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The IEA raises a little warning flag on future oil production – World Energy Outlook 2013 | ASPO International | The Association for the Study of Peak Oil and Gas

The IEA raises a little warning flag on future oil production – World Energy Outlook 2013 | ASPO International | The Association for the Study of Peak Oil and Gas.

By Kjell Aleklett
Uppsala University
Department of Geosciences and
Visiting professor at University of Texas at Austin
Department of Petroleum and Geosystems Engineering

On 12 November the International Energy Agency (IEA) released this year’s edition of their World Energy Outlook report, WEO-2013. I have not studied all the detail in the report but I listened to the presentation that the IEA’s chief economist, Dr Fatih Birol, gave in London. During the past 10 years I have studied and analysed the World Energy Outlook reports. One of the first detailed analyses that I did was in 2004 regarding WEO-2004. At that time the IEA thought that oil demand in 2030 would be 121 million barrels per day (Mb/d). The conclusion I drew from my analysis was that their prognosis was unrealistic. (http://www.peakoil.net/uhdsg/weo2004/AnalysisWorldEnergyOutlook2004.pdf)
Last year the IEA focused on shale oil in the USA as their main story and the news spread around the world that the USA would overtake Saudi Arabia as the world’s leading oil producer. The news generated many new declarations in the world’s press of “Don’t worry, be happy”. Every year the IEA also focuses on one particular nation or phenomenon that is presented as a large source of oil in future so that we do not need to worry about Peak Oil. Last year it was Iraq that would help to solve all our problems and this year it is Brazil. With this as a background, it is time to look a little more closely at the presentation of the newly released WEO-2013 report.

First, Maria van der Howeven, the Executive Director of the IEA, made some introductory remarks. She noted that the trend we currently have of fossil fuel use will lead to an inability to limit climate change to +2 C of temperature increase. At the same time she also noted that one fifth of the world’s population did not have sufficient access to energy. However, her most remarkable statement was:
“For billions more, any true sense of energy security is undermined by high energy prices. It is now more than five years after the onset of the global financial crisis, yet the recovery remains fragile; for many consumers and businesses, energy prices remain stubbornly high. Alarmingly, oil prices have averaged over $110/barrel since 2011. Such a sustained period of high oil prices is without parallel.

Security, sustainability, and economic prosperity – this is the classic “energy trilemma” that we face.”
When I read those comments I thought of what Christine Lagarde, the Managing Director of the International Monetary Fund (IMF) said in Davos last January regarding the megatrends she saw ahead,

”Increasing vulnerability from resource scarcity and climate change, with the potential for major social and economic disruption”.

We have never previously had global economic growth without increased use of energy. In reality, that means energy from fossil fuels for which oil is the leading component. Ten years ago the coupling between increased energy use and economic growth was what led the IEA to predict an energy demand of 121 Mb/d in 2030. Now they have reduced their expectations to around 100 Mb/d and the analyses we have made of the future show that this level of supply/demand cannot be realized. As IEA this year makes a detailed analysis of oil I have to come back and discuss this. The warning flag that the IEA has now raised should be taken with utmost seriousness.
Dr Fatih Birol’s slides and oral presentation can be found at the IEA’s website (www.iea.org). Considering the limits he probably has on making statements on the future I would regard this year’s presentation as much more nuanced than last year’s. Last year I was actually present when he repeated his presentation in Stockholm. Below are some comments on his presentation.
I share his view that high oil prices affect the economies of oil-importing nations. The fact that the USA has increased production of shale oil means that they do not have the same severity of economic problems with oil as the EU. To import oil at higher prices one must be able to pay for it with increased exports of goods and services. Sweden has succeeded quite with this well while other nations in the EU have not been as successful. The fact that the IEA now asserts that the high oil prices will persist means that it is time for oil importing nations to make fundamental changes in their energy policies.
When the IEA studies which regions have a need to increase oil use it is mainly in the Middle East and India that this is seen. That the increase in use in China is slowing down is expected since they will become increasingly efficient with their energy use in future. The rate of increase of renewable energy use is not expected to grow more than for fossil fuels which means that the proportion that renewables make up of total energy use will continue to be the same as 20 years ago. This rate of increase of fossil fuels points to global warming of +3.6 °C.
Regarding transport fuels the demand for diesel increases three times more than the demand for gasoline. This confirms what I wrote approximately 6 months ago. Another significant change is that the proportion of NGL, natural gas liquids, that is included in oil production statistics increases. In the USA, NGL has already replaced large volumes of oil feedstocks in the chemical industry and this will be an increasing trend.
Then it was time to look at shale oil in the USA. Dr Birol asserted that there would be no second chapter of the shale oil success story that is now playing out in the USA. If one includes NGL then it may be that the USA becomes the world’s largest oil producer around 2020 but its production will then decline. Last year the IEA played down the future importance of the Middle East in oil production but this year they indicated that an increase in oil production from the Middle East is necessary. Those projects that are now seen ahead as necessary have long lead times and the investments must be made now. The increase in oil production that the IEA regarded as necessary from Middle Eastern sources was 6 Mb/d.

