The $US 134 Trillion, 100 Year Challenge

Posted in Uncategorized at 7:32 am by Administrator

As anyone who has read some of my blog posts knows I do not believe that we should be basing our transition to a sustainable energy environment on the need to moderate climate change. I’m not convinced that eliminating the burning of hydro-carbons altogether would make a huge difference to what our planet is doing.

But having worked in the oil & gas industry for more than 25 years and despite the current glut of oil on world markets there is one thing I am quite sure of. We will run out of hydro-carbons that can be economically extracted in less than 100 years – I might even see a significant shortfall of world production and as a result much higher prices within my lifetime.

It would be reasonable to argue that predictions of “peak oil” have consistently been incorrect as higher prices and more sophisticated technologies have helped maintain production levels. But hydro-carbons, and crude oil in particular, are finite resources and they will eventually run out. As a result I have done some analysis of how much of a problem that could be and how quickly we need to address the problem.

First things first. How much energy is the world currently using and what fuels are meeting energy demand?

Trying to find accurate and consistent numbers on global energy consumption is much more difficult than it should be. I was struck more than once by the obvious bias towards inflating the impact of renewables and their role in meeting global energy demand. This is a phenomenom that I have identified in a previous post.

One good source that provides an overview of global energy use is the U.S. Energy Information Agency. Figure 1-5 from the International Energy Outlook 2016 provides data from 1990 onwards with forecasts to 2040.

The table below displays the data from this report for 2015, converted from Quadrillion BTU to TW-Hours.













I always like to have multiple sources for information, especially when there are unit conversions involved. The following sources provide confirmation for the EIA report figures.

Oil: Bloomberg quoted an International Energy Agency figure for demand in 2015 of about 94 million barrels/day (bpd) which translates into about 58,293 TW-Hours which is within 5% of the figure provided by EIA. BP pegged the average amount as 92 bpd which would amount to 57,066 TW-Hours, even closer to the EIA figure.

Coal: Enerdata lists 2015 coal production as 7,800 Megatons which translates into 46,084 TW-Hours, very close to the EIA figure.

Natural Gas: BP listed Natural Gas production as 3,500 Billion Cubic Meters in 2015 which translates into 36,606 TW-hours. This figure is also close to that presented by EIA.

Combining these figures yields a figure of 139,742 TW-Hours for hydro-carbons compared to the EIA figure of 140,387.

Nuclear: Multiple sources including the World Nuclear Association and the Shift Project list global nuclear power production at about 2,400 TW-Hours rather than the 7,689 TW-Hours presented by the EIA. The EIA report itself presents 2,300 TW-Hours as the proper figure for nuclear generation for 2012 in Figure 1-7.

The source of the discrepancy is the difference between “Total Primary Energy Supply” and “Total Final Consumption”. “Total Final Consumption” discounts the energy used in generation, distribution, and conversion before reaching its final end user. Because hydro, wind, solar, and biomass all deliver electricity or heat to end users these sources are not impacted. Fossil fuel energy sources and nuclear are very significantly impacted. For example, in burning coal or consuming uranium fuel in a nuclear reactor to generate electricity more than 60% of the energy content of the fuel is lost as heat and through the limitations of thermodynamic engines. Therefore 7,689 TW-hours of uranium derived energy are consumed in nuclear plants to deliver 2,400 TW-hours of electricity to consumers.

Renewables: This is the category which has the most confusing and difficult to confirm backup data.

The best source of information regarding the complexities involved with renewables is the Ren21 network. The Global Status Report published by the group in 2016 and weighing in at 272 pages, is a great reference document although it also confuses matters a bit. The confusion comes because this report uses percentages of Total Final Consumption rather than actual consumption.

Using a global Total Final Consumption figure of 102,000 TW-Hours for 2015 (implied by the percentages for hydro and nuclear and roughly confirmed by the figure of 9,300 Mtoe on page 28 of the IEA Key World Energy Statistics) figure 1 of the Global Status Report can be reworked to present actual consumption rather than percentages, as shown below.

The aggregate figure of 19,692 matches the figure presented for renewables in the IEA report (20,548) quite closely. From the REN21 report almost half of this “renewable” energy is in the form of “Traditional Biomass” which represents the “use of fuelwood, animal dung, and agricultural residuals in simple stoves with very low combustion efficiency” (Note 12, page 201), primarily in undeveloped regions. Although this energy source is technically renewable it is certainly not one that we would want to increase or even maintain decades into the future. In fact the REN21 report points out that as the economic circumstances of a population improves these “Traditional Biomass” energy sources are replaced by the burning of hydro-carbons.

The largest category under “Modern Renewables” is “Biomass, Geothermal, Solar Heat” a large portion of which is produced in Combined Heat and Power (CHP) installations such as those common in Denmark. The economics of CHP plants are being under-mined by subsidized wind and solar power in many jurisdictions and as a result growth in this energy source will be severely constrained in the future.

The second largest category under “Modern Renewables” is hydro. Hydro has many very positive attributes including very low generation costs over many decades. It is a fact that almost all of the large installations developed in the last 100+ years continue to operate efficiently and reliably today. However, increasing environmental scrutiny and few remaining sites with significant potential will severely limit hydro growth in the developed world. There is significant potential in the developing economies but any new hydro power sources in those countries will be used to serve increasing domestic demand.

