Energy 2050 Apocalypse - The Road to Exhaustion (Part 6)

Energy 2050 Apocalypse

World Energy to 2050
  Forty Years of Decline
Putting Energy Sources in Perspective
Part 6

By Paul Cherfurka

http://www.paulchefurka.ca/

Putting Energy Sources in Perspective

Figure 11: Energy Use by Source, 1965 to 2100

Figure 11 shows all the above curves on a single graph, giving us a sense of the relative timing of the various production peaks as well as the rates of increase or decline of the different sources. As you can see, fossil fuels are by far the most important contributors to the world's current energy mix, but oil and natural gas will decline rapidly over the coming decades. By the middle of the century the dominant player is coal, with oil, gas, hydro, nuclear power and renewables making very similar contributions to the world's mid-century energy supply.

  

Figure 12: The Global Energy Mix in 1965, 2005 and 2050

Figure 12 shows the changing contribution of each energy source relative to the others over time.  There are three interesting things to note about this progression.

The first is the large role that coal plays in the global supply picture.  That situation is not entirely unexpected, but it hints at the difficulty we will have trying to replace our dirtiest and most dangerous energy source as our supplies of oil and gas decline.

The second is the increasing diversity of energy sources over time.  This change is a good thing, as it indicates that various regions will have a much wider range of energy options available to them than in the past.

Finally, by mid-century energy sources that do not generate greenhouse gases may be supplying 40% of the world's power as opposed to 13% today and only 5% in 1965.  Combined with an overall (albeit involuntary) reduction in global energy use by 2050, that shift bodes well for reducing the carbon dioxide our civilization exhales into the atmosphere.

Figure 13: Total Energy Use, 1965 to 2100

Figure 13 has all the energy curves added together to show the overall shape of total world energy consumption. This graph aggregates all the rises, peaks and declines to give a sense of the complete energy picture.  The graph shows a strong peak in about 2020, with an ongoing decline out to 2050. The main reason for the decline is the loss of oil and gas. The decline is cushioned by an increase in hydro and renewables over the middle of the century, and averages out to 1% per year.

Fuel vs. Electricity

The energy we use can be broadly categorized into two classes, fuel and electricity.  The former consists of oil and gas, the two sources that will be in decline over the next half century.  The amount of electricity we produce from all other sources including coal will increase, though not enough to offset the decline in fuels in terms of the energy they supply.  Figure 14 shows show how the split between the two classes of energy will change over the next 45 years.

Figure 14: Fuel and Electricity Use, Today and 2050

In addition to the loss of transportation mobility it represents, the loss of the enormous contributions of oil and natural gas means that the total amount of energy available to humanity by the middle of the century may be only 70% of the amount we use now. That shortfall contains an ominous message for our future that is the subject of the next section.

Next

Part 7: Effects and Conclusion
(February 27, 2016)

Oil Production Going to Drop; Oil Prices Likely To Increase

RYSTAD ENERGY, AN INDEPENDENT OIL AND GAS CONSULTING SERVICES AND BUSINESS INTELLIGENCE DATA FIRM IN OSLO, NORWAY, HAS ONLINE, A WEALTH OF INFORMATION CONCERNING UPSTREAM OIL PRODUCTION PROJECTS AND COSTS. SOME OF IT IS A BIT DATED BUT SOME OF THEIR CHARTS DATE FROM LATE 2015.

http://www.rystadenergy.com/

The two below Rystad charts were published by CNN Money on November 23, 2015.

This is overall or average cost, not marginal cost. It cost Canada $41 to produce a barrel of oil but only cost Russia $17.20. I guess that is why Canada is cutting back but Russia is not.

 Here is the breakdown between capital expenditures and operational expenditures. Why would the United Kingdom’s operational expenditures be two and one half times those of Norway? After all, they are both drilling basically the same oil field.

So why is not the price of oil having a more dramatic effect on production? Well it is, it just takes a while. Here are some plans from about a year and a half ago, when the price of oil was much higher.

Rystad published the two below charts in their US Shale Newsletter in January 2015 but the data dates from the 4th quarter of 2014, just as the price of oil had started to drop.

At that time Bakken (ND) had a break even price of $53 while Eagle Ford oil had a break even price of $42 and Eagle ford condensate a break even price of $50.

