By Chris Nelder
Posting in Design
Energy futurist Chris Nelder does the math to determine when we should transition energy to renewables and transportation to rail. The answer: about 40 years ago.
When is the right time to execute energy transition — from roads to rail, and from fossil fuels to renewables?
If you’re a believer in the free market, you might say the right time for energy transition is when renewables are cheaper than fossil fuels. Why pay $0.15 to $0.30/kWh for a rooftop solar photovoltaic (PV) system before incentives today, when you can buy grid power for $0.08 to $0.15/kWh, depending on where you live? Why invest $600 billion in high speed rail, when we can just buy a few more cars and lay a bit more asphalt?
Because if you waited for that, you’d quickly find yourself out of gas, as I explained last week. The best available data suggests that the decline of conventional oil will finally overwhelm new drilling starting some time between now and 2014. The later estimate attempts to account for the ongoing recession in the OECD. Many analyses of oil data have projected 2012 as the beginning of decline, such as a 2010 U.S. Joint Forces Command report, which said, "By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels per day."
Let’s do a bit of simple arithmetic and see what it would take to make up for that decline on an energy basis. Most studies show that the world’s oil production is currently declining at an average rate of 5 percent each year. Against 74 million barrels per day (mbpd) of conventional oil* production today, that’s an annual supply loss of 3.7 mbpd, or 1,350,500,000 barrels per year. Put another way, we’d have to replace 3.7 mbpd of capacity each year just to stay flat.
For 2010, the world’s production of renewable energy** was 158,600,000 metric tonnes of oil equivalent. At 6.841 barrels in a tonne, that’s 1,084,982,600 barrels of oil equivalent from renewables, or about 80 percent of what we are already losing in oil production (data from BP, 2011).
This simple energy value calculation leaves aside the infrastructural challenges of transitioning from liquid fuels to electricity, and a host of other issues. And it remains to be seen how much additional supply will balance out depletion in the coming years. But as a rule of thumb, it’s helpful to realize that even doubling the world’s entire renewable energy capacity wouldn’t make up for the annual decline of oil…let alone the decline of coal and gas, starting around 2025.
Worse than the decline of oil production is the decline of net oil exports. Net oil exporters, awash in the cash from their oil sales, are growing up and industrializing, which causes them to consume more of their own production and cuts into their exports. At the same time, rapidly growing economies like China and India are consuming an ever-larger share of the available net exports. As analysts Jeffrey Brown and Samuel Foucher have shown, available net exports have fallen at an average rate of about 1 mbpd per year from 2005 to 2010, from about 40 mbpd in 2005 to about 35 mbpd in 2010 (BP and EIA data, total petroleum liquids). On current trends, China and India would consume all of the available exports in about 20 years, while the U.S. is slowly squeezed out of the global market.
The challenges of energy transition
It should be clear that the vogue dismissal of peak oil fears based on optimism around marginal, incredibly environmentally destructive resources like tar sands and shale hardly stands to account. Canadian tar sands production today is about 1.5 mbpd, and it is hoped to increase to 3 mbpd by 2020. “Tight oil” production from shales is hoped to grow from 0.9 mbpd today to 2.9 mbpd by 2020. Even if these projections panned out—and am I extremely skeptical that they will, based on the failure of such projections over the past decade, the cost of new production, the outlook for project financing, among other factors—that’s only a total increase of 3.5 mpbd over a decade . . . less than one year’s decline in conventional oil.
We know from the history of energy transitions that it generally takes on the order of 100 years for a new energy source to go from 1 percent to 50 percent of supply. Vaclav Smil’s recent book Energy Transitions offers an excellent detailed history on this subject. For example, it took 53 years for oil to go from 1.9 percent of total primary energy supply in the U.S. in 1880 (when wood was still our leading fuel) to over 25 percent in 1933. The comparison is apt, because renewables currently account for just 1.3 percent of the world’s primary energy supply. But the sheer volume of energy we consume today is many times greater, so it’s likely that transitioning from fossil fuels to renewables now will take substantially longer.
Switching contexts slightly from liquid fuels to grid power generation, how long will it take until renewables are cheaper than fossil fuels? According to some good recent calculations by physicist and energy consultant Kees van der Leun, solar PV is already competitive with regular grid power in sunny regions like the Southwest, at $0.12/kWh. He projects that by 2018, solar PV will be the cheapest way to generate power in Latin America, Africa, the Middle East, Australia, and much of Asia, including India.
