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.

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Gail in China Report #3

Greetings Finite Worlders!  Gail is on her 1 month lecture tour of China. She’s unable to access WordPress from China, but does have access to email, so she’s sending me updates to publish here on OFW.  My Byline/About appears at the bottom here, but the China Travelogue articles are authored by her. -RE

From Gail below:

Greetings from China again!

As I mentioned previously, it was Prof. Feng at China University of Petroleum in Beijing who invited me to come to China for the first two weeks. In the second two weeks I would be doing a variety of other things. I am now in the “other things” part of the visit.
One thing we did during the first two weeks is make video recordings of the talks I gave during the first two weeks. I also I have the PDF slides. After I get back I will work on putting those things up on OurFiniteWorld.com.
One thing that Prof. Feng has talked to me about is that he would like to host a “Finite World” conference in Beijing in 2016, if he can get the details worked out (and if the financial system stays together well enough, and if I would help with the endeavor). Because of the cost of transport and other details involved, he expects that the vast majority of the attendees would be from China–perhaps 80 Chinese attendees and 20 attendees from elsewhere in the world. Given the way Prof. Feng does things, I expect the plan would be to make videos of those talks available on line, to the many people who would not be able to travel to China.
I have been working on a number of other things. Together with Prof. Feng and a graduate student, I wrote an article called, “The Myth of Everlasting Oil from Shale Formations,” which we are hoping will run in the “People’s Daily.” The graduate student translated it into Chinese.
One morning, I gave a talk to a group of about 20 people doing research related to energy and the economy at an institute in Beijing. This is a photo of Prof. Feng, the director of the research group (Prof. Fan), and myself, standing in front of their buildings. They seemed to be interested in what I had to say. This talk was videotaped as well.
One evening, I met with the vice president in charge of international operations for BGP, which is the subsidiary of China National Petroleum Corporation (CNPC) that does the initial geological assessment of proposed new locations. He told us that the work of his staff is down by 50%, but that the company has held off in laying off workers, because they are hopeful that prices will rise in the next few months. He is also hopeful that technological innovation will solve our other problems. He said that he is hesitant to lay off staff, because if he loses his staff, he loses the heart of his operations. It is very hard to build the expertise back up again.
I visited Ordos, Inner Mongolia for a short time. I received a very warm welcome there, from the extended family of the graduate student who invited me to visit the area. This is a photo of me shaking hands (in a symbolic handshake of friendship) with the graduate student’s father, while the graduate student looks on.
Ordos is the gateway to many of China’s coal operations. One of the things we noticed was how few cars were on the road. The road was a new four lane highway, but we drove for miles without seeing another car or other vehicle. The Ordos airport had few patrons, and many spaces available for stores were not rented. The airport had been built at the time the growth in coal operations was at its highest, but growth has not continued as hoped. Another thing we noticed is that while apartments seem still to be being built in Ordos, many of the apartments seem to be unoccupied.
I am now in Daqing (pronounced Daching), China, the home of China’s largest oil field, Daqing Oil Field. The city is a very modern city that grew up after Daqing oil field began production in 1960. It now has about 2.5 million inhabitants. The economy is very much tied to oil–I have been told that there are something like 300,000 CNPC employees living in Daqing, and many more indirectly tied to the oil field. The production of Daqing Oil Field is now in decline. We (I am here with others from Petroleum University of China, Beijing) visited some of the oil field operations today. The question a person might ask is whether low oil prices will adversely affect Daqing operations. When we attempted to ask CNPC employees questions along this line, we were told that the oil field is profitable at $40 barrel. We were also told that the company is testing the use of fracking and long horizontal wells, in the hope of increasing production (or slowing the decline).
When I asked how long oil prices would have to stay low before Daqing employment would be affected, the CNBC employee I asked (who may not be knowledgeable about this) said “one to two years.” When I talk to people at Petroleum University of China in Beijing, the point is made that the Chinese government realizes that there is a need for employment for a huge number of people–laying off a large number of employees would simply turn one problem into a different one. That is probably the reason why employment at CNPC is as high as it is–300,000 employees is a huge number for a field producing less than 1 million barrels a day. A large number of people are involved with monitoring well production. This part of the operation could probably be significantly mechanized, reducing the needed number of workers–but then what would all of the laid-off workers do? We will be meeting with some of the folks at the Daqing branch of Petroleum University of China tomorrow–perhaps they will have some additional insights. If the numbers I quoted above are right, the employees are not earning very much a piece–or the story about being profitable at $40 barrel is not true.