The below chart, from the same newsletter, assumes $90 a barrel oil.

Shale oil, at the time, had an average break even price of $65 a barrel, which would have given them a 45% internal rate of return and a payback time of only 2 years. It is amazing how much things have changed in just a little over a year.

But by October 2015 things had changed dramatically.

Exclusive: Offshore oil output to plunge as producers scrap field upgrades

Global offshore oil production in aging fields will fall by 10 percent next year as producers abandon field upgrades at the fastest rate in 30 years, in the first clear sign of output cuts outside the U.S. shale industry, exclusive data shows.

A drop in oil prices to half the level of a year ago has forced producers to slash spending and scrap mega projects that can take up to a decade to develop, but they are also taking less visible steps to cut investment in existing fields that will have an immediate impact on global supplies.

There have been few signs of how cost cuts of around $180 billion will impact near-term production until now. They could erode the glut that has forced down prices, and help balance global production and demand by the middle of next year or earlier, Oslo-based oil consultancy Rystad Energy said.

Data provided exclusively to Reuters by Rystad show a sharp decline in investment to upgrade mature offshore oil fields in order to arrest their natural decline, in what is known as infill drilling.(Graphic: link.reuters.com/xaz75w)

The above chart shows the decline in infill drilling due to previous drops in the price of oil. The data is from the Gulf of Mexico, Southeast Asia and Brazil. The decline in infill drilling in 2009 was the largest… until now. The first half of 2015 saw the largest decline in offshore infill drilling in history.

In three major offshore basins — the Gulf of Mexico, Southeast Asia and Brazil — infill drilling dropped by 60 percent between January and July this year compared with the same period last year, according to the Rystad Oil Market Trend Report, whose data is based on company data and regulatory filings.

For example, according to the data, in the Gulf of Mexico, infill drilling on mature wells dropped from 149 wells between January and July 2014 to a total of 61 wells during the same period this year.

Based on this trend, Rystad Energy estimates that global offshore oil production in mature field will decline next year by 1.5 million barrels per day (bpd), or 10 percent, to 13.5 million bpd from 15 million bpd in 2015.

The above chart is change per operator, just in the GOM. And this was just in the first half of 2015 when the price of oil averaged about $56 a barrel. What is it now when the price of oil is over $20 a barrel lower?

Well, just since June Wood Mackenzie says the latest figures show that the amount of deferred capital spending on projects awaiting approval has almost doubled from $200bn to $380bn, with 2.9m barrels a day of liquids production now not due to come on stream until early in the next decade.

Global liquids cost curve (October 2015)

*The break-even price is the Brent oil price at which NPV equals zero using a real discount rate of 7.5%. Resources are split into two life cycle categories: producing and non-producing (under development and discoveries). the latter is further split into several supply segment groups. The curve is made up of more than 20,000 unique assets based on each asset’s break-even price and remaining liquids resources in 2015.

Source: Rystad Energy UCube September 2015

What the above chart tells me is that it now costs a lot more to produce a barrel than it once did. And… unless crude oil hits at least $60 a barrel soon a lot more projects will have to be cancelled. But… all that being said, I think it is now obvious that oil production will drop, rather dramatically, beginning sometime in 2016. And that drop will lead to a rise in the price of oil, at least to $60 a barrel and likely higher.

That is unless some black swan event happens. That could be a collapse in several economies of the world… or a collapse of the economy in one country, China. In other words, it is a given that production is going to decline. So if demand stays constant, or rises, then the price of oil will definitely rise. We know what is going to happen to supply. We have no idea what is going to happen to demand.

 But if BAU continues as normal, the price of oil is going up.

"Now is there anything else that we should worry about?" 

Jack Feanhald, WWN News

An Important Video Worth Watching

ALERT: Oil Prices Set to Rise Sharply

Oil Production Going to Drop; Oil Prices Likely To Increase

Rystad Energy, an independent oil and gas consulting services and business intelligence data firm in Oslo, Norway, has online, a wealth of information concerning upstream oil production projects and costs. Some of it is a bit dated but some of their charts date from late 2015.

http://www.rystadenergy.com/

The two below Rystad charts were published by CNN Money on November 23, 2015.