Regarding production of conventional oil the IEA maintained its position that the decline in production from existing producing fields is 6% per year, i.e. that same decline rate that we published in 2009. The current rate of production of around 67 Mb/d will decline to 17 Mb/d by 2035 (i.e. in 22 years). Earlier, we don’t see that a realistic compensation for this decline in oil production could be envisaged. A later, more detailed study will show how things progressed this year. What the IEA currently presents as very important is Brazil. Thus, it is time to show again Olle Qvennerstedt’s illustration that describes the World Energy Outlook.

IEA, EIA and OPEC say “Don’t worry be happy”. Brazil is the happy soccer player in the back corner.

Regarding production of natural gas in the USA expectations are still quite high and my judgment is that these expectations are far too great. To make a better analysis I will need to read the complete WEO-2013 report and that will take some time. The conclusion that the IEA makes is that the price of natural gas in the USA will continue to be much lower than in other parts of the world and this will be significant for global industrial production. This must be interpreted as meaning that industrial production will increase in the USA.

A detailed reading of WEO-2013 will probably give a more nuanced picture of the current and future situation than that I have gained from Dr Birol’s presentation in London. I see future developments of oil production to be weaker than expected and I can definitely say that the polished future predictions made by the IEA ten years ago are well and truly dead and buried. My 2004 analysis has proven justified.

(Comments at Aleklett’s Energy Mix)
Bloomberg has made released an journalist analysis of WEO-2013 that can be read here (Bloomberg)


How Much Energy do we Really Need?

How Much Energy do we Really Need?. (source)

By Breakthrough Institute | Fri, 01 November 2013 23:22 |
Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. The Free Oilprice.com Energy Intelligence Report gives you this and much more. Click here to find out more.

In the early 1920s, when my grandparents were just small children, only about 40% of Americans had access to electricity. Over the course of a generation that number reached close to 100%. Today, inexpensive, reliable and plentiful access to electricity is something that most people in OECD countries take for granted. I was reminded about this when I attended the recent annual meeting of the Colorado Rural Electric Association, a group that decidedly does not take electricity for granted. The meeting was opened by appealing to core shared values: “The greatest thing on earth is to have the love of God in your heart, and the next greatest thing is to have electricity in your house.”

Yet billions of people around the world today do not have electricity in their houses. And while most projections see energy use expanding greatly in the coming decades, they also expect 1 to 2 billion to be living without electricity even by 2035. That may very well be the future we get. But it doesn’t have to be the future we work toward. To the extent that we allow such forecasts to constrain our debates over global energy and climate change mitigation, we do a disservice to the global poor, whose future wellbeing will undoubtedly require more-robust energy access.

Related article: Institutional Investors Concerned About “Unburnable Carbon” Fallout

The US Energy Information Administration, for example, projects that world energy consumption will increase by the equivalent of about 4,000 power plants in 2035 (about 1.7% per year) — or from 500 quads to 770 quads. A “quad” is a quadrillion BTUs, or about the same energy produced over a year by 15 1-gigawatt power plants, e.g., nuclear, coal or gas. While 4,000 new power plants worth of energy consumption sounds like a lot, after taking projected population growth into account, by 2035 global per capita energy use increases only by about 23% (data from the World Bank and the United Nations). In other words, from 2010 to 2035 global per capita energy consumption is projected to grow from about the average per capita consumption of Chile today to that of Croatia today, which is not a big change.

Advancing global human development requires that we ask different questions.

Rather than starting from today and asking how much energy the world might consume in 2035, let’s turn the question upside down. Let’s postulate different levels of energy access, efficiency, and equity for 2035, and ask what it would imply in terms of required energy supply, applying an approach that policy wonks call “backcasting.”

For instance, consider sub-Saharan Africa (minus South Africa), which today has about 30 gigawatts of electricity generating capacity, according to Morgan Bazilian, Deputy Director of the Joint Institute for Strategic Energy Analysis. To raise the region to the average per capita electricity access available in South Africa would require 1,000 gigawatts (source here in PDF). In other words, sub-Saharan Africa would need to increase its installed capacity by 33 times to reach the level of energy use enjoyed by South Africans — and 100 times to reach that of Americans.  The scale of the energy access challenge is enormous.