Update on US natural gas, coal, nuclear, and renewables

On August 6, I wrote a post called Making Sense of the US Oil Story, in which I looked at US oil. In this post, I would like to look at other sources of US energy. Of course, the energy source we hear most about is natural gas. We continue to be a net natural gas importer, even as our own production rises.

Figure 1. US natural gas production and consumption, based on EIA data.

Figure 1. US natural gas production and consumption, based on EIA data.

US natural gas production leveled off in 2013, because of the low level of US natural gas prices. In 2013, there was growth in gas production in Pennsylvania in the Marcellus, but many other states, including Texas, saw decreases in production. In early 2014, natural gas prices have been higher, so natural gas production is rising again, roughly at a 4% annual rate.

The US-Canada-Mexican natural gas system is more or less a closed system (at least until LNG exports come online in the next few years) so whatever natural gas is produced, is used. Because of this, natural gas prices rise or fall so that demand matches supply. Natural gas producers have found this pricing situation objectionable because natural gas prices tend to settle at a low level, relative to the cost of production. This is the reason for the big push for natural gas exports. The hope, from producers’ point of view, is that exports will push US natural gas prices higher, making more natural gas production economic.

The Coal / Natural Gas Switch

If natural gas is cheap and plentiful, it tends to switch with coal for electricity production. We can see this in electricity consumption–natural gas was particularly cheap in 2012:

Figure 2. Selected Fuels Share of US Electricity - Coal, Natural Gas, and the sum of Coal plus Natural Gas

Figure 2. Selected Fuels Share of US Electricity Production – Coal, Natural Gas, and the sum of Coal plus Natural Gas, based on EIA data.

Coal use increased further in early 2014, because of the cold winter and higher natural gas prices. In Figure 2, there is a slight downward trend in the sum of coal and natural gas’s share of electricity, as renewables add their (rather small) effect. Continue reading

Why World Coal Consumption Keeps Rising; What Economists Missed

A primary reason why coal consumption is rising is because of increased international trade, starting when the World Trade Organization was formed in 1995, and greatly ramping up when China was added in December 2001. Figure 1 shows world fossil fuel extraction for the three fossil fuels. A person can see a sharp “bend” in the coal line, immediately after China was added to the World Trade Organization. China’s data also shows a sharp increase in coal use at that time.

Figure 1. World fossil fuel supply based on world production data from BP's 2012 Statistical Review of World Energy.

Figure 1. World fossil fuel supply based on world production data from BP’s 2012 Statistical Review of World Energy.

China and many other Asian countries had not previously industrialized. The advent of international trade gave them opportunities to make and sell goods below the cost of other countries. In order to do this, they needed fuel, however. The fuel the West had used when it industrialized was coal. Coal had many advantages for a newly industrialized countries: it often can be extracted without advanced technology; it is relatively cheap to extract; and it is often available locally. It can be used to make many of the basic items used by industrialized countries, including steel, concrete, and electricity.

The industrialization of Asian countries was pushed along by many forces. Companies in the West were eager to have a way to make goods cheaper. Buyers were happy with lower prices. Even the Kyoto Protocol tended to push international trade along. This document made it clear that countries signing the document wouldn’t be in the market for coal. From the point of the developing countries, this would help hold coal prices down (at least in the export market). It also likely meant a better long-term supply of coal for developing countries. The Kyoto Protocol offered no penalties for exporting products made with coal, so it put countries that used coal to make products for export in a better competitive position. This was especially the case if Kyoto Protocol countries used carbon taxes to make their own products higher priced.

Apart from the international trade /industrialization issue, there is another issue that is helping to keep coal consumption rising. It is the fact that oil supply is in short supply and high priced, and this means that economies of countries that disproportionately use a lot of oil in their economies are at a competitive disadvantage. Countries coming “late to the party” are in a good position to develop their economies using little oil and much coal, and thus keep overall energy costs down. This approach gives the developing countries a competitive advantage over the developed countries.

Let’s look at a few graphs. In terms of  oil leverage (total energy consumed /oil energy consumed), China and India come out way ahead of several other selected country groups.  They do this with their heavy use of coal.

Figure 2. Ratio of total energy consumed to oil (including biofuels) consumed, based on BP's 2012 Statistical Review of World Energy.

Figure 2. Ratio of total energy consumed to oil (including biofuels) consumed, based on BP’s 2012 Statistical Review of World Energy.

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