Petroleumworld`s
Opinion Forum:
viewpoints on issues in energy, international
politics & civilization.
Saturday
Lagniappe
Sources of Energy Consumption to 2030
By
Oliver L Campbell
This article is intended for the reader who has a limited
knowledge of energy matters and wants to know more--it does
not pretend to be an authoritative text on the subject. My
predictions are just educated guesses, but one thing I can
predict with certainty is that at least one of them will turn
out wrong!
What types of energy will we be using in 2030? As the price
of oil shot up from $30 to $50 to $70 a barrel, so it opened
the door to the development of more expensive production e.g.
offshore and in deeper waters. It has also allowed the use
of costlier recovery methods in order to increase the oil extracted
and led to the search for a whole host of energy substitutes.
Higher oil prices--conventional wisdom says they will not
fall below $40 a barrel in the foreseeable future--will lead
to an increased recovery rate, but what rate should we assume?
Typically, this has been around 30 percent of the oil in place,
but it is thought enhanced recovery methods, now being researched,
may increase the recovery rate to 50 percent or more.
For instance, THAI (toe to heel air injection) under laboratory
conditions has recovered 60 percent. Just imagine it were possible
to return to seemingly depleted fields and achieve an average
50 percent recovery rate--the additional oil available for
future consumption would jump enormously
Then there are new oil fields to be discovered. Only a couple
of months ago the Chinese found a large oil province offshore
in the Bay of Bohai. There are good prospects in many parts
of the world, including China and Russia, and also offshore
e.g. in the deeper waters of the Gulf of Mexico.
In
addition, production of “non conventional” oil
will come on stream because higher oil prices make many projects
economically viable .The best example is the extra-heavy oil
in Venezuela’s Orinoco Oil Belt. The oil is produced
normally since it is a liquid in the subsurface and only turns
into a thick tar-like substance when it cools on reaching the
surface. The costly part of the operation is upgrading a viscous
crude oil of 8º API to one of 16º API or 32º API
depending on the complexity of the upgrading plant.
Oil
reserves are estimated at some 235 billions (US) barrels,
second only
to Saudi Arabia’s, and would allow a production
of 10,000,000 barrels per day for 64 years. Though the total
production and upgrading cost is high, it still leaves a wide
margin with a sales price of $50 to $60 a barrel. Extra-heavy
crude oils also exist in other parts of the world.
The
second example is Canada’s tar sands found in Athabasca.
Crude production there is now over 1,000,000 b/d and is expected
to reach 2,000,000 b/d by 2010. The oil and earth mixture is
mined with huge scoops, and separating out the oil requires
energy--natural gas--to produce energy, as well as large amounts
of water from the Athabasca River. Digging huge holes, disposing
of the waste material, and polluting sweet water pose an ecological
problem. Production is constrained, not so much by cost, but
because of objections to the damage it causes to the environment.
The
third example is oil shale which has identical problems to
tar
sands. Oil shale is found in many places worldwide,
but by far the largest reserves are located in the United States
in the Green River Formation comprising parts of Colorado,
Utah, and Wyoming. The oil in place is estimated at between
1.2 and 1.8 trillion barrels. Oil shale can be used in its
natural state as a low-grade fuel in power plants, or the oil
can be separated by a process called retorting which requires
heating the shale to 500º C.
Although the current high oil price makes production from
oil shale viable, and pays for restoration of the impaired
sites, there is substantial public resistance because of the
damage caused to the environment. So the huge amount of potential
oil production is held back, not by cost, but by environmental
considerations.
Drilling
for oil in the Polar Regions, where considerable oil deposits
may exist, is unlikely for many years for ecological
reasons--memories of the disastrous oil spill from the Exxon
Valdez are still fresh in people’s minds. Current manoeuvrings
by Russia and Canada are meant to bring home their claims to
large parts of the Arctic, rather than indicating they intend
to start exploring there. What is more probable is drilling
in ever deeper waters, e.g. north of Shetland, as new technology
makes this possible.
So the first conclusion is that oil supply will still be adequate
up to 2030, but that production which damages the environment,
as in mining tar sands and oil shales, will develop slowly
until such time as the public is convinced that production
of oil from these sources becomes absolutely necessary.
Let us now look at the main substitutes for oil-- natural
gas and coal--since more use of these will take the pressure
off oil production. There are huge amounts of gas in the world--associated
gas, which is jointly produced with oil, and non associated
gas. For instance, Venezuela, Bolivia and Peru have enough
reserves to meet the needs of the rest of South America and
some of Central America. Venezuela has large reserves onshore
and offshore and Peru has them in the Amazon jungle. Who would
have expected Bolivia, high in the Andes, to have the second
largest reserves in Latin America?
