There is a broad, global focus today on energy as an economic, geopolitical and strategic resource. In addition, there is a greater focus than ever before on the impact of energy consumption on the environment. Worldwide, investment in the development and implementation of clean or renewable energy technologies, as well as energy conservation, will be a major priority of governments and industry, subject to fluctuations in the economy and the price of crude oil and natural gas. The emphasis will vary widely from nation to nation, ranging from cleaner ways to burn the world’s immense stores of coal; to the construction of advanced-technology nuclear generating plants that are exponentially safer than older models; to the use of advanced, more cost-effective renewable technologies based on solar, wind and wave power.
Nonetheless, with the exception of hydroelectric power, renewable energy sources remain vastly more costly to implement than fossil fuel-based generators (primarily coal and natural gas). This means that they require significant government subsidies, loan guarantees or incentives in order to cover the capital costs. As governments in developed economies in Europe, along with the United States, continue to struggle with large deficits and debts, their willingness to back costly renewable energy projects may be dampened significantly. Japan, on the other hand, while facing economic challenges, will maintain a keen interest in alternative energy sources, since it has essentially no fossil fuel supplies of its own and it has changed strategies due to its nuclear disaster of March 2011.
The most important emerging nations are investing heavily in alternative energy sources, while continuing to use large quantities of fossil fuels. China leads the world in investment in new nuclear plants, and it is installing vast numbers of wind turbines and solar facilities. India is likewise planning multiple new nuclear plants. Brazil continues to be a leader in the low cost production and use of ethanol as a transportation fuel, while developing some of the world’s most important new offshore oil and gas fields at a rapid clip.
Despite immense demand for energy, supply will remain abundant for the foreseeable future. Better science, technology and engineering are being applied to exploration, production, conservation and distribution alike, with great success. Mature economies such as the United States and leading nations in Europe are benefitting greatly from the world’s rapidly growing supplies of natural gas (with the growth in supply coming largely from shale) as well as a steady supply of crude oil (with steady growth in unconventional oil production, including shale oil fields and Canada’s tar sands). Conversely, total energy usage in these mature economies is on a path of little to no growth. For example, analysts at BP estimate that American consumption of primary energy sources (such as coal, natural gas and crude oil) declined by a bit more than 1% from 2000 to 2010.
In China, however, the same measure increased by 134%, while the increase was 77% in India. Emerging economies will burn vast amounts of coal and other fossil fuels while their total energy usage continues to soar. This is where the growth in consumption and related emissions and pollution is essentially unavoidable for the near future, in rapidly rising economies that are adopting modern industrialization, transportation (including millions of new automobiles yearly), business services and housing, with all of the energy consumption that such development demands. Total Chinese primary energy consumption rose by 11.2% in 2010 alone, while India’s grew 9.2% and Brazil’s grew by 8.5%.
Meanwhile, very exciting technologies continue to bolster nearly all facets of the energy sector, from green technologies applied to electricity conservation, to tremendous advances in oil and gas exploration technologies, to highly evolved safer nuclear technologies. At the same time, many renewable energy uses, such as thin-film solar, concentrated solar and wave power to name but a few, are also making significant advances thanks to substantial improvements in engineering and design. Nanotechnology, the world’s exciting new materials science, is about to find broad applications in energy production and consumption with tremendous results.
As of November 2011, 2,016 drilling rigs were active worldwide, up significantly from the previous year’s total of 1,685. Of that count, 1,859 were in the U.S., up from 1,539 a year earlier, due to growing activity in drilling for both oil and gas in shale. These numbers are from oil field services giant Baker Hughes.
As a whole, the global energy industry is of mammoth proportions. The basics follow below.
Global energy numbers:
Oil: According to the latest data available from analysts at energy giant BP, the world produced 82.0 million barrels of oil daily in 2010, up 2.2% from 2009. This includes unconventional petroleum output from such sources as oil shale, oil sands and natural gas liquids. However, it does not include alternative sources such as oil from biomass and coal derivatives.