So in the end the job of replacing fossil fuels will come down to wind and solar (and hydro-kinetics and geothermal if they ever get the support they deserve).

The hype around wind and solar is amazing and very deceptive. It was extremely difficult to find reliable figures regarding actual generation from these sources although there was no problem finding hyperbolic statements about additions to wind and solar capacity. But commonsense tells us that because a solar panel can deliver 1 KW of energy between noon and 1 pm that does not mean that it can produce 1 KW of energy 24 hours a day, 365 days a year. Germany, with the second largest build-out of solar power in the world reports that solar generation over the course of a year is about 11% of installed capacity. Worse still, generation in the peak demand periods during the winter is almost zero.

Things are not much better with wind – maybe worse. Although wind generation continues to grow, availability of wind at peak demand times is unpredictable and inconsistent. On a cold, calm night in Northern latitudes (where more than 50% of the world’s population live) we will continue to be 100% reliant on fossil fuels until cheap and reliable energy storage solutions are developed.

But let’s assume that energy storage solutions can be developed sometime in the next few decades. How much wind and solar generation will be needed and how much will the development of those sources cost?

From the figure above wind and solar currently represent about 1.4% of the “Total Final Consumption” or about 1% of the “Total Primary Energy Supply”. According to REN21 the contribution of Fossil Fuels towards the “Final Total Consumption” is over 78%. A transition to 100% renewables will inevitably involve significant transmission and energy storage losses but for the moment lets ignore those. Therefore in the best case scenario wind and solar will have to increase by a factor of 78/1.4 = 55.7.

The development of wind and solar generation has been taking place aggressively since about 2004 when Germany started providing significant financial support for its Energiewende. Since then the world has invested more than $US 2.4 trillion in the development of renewables.

While it is true that the cost of renewable generation has decreased significantly during that time I would argue that the need to provide energy storage solutions and vastly upgraded transmission systems will more than make up for those savings. There will also be difficult challenges around replacing transportation fuels and finding new source materials for plastics and the many other products based upon petroleum feedstocks.

As a result the probable cost for the energy transition in constant 2017 dollars will be on the order of 2.4 * 55.7 = $US 134 Trillion. I think it will actually be much higher than that. That scale of investment would require that the world triple its current level of investment in renewables and maintain that higher level of investment for the next 100 years.

The next question is, do we have a hundred years to make this transition? I don’t think so. Peak oil is coming. That is inevitable. The date that peak oil will happen is the subject of heated debate. Some argue that oil production will start declining within a decade, others that production declines will not begin for many decades. Many major oil producing countries are already well past “peak oil” production.

Personally, I believe that a growing resistance to “fracking”, the rapid decline rates of tight reservoirs, and increasing demands for oil in developing economies will result in a permanent shortfall in oil production vs. demand by the middle of the century.

In a very thoughtful and I believe accurate article Robert Rapier postulates that peak oil is dependent upon price to a large extent. Higher prices allow the use of more expensive exploration and production techniques which bring to market supplies that were previously uneconomic. A graph from a 2008 publication serves to illustrate how unconventional sources may begin to play an important role in future years.

However, there will come a time when the input costs required to bring new production on stream exceed the value of that production. After that point in time oil production will decline monotonically.

In the decades leading up to that milestone event it will become more and more expensive to find and develop oil and gas resources which will lead to higher prices for fossil fuels. That reality will provide more incentive to develop renewables but it will also consume more and more of the world’s GDP to keep the hydro-carbon based economy functioning. So at a time when the world will need to spend ever increasing amounts to develop renewables and potentially on climate change mitigation measures rising energy costs will become a serious problem.

What’s the bottom line?

In order to transition away from a hydro-carbon based economy before oil and Natural Gas either run out or become prohibitively expensive the following must happen;

1) Investment in the development of renewables must ramp up to approximately triple what it was in 2016 and stay at that level for the next 100 years.

2) One or more very inexpensive and reliable (for decades) energy storage systems must be invented and deployed at a scale completely unimaginable today. To get an idea of how challenging that may be I invite you to read Euan Mearn’s analysis of the storage requirements to backstop wind in the U.K.

3) Peak Oil must occur after a significant percentage of the needed renewable generation is in place. It has taken 15-20 years to get to 1.5% of “Total Final Consumption”.

4) Global “Total Final Consumption” cannot increase or at worst must increase very slowly so that additions in renewable generation can displace fossil fuels. Inevitable increases in the energy consumption in developing economies must be offset by reductions in the energy consumption of developed economies.

Sounds tough, doesn’t it? But who among us doesn’t like a challenge?

And it could be worse. Consider the scenario described in this clip from Ghostbusters!

I think I will sign on to be one of Elon Musk’s first Martian colonists.

Unit Conversions

Oil: 92 BOE per day -> 33.58 billion BOE per year -> 57,066 TW-hours

Coal: 7,800 Megatons coal * 20.16 Million BTU/ton = 157.248 Quadrillion BTU -> 46,084 TW-hours

Natural Gas: 3,500 BCM * 35,687,347 Million BTU/BCM = 124.905 Quadrillion BTU -> 36,606 TW-Hours

Total Final Consumption: 9,300 Megatons Oil Equivalent -> 768.769 Quadrillion BTU -> 108,075 TW-Hours


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