Transcript Peak Oil - University of Dayton

Peak Oil
Economic, Geopolitical and Societal Aspects
Dr. Robert J. Brecha
University of Dayton
Chautauqua Course, May 22-24, 2006
Outline

Economics
Prices
 Futures
 Elasticity




Societal Effects
Geopolitics
Social Justice
World Energy Use
Total
~400 Quadrillion Btu
Coal
Geothermal, wind
solar, etc.
Gas
RE
Biomass
Nuclear
Hydro
Oil
US Energy Use
Total US Energy Use (Quads)
21.1
0.2
Residential
5
Med./hvy
trucks
17.6
Commercial
Transportation 26.3
16.2
Light
vehicles
Industrial
~2/3 of oil use is transportation
32.6
Air
2.2
1.2
0.9
0.6
(Water, pipeline, rail, buses)
0
Oct 10, 2006
May 28, 2005
Jan 14, 2004
Sep 01, 2002
Apr 19, 2001
Dec 06, 1999
Jul 24, 1998
Mar 11, 1997
Oct 28, 1995
Jun 15, 1994
Jan 31, 1993
Sep 19, 1991
May 07, 1990
Dec 23, 1988
Aug 11, 1987
50
Mar 29, 1986
60
Nov 14, 1984
Jul 03, 1983
Feb 18, 1982
Price (current dollars/bbl)
New Territory
RCLC1 Cushing, Ok Crude Oil Future Contract 1 (Dollars per Barrel)
70
In the history of oil use, we have never
before experienced a prolonged period
of ever-increasing oil prices
40
30
20
10
Prices of Oil
BP Statistical Review of World Energy June 2005, p. 14
Futures – The Markets Believe
Something is Happening
GDP and Miles Driven
http://www.theoildrum.com/story/2005/10/22/235239/89
Higher Prices, More Oil?
The Law of Supply ?
The “price-reserves relationship has its limits, because
oil is found in discrete packages (reservoirs) as opposed
to the varying concentrations characteristic of many minerals.
Thus, at some price, world reserves of recoverable
conventional oil will reach a maximum because of geological
fundamentals. Beyond that point, insufficient additional
conventional oil will be recoverable at any realistic price.”
“PEAKING OF WORLD OIL PRODUCTION:
IMPACTS, MITIGATION, & RISK MANAGEMENT” Hirsch, Bezdek, Wendling
(contracted report for DOE)
Law of Supply?
Ceteris paribus, if the price of a commodity increases,
supply will increase.
“… cumulative discovery explains approximately 70 per cent of
the quadratic Hubbert curve for discovery over time for the US
lower 48 states, whereas the price of oil is an inelastic factor …
Roughly 99 per cent of oil production over time is explained by
cumulative oil production. …(T)he price of oil is a fairly inelastic
factor in determining production. … The Hubbert curve can be
thought of as a limit of production.”
Translation: Geology, not economics, is the limiting factor
for both oil discovery and for production
From D. Reynolds, Using non-time-series to determine supply elasticity: How far do
prices change the Hubbert curve?, OPEC Review, June 2002, p.147-167
U.S. Production vs. Price
3.5
Production
Dramatic
Improvement in Oil
Field Technology
2.5
70
2002 dollars per barrel
Billions of barrels / year
3.0
2.0
1.5
Price
1.0
0.5
0
0
1950 1960 1970 1980 1990 2000
“PEAKING OF WORLD OIL PRODUCTION:
IMPACTS, MITIGATION, & RISK MANAGEMENT” Hirsch, Bezdek, Wendling
“Elasticity” and the Law of Demand
Price ($/bbl, Brent crude)
Oil Usage curve (2001-2005)
70
60
50
40
30
20
10
0
76.00
78.00
80.00
82.00
84.00
World oil usage (MMbbl/day)
86.00
Law of Demand