For this exercise I am going to start with a focus on electricity consumption, and use three countries in 2010 as analogies — Bulgaria, Germany and the United States — to represent low, medium and high levels of energy access assuming levels of efficiency and equity similar to each. In 2010 Bulgaria saw about 4,500 kWh of electricity consumption per capita per year, Germany 7,100 and the US 13,400. For comparison, the International Energy Agency defines “energy access” to be about 250 kWh per household per year, or about 2% of that used in the average American household. The global average in 2010 was just under 3,000 kWh per capita per year.

Ambition Gap in GLobal Energy Access

The implied increase in electricity consumption by 2035 to bring the world average to Bulgaria, Germany and US 2010 levels is 88%, 200% and 460%. These represent annual increases in electricity consumption of 2.6%, 4.5% and 7.2% respectively.  Because the EIA projects electricity production to grow at a rate faster than overall energy consumption, the Bulgaria (low) scenario is similar to its projection for overall growth in global energy consumption to 2035.

Bulgaria’s 2010 GDP was $14,160 (World Bank PPP Dollars), and the world average was $11,500. Attaining a 2035 global average per capita GDP equal to that of Bulgaria in 2010 implies an annual GDP global growth rate of 0.8%, which seems low, both in historical perspective and with respect to expectations. In contrast, Germany’s 2010 GDP was $40,230 and the US was $48,820, which if were to be the global average in 2035 imply annual growth rates of 4.5% and 7.2% respectively.

Global Energy Access

Let’s try to put these numbers into perspective with respect to total energy consumption in 2035. In terms of quads, the low, medium and high scenarios imply a total 2035 consumption of 940, 1,500 and 2,310 quads, or an increase over the EIA 2035 projection of 170, 1,000 and 1,810 quads. These represent the equivalent of a doubling, a tripling and more than a quadrupling of global energy consumption in 2010. Of course, different assumptions (e.g., about electricity vs. liquid fuels, etc.) will lead to different numbers, but qualitatively much the same results. Global energy access as you and I understand the concept implies massive amounts of new energy.

Related article: Fukushima Amplifies Japanese Energy Import Dependence

Another way to evaluate these numbers is to compare them to the magnitude of the energy challenge implied by policies seeking to address climate change. Decarbonizing the global economy to a degree consistent with low stabilization targets for atmospheric carbon dioxide implies replacing about 80% of current energy – about 400 quads – and meeting all future energy demand with carbon free sources of energy.  A 2035 world which consumes energy at the level of 2010 Bulgaria implies more than a doubling of needed carbon-free energy. Germany and US equivalency implies almost a quadrupling and close to a sextupling, respectively. Is it any wonder that many stabilization scenarios used in climate policy analyses keep poor people mostly poor?

So what to take from these numbers? I suggest three conclusions.

First, a world of energy access as that concept is understood by most people in the wealthy parts of the world implies a level of energy consumption far beyond that contained in conventional projections of consumption for the next several decades. Securing such energy access will require much greater policy attention than has so far been devoted to the issue. Just as in the US in my grandparents’ generation, market forces alone will be insufficient to provide energy for all. Concerted public action, perhaps coordinated to some degree globally, will be necessary.

Second, the magnitude of the challenge of providing energy for all is at least as large as the challenge implied by accumulating carbon dioxide in the atmosphere, and perhaps many times larger. Independent of the climate issue, there are good justifications why diversifying the global energy mix beyond fossil fuels makes sense, for security, environmental, health and economic reasons.

It would therefore seem obvious that those who prioritize climate might find common ground with those who favor increasing energy access to support major new initiatives in energy innovation and deployment. Such an approach would at least address the split between rich and poor nations that has characterized international climate policies for decades. Further, a wealthier world with more equity in energy access will be far better positioned to deal with the technological challenges of decarbonization. Those in the climate movement who express frustration that their issue has not been judged important enough to motivate aggressive steps toward energy innovation have overlooked energy access as a much broader base for securing and sustaining broad support around the world for advances in energy technologies and their deployment.

Finally, independent of time scale, the world is irreversibly moving towards greater energy access – in fits and starts to be sure — but there can be no doubt about the aspirations of the almost 6 billion people in non-OECD countries who collectively consume as much energy as the 1.2 billion in OECD countries. The world of the future will consume vastly more energy than the world today. The only questions are how efficiently and effectively we get to that high energy world. Putting energy access at the center of policy discussions would be a smart first step.

By. Roger Pielke Jr.


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