BP Reserves Chart

In conflict to my last post. This is from a BP presentation:



This graph suggests that oil needs to 2030 and beyond can be easily satisfied from conventional oil ... which seems optimistic. I don't disagree that there may be that amount of oil there. But that doesn't mean we can get it out quick enough to satisfy demand.

This graph also demonstration of "Weitzmann's Law", as explained by Paul Krugman. He says since the 1970's the cost of recovering Canadian tar sands has been 40% more than the current oil price ... whatever that price is.

The Oil Gap in 2030

There are lots of uncertainties about world oil production. I think there is general agreement that the era of "easy oil" is over and that there are no more giant discoveries to be made. A typical production scenario is shown below:



The actual shape of the production peak is a source of much argument. Some think that we will be able to maintain a 90MBarrel peak until well into 2020's. I'm going to assume the graph above holds ... there is uncertainty, but its a plausible scenario.

Currently, total demand for oil is 85 Million Barrels/day. Conventional crude (as can be seen above) supplies about 75 Million of that, with the remainder being unconventional - right now gas condensate

EIA estimates a demand for oil in 2030 to be 118 Million Barrels/day.

The chart above suggests we will be able to supply less than 50 MBarrels from conventional crude. Where are the other 68 MBarrels going to come from ? A very optimistic estimate for biofuels contribution is 8 MBarrels. That leaves a 60 MBarrels gap. Some of that will be filled by gas condensate production, but it looks like we are either going to have generate HUGE amounts of oil from gas or coal (not too good for the climate), or else reduce that demand figure drastically (through much higher oil prices).

I'd prefer to see that demand figure reduced ... through electric vehicles and efficency measures.

Assuming 2kg of CO2 / barrel of crude. 118 MBarrels / day, implies 8.6 GTCO2/year just from oil. That just doesn't correspond with stabilising CO2 emissions at 450-550ppm, which is the stated aim of the EU.

A Solar Powered US

Robert Rapier calculates that the US 900GW electricity demand could be supplied by solar thermal plants 100 miles x 100 miles in area. Estimated installation cost = $6 trillion (what the US spends on oil in 8 years).

Lots of caveats to that calculation ... solar power isn't always there when you need it & doesn't run at anywhere near full capacity most of the time. But its still good to have ball park figures.

Food price pressure

"Food prices rose 40% last year because of rising demand and other factors"

Its not specified in the article, but among the other factors is the increased demand for corn and other cereal crops for biofuels. Certainly, its not the only factor but it is certainly contributing.

I think the EU & US should reconsider there policies on biofuels.

The EU mandates for 10% of petrol to be from biofuels by 2020. The US Energy Act calls for 3 6 Billion gallons of annual biofuels production by 2022.

Madness - these mandates, will potentially crowd out more effective technologies such as electric cars. I think these mandates should be done away with and the focus given to including transport in the EU Emissions Trading Scheme.

Of course, that wouldn't please one of the key special interest groups in the EU & US: Farmers.

Biofuels for Aviation

In my view, the best direction for biofuels is to develop aviation biofuels. Biofuels for road transport will only ever contribute a small fraction of the world's requirements, due to land required to grow them. Even 2nd generation biofuels is not going to change that fact. I think electric cars are the way to go. The average car trip distance in the UK is 11km. Battery technology can now move cars for distances approaching 200km before recharging. This is approaching the maximum distance in 1 day. New materials will also make cars lighter, requiring less power to move them & recharging can take place overnight at periods of low load & little extra capacity will be required to charge the cars.

However, for aviation, batteries are not going to be possible & that's where biofuels can help. As aviation only makes up about 5% (very rough number!) of total fuel requirements, I think biofuels can satisfy this, without putting huge stress on land requirements.

I'm really pleased to see this article today & hope we see more developments in the area soon:

Virgin experiments with biofuels

Pathways to a low carbon world

I keep reading alot about different emissions targets and people who say its too much / not enough ... so I decided to have a look myself.

I think the best parameter to look at is CO2 emissions per person & try and figure out what will have to happen in order to achieve temperature stabilization at a safe level (which most people accept is around 2degC).