Oil consumption in 2010 averaged 87.3 million barrels of oil per day, up by 3.1% from 2009. (In the U.S., consumption of oil rose by 2.0% to 19.1 million barrels daily, accounting for 21.1% of global consumption in 2010, down from 23.9% in the peak year of 2007. China accounted for 10.6%, while India accounted for 3.9% of global consumption.)
Proven reserves worldwide totaled 1.383 trillion barrels at the end of 2010, up from 1.376 the previous year (not including oil sands). OPEC member nations hold the vast majority of those reserves.
Natural Gas: According to BP, global production of natural gas was 3,193 billion cubic meters in 2010, up dramatically from 2,975 the previous year. This increase in production is due largely to shale gas. Production in the U.S. increased by 3.5%, to 593.4 billion cubic meters, a 2.1% share of the world’s total.
Global natural gas consumption was 3,169 billion cubic meters in 2010, up 7.4% over the previous year. (The U.S. consumed 21.7% of that total. Europe and Eurasia consumed 35.8%.)
Proven reserves totaled 187.1 trillion cubic meters, enough to last several decades at today’s consumption rates. Massive discoveries of natural gas in shale formations in the U.S. and elsewhere are rapidly altering the gas industry. Likewise, vast investments in LNG infrastructure are enabling international shipment of gas from production areas such as Qatar and offshore Australia to major markets in China, Europe and elsewhere. Contracts for delivery of LNG from U.S. gas fields to be shipped to Europe have recently been signed. (U.S. proven reserves of natural gas have soared by 57% from 1990 to 2010, as both shale gas and deepwater offshore discoveries have been very significant.)
Coal: Analysts at BP estimate that global production of coal was 3,731 million tons of oil equivalents in 2010, up 6.3% over the previous year. Consumption was 3,555 million tons of oil equivalent, up 7.6% over 2009.
The largest emerging nations are hooked on coal. China accounted for 48.2% of the world’s consumption, up from 42.6% two years earlier in 2008. India accounted for only 7.8% of global consumption in 2010, but its usage was up 10.8% over the previous year. The U.S., where much of electric generation is fired by coal, used only 14.8%, of world consumption. Europe and Eurasia used 13.7% of total world consumption.
Global coal reserves are massive at 860,938 million tons, or enough to last about 250 years at today’s consumption rates. The U.S. holds 27.6% of those reserves; Europe and Eurasia 35.4%; China 13.3%; and Australia 8.9%.
America’s energy numbers:
In the U.S., the Department of Energy estimates oil production was 5.5 million barrels per day from 530,000 wells during 2010. (Both numbers are up significantly over 2009.) While production in many of America’s largest fields, such as the North Slope in Alaska, is in decline, investments in offshore production, enhanced recovery in older fields and newly drilled shale oil wells have paid off handsomely. Nonetheless, total production is down dramatically from the 1970 peak of 9.63 million barrels of oil per day. (Part of the problem is that Alaskan production peaked in 1988 at 2.0 million barrels daily, and had dropped to 599,000 barrels daily by 2010.) However, as the nation’s natural gas industry has been growing very quickly, and new production has ensued thanks largely to wells in shale, the total production picture has improved dramatically when “natural gas plant liquids,” or oil that is stripped from natural gas during processing, are included.
America’s use of petroleum has led to an increase in annual net petroleum imports from 3,161 thousand barrels per day in 1970 to 9,440 thousand barrels per day in 2010. This figure has been dropping steadily since a 2005 peak of 12,449 thousand barrels per day. New American oil production, both onshore and offshore, has led to a dramatic decline in imports. Meanwhile, the source of those imports has changed dramatically as well. Thanks to booming oil output in areas outside of the Middle East, including Canada, Brazil and the West Coast of Africa, America’s reliance on OPEC nations for oil has plummeted. By 2010, America received only 41.6% of its oil imports from OPEC members, down from 62.2% in 1980. America’s imports from Persian Gulf nations such as Saudi Arabia now account for only 14.5% of total oil imported into the U.S. (down from 24.5% in 1990).