Ceteris paribus, if the price of a commodity
increases, demand will decrease.
“This paper uses a multiple regression model …
to estimate both the short-run and long-run
elasticities of demand for crude oil in 23
countries. The estimates so obtained confirm
that the demand for crude oil internationally is
highly insensitive to changes in price.”
John C.B. Cooper, “Price Elasticity of Demand for Crude Oil: Estimates for 23
Countries” OPEC Review March 2003
How Have We Reacted Previously?
25000
90.00
20000
70.00
60.00
15000
50.00
40.00
10000
30.00
20.00
5000
10.00
0
1960
1970
1980
1990
2000
0.00
2010
Oil Price per barrel
US Oil Consumption
80.00
How Have We Reacted Previously?
Energy (Quads)
US Energy Consumption
30
120
25
100
20
80
15
60
10
40
5
20
0
1970
1975
Transportation
1980
1985
Residential
1990
1995
Total US
2000
0
2005
Crude Oil Price
Data from EIA and Transportation Energy Data Book, 24th ed.
Petroleum Price and Consumption
vs. Time
300
90.00
80.00
250
70.00
60.00
50.00
150
40.00
100
30.00
20.00
50
10.00
0
1970
1975
1980
1985
1990
Year
1995
2000
2005
0.00
2010
WTI Oil price
MBtu/person/year
200
Closed (Neoclassical) View of the
Economy
Open (Biophysical) View of the
Economy
Inflation (and GDP)
GDP vs. GPI
http://www.redefiningprogress.org/projects/gpi/
http://en.wikipedia.org/wiki/Genuine_Progress_Indicator
GPI Indicators
Time Use
Economic Value of Civic and Voluntary
Work
Economic Value of Unpaid Housework and
Child Care
Work Hours
Value of Leisure Time
Natural Capital
Soils and Agriculture
Forests
Marine Environment/Fisheries
Energy
Environmental Quality
Greenhouse Gas Emissions
Sustainable Transportation
Ecological Footprint Analysis
Air Quality
Water Quality
Solid Waste
Socioeconomic
Income Distribution
Debt, External Borrowing, and
Capital Movements
Valuations of Durability
Composite Livelihood Security Index
Social Capital
http://www.gpiatlantic.org/#indicatorlist
Population Health
Educational Attainment
Costs of Crime
Human Freedom Index
Income and happiness in the USA
Richard Layard, LSE
% very happy
GDP per
head
($, 2001
prices)
Personal Savings Rate
The Hirsch Report
“PEAKING OF WORLD OIL PRODUCTION:
IMPACTS, MITIGATION, & RISK MANAGEMENT”
R.L. Hirsch, R. Bezdek, R. Wendling (Feb. 2005)
We cannot conceive of any affordable government-sponsored
"crash program" to accelerate normal replacement schedules
so as to incorporate higher energy efficiency technologies
into the privately-owned transportation sector; significant
improvements in energy efficiency will thus be inherently
time-consuming (of the order of a decade or more).
Auto Lifetime
Transportation Energy Data Book, 24th Ed.
Million gallons of gas per year
Driving Habits vs. Hybrids
140
130
120
110
100
90
80
70
60
50
2005
But … if the decline rate is 3 – 5 %/year?
2010
2015
2020
2025
Year
Scenario 1
Scenario 2
Scenario 3
Scenario 4
Scenario one: Fleet grows by 0.5%/yr; no hybrids; driving amount remains const. at 11,600 mi/veh/yr
Scenario two: Fleet grows by 0.5%/yr; hybrids incr. at 25%/yr.; driving amount remains const. at 11,600 mi/veh/yr
Scenario three: Fleet grows by 0.5%/yr; no hybrids; driving cut by 10% one time to 10,440 mi/veh/yr
Scenario four: Fleet grows by 0.5%/yr; no hybrids; driving cut by 2%/yr from 11,600 mi/veh/yr
Fuel Economy by Speed
Driving at 60 mph instead of 70 mph could save
roughly 500,000 barrels of oil each day
Transportation Energy Data Book, 24th Ed.
Trains, Anyone?
Food Transportation: Zero-order





