Is Peak Oil Demand in Sight?

Most lifestyle improvements of the past decades have been facilitated in some way or another by hydrocarbons. From long-haul transport and refrigerated goods, to medical equipment and telecommunication devices, all the way to home heating and electricity generation have been made possible by reworking the hydrocarbon molecules into the myriad of usable products. Along the years, not just have hydrocarbons helped upgrade our standard of living, but they have become an integral part of our lifestyle. We have become increasingly attached to hydrocarbons, and particularly crude oil.

Crude oil is part of most things we conveniently use daily. The uptake of oil in consumption took off in the period post 1965 as global economies expanded. It passed the 30Mb/d mark in 1965 and nearly doubled within a decade. The pace of the uptake has not been matched since. From 1980 onward consumption grew more steadily as economic development reached developing and underdeveloped nations. It passed the 70Mb/d mark in late 1990s and it has settled in the range of 90Mb/d in after 2010. The declining number of additional barrels consumed daily can be interpreted as maturing demand for crude oil, which opens speculation about peak-oil demand.

The first aspect which needs clarification is what does peak-oil mean? Peak-oil is a hypothetical point in time when crude oil consumption attains structurally a maximum level, thereat demand will gradually decline.

The second aspect which needs to be explained is the supporting evidence which sustains the peak oil debate. Two aspects are emphasized: the decoupling of GDP from energy consumption (and crude oil respectively) and the shift in the paradigm of oil market functioning.

Decoupling of GDP from energy consumption

The first piece of evidence signaling a structural is the decoupling of energy consumption from global GDP. Since 1990, the average annual GDP growth was 2.8% while average energy growth in consumption was 0.6% and crude oil 1.5%. The gap between the two indicators, which used to follow each other prior to the fall of the Soviet block, grew wider. The decoupling of economic value from the energy used to generate it, is also reflected in the energy intensity of the global economy which came down 30% from 7.5 MJ/$2011 ppp GDP in 1990. The main reasons for the decoupling are associated with structural removal of inefficient energy consumers from the market, fuel switch and the adoption of energy efficiency measures. As the map below depicts the aggregate energy intensity figure conceals a disproportionate reality (both by country and by fuel).

world bank energy intensity 1990

Energy Intensity Level of Primary Energy  (MJ/$2011 PPP GDP) in 1990 |Source: The World Bank

Shift in the paradigm of energy market functioning

Three energy market paradigms have been challenged: (i) energy sources and markets operated separated from each other; (ii) the business model based on long-term investments was disproved; and (iii) technological development can be disruptive.

For decades, the energy sector and commodity markets operated dislocated from each other. In oil markets, investments required long-term financing, predictable off-take volumes underlined by a wide spanning production curve of conventional assets. That has changed with the emergence of the US shale which reduced financing needs because of shortened production cycle.

The US shale revolution shook up another oil industry paradigm, that technology in this conservative industry can be disruptive. Technological innovation in the oil and gas exploration and production has generally followed an incremental path. It emerged from an existing techological solution into another following procedural upgrade. The learning curve of fracking showed how quickly alternative exploration and production techniques can take off, backed by the prospect of sufficient returns.

Peak oil demand to 2040

The decoupling of crude oil consumption from GDP is a gross indication that global economies are close to demand maturity. Further inroads into energy efficiency as well as fuel switch will absorb most of the increased demand in peripheral markets. An additional limits to growth will come from the paradigms shifts that have settled into the oil markets, especially the financing aspect of short-cycle oil production. Given the legacy it is safe to say that further expansion of oil consumption will not stop, only largely decelerate.

If oil market circumstances were to stay put, the discussion about peak oil would not yet be opened. What the peak oil debate builds on, aside from the mentioned legacies, are changes in at the structure of oil demand with permanent downward consequences. They are:

A. Electric vehicle penetration

B. Efficiency gains reinforced by slow economic growth

C. Crude oil substitution in heavy transport and chemical industry

Academics, consultancies, policymakers and industry participants are splitting hairs about the magnitude and impact of each of the three potential developments. There is yet no consensus, but some common ground is evident from their assumptions.