This is overall or average cost, not marginal cost. It cost Canada $41 to produce a barrel of oil but only cost Russia $17.20. I guess that is why Canada is cutting back but Russia is not.

 Here is the breakdown between capital expenditures and operational expenditures. Why would the United Kingdom’s operational expenditures be two and one half times those of Norway? After all, they are both drilling basically the same oil field.

So why is not the price of oil having a more dramatic effect on production? Well it is, it just takes a while. Here are some plans from about a year and a half ago, when the price of oil was much higher.

Rystad published the two below charts in their US Shale Newsletter in January 2015 but the data dates from the 4th quarter of 2014, just as the price of oil had started to drop.

At that time Bakken (ND) had a break even price of $53 while Eagle Ford oil had a break even price of $42 and Eagle ford condensate a break even price of $50.

The below chart, from the same newsletter, assumes $90 a barrel oil.

Shale oil, at the time, had an average break even price of $65 a barrel, which would have given them a 45% internal rate of return and a payback time of only 2 years. It is amazing how much things have changed in just a little over a year.

But by October 2015 things had changed dramatically.

Exclusive: Offshore oil output to plunge as producers scrap field upgrades

Global offshore oil production in aging fields will fall by 10 percent next year as producers abandon field upgrades at the fastest rate in 30 years, in the first clear sign of output cuts outside the U.S. shale industry, exclusive data shows.

A drop in oil prices to half the level of a year ago has forced producers to slash spending and scrap mega projects that can take up to a decade to develop, but they are also taking less visible steps to cut investment in existing fields that will have an immediate impact on global supplies.

There have been few signs of how cost cuts of around $180 billion will impact near-term production until now. They could erode the glut that has forced down prices, and help balance global production and demand by the middle of next year or earlier, Oslo-based oil consultancy Rystad Energy said.

Data provided exclusively to Reuters by Rystad show a sharp decline in investment to upgrade mature offshore oil fields in order to arrest their natural decline, in what is known as infill drilling.(Graphic: link.reuters.com/xaz75w)

The above chart shows the decline in infill drilling due to previous drops in the price of oil. The data is from the Gulf of Mexico, Southeast Asia and Brazil. The decline in infill drilling in 2009 was the largest… until now. The first half of 2015 saw the largest decline in offshore infill drilling in history.

In three major offshore basins — the Gulf of Mexico, Southeast Asia and Brazil — infill drilling dropped by 60 percent between January and July this year compared with the same period last year, according to the Rystad Oil Market Trend Report, whose data is based on company data and regulatory filings.

For example, according to the data, in the Gulf of Mexico, infill drilling on mature wells dropped from 149 wells between January and July 2014 to a total of 61 wells during the same period this year.

Based on this trend, Rystad Energy estimates that global offshore oil production in mature field will decline next year by 1.5 million barrels per day (bpd), or 10 percent, to 13.5 million bpd from 15 million bpd in 2015.

The above chart is change per operator, just in the GOM. And this was just in the first half of 2015 when the price of oil averaged about $56 a barrel. What is it now when the price of oil is over $20 a barrel lower?

Well, just since June Wood Mackenzie says the latest figures show that the amount of deferred capital spending on projects awaiting approval has almost doubled from $200bn to $380bn, with 2.9m barrels a day of liquids production now not due to come on stream until early in the next decade.

Global liquids cost curve (October 2015)

*The break-even price is the Brent oil price at which NPV equals zero using a real discount rate of 7.5%. Resources are split into two life cycle categories: producing and non-producing (under development and discoveries). the latter is further split into several supply segment groups. The curve is made up of more than 20,000 unique assets based on each asset’s break-even price and remaining liquids resources in 2015.

Source: Rystad Energy UCube September 2015

What the above chart tells me is that it now costs a lot more to produce a barrel than it once did. And… unless crude oil hits at least $60 a barrel soon a lot more projects will have to be cancelled. But… all that being said, I think it is now obvious that oil production will drop, rather dramatically, beginning sometime in 2016. And that drop will lead to a rise in the price of oil, at least to $60 a barrel and likely higher.

That is unless some black swan event happens. That could be a collapse in several economies of the world… or a collapse of the economy in one country, China. In other words, it is a given that production is going to decline. So if demand stays constant, or rises, then the price of oil will definitely rise. We know what is going to happen to supply. We have no idea what is going to happen to demand.