Only 148 refineries operate in America as of 2009, down by about 50% from 1980. However, these remaining refineries have invested heavily in additional capacity to the extent that their total refining output has grown, despite the fall in the total number of refineries. America’s substantial new oil and gas production combined with the expansion of existing refiners made the U.S. a net exporter of refined petroleum products in 2011, for the first time since 1949.
Total American consumption of energy of all types was 98,002,920 billion BTUs in 2010, having grown about 50% since 1970. In terms of BTUs consumed per year per capita, American energy use is in a steady long-term decline. That is, while the number of automobiles and aircraft per capita has grown dramatically; along with vast growth in the percentage of homes and buildings that are air conditioned; combined with tremendous increases in the number of appliances, computers and entertainment devices per person; efficiency has grown to the extent that the energy consumption of an average American declined from a peak in 2000 of 351 million BTUs yearly, to only 308 million in 2009.
By another measure, energy use per unit of economic output has fallen dramatically. On an inflation-adjusted basis, energy consumption per dollar of GDP dropped from 17.99 thousand BTUs in 1970 to only 7.28 thousand BTUs in 2009.
According to the U.S. Department of Energy, electric generation in America as of 2010 used the following ratio of fuels: coal 44.9%; nuclear 19.5%; natural gas 23.8%; and renewables, which includes hydroelectric, wind and solar, at 10.2%. Most of that “renewable” energy source is hydroelectric, which America has used for decades. Other sources, such as solar and wind, are growing rapidly. However, at only about 4.0% of total generation, they clearly have a long way to go to make a significant impact.
U.S. consumers have shown a true sea change in their preferences and priorities as a result of higher energy prices, and the era of the gas-guzzling, giant family trucks or SUVs as a standard is over. Meanwhile, consumers and businesses alike are increasingly willing to invest more in the initial cost of green buildings, high-efficiency appliances and equipment and energy-saving transportation equipment, with the promise of lower energy costs for daily operation.
Thanks to the development of advanced technologies for producing gas from America’s immense shale formations, available gas reserves are growing at a rapid rate with no end in sight. This trend is revolutionizing the gas industry, while keeping natural gas prices at very modest levels. Technologies used in shale gas fields, including horizontal drilling and hydraulic fracturing, are now being used in large measure in shale oil fields.
Oil Prices and Total Reserves:
Ever since William Hart dug America’s first successful gas well in Fredonia, New York in 1821, and “Colonel” Edwin Drake drilled the first true U.S. oil well in the state of Pennsylvania in 1859, the ability of oil and natural gas to power electric generation plants, transportation, homes and industry has created both immense economic advances and significant controversy. Many times it has been assumed that the world would quickly run out of oil. In 1939, the U.S. Department of the Interior warned that America’s oil reserves totaled only enough to fuel the nation for about 13 years. Similar misjudgments were announced on a regular basis in the mid to late 1900s by the federal government and by a continuing stream of respected reports and books by various authors. In fact, rather than becoming scarcer over time, energy, including oil and gas, became much more plentiful. Energy prices can fluctuate wildly. Nonetheless, over much of history the trend has often been lower prices on an inflation-adjusted basis, when a combination of advancing technologies, determined entrepreneurs and alternative sources exponentially expanded the total amount of energy and reserves available for consumption. The breakthrough in shale gas in recent years is a perfect example.
An estimate of crude oil resources on a global basis, published by Cambridge Energy Research Associates in 2006, was 4.82 trillion barrels—enough to take care of the world’s needs for more than 100 years. This number included oil shale and other sources that are relatively difficult to tap. Technologies will continue to be enhanced, enabling the recovery of significant portions of these resources, as long as the market price of energy is high enough to justify necessary investments in technology, exploration, development, production and distribution.
