Eight insights based on December 2017 energy data

BP recently published energy data through December 31, 2017, in its Statistical Review of World Energy 2018. The following are a few points we observe, looking at the data:

[1] The world is making limited progress toward moving away from fossil fuels.

The two bands that top fossil fuels that are relatively easy to see are nuclear electric power and hydroelectricity. Solar, wind, and “geothermal, biomass, and other” are small quantities at the top that are hard to distinguish.

Figure 1. World energy consumption divided between fossil fuels and non-fossil fuel energy sources, based on data from BP 2018 Statistical Review of World Energy 2018.

Wind provided 1.9% of total energy supplies in 2017; solar provided 0.7% of total energy supplies. Fossil fuels provided 85% of energy supplies in 2017. We are moving away from fossil fuels, but not quickly.

Of the 252 million tons of oil equivalent (MTOE) energy consumption added in 2017, wind added 37 MTOE and solar added 26 MTOE. Thus, wind and solar amounted to about 25% of total energy consumption added in 2017. Fossil fuels added 67% of total energy consumption added in 2017, and other categories added the remaining 8%.

[2] World per capita energy consumption is still on a plateau.

In recent posts, we have remarked that per capita energy consumption seems to be on a plateau. With the addition of data through 2017, this still seems to be the case. The reason why flat energy consumption per capita is concerning is because energy consumption per capita normally rises, based on data since 1820.1 This is explained further in Note 1 at the end of this article. Another reference is my article, The Depression of the 1930s Was an Energy Crisis.

Figure 2. World energy consumption per capita, based on BP Statistical Review of World Energy 2018 data.

While total energy consumption is up by 2.2%, world population is up by about 1.1%, leading to a situation where energy consumption per capita is rising by about 1.1% per year. This is within the range of normal variation.

One thing that helped energy consumption per capita to rise a bit in 2017 relates to the fact that oil prices were down below the $100+ per barrel range seen in the 2011-2014 period. In addition, the US dollar was relatively low compared to other currencies, making prices more attractive to non-US buyers. Thus, 2017 represented a period of relative affordability of oil to buyers, especially outside the US.

[3] If we view the path of consumption of major fuels, we see that coal follows a much more variable path than oil and natural gas. One reason for the slight upturn in per capita energy consumption noted in [2] is a slight upturn in coal consumption in 2017.

Figure 3. World oil, coal, and natural gas consumption through 2017, based on BP Statistical Review of World Energy 2018.

Coal is different from oil and gas, in that it is more of a “dig it as you need it” fuel. In many parts of the world, coal mines have a high ratio of human labor to capital investment. If prices are high enough, coal will be extracted and consumed. If prices are not sufficiently high, coal will be left in the ground and the workers laid off. According to the BP Statistical Review of World Energy 2018, coal prices in 2017 were higher than prices in both 2015 and 2016 in all seven markets for which they provide indications. Typically, prices in 2017 were more than 25% higher than those for 2015 and 2016.

The production of oil and natural gas seems to be less responsive to price fluctuations than coal.2 In part, this has to do with the very substantial upfront investment that needs to be made. It also has to do with the dependence of governments on the high level of tax revenue that they can obtain if oil and gas prices are high. Oil exporters are especially concerned about this issue. All players want to maintain their “share” of the world market. They are reluctant to reduce production, regardless of what prices do in the short term.

[4] China is one country whose coal production has recently ticked upward in response to higher coal prices. 

Figure 4. China’s energy production by fuel, based on BP Statistical Review of World Energy 2018 data.

China has been able to bridge the gap by using an increasing amount of imported fuels. In fact, according to BP, China was the world’s largest importer of oil and coal in 2017. It was second only to Japan in the quantity of imported natural gas.

[5] China’s overall energy pattern appears worrying, despite the uptick in coal production.

Figure 5. China’s energy production by fuel plus its total energy consumption, based on BP Statistical Review of World Energy 2018 data.