 But if BAU continues as normal, the price of oil is going up.

"Now is there anything else that we should worry about?" 

Jack Feanhald, WWN News

An Important Video Worth Watching

Energy 2050 Apocalypse - The Road to Exhaustion (Part 5)

Energy 2050 Apocalypse

World Energy to 2050
  Forty Years of Decline
Renewable Energy
Part 5

By Paul Cherfurka

http://www.paulchefurka.ca/

Renewable Energy

Renewable energy includes such sources as wind, photovoltaic and thermal solar, tidal and wave power, biomass etc. Assessing their probable contributions to the future energy mix is one of the more difficult balancing acts encountered in the construction of the model. The whole renewable energy industry is still in its infancy. At the moment, therefore, it shows little impact but enormous promise. While the global contribution is still minor (at the moment non-hydro renewable technologies supply about 1% of the world's total energy needs) its growth rate is exceptional. Wind power, for example, has experienced annual growth rates of 30% over the last decade, and solar power is doing about as well, though from a lower starting point.

Proponents of renewable energy point to the enormous amount of research being conducted and to the wide range of approaches being explored. They also point out correctly that the incentive is enormous: the development of renewable alternatives is crucial for the sustainability of human civilization. All this awareness, work, and promise give the nascent industry an aura of strength verging on invincibility, which in turn supports a conviction among its promoters that all things are possible.

Of course, the real world is full of unexpected constraints and unwarranted optimism. One such constraint has shown up in the field of biofuels, where a realization of the conflict between food and fuel has recently broken through into public consciousness. One can also see excessive public optimism at work in the same field, where dreams of replacing the world's gasoline with ethanol and biodiesel are now struggling against the limits of low net energy in biological processes.

The key questions in developing a believable model are, what is the probable growth rate of renewable energy over the next 50 years, and what amount of energy will it ultimately contribute?  I do not subscribe to the pessimistic notion that renewables will make little significant contribution.  However, I think it's equally unrealistic to expect that they will achieve a dominant position in the energy marketplace, due to their late start and their continuing economic disadvantage relative to coal.

In order to project realistic growth rates for renewable energy sources I have used the same mathematical approach as I used for hydro. Data on recent global production of wind, solar photovoltaic and other forms of renewable energy was used as the starting point for the projections. Excel trend lines were fitted to the data and the equations generated in the process were used to extrapolate the growth of each source.  As we saw previously, the closeness of the fits as demonstrated by the R-squared values on the graphs gives a certain  degree of confidence in the projections.

These projections should be treated with a great deal of caution.  Because both the wind and solar power industries are still so new, it is possible that they may exhibit higher growth rates in the future, thus making the following projections too conservative. On the other hand they may run into unexpected constraints that would skew the outcome in a more pessimistic direction. Due to the youth of the industry there is very little historical production data to use in establishing the trends.  This scarcity of data makes statistical projections less trustworthy, as large discontinuities in production from year to year may render the curve fits unreliable.  On the other hand, there is at least some basis for the projections beyond the enthusiasm of the proponents or the gainsaying of their detractors.  The projections should be regarded more as thought experiments - do they seem reasonable given your own assumptions of how the energy world works?  If they seem unreasonable (either too high or too low), what is the evidence that will dispute them?

Wind

Data on the global production of wind energy from 1997 to 2005, collected by the World Wind Energy Association and reprinted inthis graphic, was used as the starting point for the projection shown in Figure 8. The closeness of the fit of the calculated curve to the actual production data, as indicated by the R-squared value of .998, gives us a reasonable degree of confidence in the projection.

Figure 8: Actual and Projected Wind Power, 1997 to 2050

There are a number of factors that may act on the future development of wind power.  There is no doubt that it is an attractive replacement for coal or gas-fired electricity generation, at least within the limits imposed by the inherent variability of wind power.  If that limitation can be addressed, either through cheaper energy storage techniques to bridge periods of low wind or smart grids that can tolerate larger amounts of variable power, a significant constraint to rapid and extensive wind development may be removed.  The other potential constraint is the ever-present threat of oil and natural gas depletion.  The rising cost of oil and gas may drive the cost of industrial production of all kinds up sharply before wind power has achieved a significant presence.

