Energy report: Plentiful supplies, warning signs

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International report: U.S. slated to be #1 oil producer!

In a historic turn-around, the International Energy Agency predicts that the United States will regain its title as the world’s largest oil producer by 2020. And by 2030, the United States, currently the largest consumer and importer of petroleum, could be a net energy exporter.

These trends are good news to anyone concerned about the trade deficit, energy security and U.S. jobs. And as American consumption of oil continues a decline that started in 2005, it’s also a testament to the power of conservation.

ENLARGE

GTO (left): Red, classic-bodied GTO convertible on highways with field in background. Prius (right): Small, curving body of red Prius parked outside dealership building

Photo credit for GTO (left): Randy von Liski; Prius (right): Beth and Christian Bell
Fuel economy has come a long way since the muscle-car era of the 1960s, when this 1968 Pontiac GTO got 10 miles per gallon. The Prius gets 50 MPG.

Globally, the IEA report forecasts that use of fossil fuels will increase by more than a one-third, sparked also by a rise in Iraq’s production.

Primary energy demand

Oil, coal, and gas make up the three leading energy sources and are predicted to remain as such for at least the next 25 years.

World Energy Outlook 2012 ©OECD/IEA 2012, figure 2.3, page 54
Natural gas and renewables show the largest demand increases, but all forms of energy are up in IEA’s “New Policies Scenario.”

A growing degree of energy independence is good news for the American economy, but this rapid, global increase in fossil fuel combustion raises questions:

* Will the surge of petroleum (oil and natural gas) undermine the ongoing shift to renewable energy, including biofuels, solar and wind energy?

* Will the United States achieve “energy security” and be insulated from high prices and uncertain supplies?

* What about climate? The IEA, after all, says greenhouse gas releases in its most likely scenario “correspond to a long-term average global temperature increase of 3.6 ° C” (6.8°F). That’s almost twice the 2°C target for tolerable warming advocated by some scientists.

Fueling the good news

The good news for the U.S. economy has two roots: reduced demand (due to conservation) and increased supply of petroleum, based largely on horizontal drilling and hydro-fracturing (“fracking“).

Energy efficiency and increased supply of oil are expected to be the largest factors in future reduction of U.S. oil imports.

World Energy Outlook 2012 ©OECD/IEA 2012, figure 2.17, page 77
More than half of the reduction in imports comes from “demand side efficiency” — AKA conservation.

Fracking, the use of high-pressure fluid to fracture rock so petroleum can flow, originated in the oil industry just after World War II, and was applied to natural gas in the 1980s. Fracking is usually combined with horizontal drilling, which places a long borehole in horizontal wafers of petroleum rock.

Conservation at work: In 40 years, the U.S. economy has tripled but total energy use is up only one-third.

Roger Anderson, an energy researcher at Lamont-Doherty Earth Observatory in New York, says the surge in U.S. production is “substantial, and quite a turnaround, and it’s almost totally caused by horizontal drilling and hydrofracking. If you cut back on fracking, you will not have that” increased production.

Savings at the pump

Although much of the reaction to the IEA report has focused on the growing supply of oil and gas, Ralph Cavanagh, a Natural Resources Defense Council attorney, says the demand side — how much energy is needed — also deserves attention. (Disclosures: Author is a member of NRDC. Our request for comment from the American Petroleum Institute was not answered.)

Over the past 40 years, says Cavanagh, who co-directs NRDC’s energy and transportation program, “Our economy has tripled but total energy use is up only one-third. If you want the ultimate rebuttal of people who say saving energy does not work, those numbers are stark.”

The IEA attributes 55 percent of the expected increase in U.S. energy self-reliance to higher energy production, and 45 percent to improving energy efficiency, “primarily from the Obama administration’s new fuel economy standards for cars,” which call for average mileage to reach 54.5 miles per gallon by 2025.

Note: all World Energy Report numbers used here come from its “New Policies Scenario,” predictions based on a reasonable, but not thorough, implementation of energy policies that have been passed, but not necessarily yet enacted, by individual nations. A second forecast was based a continuation of present trends, and a third focused on intensified conservation.

“Many Americans were educated to the proposition that economic growth meant an automatic increase in energy use,” says Cavanagh. “That is clearly and decisively proven not to be true. The bipartisan consensus on efficiency since Ronald Reagan signed the first efficiency standard in California in the 1970s, is generating a large dividend, and I think people will want to continue to receive that dividend. What we are doing in the U.S., in important respects, is working.”

Conservation can also benefit countries like India and China, which have not had the American history of over-consumption, Cavanagh argues. “In countries that are rapidly growing, developing, efficiency is equally important. Because most of their energy-using infrastructure is not built, their choices in efficient houses and commercial buildings are absolutely critical in their economic and environmental performance. Intuitively, this only seems to matter to those who use a lot of energy, but it matters to everyone who aspires to a higher standard of living, which is probably everybody.”

Supply and be damned?

It’s elementary economics: All other things being equal, when supply rises, prices fall, so consumption increases. Will the rising supply of oil and especially natural gas cause prices to drop, leading to more use of fossil fuel and accelerated global warming?

