Monthly Archives: February 2012

The OECD Energy Conundrum

As far back as 2003, the OECD noticed that the economies of its members were moving apart, not converging. At the time, all the talk was about productivity due to adoption of information and communications technologies–some (notably the U.S.) were doing it better than others, and were making hay while the sun shone.

Fast forward a decade and the storyline is similar in some ways–the OECD countries are not converging–but the reasons why seem to be shifting. Everybody has jumped on the IT revolution, clasping it to their collective bosom. But not only are countries not getting more similar, they seem to be getting more different.

Actually, the explanation is pretty simple. Some countries that joined the OECD in more recent decades are not at all similar to the original membership. But the differences have consequences. Talking about the OECD as a monolithic bloc really doesn’t make sense any more.

And nowhere is this truer than when people talk about energy. And once again, the desire to analyze at a macro rather than a micro level is leading prognosticators and analysts perilously close to the same error they have made (and I hope to have highlighted here) about the developing (read: non-OECD) world. Just as we saw that China, India, Indonesia and others are set to grow much faster than agencies such as the Department of Energy and the International Energy Agency have predicted, so too will OECD members such as Mexico and Turkey. The slow (0.3% annual) growth that these agencies forecast for the OECD as a whole look woefully inadequate when looking at the younger, still developing developed countries.

PriceWaterhouse Coopers, in their paper ‘The World in 2050,’ predicted that Mexico would grow at the same rate (3.9% annually) as China through 2050. They predict that economic growth in Turkey would actually be faster, at 4.2% annually. That’s why the two countries were included in their new classification, the Emerging Seven, joining the usual suspects–China, India, Indonesia, Brazil and (oops!) Russia.

I personally believe both Turkey and Mexico should be included in the OECD. But I also believe that they both need and want to develop as much as China does. And if they do, their energy growth will not be the paltry 0.3% growth predicted for them. If their economies grow as quickly as China, so too will their energy consumption.

Forty years of growth at a very rapid pace leads to some staggering totals at the end of the period. the PWC paper says the Emerging 7 will have economies larger than the G7 by 2050. Pretty safe to say that their energy use will be larger as well.

Mexico

Mexico is expected to see its population rise from 112 million in 2010 to 135 million in 2030, and 153 million by 2050. Their GDP is expected to grow from $1 trillion in 2010 and, according to Goldman Sachs, this will reach $9 trillion by 2050.

In 2006, Mexico consumed 7.4 quads per year.

They will be richer than we Americans are today. They will have access to the fuel they both need and want.

If they then decide to use energy at the rate we are today (323 mbtus per person), the 153 million Mexicans will consume 49.4 quads per year. That’s a compound annual growth rate of 4.1% per year.

Turkey

Turkey’s population is forecast to rise from 73.7 million in 2010 to 93.7 million in 2030, and 86.4 million by 2050. Their GDP is expected to grow from $735 billion in 2010 to $5.3 trillion in 2050. Again, they will be rich enough to consume energy as profligately as Americans, should they so choose.

Turkey’s energy consumption was 4 quads in 2006. If they do choose to consume energy as Americans do today, they will burn 30 quads in 2050. That’s a 4.6% CAGR.

It’s all very well to note that Eastern Europe (and much of Western Europe as well) is going to experience population declines that may lower energy consumption, or at least growth in energy consumption. But the OECD now has dynamic and growing countries ranging from Chile and Australia to Turkey and Mexico.

To ascribe to the group as a whole a slow percentage growth is missing the picture.

Transportation Fuel Consumption in the U.S., as it is today

We’re actually at a fairly crucial decision point regarding our use of energy in the U.S. right now. Tom Friedman is discussing whether or not the U.S. should join OPEC, now that we’re bringing more oil and gas out of the ground.

But after two decades of fighting over environmental issues and global warming, the U.S. is energetically trying to lower fuel consumption, and that very much includes the gasoline at the pump.

The U.S. used about 30 quads burning liquid fuels for transportation last year. That’s almost one-third of all the energy used in the U.S. in 2011. It is also almost one-third of all fuel used for transportation in the world in 2011. That’s a lot of gasoline.

We used to be pretty good at improving gas mileage.

(Hat tip for this chart and the next to Early Warning.) In fact, from 1975 to 1990 mileage increased from 12 mpg to 18mpg. That’s the same percentage that President Obama and the EPA want us to improve by over the next 15 years. Is that realistic? The last 20 years show that we’ve only increased from 18mpg to 22 mpg, not nearly as impressive.

