)

One of the increasingly obvious drivers for the weather we’re likely to see over the next year comes from the relative state of the temperatures of the Pacific Ocean. This is generally known as the El Niño effect when the waters are warmer, and La Niña when they are cooler than normal, as shown above. Collectively it is the Oceanic Niño Index (ONI). The effect, over the past 60 years, can be compared with the regional temperatures over that period, derived in an earlier post. Remember that the regional plots were artificially adjusted to move vertically and allow the changes in shape.

A comparison of average station temperatures in the Pacific states (red), mountain states, (dark green), Midwest (light green) and the Atlantic States (purple) with the plots separated by block change in the temperature values for each region, and compared to the Pacific Oceanic Niño Index (ONI) the lower blue filled in line.

The relative importance of the ONI to temperatures in different parts of the world, and particularly Texas, and the derivation of the plot follows.

Considering the volumes of water that are involved, the relative changes in temperatures are quite significant. Consider the current situation, where as we head into a La Niña winter, the temperatures across the Pacific are as much as 1 deg C below normal.

Temperature variations from the average across the Pacific (Australia is in the lower left, the USA on the upper right). (NOAA )

There is a growing recognition that the impact of these changes controls the monsoons in India, going back to the paper published in Science back in 2006 by Kumar et al. This paper explained why monsoon failure always happened with El Niño events, but not all El Niño events led to monsoons. There are thus “flavors” to the events and their results depending on whether they happen in the winter or the summer. The typical impacts, globally, are shown with these illustrations, showing how the timing has influence:

First El Niño:

The changing influence of an El Niño event, depending on timing (after Kumar et al)

India only becomes dry in the second of the two cases, with the monsoon months occurring between June and the end of August, i.e. the lower condition. (And there is also an Arizona Monsoon which might be one of the few areas of the US to be immediately impacted in that case).

With La Niña, the conditions change, and with the event occurring in the summer India gets the needed rain.

The impacts of a La Niña event, depending on timing (after Kumar et al )

The condition that we are moving into at the present is the upper of these latter two pictures, which is not good news for the folk in Texas who have been hoping for rain. NOAA is now predicting that the drought will last into the summer and high temperatures will continue through 2012.

Temperature projections for the next year (NOAA

Precipitation projections for the next year (NOAA )

The impact of these events can, therefore be quite severe. However there is a continual swing from one condition to the other, hence the more broad description of the event that has come into vogue, that of the El Niño Southern Oscillation, or ENSO, or more generally the Oceanic Nino Index (ONI) And the United States sees different impacts in different regions of the country. For example consider the contrast between conditions for the East Coast:

Change in snowfall on the East Coast as a result of ENSO (NOAA)

Change in snowfall in the West as a result of ENSO (NOAA )

There has been some debate in the blogosphere as to what effect this has all had on the US temperatures. Well there are a couple of different points that have to be considered in that discussion, that seem to have got lost in some of the “religious” aspects of the extreme ends of the debate. It has been partially blamed for the high global temperatures in 1998. However, if we take just the last 60 years of data, we can look at how those data fit with the plots that I have previously posted to the site on regional temperatures.

The ONI plot from 1950 (GGWeather )

Now how does this look relative to the temperature changes that have occurred in the US. There are a couple of things to bear in mind on this, that seem lost to the folk at Real Climate. The first is this graphic, which seems to have got lost from the view of most of those who looked at the recent release of pre-papers from the BEST study.

Map of stations in and near the United States with at least 70 years of measurements; red stations are those with positive trends and blue stations are those with negative trends. (The BEST Project).

The second point is the change in temperature profiles (which BEST does not look at, rather concentrating on individual results) for the different regions of the US.

Average variation in time for four regions of the country, with the results adjusted as shown to separate the curves, and show them in order (bottom to top) from West to East.

Using the section of the above plot the regional temperatures were separated, by adding and subtracting from the actual temperatures (as shown in the legend to the above) to get a separation, the section after 1950 can be used to make the comparison.

The ONI plot can now be superimposed below this, with the amplitudes of roughly the same size (since one is in Centigrade and the other in Fahrenheit). The result shows that the ONI (lowered filled blue plot) has some influence on the Western Coast temperature (the lowest red curve), but as one moves through the Mountain states (dark green(, and less on the Midwest (lighter green), with the effects smoothed out by the time they reach the Atlantic Coast (upper purple). The fall in temperature along the Atlantic Coast is emphasized with this plot, and clearly nothing to do with what is happening in the Pacific.

A comparison of average station temperatures in the Pacific states (red), mountain states, (dark green), Midwest (light green) and the Atlantic States (purple) with the plots separated by block change in the temperature values for each region, and compared to the Pacific Oceanic Niño Index (ONI) the lower blue filled in line.

Now rumor has it that something similar happens in the Atlantic?