If China expects to maintain its high GDP growth ratio as a manufacturing country, it will need to keep its energy consumption growth up. Doing this will require an increasing share of world exports of fossil fuels of all kinds. It is not clear that this is even possible unless other areas can ramp up their production and also add necessary transportation infrastructure.

Oil consumption, in particular, is rising quickly, thanks to rising imports. (Compare Figure 6, below, with Figure 4.)

Figure 6. China’s energy consumption by fuel, based on BP Statistical Review of World Energy 2018.

[6] India, like China, seems to be a country whose energy production is falling far behind what is needed to support planned economic growth. In fact, as a percentage, its energy imports are greater than China’s, and the gap is widening each year.

The big gap between energy production and consumption would not be a problem if India could afford to buy these imported fuels, and if it could use these imported fuels to make exports that it could profitably sell to the export market. Unfortunately, this doesn’t seem to be the case.

Figure 7. India’s energy production by fuel, together with its total energy consumption, based upon BP Statistical Review of World Energy 2018 data.

India’s electricity sector seems to be having major problems recently. The Financial Times reports, “The power sector is at the heart of a wave of corporate defaults that threatens to cripple the financial sector.” While higher coal prices were good for coal producers and helped enable coal imports, the resulting electricity is more expensive than many customers can afford.

[7] It is becoming increasingly clear that proved reserves reported by BP and others provide little useful information. 

BP provides reserve data for oil, natural gas, and coal. It also calculates R/P ratios (Reserves/Production ratios), using reported “proved reserves” and production in the latest year. The purpose of these ratios seems to be to assure readers that there are plenty of years of future production available. Current worldwide average R/P ratios are

  • Oil: 50 years
  • Natural Gas: 53 years
  • Coal: 134 years

The reason for using the R/P ratios is the fact that geologists, including the famous M. King Hubbert, have looked at future energy production based on reserves in a particular area. Thus, geologists seem to depend upon reserve data for their calculations. Why shouldn’t a similar technique work in the aggregate?

For one thing, geologists are looking at particular fields where conditions seem to be favorable for extraction. They can safely assume that (a) prices will be high enough, (b) there will be adequate investment capital available and (c) other conditions will be right, including political stability and pollution issues. If we are looking at the situation more generally, the reasons why fossil fuels are not extracted from the ground seem to revolve around (a), (b) and (c), rather than not having enough fossil fuels in the ground.

Let’s look at a couple of examples. China’s coal production dropped in Figure 4 because low prices made coal extraction unprofitable in some fields. There is no hint of that issue in China’s reported R/P ratio for coal of 39.

Although not as dramatic, Figure 4 also shows that China’s oil production has dropped in recent years, during a period when prices have been relatively low. China’s R/P ratio for oil is 18, so theoretically it should have plenty of oil available. The Chinese figured out that in some cases, it could import oil more cheaply than it could produce it themselves. As a result, China’s production has dropped.

In Figure 7, India’s coal production is not rising as rapidly as needed to keep production up. Its R/P ratio for coal is 137. Its oil production has been declining since 2012. Its R/P for oil is shown to be 14.4 years.

Another example is Venezuela. As many people are aware, Venezuela has been having severe economic problems recently. We can see this in its falling oil production and its related falling oil exports and consumption.

Figure 8. Venezuela’s oil production, consumption and exports, based on data of BP Statistical Review of World Energy 2018.

Yet Venezuela reports the highest “Proved oil reserves” in the world. Its reported R/P ratio is 394. In fact, its proved reserves increased during 2017, despite its very poor production results. Part of the problem is that proved oil reserves are often not audited amounts, so proved reserves can be as high as an exporting country wants to make them. Another part of the problem is that price is extremely important in determining which reserves can be extracted and which cannot. Clearly, Venezuela needs much higher prices than have been available recently to make it possible to extract its reserves. Venezuela also seems to have had low production in the 1980s when oil prices were low.