American vehicles are heavier and less efficient than equivalent vehicles in Europe. Europe’s fleet of cars averages 35 mpg, while America’s average is about 22 mpg. (Higher fuel prices incentivised innovation among car manufacturers and frugal prudence in European car buyers.) If we could magically raise our average mileage to European levels the amount of energy we would save would be more than 10 quads. That’s, umm, 80 billion U.S. gallons of gasoline. A year. U.S.refineries get about 19.4 gallons of gas out of a barrel of oil, so that’s 4 billion barrels a year, or 11.3 million barrels a day we wouldn’t burn. That’s how much we imported, total, in 2010.

So it’s realistic. It’s possible. And it would certainly help our balance of trade figures. And it would free up supply for the developing world, which badly needs it.

But here’s the thing. In 1975, when CAFE regulations were introduced mandating mileage improvements, mileage improved. But after the crisis, the price of oil dropped and the regulations sort of went away. Mileage stopped improving. If America is producing this oil domestically–even if prices don’t drop–will domestic energy companies resist higher mileage more strongly?

Kind of a lot more riding on this than the usual back and forth between the Energy Cowboys and the Environmental Brigades…

One Month Anniversary

Well, I’ve been doing this for a month and despite the lack of posting in recent days, I’m still loving it. I’ve managed to get 5,567  hits and 221 comments.

The report I started this blog to publicize has been downloaded by 20 of you–I hope more will take the plunge. In the meantime, I’ve learned more about global use of energy, which stubbornly continues to grow at 5% per year while everyone wants it to grow at half that rate.

And I’ll continue to beat that drum on this blog. Planners, politicians, economists and plain ol’ citizens are not getting the information we need to make good decisions that involve energy. This planet is going to use a lot more energy by 2030 (which is just around the corner) than the prognosticators have figured.

This means that those planning for one future will have to deal with another. And that means coal. The easy to get, easy to burn, easy to transport fuel that has worked so well for humanity over the past two centuries (except for those minor problems with health, habitat and the atmosphere…).

If we don’t prepare for the real amount of energy we need we will have no choice.

What China is doing to prepare for its energy future

China will need a lot of energy in the medium term future. I calculated their consumption at 247 quads in 2030, up from 100 quads last year.

China is working heroically to assure supplies of oil and coal. They are eagerly awaiting completion of Mongolia’s mega-mine, Tavan Tolgoi, as Mongolia is slated to produce 240 million tons of coal a year by 2040. None of that coal is expected to sit on the shelves gathering dust. China will burn it.

China has invested $15 billion in Canadian tar sands projects, happy to snap up the oil that is too dirty for American tastes.

China currently has 14 nuclear power plants, with 27 under construction. They have plans for a further 150 plants, and intend to build about 4 a year until they get to that figure.

China has other needs than energy–fresh water being among them. So China is working to kill two birds with one stone. “China already has half the world’s large HEP dams (25,800), which produce 213 GW of power. And while the west has mostly stopped building dams—the U.S. has only produced 80 GW of HEP in its history—China is forging ahead: Along the Yangtze River and its tributaries, 100 large dams are either being planned or built, and 43 additional dams are in the works for the Lancang (the Upper Mekong), Nu, Hongshui and Jiulong Rivers in China’s southwest.”

China is planning for a big future.

How Long Can China Grow At This Rate?

The debate about future growth in energy consumption is obviously informed by, if not centered on, the spectacular growth in China.

China’s economy took off in 1978 and it is still growing:

China’s growth since 2005 has been just as spectacular, averaging about 10% per year.

But looking ahead towards 2030, 2050 and 2075 (which is the purpose of this weblog), we run into a dreamy, ‘yeah but’ quality in discussions about China. If you Google the phrase ‘Can China Sustain Growth’, you get more than 5 million search returns, and a lot of the links go to reasoned arguments making the case that China cannot, in fact, keep growing at the same rate.

And maybe they can’t. I note that people have been pessimistic about China’s growth for twenty years without being right yet, but if their thinking is sound, it may just mean that they were premature in their bearishness. And that happens a lot.

I’m not competent to evaluate the real future of China’s economy. I suspect that they’ll continue to grow robustly but have periods where growth slows dramatically. That’s sort of what happens to countries after they pass a certain point in development.

But in terms of energy consumption, I’m not really sure that the state of a country’s economy at any given point is the most important metric. Although energy use slowed during the most recent recession, and actually declined for a couple of years in the U.S. and some European countries, if you look at the history of American energy use, you’ll note one thing:

Our energy use climbed dramatically from 1900 to 1975. That period included the Great Depression, two world wars and several recessions. I think once a developing country gets a taste for energy, it’s tough to let go.