There have long been periods of major fluctuations in price for oil, coal and natural gas. Energy consumers of all types, from residential consumers to transportation firms to industrial plants, have seen oil and gas prices swing wildly, and they have often suffered the economic effects of greatly increased energy costs. Strong global demand for energy combined with political strife in many oil exporting nations could easily lead to a long-term period of relatively high market prices, both for crude oil. The price of Arabian light crude oil rose from about $1.85 per barrel in 1972 to about $40 in 1981 during an “energy crisis,” the peak price for many years to come. Adjusted for inflation, that $40 barrel of oil would have been $100 or so in 2011 dollars.
More recently, during 1986 and again in 1998, the price of a barrel of oil plummeted to about $10 in a short period of time. However, prices generally rose from 2003 through early 2008. In the fall of 2005, the post-Hurricane Katrina price of a barrel of light U.S. crude oil peaked just shy of $70 as the extent of the damage to production became apparent. The price of natural gas more than doubled from June through October 2005, rising from about $6 to nearly $16 per million BTUs for spot market prices, compared to only about $3.50 during November 2011.
In mid-2006, the price of light U.S. crude peaked at about $80. By late 2007, it had neared $100. By mid-2008 it was over $145, but plummeted quickly into the $60s when the global financial crisis of 2008 slowed economies worldwide. Another significant factor in the price of a barrel of oil is the value of the U.S. dollar relative to other currencies. During recent years, the dollar has been in a lengthy slide in value, causing the price of oil (which is valued in U.S. dollars on world markets) to rise when reported in dollar terms. Of course, the value of the dollar is not the sole factor regulating the price of a barrel of oil, but it is a very important contributing factor.
Recent high prices for oil and gas put a new emphasis on production from alternative (or “unconventional”) oil sources such as tar sands in Canada. These fields are significantly more expensive to produce than conventional fields. Meanwhile, offshore exploration and production will continue to be emphasized in many parts of the world, with sophisticated rigs drilling ever deeper to tap massive reservoirs, using technologies that enable the rigs to go to depths undreamed of 20 years ago. Vast new investments in very deep offshore wells in the Gulf of Mexico brought significant new production to the American market. However, it remains to be seen what the effect on new drilling and production will be from stringent new federal regulations applied to offshore operations in 2010. Meanwhile, outside the U.S., the industry is investing quickly and heavily in deep wells offshore of Africa, Brazil and elsewhere.
Consumers and business organizations alike are attempting to insulate themselves from high energy costs. Many are reacting with new conservation efforts. For example, Toyota’s hybrid-powered automobiles have been a huge success. Greatly enhanced building materials and appliances that provide much greater energy efficiency are becoming standard in developed nations. Meanwhile, the growing industrial base and middle class in many parts of the globe, particularly India and China, are putting new strains on energy supplies while energy emissions are creating new environmental concerns.
In 1892, Thomas Alva Edison established the Pearl Street Station in New York City—the world’s first central electric power station. By the 1920s, electricity was in common use in American buildings and homes, and millions of automobiles were clogging American streets.
A significant portion of oil consumption is used as fuel for transportation, including cars, aircraft and trucks. There is no end in sight to the need for power and fuel in developed and emerging economies such as the U.S., the European Union, Japan, India and China. Although the world has made an immense investment in electric supply infrastructure, as much as one-third of the world’s population either has no access to, or cannot afford, a steady supply of electricity.
Fuels for electric generation vary widely around the globe, but coal and natural gas are common sources. In Europe, a large ratio of electricity is generated by nuclear plants, especially in France, and massive investments are being made in European solar and wind generation. As 2011 ended, a looming question was whether America and major nations in Europe will resume construction of nuclear generation plants. The fact that several nuclear plants were destroyed by a tsunami at Fukushima, Japan in early 2011 makes significant new development of nuclear sites even more controversial. Meanwhile, advanced generation nuclear technologies have the potential to provide much greater operating efficiencies with vastly increased safety over the plants constructed in earlier years, and the nations of China, India, Saudi Arabia and the UAE are likely to move ahead with massive nuclear plant construction plans that are already in place. China may construct as many as 90 new nuclear plants over the long term.