The first answer to this question is that other things are never really equal. For example, a critical change is the soaring global demand, driven by increases in wealth and population. According to Timothy Donohue, director of the Great Lakes Bioenergy Research Center at the University of Wisconsin-Madison, “There is going to be a large increase in the need for energy worldwide. People can quibble over the exact number, but we’ll need two to three-fold more energy in 2100 compared to 2000. We have lived for 100 years with fossil fuels as the major driver. We can continue to do that, or we can try to diversify” the energy picture with conservation and alternative energy.

Substituting gas for coal can benefit the environment, as gas produces half as much greenhouse warming, and far less particle and mercury pollution. So the growing production and falling price of gas will reduce the environmental and health costs of electricity production.

Even though China is scrambling to generate electricity to feed its surging economy, “There is no way China wants to keep burning coal for electricity, they want to be on gas as quick as they possibly can,” says Anderson.

ENLARGE

Aerial view of large power plant with six massive conical smoke stacks.

Credit: Tianjin, China, Shubert Ciencia
This large coal-fired power plant is one of many new generators powering China’s surging economy.

Fueling the alternative fuels

Even as fossil fuel production rises to meet the huge demand, Anderson expects other energy sources to take up the slack, and does not expect a decline in alternative energy. One sign of progress is a Pentagon effort to reduce its unquenchable thirst for fossil fuels. The U.S. military devours more than 1 percent of total U.S. energy consumption, largely in the form of jet fuel.

Even as petroleum surges, local factors may feed the rise of renewable fuels, says Donohue. “Most countries are looking to produce as much energy locally, so they don’t have to import. That philosophy maps nationally, regionally; if we have access to wind, let’s use it, and export what energy we can.”

And so the drive for solar, wind, geothermal and renewable fuel will continue, says Donohue, who runs one of three U.S. Department of Energy centers devoted to making biofuel from cellulose that is found in wood, crop residues and paper rather than food crops like corn. “We have been making ethanol from cellulosic biomass for several years. We have won a battle, but the war is not over. We can make it at a small scale, but it takes longer than we think it should, and it costs too much per unit of production.”

ENLARGE

Rural horizon with long line of wind turbines intersecting the skyline.

Wyoming, 2009 Penny Higgins
Wind is producing a larger share of electricity. What will a drop in the price of natural gas do to the subsidies that have enabled wind to flourish?

A darker view

Dramatic swings in the price of energy are inevitable and momentous, says Joseph Smith, director of the Energy Research and Development Center at the Missouri University of Science and Technology. Smith notes that the discovery of new oilfields has historically upset the petroleum market and ruined the best laid plans. “It was hard to develop anything new when the price was so volatile.”

For example, the federally supported Synthetic Fuels Corp., formed in 1980 after the “oil shocks” of 1973 and 1979, was designed to reduce pollution by converting coal into gas. “Then the ’90s came along and the oil price went way down and all that investment the government made wasn’t ever realized,” Smith says.

Two coal gasification plants now exist, and a third is being built in Mississippi, Smith says, “But that’s about it. What happened to the technology? Cheap oil.”

ENLARGE

Expanse of ocean with large oil drilling platform on surface of water.

Oil rigs, like this one off the coast of California, are important to continued petroleum production, but likely not the image of the future’s energy.

And now cheap gas. Several planned coal gasifiers have been abandoned due to the falling price of gas.

As fracking ramps up, boosting supplies of natural gas, the price has already fallen, and the same syndrome could trouble renewable energy, Smith says. “We have invested quite a bit of money in biomass, in next-generation biofuels, and now we have cheap [natural] gas.”

Biomass could be converted into fuel and industrial chemicals, Smith adds, “but it’s much cheaper to use [natural] gas, so all this investment is in jeopardy because of cheap gas.”

A market is a balancing act…

Over-reliance on gas carries the opposite risk: severe price hikes in response to global demand. Because gas is increasingly used to generate electricity, “The cost of electricity could be very unstable,” says Smith. “The chemical industry has seen this over the years because they use natural gas as a feedstock.”

An increasing supply of domestic energy is often touted as a boost to national security, and it’s easy to see the benefits. “We have run up quite a deficit, and if we start exporting energy, that’s positive,” Smith says. “And as we convert coal [electric generating] plants to gas, we reduce carbon emissions by 50 percent.”

Energy is only slightly less essential than food and fresh water, and wars have been fought over it, says Smith. We mentioned the Iraq war, and decades of U.S. naval patrols in the Persian Gulf, and Smith reminded us that during World War II, Imperial Japan plundered Southeast Asia for oil. “Why do you think Germany went to Libya? It wasn’t for the landscape, it was for the oil.”

Just as some predict wars over water, Smith anticipates future wars may erupt over energy.

Energy self-sufficiency

U.S. and Japan are expected to increase energy self-sufficiency while the EU, India, China And ASEAN are expected to decrease in the next 25 years.