Gas
can be transported long distances overland by pipeline, e.g.
from Russia to Western Europe but, to cross the sea, the
gas has to be super-cooled and turned into liquefied natural
gas (LNG) which is then carried by LNG tankers. A very large
regasification terminal is now being built in Milford Haven
in the UK because the country needs to replace declining gas
production from the North Sea. Qatar is the world’s largest
LNG exporter followed by Indonesia, and now many other countries
with excess gas intend to commence LNG exports, including Bolivia
and Peru.
Enormous deposits of coal exist worldwide. The problem with
coal has been the pollution caused by its emissions, but
new technology should virtually eliminate its harmful effects.
Where indigenous reserves are available, the cost to the
country is only that of production, so poorer countries with
no oil can be expected to develop these resources and keep
high-cost oil imports, such as gasoline and diesel, to a
minimum.
With
sufficient oil, gas and coal available, the second conclusion
is that
fossil fuels will continue to provide the bulk of the
world’s energy needs up to 2030 but, because of other
substitutes, the proportion will decline to under 80 percent.
.
Now
let us consider the possible substitutes for fossil fuels.
These
include the so-called “renewables” which
are natural resources such as wind power, solar power, tidal
motion, wave motion, hydro-power and geothermal. There is no
lack of these resources, but the problem is one of complex
technology and large investment required to harness them.
Then there are man-made substitutes such as nuclear power
and biofuels. Nuclear growth is inhibited by the fear factor
as well as the not-in-my-back-yard syndrome. France has 58
nuclear power plants, which produce over 70 percent of its
electricity, versus 10 in the UK which produce some 10 percent.
Though there is plenty of scope for growth in nuclear energy,
there is much hostility against it in many countries. Greenpeace
cite the problem of disposal of radioactive water and the havoc
terrorists could cause. However, the largest stumbling block
is the very high capital cost. The result is that any increase
in nuclear energy worldwide to 2030 is likely to be small.
Development
of biofuels has already started and Brazil is the world leader
in producing ethanol. This is currently being
made in different countries from sugarcane, cornstarch and
rapeseed, but the most exciting development is the new “cellulosic” technology
which will considerably reduce the cost by using the cellulose
existing in all plant matter including plant waste.
The present problem is ecological--areas in rain forests have
been cleared to grow crops and palm trees--and it is feared
the use of more arable land will put up the price of food crops.
Furthermore, large quantities of water are required for irrigation
to grow biofuels and this may divert its use from other desirable
purposes. Growing corn for ethanol has already pushed up the
price of tortillas in Mexico and almost caused a riot. However,
Presidents Bush and Lula have agreed to cooperate on increasing
ethanol production, and a steady increase worldwide in biofuels
could provide up to 5 percent of the energy supply by 2030.
.
The third conclusion is that though most renewables individually
will contribute only a small amount to energy production, collectively
they will have a clear effect. Nuclear is difficult to judge,
but the chances are it will provide little extra energy because
of high capital cost, environmental considerations and downright
opposition. However, biofuels have a bright future, marred
only by their taking over arable land otherwise available for
growing food, and will have a noticeable impact on the energy
supply.
So
what does all this tell us as energy consumers? The good
news
is that peak oil production will not occur in this period
(i), but the bad news is that energy will remain expensive
and its cost may even increase in real terms. The EU countries
already highly tax petrol and diesel to keep the price up and
consumption down but the USA, the world’s largest energy
consumer, to date has not followed this example.
Businessmen, especially those in industry, can play an important
role. They ought to keep abreast of developments in alternative
energy sources such as the renewables already mentioned. They
should also look for ways of conserving energy and using it
more effectively--more efficient engines, hybrid cars, fuel
cells and hydrogen are just some possibilities. As more alternative
energy sources become viable in the near future, businessmen
should evaluate the cost-saving of switching from one to another.
Last, but not least, we should all become more conscious that
a) oil, gas and coal are non renewable resources to be consumed
with care and b) that seriously damaging the environment to
produce energy will no longer be acceptable practice.
.
(i) For a pessimistic view that peak oil will occur in 2010,
go to the website of the Oil Depletion Analysis Centre.
Oliver
L Campbell, MBA, DipM, FCCA, ACMA, MCIM was born in El
Callao in 1931 where his father worked in the gold mining
industry. He spent the WWII years in
England, returning to Venezuela in 1953 to work with Shell
de Venezuela (CSV), later as Finance Coordinator at Petroleos
de Venezuela (PDVSA). In 1982 he returned to the UK with his
family and retired early in 2002. Petroleumworld do not necessarily
share these views.
Editor's
Note: This commentary was originally published by Business
Week, on the August 21, 2007 edition. Joshua
Schneyer in Rio de Janeiro contribute
to this story. Petroleumworld reprint this article in the
interest of our
readers.
All
comments posted and published on Petroleumworld,
do not reflect either for or against the opinion expressed
in the comment
as
an endorsement of Petroleumworld. All comments expressed
are private comments and do not necessary reflect
the
view of this
website. All comments are posted and published without
liability to Petroleumworld.