A. Electric vehicle penetration. [1] Status quo numbers 2million electric vehicles on the road, most of which are in Asia. If the electric vehicle fleet were to increase by 1million vehicles/yr to 2040, most of which would take place in OECD countries, and battery price falls below $100/kwh then peak oil demand can be expected between 2025 and 2030. Transport accounts for more than 65% of crude oil consumption meaning that any change in the sector’s demand can have a large impact in absolute terms.

B. Efficiency gains reinforced by slow economic growth. [2] The IMF has been revising downwards the global economic growth projection 5-times-in-a-row. This is to say that the 3% posted figure that currently circulates in economic models is short lived, and expected to be replaced by a less promising prospect. Considering 3% as a starting point and compounded by energy efficiency gains consequent to tough regulatory standards, could bring demand for oil to peak soon after 2025.

C. Crude oil substitution in heavy transport and chemical industry. Natural gas, a hydrocarbon energy and feedstock resource more abundant than crude oil, whose price has been pegged to a basket of oil-products is gradually breaking free. Benefiting from a larger resource pool, a freely traded gas would be structurally cheaper than the oil-indexed volumes. US produced gas is a case in point as the US hub marker Henry Hub trades at a structurally lower price than the European hubs which partly trade oil-indexed contracts.

Feedstock and industrial oil consumption represents about 25% of the global oil demand. A switch from naphtha (crude oil derived feedstock) to ethane (natural gas derived feedstock) is contingent to the ethane-naphtha spread. In case gas remains at an advantage for a prolonged period it can lock-in a structural effect which plateaus oil demand around 2025.

 

After browsing over the main qualitative and quantitative estimates for global peak oil demand it is apparent that the peak is near. In the narratives presented, each development has been analyzed individually but synergies, for example, between efficiency and substitution could emerge and generate exponential effects. Additionally, the impact of pricing, not just of oil, but alternative energy sources and technology, are important considerations where one can only speculate looking towards 2040.

Despite the uncertainties that such an exercise surfaces, a few implications are undeniable.

a. Adaptation to a new demand environment will cause business models to change.

b. Resource competitiveness maximization will shift the positioning of market shareholders along the supply curve. Effects will be visible in their investment focus, oil versus gas portfolio optimization and non-fossil fuel diversification.

c. (hydrocarbon) Resource rich nations will favor domestic interests and national development. This can contribute to geopolitical shifts in managing the transition and create new avenues for collaboration.

Overall, there are multiple avenues that could lead to peak oil before 2040 but demand for the hydrocarbon resource will continue to remains between 70 and 80Mb/d. Global economies remain attached to crude oil for at least three decades on, particularly in oil producing countries. The effectiveness of policies aimed to reduce oil demand is contingent on their socio-economic impact.

[1] Electric vehicle fleet translates mostly into passenger cars and a small share of heavy transport. Plug-in hybrid trains are not included in the analysis, although they could be more disruptive than electric trains only.

[2] Regulatory standards are reflective of vehicle fuel consumption, which are considered to halve current fuel use. The most impactful fuel consumption curtailment would be on passenge vehicles, but heavy dusty trucking would make up a significant share of the absolute fuel use curtailment.

 

 

China Bans Solid Waste Imports

After decades of ignoring soil, water and air pollution within its jurisdiction the Chinese government has notified the WTO that it will ban ‘foreign garbage‘ imports. To make room for the rapid economic growth that propelled China to the status of global manufacturer its authorities chose to shut an eye on the various environmental misdeeds consequent to economic expansion. That involved a tripling of waste generation within less than a decade. The decision to ban waste imports such as plastics, paper and industrial residues, is an indication that Chinese authorities are ready to deal with the negative externalities of their economic growth.