World Energy Outlook 2012 ©OECD/IEA 2012, figure 2.15, page 75
As the United States approaches self-sufficiency in 2035, imports rise in China, India and other areas. Even the Association of Southeast Nations sees a decline in self-sufficiency.

Today, energy security is less driven by the source of the energy, and more by the price, says Cavanagh. “Saudi Arabia can drive this increase all by itself, because it’s a world oil price.” Indeed, Saudi Arabia was a bedrock member of the Organization of Petroleum Exporting Countries (OPEC), which initiated the 1973 oil embargo that caused gas lines and soaring prices.

The lesson, Cavanagh says, is this: “The dominant theme in improving energy security is always to reduce oil dependence.”
If prices fall in response to conservation and rising production, support for alternative energy may persist, says Cavanagh, since other factors drive renewables. “I expect people will continue to think about [mileage when they decide] what kind of car to buy. And I think we have locked in those gains with fuel economy standards.”

Cumulative oil savings from vehicle economy standards, 2010-2035

The United States far exceeds any other country's energy savings from vehicle economy.

World Energy Outlook 2012 ©OECD/IEA 2012, figure 3.5, page 90
The United States, historically the largest consumer of petroleum, will achieve the biggest saving from government standards.

The ogre in the room

If energy becomes more plentiful, and conservation is cutting the growth in demand, the World Energy Report contains an ominous warning about greenhouse gases and climate change. For the foreseeable future, the world report said, fossil fuels “remain dominant in the global energy mix. … Taking all new developments and policies into account, the world is still failing to put the global energy system onto a more sustainable path.”

That’s especially disturbing as the New York region attempts to recover from the Hurricane Sandy floods, which were fueled by sea level rise due to a warming ocean.

If the goal is to limit warming to 2 °C, IEA said, “almost four-fifths of the CO2 emissions allowable by 2035 are already locked-in by existing power plants, factories, buildings, etc. If action to reduce CO2 emissions is not taken before 2017, all the allowable CO2 emissions would be locked-in by energy infrastructure existing at that time.”

At that point, severe warming becomes the status quo. In terms of climate change, as Smith points out, “This is not a good deal.”

If you get what you pay for, terminating subsidies to the fossil-fuel industry could bring progress, the IEA said: “Phasing out fossil-fuel subsidies, which totaled $523 billion in 2011 (outweighing subsidies for renewables by a factor of almost six), would sharply curb growth in emissions.”

Annual carbon dioxide releases from energy production

While the United States is predicted release less energy-related carbon dioxide in the future, several countries, notably China and India, will release more energy-related carbon dioxide than they do presently.

World Energy Outlook 2012 ©OECD/IEA 2012, figure 2.11, page 69
Although carbon dioxide pollution falls in Europe, the United States and Japan, less-developed countries see a major increase.

Making sense, looking forward

Still, Cavanagh sees signs of progress in the IEA report. “This is good energy news, but it’s more about energy-efficiency progress than most people realize. What we are talking about is that energy and environmental challenges we have been facing for the past four decades are close to resolution. The one big unresolved issue is greenhouse gases, carbon pollution, and the IEA is right to say both that we are at grave risk of irreversible damage if we do not move quickly, and that we are awash in opportunities to do that, led by energy efficiency.”

Whether the ongoing changes in the energy market “come with large greenhouse gas penalty will be answered by policy makers; environmental progress does not depend on punitively high energy prices,” says Cavanagh. “I don’t react to the prospect of lower than expected gas and oil prices by assuming it’s an environmental disaster. We have improved energy efficiency in periods of high prices and low prices; this is visible in the new fuel standards Obama has adopted. It will be as economically possible to continue that progress in the IEA scenarios as it was before.”

Average crude oil price

Depending on the energy policy choices in the next 25 years the price of crude oil will either continue to increase or, if conservation is emphasized, could decrease.

World Energy Outlook 2012 ©OECD/IEA 2012, figure 1.1, page 42
The price of crude oil has gyrated for decades. It would rise most under the IEA’s “Current Policies Scenario,” which predicts the future based on no change in current policies, and least under the “450 Scenario,” which would emphasize conservation. The “New Policies Scenario” reflects the impact of policies that have been enacted, but not yet implemented, like new auto-efficiency standards in many countries.

Energy economics are complex by nature and staggering in scale; the IEA predicts the world will spend $37 trillion by 2035 on infrastructure for energy.

The new energy and conservation technologies offer unprecedented opportunities, Donohue says. “If we as a global society come up with ways to diversify, and use only as much fossil fuel as we need to be energy efficient, cost effective, we will have a very different set of outcomes than if we continue to satisfy our energy needs with 80 percent fossil fuels. There are stupid ways to do just about everything, but if we diversify intelligently, we could have a very different environment, with more green space, cleaner water and land, and significantly lower impacts on population health.”

— David J. Tenenbaum

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Terry Devitt, editor; Emily Eggleston, project assistant; S.V. Medaris, designer/illustrator; David J. Tenenbaum, feature writer; Amy Toburen, content development executive