Using UN population forecasts to 2050 (at which time we are expected to have a planet of 9 billion people) and data from the IPCC reports on emissions reduction requirements for stabilization I came up with the following graph (the pathway for 3degC is from the Stern report, the other 2 pathways are my interpolation ... the shape may be slightly off, but the endpoints are correct!).



We need to move from a world where the average person emits 6.8 tCO2/year to one in 2050 in which they emit around 2 tCO2/year, in order to get to anywhere near a 2degC stabilization point.

Here is another graph showing current emissions levels. The 2 black bars indicate 2020 and 2050 required targets for stabilization at 2.2 degC



The average UK person currently 10tCO2/year. So the "60% reduction by 2050" UK Goverment target only brings that to 4tCO2/year (assuming a constant UK population ... which is reasonable) ... they need to be talking about 80% reduction unless they want other countries to emit less to compensate (which I don't think can be argued to be fair).

However, some environmentalists, such as George Monbiot, Johnathon Poritt and Mayer Hillman are talking about a 90% cut in UK emissions by 2030. They propose moving onto a "war footing" in order to get this done. 1tCO2/year by 2030, looks to be extreme. A 2.2degC stabilization path (the extreme given in the IPCC report), means we could still emit 4tCO2/year in 2030. I think people like Monbiot forget that we don't have the technology now that we will have in the future - its unreasonable for us to be expected to move to that long term target of 1tCO2/year too soon. We need to allow technology time to develop, and its not going to happen overnight - although it needs to happen quickly. That said, I think we need people like Monbiot to balance people like GM CEO Bob Lutz.

Seems to me that a hybrid of the 2 schemes ... 60% reduction in emissions by the year 2030 would be best for the UK. This would be a path to long term stabilization at 2.2 degC. What is important to remember though, is that it is not what the UK does, but what the world does.

The main tool for getting this done ... a global, realistic (at least $50/tCO2) )price on Carbon emissions and quickly.

The falling price of Solar PV

In contrast to other renewable energy sources such as wind / hydro, the developments in Solar technology are continuing to improve manufacturing and electrical efficiency and drive down the price of generating electricity.

An american company, Nanosolar has been developing thinfilm solar technology that allows them to "print" the surface of the panel much like a printing press.

Recently Nanosolar shipped its first panels & claims to be able to sell them for 99cents / W

I ran an NPV on this assuming, what I thought to be conservative numbers:

Discount Rate = 10.0%
Sun hours per day = 5 (i.e. daily energy generated is equivalent to 5 hours at maximum power production)
Life Span = 10 years
Cost per Watt installed = $1.5 (50% extra to cover taxes, installation & maintenance)

The figure I came out with was 6.8c/kWh ... which is pretty good. Not as cheap as coal (3-4c/kWh), but alot cheaper than older solar technologies which were in the region of 40c/kWh.

Game Theory and Climate Change Policy

One of the arguments that the Bush government have against the Kyoto Protocol, is that it does not include China & India & that it shouldn't have to restrict its emissions unless China & India also does also ... makes sense, right ??

I've recently read a good book on game theory that gave me some insight on why this policy is a bad idea.

What should US government's objective be ? To have global CO2 emissions reduced at a safe level ... this means that the future of the US (as well as other countries) well being is ensured. The only way we can do this is if every country cooperates.

In this type of "game", the best strategy is to make your first move a positive one. Even if other countries don't initially cooperate. By making the first move negative (which the US is doing by saying, "if you won't reduce your emissions, we won't") it provokes a further negative move ("screw you, we're going to continue to build more Coal stations").

A more positive policy, such as the the EU's policy of reducing CO2 emissions by 20% by 2020 will do very little to stabilize CO2 concentration in the atmosphere on its own, but it gives it a much more credible position when it comes to persuading the Chinese and Indians to follow suit.

Carbon Tax vs Carbon Rationing

I've been reading a little more on a Carbon Tax. One of the downsides to the tax, is that it is a regressive tax ... affecting the poor more than the rich. More affluent sections of the population, would simply be able to pay the credits to fly and drive a big car, whereas the less well off would not be able to afford it.