I was one of the co-authors of an academic paper pointing out that oil prices may not rise high enough to extract the resources that seem to be available. It can be found at this link: An Oil Production Forecast for China Considering Economic Limits. The problem is an affordability problem. The wages of manual laborers and other non-elite workers need to be high enough that they can afford to buy the goods and services made by the economy. If there is too much wage disparity, demand tends to fall too low. As a result, prices do not rise to the level that fossil fuel producers need. The limit on fossil fuel extraction may very well be how high prices can rise, rather than the amount of fossil fuels in the ground.

[8] Nuclear power seems to be gradually headed for closure without replacement in many parts of the world. This makes it more difficult to create a low carbon electricity supply.

A chart of nuclear electricity production by part of the world shows the following information:

Figure 9. Nuclear electric power production by part of the world, based on BP Statistical Review of World Energy 2018. FSU is “Former Soviet Union” countries.

The peak in nuclear power production took place in 2006. A big step-down in nuclear power generation took place after the Fukushima nuclear power accident in Japan in 2011. Europe now seems to be taking steps toward phasing out its nuclear power plants. If nothing else, new safety standards tend to make nuclear power plants very expensive. The high price makes it too expensive to replace aging nuclear power plants with new plants, at least in the parts of the world where safety standards are considered very important.

In 2017, wind and solar together produced about 59% as much electricity as nuclear power, on a worldwide basis. It would take a major effort simply to replace nuclear with wind and solar, and the results would not provide as stable an output level as is currently available.

Of course, some countries will go forward with nuclear, in spite of safety concerns. Much of the recent growth in nuclear power has been in China. Countries belonging to the former Soviet Union (FSU) have been adding new nuclear production. Also, Iran is known for its nuclear power program.

Conclusion

We live in challenging times!

 

Notes:

(1) There is more than one way of seeing that energy consumption per capita needs to rise, despite rising efficiency.

One basic issue is that enough energy consumption needs to get back to individual citizens, particularly citizens with few skills, so that they can continue to have the basic level of goods and services that they need. This includes food, clothing, housing, transportation, education and other services, such as medical services. Unfortunately, history shows that efficiency gains don’t do enough to offset several other countervailing forces that tend to offset the benefits of efficiency gains. The forces working against unskilled workers getting enough goods and services include the following:

(a) Diminishing returns ensures that an increasing share of energy supplies must be used to dig deeper wells or provide water desalination, to operate mines for all kinds of minerals, and to extract fossil fuels. This means that less of the energy that is available can get back to workers.

(b) Governments need to grow because of promises that they have made to citizens. Retirement benefits in particular are an issue, as populations age. This takes another “cut” out of what is available.

(c) Increased use of technology tends to produce a much more hierarchical workforce structure. People at the top of the organization are paid significantly more than those near the bottom. Globalization tends to add to this effect. It is the low wages of those at the bottom of the hierarchy that becomes a problem because those workers cannot afford to buy the goods and services that they need to provide for themselves and their families.

(d) Increasing use of technology can often produce replacements for manual labor. For example, robots and computers can replace some jobs, leaving many would-be workers unemployed. The companies that produce the replacements for manual labor are often international companies that are difficult to tax. Governments can try to raise taxes to provide benefits to those excluded from the economy as a consequence of the growing use of technology, but this simply exacerbates the problem described as (b) above.

(e) The world economy always has some countries that are doing better than others in terms of GDP growth. These countries are nearly always countries whose energy use per capita is growing. Current examples include China and India. If world resources per capita are flat, there must be others whose energy consumption per capita is falling. Examples today would include Venezuela, Greece and the UK. It is the countries with falling energy consumption per capita that have the more severe difficulties. Our networked world economy cannot get along without these failing economies.

Besides the issue of enough goods and services getting back to those with limited skills, a second basic issue is having enough energy-based goods and services to actually fulfill promises that have been made. One type of promise is debt and related interest payments. Another type of promise is that made by pension plans, whether government sponsored or available from private industry. A third type of promise is represented by asset prices available in the marketplace, such as prices of shares of stock and real estate prices.