But if we wait until 2018 to switch to renewables, and the U.S. Joint Forces Command is right, the world will be struggling to make do with at least 14 percent less oil than it has today. It is difficult to overstate the significance of this in a world where production merely staying flat year-to-year has the known potential to cause prices to double or triple, and cause severe economic destruction. The only experience we’ve ever had even close to that was the Arab Oil Embargo of 1973-74, when about 7 percent of production was lost, and oil prices quadrupled to a shocking $12 a barrel, or about $55.23 in today’s dollars (where the average real price in 2011 has been $95). I remember those days, sitting in line in 110 degrees in Tucson for several hours just to buy a few gallons on our designated day of the week. I shudder to think what the equivalent experience would be today.
Should we wait for transition until the net energy (energy returned on energy invested) of oil, which was 100 in 1860 and is now about 11, falls to the point where it’s not worth doing anymore, which is around 3? Probably not. Because once it falls to about 5, you’re already in trouble, and unable to maintain a complex society.
Should we wait until our transportation infrastructure becomes rusted and too expensive to maintain, like the photo above? No, because declining net energy, declining net exports, and declining production will make it increasingly difficult and expensive to do anything. You have to build the replacement infrastructure while the energy and materials and capital you need to do it are reasonably available.
Clearly, it makes no sense to wait until renewables are cheaper than fossil fuels before beginning transition, particularly if you’re talking about transportation fuels. To do so would be to gamble with the entire economy and risk severely negative outcomes, like fuel shortages, riots, and depression. Are we really willing to take such risks, simply because we prefer to believe that the free market will magically sort everything out, particularly when we know that our economic theory evolved in an age of energy surplus which is now behind us?
It’s hard for anyone alive today to appreciate how immense that surplus is. Over the 150-year-long history of industrialization, we have built a complex civilization that has literally remade the face of the planet. To do so, we have burned the condensed energy of hundreds of millions of years of ancient sunlight: over one trillion barrels of oil, over half a trillion tons of coal, and over 80 trillion cubic meters of natural gas. All of it was essentially free for the taking, plus production costs. We will never have such a bonanza again.
This has engendered a recency bias that’s hard to discount. We assume that the next 50 years will be like the last 50 in terms of energy availability, when the data clearly show that it will not. We assume that if oil runs short, we’ll find a substitute, not comprehending that the substitutes have much poorer quality, far lower production rates, and lower energy content. We assume that societal surpluses, like health care, or one person per car, or a complex society sporting ten times the retail space per capita of Europe, are normal. They are not. They are artifacts of an age when energy was insanely cheap.
The right time to execute transition is not when the alternatives are cheaper. The right time is before it’s too late, and while it’s still affordable. That time was really 40 years ago. We have less than two years left before things really start getting difficult. What, exactly, are we still waiting for?
Photo: Mangyongdae Fun Fair, Pyongyang, North Korea (bryanh/Flickr)
* I use EIA data for global conventional oil production, because they restrict their definition of “oil” to crude plus lease condensate (natural gas liquids that are produced and naturally associated with the crude). EIA shows 74 mbpd for 2010. BP includes shale oil, oil from tar sands and a liberal definition of natural gas liquids (NGLs) in its definition, which is a bit of a distortion. Unconventional “oil” from tar sands and shale is not equivalent to conventional crude, in that both sources are much more expensive, with much lower flow rates and net energy. BP shows 82 mbpd for the world in 2010.
** BP defines renewable generation as “gross generation from renewable sources including wind, geothermal, solar, biomass and waste, and not accounting for cross-border electricity supply. Converted on the basis of thermal equivalence assuming 38% conversion efficiency in a modern thermal power station.”
Nov 1, 2011
The sun only shines (enough) 33%% of the time. The wind only blows (enough) 33% of the time. Net result you have to use 67% of the fossil fuel that you would otherwise have used. Then, the 32% in fossil fuel usage that you think you have saved is more than offset by the amortised capital cost of the standby fossil fuel electricity generating capacity over its lifetime. Duh! So do the sums intelligently, mutthead.