As in the case of nuclear power there will be pressures to speed up the development of wind power because of global warming and the depletion of oil and gas, as well as restraining forces imposed by economics, technical feasibility and perhaps some public resistance to having turbines in their neighborhood.

All in all, with a projected growth of 2200% from now until 2050 it looks as though wind is the renewable energy source that will make the most difference to the world's energy mix over the next 50 years.

Solar Photovoltaic

The data for actual solar photovoltaic production were compiled from here, here and here.  This time, a third order polynomial was used to project the historical trend based on data from 1996 to 2006, and once again the fit is good enough to give some confidence that the observed trend is real.  Though the growth of solar power in percentage terms is spectacular (an increase of 12,000% by 2050), given the lower starting point the contribution of solar power in 2050 will amount to only half that of wind.  However, wind and solar technologies are different enough in their application that this amount of solar power should make a dramatic difference in the lives of many around the world.

Figure 9: Actual and Projected Solar Power, 1996 to 2050

Other Renewables

In the category of "other renewables" we have such sources as geothermal, biomass, tidal power etc. Production figures for these sources were obtained from the  Energy Information Agency.  After removing the contribution of wind power from the aggregated figures, the historical production was again projected mathematically. In this case a linear trend line provided the best fit, which seems sensible - biomass is the largest contributor, and it is a very mature energy source, unlikely to exhibit exponential growth in the near future.

Figure 10: Other Renewable Energy Production, 1990 to 2100

Next

Part 6: Putting Energy Sources in Perspective

http://endofenergy.blogspot.ca/2016/02/energy-2050-apocalypse-road-to.html

Energy 2050 Apocalypse - The Road to Exhaustion (Part 4)

Energy 2050 Apocalypse

World Energy to 2050
  Forty Years of Decline
Our Energy Sources
Part 4

By Paul Cherfurka

http://www.paulchefurka.ca/

Coal

Coal is the ugly stepsister of fossil fuels. It has a terrible environmental reputation, going back to its first widespread use in Britain in the 1700s. London's coal-fired "peasoup" fogs were notorious, and damaged the health of hundreds of thousands of people. Nowadays the concern is less about soot and ash than about the acid rain, mercury and especially carbon dioxide that results from burning coal. For the same amount of energy released, coal produces more CO₂ than either oil or gas. From an energy production standpoint coal has the advantage of very great abundance. Of course that very abundance is a huge negative when considered from the perspective of global warming.

Most coal today is used to generate electricity. As economies grow, so does their demand for electricity.  The need to use electricity to replace some of the energy lost due to the decline of oil and natural gas will put yet more upward pressure on the demand for coal. At the moment China is installing two to three new coal-fired power plants per week, and has plans to continue at that pace for at least the next decade.

Just as we saw with oil and gas, coal will exhibit an energy peak and decline, though for different reasons. One important factor in the eventual decline of the energy obtained from burning coal is that we have in the past concentrated on finding and using the highest grade of coal: anthracite. Much of what remains consists of lower grade bituminous and lignite. These grades of coal produce less energy when burned, and require the mining of ever more coal to get the same amount of energy.

In addition to their exemplary study of oil supplies mentioned above, the Energy Watch Group has also conducted an extensive analysis of coal use over the next century.  I have adopted their "best case" conclusions for this model. The model projects a continued rise in the use of coal to a peak in 2025. As global warming begins to have serious effects there will be mounting pressure to reduce coal use.  

Unfortunately, due to its abundance and our need to replace some of the energy lost from the depletion of oil and gas, the decline in coal use will not be as dramatic as seen with those fossil fuels. The model has coal use decreasing evenly from its peak to a production level similar to what it is today, giving the curve shown in Figure 5.

Figure 5: Global Coal Production, 1965 to 2050

Of course the increased use of coal carries with it the threat of increased global warming due to the continued production of CO₂. Many hopeful words have been written about the possibility of alleviating that worry by implementing Carbon Capture and Storage. CCS usually involves the capture and compression of CO₂ from power plant exhaust, which is then pumped into played-out gas fields for long term storage. This technology is still in the experimental stage, and there is much skepticism surrounding the security and economics of storing such enormous quantities of CO₂ in porous rock strata.