The problem is that promises of all types can, in theory, be exchanged for goods and services. The stock of goods and services cannot rise very quickly, if energy consumption is only rising at the per-capita rate. Even if more money is issued, the problem becomes dividing up a not-very-rapidly growing pie into ever-smaller pieces, to try to fulfill all of the promises.

(2) With respect to oil, the one major deviation from its flat pattern occurred in the early 1980s, when world oil consumption fell by 11% between 1979 and 1983. This happened as the result of a concerted effort to change home heating and electricity production to other fuels. It also involved a change from large inefficient cars to smaller, more fuel efficient cars. After the 2007-2009 recession, there was another small step downward. This downward step may reflect less building of new homes and commercial spaces in some parts of the world, including the US.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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2,505 Responses to Eight insights based on December 2017 energy data

  1. Baby Doomer says:

    Elon Musk’s offer ‘not practical’ for cave mission, Thai rescue chief says

    https://www.bbc.com/news/live/44755093

    • Baby Doomer says:

      It was never about saving those boys.

      It was only ever about inserting himself into the situation, completely unnecessarily, so that his name was captured alongside the rescue in the news cycle..

      • Well, that’s partly true, another fact is that his spacex staffers worked on the robot, tested inside that large aerospace pool etc.

        • Greg Machala says:

          From what I could see on his FB site, Elon tested some kind of sub in a clear water pool. A flat bottom pool with no rocks or hilly terrain. The cave has narrowing passages, rocks, muddy water and up and down terrain. There are sections that are flooded and sections that are not. It seems to me Elon test things under ideal conditions. Perhaps that is why he is now working out of a tent because his assembly line didn’t work in the real world. Perhaps that is why so many of his cars have multiple quality issues because they are not tested in real world conditions. Perhaps that is why the autopilot feature doesn’t work so well because it wasn’t tested in real world conditions. I agree with Doomer, this is just a publicity stunt by Elon trying to attach himself to a headline news story.

          • Harry Gibbs says:

            Elon Musk – ever the attention-seeking purveyor of unnecessarily complicated pseudo-solutions. The man is like the physical embodiment of Tainter’s ‘diminishing returns on social complexity’ theory.

      • Chris Harries says:

        This PR strategy has worked for Musk, every time. He’s a maestro at it. I think it’s only financial ruin that may spoil his guru image.

    • The best part is that the cave is infected by the bat-mouse hosted (mammal) pneumonia and eyesight infectious disease (supposedly treatable yet nasty). So, if he took his private jet, burned few tons of jet fuels, visited the cave for few hours, tried to offer the subrobot, which was not received-deployed into the mission, turned around and went home sick from this escapade..

      That I’d call a bad day.

  2. Baby Doomer says:

  3. Harry Gibbs says:

    OECD noticing the wage-stagnation/disparity issue Gail writes about but not connecting the dots:

    “”This trend of wageless growth in the face of a rise in employment highlights the structural changes in our economies that the global crisis has deepened, and it underlines the urgent need for countries to help workers, especially the low-skilled,” OECD Secretary-General Ángel Gurría said in a statement accompanying the wage report…

    “”Inclusive growth” seems to be one thing the global economy isn’t seeing these days. An analysis of the OECD’s data, carried out by The Guardian, found income among the top one per cent of earners grew about four times as fast as the median income. The OECD calls this a “long-standing trend.””

    https://www.huffingtonpost.ca/2018/07/09/oecd-report-unprecedented-wage-stagnation-canada-jobs-developed-countries_a_23477970/

  4. Harry Gibbs says:

    “Eurodollars, which are hyper-sensitive to the expected path of Federal Reserve rate increases, now signal that central bankers will have to stop raising interest rates in late 2019 or early 2020, with the benchmark well short of 3.375 percent, which officials have projected by the end of 2020.

    “That’s in stark contrast to what eurodollars indicated in mid-May, at the peak of the bond market sell-off. At that point, the slope of the curve was firmly positive through 2021, and even then, further gradual Fed tightening was priced in for the years to come. Fed funds futures contracts themselves tell a similar story.