When the wind isn't blowing and the sun isn't shining, that is when you use fossil fuel as a backup. The reduction in its consumption would be enormous. (Problem solved, dummy)
I'm sorry that you can't see the obvious: that the market will indeed respond quickly enough - in fact at exactly the right speed to meet demand. Actually if you took your greenie blinkers off for a moment you would see that it is already responding. Here are two real viable examples: shale gas and nuclear. You may not like either solution but governments all over the world are moving inexorably towards an energy future based largely on natural gas + nuclear energy. You rubbished shale gas without justification. The technology is well established and the estimates of available resources are already into the hundreds of years. Yes, the greenie movement is making a big fuss about fracking, but then they would wouldn't they? It spoils their deep and distorted vision for our future. You are utterly silent on nuclear. The latest available nuclear technology is extremely safe and very clean. And, not so far into the future, thorium fuel promises to provide hundreds and hundreds of years of almost unlimited energy with practically no waste problems. So even if we have to wait another 500 years for nuclear fusion (the obvious ultimate energy source) there are plenty of smart market solutions in the wings. In contrast to the above scenario, all you can offer by way of argument are utterly useless alternative energy sources like wind and solar. Wind is now proving a great failure worldwide as countries are beginning to realise that it is environmentally intrusive, inherently unreliable, and wasteful of manufacturing resources (particularly concrete). It also requires expensive new electricity transmission infrastructure which itself is bespoiling even more of our precious environment. Oh, and did you know that it only works when the wind blows hard enough? Ouch! If it could be made cheap enough, solar could be a great solution in sunny places like the Arizona desert but that doesn't help the bulk of the world's population that lives in more northerly latitudes, unless you fancy the idea of investing in monumentally expensive very long distance electricity transmission systems thus, again, also bespoiling the environment. Oh and did you know that solar only works during daylight hours? Duh! So I'm not holding my breath for your Part III, assuming you are unwise enough to write one.
The study Nelder cites about the 5 percent loss per year was on the world's top 800 existing oil fields as of 2008. It did not, and could not, take into account new oil being found. Of course existing oil fields get depleted. So what? The real question is how much new oil is being found. Take a look at 2005 proven reserves ( http://www.nationmaster.com/graph/ene_oil_res-energy-oil-reserves ) vs. January 1, 2011 proven reserves ( https://www.cia.gov/library/publications/the-world-factbook/rankorder/2178rank.html ), a span of 6 years. In billions of barrels, you will see that major oil producing countries such as Saudi Arabia (262.7 then vs. 262.6 now), Canada (178.9 then vs. 175.2 now), Iran (133.3 then vs. 137.0 now), etc. have almost exactly the same amount of proven reserves then as now. One country, Venezuela, went from 75.6 then to 211.2 now, a huge gain. In fact, the latest figures for Venezuela put it at 296.5, now the largest in the world (see http://www.marketwatch.com/story/venezuela-oil-reserves-topped-saudis-in-2010opec-2011-07-18 ). Remember, this is after 6 years of oil use, meaning the 2005 figures were too low by about 186 billion barrels (assuming 85 million barrels consumption per day for the six years, see http://www.indexmundi.com/energy.aspx ). Neider's argument that oil production must be going down now is a sham. He talks about "conventional" oil production, even though oil drilling technology has changed so fast over the past decades that "conventional" has no meaning. The figures I gave are for proven reserves, or what is available using the technology available at the time. Some of the increase from 2005 to 2011 was simply because today we can extract more oil from the same fields. Nelder argues that we must force the change from oil to renewables today based on existing oil fields being depleted. But recent experience indicates that there are vast new oil fields yet to be found. Forcing the change now will only inflict huge disruptions on an already fragile global economy.
Gas rationing was in our past for a few years in the late 70's. Mark my word that in a few years, gas rationing will be a long term feature of our future. While employed at the Bureau of Engraving and Printing, I was personally involved in the production of gas rationing coupons, which eventually went into storage somewhere. Technology has changed since that time and the days of paper coupons has probably passed. If you are old enough to remember those days of odd and even fueling, long lines, and limited amount of fuel purchases; even when the price was low, availability was simply problematic. Now we can look forward to extremely high prices along with a lack of supply. It is all just a matter of time. Think about it. What would you do if you could only buy 5 gallons of gas every 4 days? And it would cost you $50 for those 5 gallons. What would you do?
Hydro = $0.66/kWh, taxes not included. Gasoline = 4.6kWh/L at a retail price (taxes included) of $1.25/L or $0.27/kWh (And diesel is even cheaper.) This is the reality we're dealing with. This is why it's hard to get people to switch. We know the crash is coming, when the price of oil will be too high. But right now, oil is cheap. Nobody wants to move until they need to.