This is true ... but I believe we need to address inequality at its root cause ... for example by ensuring people have equal access to education & healthcare. Revenue from a Carbon Tax could be used to contribute to this & lower direct taxes on lower-income classes

Some people prefer a carbon rationing scheme, where everyone is rationed the same amount of credits & we have a carbon ration card.

However, a carbon ration card requires us to calculate the amount of carbon in each individual item in our society ... which is open to a lot of distortion. It would basically create a second currency ... people would trade money and carbon separately ... it seems like added complication to me. It would be much easier to incorporate carbon into our existing currency ... by placing a price on Carbon at source by creating a Carbon Tax.

We need to tax Carbon & tax it hard ... currently I think the governments are introducing the idea too slowly for fear of upsetting industry.

World Oil Production

The red line is a 1.8% trend line. (This graph is lifted from The Oil Drum)

Some have called the recent flattening of production a sign of peak oil. I think it is more as a result of lack of investment in new exploration over the past 15-20 years.

This investment is now taking place and several Mega-projects are on the horizon, but wheter this will be able to boost oil production above 90MMBarrel / day is a matter of debate.

Certainly as time goes on, it looks like there will not be enough oil to go around. This should mean oil prices continue to go up and technology like electric cars become ever more attractive.

Carbon Taxes

I'm in favor of a Carbon Tax.

Many people are against it because it is a market distorting subsidy for clean energy. In fact, it is a market correcting feature. A carbon tax internalizes the damage caused by fossil fuels. The damage includes, but is not limited to climate change. It would also allow us to reduce taxes in other areas ... it wouldn't mean slowing economic growth, simply "re-progamming" growth it in the right direction.

Carbon taxes are one form of a more general method of taxation known as "Pigouvian Taxes". A good explanation of this can be found here at Greg Mankiw's blog. Mankiw is a Havard Economist, who used to be head of the Council of Economic Advisors to GW Bush. Even one of Bush's advisors think a Carbon tax is a good idea!

The simple summary is "tax what you don't want". We want less pollution, so lets tax it. We want more employment and jobs, so lets reduce payroll & income taxes.

The best report I can find on external costs of energy this is an EU study. These results include:

* Increase in deaths due to respiratory disease (from air-borne particulates & pollutants)
* Increase in ill-health due to noise & air-borne pollution
* Building deterioration due to acid rain,
* Crop yield reductions due to NOx & SO2
* Global Warming
* Amenity losses
* Ecosystem damage

The results lined up something like this (I've averaged across countries):

Source External Price (euro-cent per kWh)
Coal: 6.1
Oil: 6.7
Gas: 1.8
Nuclear: 0.4
Biomass: 1.5
Hydro: 0.4
PV: 0.6
Wind: 0.1

It is interesting to note is the low external cost of nuclear energy. I believe alot of the safety concerns of nuclear are exaggerated. That said, I'm not necessarily a big fan of nuclear, but compared to coal, its a much better way to supply base load to an electricity grid.

The average price of wholesale electricity right now is somewhere around 4-5 euro-cent per kWh. So in order to level the playing field, we need to tax coal & oil at least that amount again.

Looking at the results above, I'd say a tax of 6 euro-cent/kWh is reasonable.

To translate that into a carbon price (even though its not 100% correct to do this as the external prices are not due only to global warming alone). The UK's environment department DEFRA report that for the UK's energy mix there is 0.43 tCO2/MWh. This implies a carbon price of 139 EUR / tCO2 ... wow ... its a big number, considering the current EU ETS phase II contracts are trading at 20EUR / tCO2.

Introduction

Well, first of all I'm starting this blog because I have some free time on my hands. I also want to put some of my ideas on Energy down in writing, to see if they even make sense to me.

I'm another reason is that an overwhelming number of the blogs I read are written by Americans ... surely we have something to contribute on this side of the Atlantic also!

Overall, I think many of the energy problems that we face are manageable. It won't be as difficult as mayn people believe. This is a really good clip I saw recently. It is a short presentation by Amory Lovins that is very optimistic.