    “All this confirms the sobering reality that the U.S. is fast approaching the end of its drawn-out economic expansion. Intuitively, investors know this.”

    https://www.bloomberg.com/view/articles/2018-07-09/bond-market-signals-the-end-of-boom-times

  5. Harry Gibbs says:

    “Since 2014, hundreds of thousands of Central American men, women, and children, mostly from Guatemala, Honduras, and El Salvador, have fled their homes. Driven by violence, extortion, poverty, and a drought that has decimated subsistence farming, and pulled by family connections and the hope of safe haven, they mostly head north…

    “On the campaign trail, Lopez Obrador promised to loosen Peña Nieto’s southern border defense, refusing to “continue the dirty work” of the United States by detaining Central American migrants who are fleeing violence…”

    “Mexican society isn’t ready for the influx. Not unlike the United States, some Mexicans worry immigrants will take their jobs, depress wages, or commit crimes. Violence against these newcomers has been on the rise: In 2016 alone, the Mexican government found more than 5,000 cases of crimes against migrants, nearly 20 percent at the hands of government officials.

    “In short, Lopez Obrador may well be caught between his promises to be more open and humane to those fleeing and the desire to no longer do president Trump’s bidding, and the huge potential costs this shift could entail for his larger domestic agenda.”

    https://www.cfr.org/blog/mexicos-next-crisis-will-arrive-south

  6. Harry Gibbs says:

    “Saudi Crown Prince Mohammed bin Salman… is struggling to turn the country’s financial fortunes around, with the economy suffering a crisis of confidence. Hit hard by the oil-price collapse, the kingdom is now experiencing a plunge in foreign investment and high levels of capital outflow… As of April, more than 800,000 [foreign workers] had left the country since late 2016, alarming domestic companies concerned that the foreigners cannot be easily replaced.”

    http://uk.businessinsider.com/saudi-arabia-foreign-capital-flight-expat-exodus-and-business-unrest-2018-7?r=US&IR=T

  7. Artleads says:

    https://www.weforum.org/agenda/2018/05/addis-ababa-reppie-trash-into-energy?utm_source=Facebook%20Videos&utm_medium=Facebook%20Videos&utm_campaign=Facebook%20Video%20Blogs

    As with large wind and solar, it will take lots of dirty energy, plus unpayable debt, to set up such systems over broad areas. This is also a model for continuing top down centralized industrial economies that are deforesting the planet, poisoning the sea and removing top soil. Decentralized economic systems run at human scale, using waste for construction, strikes me as somewhat more sustainable. IF it were even possible to do within our inscrutable global economic system.

    • We used to have decentralized economic systems at human scale. The family and village drawing from perennial agriculture per given local was basic layer of subsistence. On top they (optionally) stacked smaller various “cottage industries” usually performed at home be it textiles or special crafts, products sold at regional markets.

      The issue being such *idyllic times lasted only very briefly just between wars, tax hikes, natural or man made disasters, especially when the “perennial agri” component was not that evolved causing widespread damage at some aggregate threshold, ..

      *meaning periods when everything clocked in sync:
      good enough harvest, predictable security/taxes, healthy people and animals, no natural disasters, ecosystem stabilized at some level (not drained excessively)..

      • Artleads says:

        worldofhanumanotg, this is a helpful primer to get me started. These special in-between periods you mention might refer to the industrial ((“developed”) world)? But there are all sorts of “in-between” places–have been more or less been connected to the industrial system but left behind as old empires shrank. Lots of third world places qualify. They have huge un- and under-employment. But higglering never went away and struggles to deal with the increased population and the cars. Inequality is massive, with an unhealthy disconnect between high and low. Central government is corrupt and hobbled. Debt and skimming keeps it going somehow. Such communities are already set up for SOME decentralization it seems. It might not work where there are jobs, and industrial systems that work acceptably.

      • other than when the plague knocked off a third of europe’s population

    • Tsubion says:

      Don’t worry about the energy issue.

      It’s a red herring.