China imports 24 types of waste, most of which come from neighboring economies. The import ban covers almost exclusively solid waste such as plastic, paper, slag from steelmaking and textile waste, which are classified as a source of pollution resulting from their incineration or landfill deposition. While there are reasons to cheer for China’s ambitious to reduce domestic pollution and for that matter ban waste imports, this decision is poised to harm Chinese recycling businesses in coastal areas. The decision, due to enter into force towards the end of 2017, will shut off $3.7 billion worth of plastic waste and $1 billion worth of unsorted paper.

The impact of the ban is also not something of scale.  Waste imports account for a small share of domesticaly produced Chinese waste volumes. For examples, imported plastic waste amounted to 7Mt in 2016 while domestically produced plastic waste was about 30Mt. A similar story applies for other waste streams. A follow-up on the import ban should, in consequence, be tackling domestically produced waste with hazardous consequences when incinerated or disposed in landfills.

 

A number of aspects emerge from the waste ban news, as:

  • Chinese authorities are using their centralized power to tackle a sensitive issue such as waste, but their starting point is external (smaller) source rather than from within (the larger). Their impact can only be limited.
  • This could also be a sign of maturity from the part of China, who is also committed to the decarbonization pledges made with the Paris Climate Agreement unlike some developed nations.
  • Allegedly, the waste contamination problem of coastal Chinese provinces has been heavily under-evaluated with implication for water, soil and air contamination which could take a minimum of two generations to mend.
  • The announcement to the WTO sends a political message to the neighboring economies who relied on China to off-take their polluting waste streams. This means that other economies in the region could take the role china has been playing so far, or these nations need to develop domestic disposal measures for the polluting wastes.

 

 

 

Could Hydrogen be a Solution to Seasonal Energy Storage?

Hydrogen is considered one of the promising energy carriers to support global efforts to decarbonize global economies and one of the few viable solutions for the transport sector. It can be produced via two routes. The cheapest and widest available route is steam methane reforming, and as the name suggests, it is derived from hydrocarbons (typically natural gas). Alternatively, hydrogen can be produced by splitting the water molecule into hydrogen and oxygen via electrolysis, a process which is a few times more expensive in the current market conditions.

The high costs of electrolysis is only partly related to the equipment necessary to enable the molecular split. The largest cost component of the electrolysis-derived-hydrogen-production comes from its high demand for electricity, which in order to deliver the climate benefits it prides itself on, should be sourced from renewable sources. In such case, the electricity used would result from surplus power production when electricity prices are very low (even negative).

But why convert electricity into hydrogen when electricity can be used itself as an energy source for heating, lighting and propulsion. In case of power shortages over wide geographical region, peak demand or in the absence of alternative clean sources, hydrogen offers system back-up. From the available energy storage technologies available, hydrogen can deliver the 1GWh to 1TWh within 1h to 1month, in comparison with batteries whose storage range is a factor of 100.000 lower than hydrogen.

 

energystorage

A few energy storage options are available at the moment in the market. Some are expected to improve retention capacity and discarge time, but the main solutions for large-scale energy storage feature pumped storage and hydrogen. Graph source

An additional benefit of hydrogen is that it can cater to all the energy system’s functions (low-temperature heat, high-temperature heat, power and mobility), a characteristic which can make the molecule a one-stop-shop solution.

But a hydrogen economy has its hurdles as it requires consumer acceptance, a new layer of system integration, infrastructure retrofitting or even additional new infrastructure. And it all comes at a cost which needs to be swallowed by someone in the value chain.

Enhancing our Future

Researchers are developing a new type of geothermal power plant which is claimed to lock away unwanted carbon dioxide (CO2) underground – and use it as a tool to boost electric power generation by at least 10 times compared to existing geothermal energy approaches.

The technology to implement this design already exists in different industries, so researchers are optimistic about the marketing prospects of this approach, aimed mainly at enhancing the use of geothermal energy not just by efficiency but also as scale. The new power plant design resembles a cross between a typical geothermal power plant and the Large Hadron Collider: It features a series of concentric rings of horizontal wells deep underground. Inside those rings, CO2, N and H2O circulate separately to draw heat from below ground up to the surface, where the heat can be used to turn turbines and generate electricity.