Hydro

If coal is the ugly stepsister, hydro is one of the fairy godmothers of the energy story. Environmentally speaking it's relatively clean, if perhaps not quite as clean as once thought. It has the ability to supply large amounts of electricity quite consistently. The technology is well understood, universally available and not too technically demanding (at least compared to nuclear power). Dams and generators last a long time.

It has its share of problems, though they tend to be quite localized. Destruction of habitat due to flooding, the release of CO₂ and methane from flooded vegetation, and the disruption of river flows are the primary issues. In terms of further development the main obstacle is that in many places the best hydro sites are already being used. Nevertheless, it is an attractive energy source.

Figure 6: Global Hydro Production, 1965 to 2050

Development will probably continue in the immediate future at a similar pace as in the past.  The model for hydro power has its capacity increasing by almost 40% by 2050. This projected growth is gradually constrained toward the middle of the century by two main factors: most useful river sites are already in use, and water flows will gradually be reduced due to global warming.  There may also be a general loss of global industrial capacity (and/or rising development costs) due to oil and gas depletion.  Nevertheless, the pressure on hydro power to replace energy lost from oil and gas depletion will support continued development even in the face of such constraint.

Nuclear

The graph in Figure 7 is a mix of data synthesis with a bit of projection. I started with a table of reactor ages from the IAEA (reprinted in a presentation to the Association for the Study of Peak Oil and Gas), the table of historical nuclear power production from the BP Statistical Review of World Energy 2007 and a table from the Uranium Information Centre showing the number of reactors that are installed, under construction, planned or proposed worldwide.

The interesting thing about the table of reactor ages is that it shows the vast majority of the world's operating reactors (361 out of 439 or 82% to be precise) are between 17 and 40 years old. The number of reactors at each age varies of course, but the average number of reactors in each year is about 17. The number actually goes over 30 in a couple of years.

Two realizations formed the basis for my model of nuclear power. The first was that reactors have a finite lifespan averaging around 40 years, which means that a lot of the world's reactors are rapidly approaching the end of their useful life. The second realization was that the construction rate of new reactors and their average capacity can be inferred from the UIC planning table.We can therefore calculate the approximate world generating capacity with reasonable accuracy out to 2030 or so.

The model takes a generous interpretation of the available data. It assumes we will build all the reactors shown in the UIC data referenced above: six plants per year for the next five years, nine plants per year for the subsequent ten years, and ten plants per year until 2050. The model further assumes that all reactors will be granted life extensions to 50 years from their current 40, and that no plants will be prematurely decommissioned.  It also assumes that each plant generates an average output equivalent to 1.53 Mtoe per year. The derivation of this figure is given in the model data available here.

Figure 7: Global Nuclear Production, 1965 to 2100

The drop in output between 2020 and 2037 is the result of new construction not keeping pace with the decommissioning of old reactors. The argument for a peak and subsequent decline in nuclear capacity is very similar to the logistical considerations behind Peak Oil - the big pool of reactors we currently use will start to become exhausted, and we're not building quite enough replacements.  The rise after 2037 comes from my estimate that we will then be building 10 reactors per year compared to 6 per year today. The net outcome is that in 2050 nuclear power will be supplying about the same amount of energy that it is today.

A number of factors may act to increase that output.  Those changes could include the uprating of existing reactors to produce more power than their original design specification, an increase in the size of future reactors and/or a building boom prompted by concerns about global warming and the decline of oil and gas supplies.

Restraining the increase will be economic factors (construction will become more expensive as oil and gas deplete, driving up the cost of materials and transportation), and continuing public opposition to nuclear power plants, waste storage and uranium mining.  At some point uranium mining itself may also become a bottleneck - the current world production of about 50,000 tonnes of uranium per year could need to increase to around 70,000 tonnes per year in order to fuel the increased number of reactors.  Of course the amount of additional uranium required will depend entirely on the number of new plants that actually get built.

A number of advanced reactor technologies are presently under investigation or development, including high energy "fast reactors" that produce less waste, reactors that can use more abundant and cheaper thorium as a fuel, and "pebble bed" designs that promise improved safety.  None of these technologies are commercially available (and are unlikely to be within the next decade or two), so they have not been incorporated into the model.

Next

Part 5: Renewable Energy

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