The Future of Energy

Although I’m extremely proud of the work I did in ‘Energy Consumption in the Developing World 2030‘, it’s really a baby step towards developing a global view on the future of energy for the planet.

Next steps for me are to extend the forecasting through to at least 2075 for the developing world and to start on the developed world thereafter. I’ve spent some time over the past month trying to understand the drivers of energy consumption in the developed world to try and get an intuitive feel of which way the cat is going to jump.

The ‘developed world’ as I use the phrase is limited to members of the OECD. This is merely a convention I use because international energy statistics are conveniently broken out between OECD and non-OECD nations and used as a proxy for ‘developed’ and ‘developing’ nations. But it’s relatively easy to identify subgroups within each category that don’t look like the rest of the members.

For example, within the 34 OECD nations we see that 4 countries–Chile, Mexico, Turkey and the U.S.–are slated to grow in different ways than the other members, in part simply because their population is projected to grow significantly over the first half of this century, while other OECD members will see either stable or declining population levels. This means that for some measures it will be a bit confusing to treat the OECD as a homogenous unit.

For example, while the 30 other members of the OECD are wealthy, stable and could perhaps best be described as the ‘reclining world’, the 4 countries I just mentioned actually account for 42% of the overall GDP for the OECD, mostly due to the inclusion of the U.S. as a developed-but-still-growing-country (Quick–someone think of a good acronym!). The same is true for population. The U.S., Turkey, Mexico and Chile account for 40% of the OECD’s population. To make it trickier, as new countries are added into the OECD club, there’s a good chance that they will look more like the 4 outliers than the recliners that have the most seats at the table.

In my paper, I differentiated between the non-OECD nations by noting that some (mostly in Asia and Africa and Latin America) were growing quickly, and I calculated a 5% annual growth rate for their energy consumption through 2030 (and speculated that that rate would hold through 2075). I suspect the same segmentation will be appropriate for the developed world as well, and I may end up abandoning the convenience of OECD vs. non-OECD nations and creating my own groups. (It would be nice if I could use just two groups, but I’m not an optimist about that.) And I’m pretty certain that I will find myself at odds with the Department of Energy’s Energy Information Administration again. I may be writing a similar paper saying that while the majority of OECD countries may follow their very-low-growth projections of 0.3% per year energy consumption, the countries that matter most will be growing more quickly.

But they play the game on the field and I’ll actually have to do the work before making the case. Feel free to chime in and help me construct the right framework for doing this. It’s going to take at least a month, so we all have time to think about it.

New Nukes: News to Use

The announcement that two nuclear power plants have been approved for construction in Georgia is likely to be the biggest energy news of the year.

The most obvious reason is that it will add clean and dependable baseline energy to Georgia’s power mix for close to a century. Each AP 1000 reactor will produce about 1,154 megawatts of electricity. As Georgia is one of the top consumers of electricity in the country, and because much of their electricity is provided by coal, this is welcome news. The two new reactors will provide more than a quarter of the state’s electricity needs. Georgia consumed about 1 quad in energy in 2009, and they  burned about 1 million short tons of coal in getting it.

However, despite Scientific American’s protestation in the linked article above, the larger impact is in breaking the logjam in getting new nuclear back into our energy mix. These two plants are the first to be approved since 1978. Nuclear currently provides about 20% of our electricity, but a lot of the existing fleet of plants are aging and need to be replaced. We also should seriously consider commissioning more nuclear plants to increase their overall percentage of our portfolio of fuels.

This may sound a bit strange–the DOE EIA projects that America’s long term energy consumption is not going to increase dramatically–from last year’s 98 quads to between 105 and 111 quads in 2030. However, if we are smart, the mix of fuels used to provide that energy will change drastically during that period, and in ways that the EIA doesn’t seem to take into account.

The next time mileage averages are published for the U.S. fleet, expect to be surprised at how much better mileage the country is getting as a whole. More hybrid cars are being sold, conventional cars are responding to their competition by arriving equipped with more fuel efficient engines, and all-electric cars are starting to arrive on the lots of dealerships.

It will take time for electric cars to have an impact–between 15 and 30 years. And that’s being optimistic about improvements in battery technology. And realistically, all-electric cars will do better in some regions than in other, colder ones. But as the fleet begins to change over to electric (and it will–government fleets, rental companies and large corporations looking to burnish their reputation will essentially make the market), we will begin to use less oil and more electricity.

It’d be a pity if that electricity was coming from a coal-fired plant.

The two new nuclear plants just approved are part of a roll-out of five new plants in total (well, one isn’t new–it’s just been tied up in the regulatory jungle for a long time). If we got the science and the safety right (not a trivial question), then this could be the start of something big.