Jeffrey Bielicki, co-author of the study and assistant professor of energy policy in the Department of Civil, Environmental and Geodetic Engineering says about the new approach to enhancing the potential of geothermal resources uses CO2 and another fluid, to partly replace some of the water which is recycled in the system. This approach — using concentric rings that circulate multiple fluids — builds upon the idea to use CO2 originally developed by Martin Saar and others at the University of Minnesota, and can be at least twice as efficient as conventional geothermal approaches, according to computer simulations.

Scientists involved in this research believe that the resulting multifluid design will enable geothermal power plants to store energy away – perhaps hundreds of GWh – for days or even months, so that it is available when the electricity grid needs it. The underground geothermal formation could store hot, pressurized CO2 and N, and release the heat to the surface power plant when electricity demand is greatest. The plant could also suspend heat extraction from the subsurface during times of low power demand, or when there is already a surplus of renewable power on the grid.

In computer simulations, a 16-km-wide system of concentric rings of horizontal wells situated about three miles below ground produced as much as half a GW of electrical power – an amount comparable to a medium-sized coal-fired power plant — and more than 10 times bigger than the 38 MW produced by the average geothermal plant in the United States. The simulations also revealed that a plant of this design might sequester as much as 15 mil tons of CO2/year, which is roughly equivalent to the amount produced by 3 medium-sized coal-fired power plants in that time.

The information hereby provided comes out partly from an article published on RenewableEnergyWorld blog, for which one should chew it with a grain of salt. Technologic enhancements to existing energetic systems are good news, only that they usually apply to a handful of sites; which is also the case with the CO2 storage in geothermal reservoirs. Surely on a global scale the number of coal power plants outbids the number of geothermal sites in exploitation. That and the fact that the combination of the two technologies is unlikely to be found in a reasonable proximity to one another, would make the applicability of the  above described technology rather unlikely to be shrink by much the anthropogenic CO2 cloud.

In conclusion, the enhanced method to extracting energy from geothermal reservoirs is welcomed and might turn out beneficial. The more positive aspect of this development is the possibility of using the reservoir as battery with limited losses on reasonably large time scales. This in turn would incur the deployment of financial resources to build the required infrastructure, which would add up to the existing overcrowded system. Maybe it is time for a drastic change in the way we look at energy systems.

What’s the deal with mega-structures?

The fascination of mankind with megastructure can be argued to have emerged in the early times, only in the course of time this fascination has mainly lead to some form of destruction. Seemingly the quest for new territories and resources, the attainment of security and self-sufficiency, has pushed nations into crafting large ships, spaceshifts even, aquaducuts, pipelines and dams, and the only limit to this has been creativity. The quest continues. One such example is the Indian space programme, a low budget innitiative with high aspirations, which aims to show the world how progressively active this 1.2 billion nation is with their space mission. Only too little is known about the opportunities and challenges that such undertakings bear. Closer to our present days is the Chinese innitiative to redistribute the water resources of the nation such that it will address the growing demand of the Northern provinces. The mega-structure is called the South-North Water Diversion Project, and its purpose is to create a 3,000 km long infrastructure composed of tunnels and canals, which will pump 14,8 billion cubic meters of water per year. Such a mega-structure will link Yangzi with the Yellow River, and will redistribute water from the humid south to the de-hydrated north. The environmental consequences of such projects is rarely accounted for before time, which begs the question: what is the deal with such massively irresponsible risk bearing projects?
Is it that their short term solutions outweight the environmental clean-up that follows? History proves us wrong. Dealing with environmental degradation in the form of biodiversity loss, watter supply disruptions, reduced run-off, mass wasting and pollution, is easier than looking for creative edge-cutting solutions that will ensure minimal environmental impact. The thin line between ignorance and the harsh reality is thining by the day.