Individuals can help save energy, the more that reduce energy use the easier it is to move to alternatives. It does not take a lot to reduce home energy, replace incandescent bulbs with CFL or LED lighting, drive more efficient cars and take alternate transportation when possible. Solar panels can help reduce energy spending in some cases. Use some space to grow a garden, if you don't have a yard then see if there is a community space that is available for gardening. Solar power is inefficient but better than nothing. We could build more nuclear power plants, but we need better designs that won't add to a catastophy as we all saw in Japan. Supporting research in these areas will help.
"We assume that societal surpluses, like health care, or one person per car, or a complex society sporting ten times the retail space per capita of Europe, are normal. They are not. They are artifacts of an age when energy was insanely cheap." While I am in agreement with all that you have said, I find it puzzling that "food" and it's production using interdependent and confluent peak oil and peak phosphate NPK fertilizers weren't mentioned in your article. With coming NPK shortages resulting in massive food shortages, the probability of solving other non-renewable resource issues is greatly diminished by the increased chaos from mass starvation.
Transition does not mean whole sale over night change. The worlds migration to renewable energy sources has been largly driven by the cost of the technology. If the pace is not as fast as some want than they need to look at why solar and wind have made such small progress in cost reduction even with the investment of trillions in research over the past 40 years. Even with the spike in oil prices over the last 20 years there is still a large gap of implimenting and operating in the cost of alternatives compared to oil. And don't take the lame and lazy excuse to blame tax breaks for oil because solar and wind have been receiving government subsidies for decades that are way out of proportion to their percentage of global power generated.
The ONLY reason concentrated solar thermal, CPV and C GaAs is not working right now is because it is cheaper to use fossil fuels. Machine made LiFePO4 batteries should also have been mass produced by now, along with pumped hydro for storage to enable 10 x price reduction... But nooooo, Americans are so dam greedy... got to make a killing off every little watt... We no longer have the time to be either or (or greedy)!
"Gas Rationing" was the result of government interference in the marketplace, specifically price controls on the wholesale price of gasoline. Once the price controls were lifted, gas became plentiful again. So when you rhetorically ask "What would you do if you could only buy 5 gallons of gas every 4 days?", I'd say that would only happen if the government again interfered with the marketplace and was issuing "coupons". If I needed more gas, I'd find someone willing to sell their coupons. Conversely, since I'd likely need less gas than other people, I'd make money selling my coupons.
Are you suggesting there have been "Trillions $$$$" in investment in Solar and Wind over the last 40 years? The amount invested in renewable R&D by private corporations with their own money in addition to Govt funds/subsidies absolutely pales in comparison to the amount of money invested in R&D for fossil fuels over the last 40 years. Had the amounts been equal, or better yet, reversed, renewable energy technology would be far more advanced than it is today.
Are you referring to the situation during the late 1970s which in a previous comment referred to the odd/even day fueling privileges/permissions (rationing) that were enforced in the US as a result of a gas SHORTAGE? This shortage was the result of the Arab oil embargo which was (in part) the result of the Arab failure to gain territory from Israel in the Yom Kippur war (and OUR support of Israel). Other reasons may have been the desire by OPEC to squeeze supply and inflate the price. This situation does NOT qualify as domestic (US government) manipulation of prices. (I don't recall if President Nixon tried to fix the price of gas in the early 70s but the price was VERY LOW back then.)
Here's what I pay: Hydro = $0.66/kWh, taxes not included. Gasoline = 4.6kWh/L at a retail price (taxes included) of $1.25/L or $0.27/kWh Oil is cheap energy, very cheap. Renewables, even with all of the advancements, still can't compete against oil in terms of price per unit energy. No amount of R&D subsidies would change this. You'd need to subsides the technology itself to get them on an even footing. When the price per unit energy becomes equal, it'll be a whole new ball game.
...when prices are not allowed to track with demand. If gas prices had been allowed to rise as the supply temporarily dwindled, there would have been no gas lines or need for "rationing".
I can't believe you're spending 66 cents a kWh for hydro power, the rate here is one tenth of that, 6.6 cents. Did you possibly get the decimal point in the wrong place?
I don't know where you got your figures for hydro, but it's off by a factor of 10. Hydro costs between $0.04 and $0.08 per KWH. It's about the cheapest electricity there is, which is why the northwest is a favorite place to place aluminum smelters and data centers. Maybe you have a special case, but at $0.66 per KWH, it would probably be cheaper to buy a diesel generator...