  8. Baby Doomer says:

    U.S. Customs’ ‘Handmaid’s Tale’ Moment: Mother Says She Was Hounded About Why She Didn’t Take Her Husband’s Last Name

    https://www.alternet.org/news-amp-politics/us-customs-handmaids-tale-moment-mother-says-she-was-hounded-about-why-she-didnt?src=newsletter1094159

  9. wratfink says:

    Pretty good wrap-up of per capita energy and the physics of energy conversion by this French engineer. He was giving a presentation to some French officials. The presentation is several years old, so the government has been warned of the no growth future ahead. Seems to be a few hecklers that still believe in skittle sh–ing unicorns.:

    https://damnthematrix.com/2018/07/10/the-physics-of-energy-and-resulting-incidences-on-economics/

    click the “tools” icon in the video for subtitles.

    • wratfink says:

      sorry…link seems dead

    • Retrieved from the failed page, it’s that Jancovici vid on YT shown before..


      The physics of energy and resulting incidences on economics
      10 07 2018
      Hat tip to one of the many commenters on DTM for pointing me to this excellent video…. I have featured Jean-Marc Jancovici’s work here before, but this one’s shorter, and even though it’s in French, English subtitles are available from the settings section on the toutube screen. Speaking of screens, one of the outstanding statements made in this video is that all electronics in the world that use screens in one way or another consume one third of the world’s electricity…….. Remember how the growth in renewables could not even keep up with the Internet’s growth?

      If this doesn’t convince viewers that we have to change the way we do EVERYTHING, then nothing will….. and seeing as he’s presenting to politicians, let’s hope at least some of them will come out of this better informed……

      Jean-Marc Jancovici, a French engineer schools politicians with a sobering lecture on the physics of energy and the effects on economics and climate change

      • Fast Eddy says:

        Change everything?

        Why would we change? What we are doing is what needs to be done – we need to keep burning more fossil fuels every year

    • It’s the ~2013 Jancovici presentation/briefing..

      • Greg Machala says:

        Is there a transcript of this? The video is tiresome.

        • ?

          Have not seen it in a while myself, worth repeating though.
          It’s action packed, perhaps frequently pause/stopping it and reading, let the translation sink in, procedure might help. It’s one of the best *future policy revealing videos out there, so worth the extra time, and I don’t mean the heavily **edited Q&A part, the core message is rather confined/hidden in the prior presentation.

          *presentation deliberately structured to underline several major “shocking” priority areas which need to be communicated out, as well as spilling the beans of what and in which sectors to push, at least attempting to counter this zero-negative growth predicament..

          **one gem to be found there though, acknowledging the necessity how to sell the transformation mandate to the public, basically not revealing to them push for desired gargantuan endpoint, i.e. dispersing (sub)urbanites to largely manual work in rural areas again with token modern world amenities

          note: and yes somewhat instant doom scenario is also acknowledged, not discussed further

          • T.Y. says:

            So , just to check that i understood this correctly;

            1. manual labor will need to increase again (since there isn’t enough fossil fuel or other energy) -> reduce taxes on labor.
            2. “Add-on” service sector jobs – say particularly ‘managers & information workers – will decrease (since running the machines freed them up for other tasks in the first placed causes EXTRA not less resource consumption) -> over-availability of higher educated people ?
            3. Increase tax on carbon / fossil fuels to ensure investments are made to wean critical infrastructure & machinery off the imported energy -> ? seems a bit contradictory with his first statements that green energy does not exist ? i

            Thanks for feedback

            • Artleads says:

              Green energy does not exist. There is no green energy other than leaving things as they are. Manual work (including fairly simple hand-made machinery) and no green energy doesn’t seem contradictory. The planet can probably put up with the implied reduced use of “dirty” energy.

          • Slow Paul says:

            Very interesting video, thanks for this.

            The “solution” is what we see today. Don’t tell the truth to the public, promote technology X and call it progress to give people hope. When things get bad you get Trump, Brexit etc, when things get worse you get riots and martial law.

      • Artleads says:

        Right on! Nice to have some expert confirmation!

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