35,000 lb. truck (empty) can haul 45,000 lbs. of
freight at 5 mpg.
We consume ~2500 lbs. of food per year
Avg. of 1500 miles for food shipment
 17 gal. of gas for transportation per year
Compare to 57 boe or 2400 gal. (0.7%)
Food, Part II






We consume 3500 Cal (kcal) per day
Equivalent to 5.1 million Btu per year
Input energy ~10x or 51 million Btu/year
Oil/fuel - ~140,000 Btu/gal
Fuel input to food production = ~370 gal.
17 gal. transport/370 gal. production = 4.5%
Our Oil Comes From …







Canada (790 × 106 bbl)
Mexico (600 × 106 bbl)
Saudi Arabia (560 × 106 bbl)
Venezuela (550 × 106 bbl)
Nigeria (420 × 106 bbl)
93 other countries (2000 × 106 bbl)
Including - Switzerland (8000 bbl)
2005 EIA data; total imports for the year were 4.9 × 109 barrels
China
Country Per cap.
energy use
Total energy
use
Per cap.
GDP
Oil use (25%)
Oil use (40%)
(million
Btu/year)
(Quad/year)
(US$ PPP)
(Gbbl/year)
(Gbbl/year)
China
(2005)
35
45
$5100
2.1
na
China
(2025)
163
258
$23,700
11
22
U.S.
(2005)
340
99
$37,000
na
7.3
Economic growth in China, if that growth is coupled to increased use
of fossil-fuel energy, has major implications for demand.
Iran
Year
Population
(millions)
Oil prod.
4.0 MMbpd
Oil cons.
1.4 MMbpd
1976
33.6
Elec. Prod.
142.3×109 kWh
1986
48.2
Elec. Cons.
132.1×109 kWh
1996
62.6
2006
68.7
NG prod.
79×109 m3
NG cons.
79×109 m3
NG reserves 26.6×1012 m3
GDP/capita: $8100 (2005, PPP)
Persian Gulf
http://www.eia.doe.gov/emeu/cabs/pgulf.html
Economy and Energy I
Per capita GDP (10 3 USD)
GDP vs. Energy use
50
45
40
35
30
25
20
15
10
5
0
Bermuda
Luxembourg
Qatar
US
Bahrain
0
200
400
Neth. Antilles
600
Per capita energy use (106 Btu)
800
1,000
Economy and Energy II
y = 0.0577x
R2 = 0.3994
Per capita GDP (10 3 USD)
GDP vs. Energy use
10
9
8
7
6
5
4
3
2
1
0
0
20
40
60
Per capita energy use (106 Btu)
80
100
Human Development Index
1
0.9
1.2 billion
HDI
0.8
0.7
0.6
0.5 billion
4.2 billion
0.5
0.5 billion (31 African countries)
0.4
0
100
200
300
400
500
Primary Energy Use per Capita (106 Btu/yr)
Data from UNDP Human Development Report 2005, http://hdr.undp.org
600
Human Development Index
HDI vs. Per capita energy use - Africa
0.9
0.8
0.7
HDI
0.6
0.5
0.4
0.3
0.2
0.1
0
0
10
20
30
40
50
Primary Energy Use per Capita (106 Btu/yr)
60
World Oil Production per Capita
Per capita world oil production
Barrels/year/person
6
5
4
3
2
1
0
1960
1970
1980
1990
2000
2010
What do we tell them?
There has been an explicit promise made to
developing countries – “we are wealthy, but you
can become wealthy as well.” Given that GDP
correlates to some extent with energy use (perhaps
more so for lower GDP countries), if the energy
sources are not as readily available in the future,
or become prohibitively expensive, how can wealthy
countries continue to hold out the hope of increasing
prosperity?