Transcript Peak Oil and The Economics of Energy Efficiency -

Peak Oil and The Economics of
Energy Efficiency - Overview
(The end of cheap oil)
Scott Waterman
Alaska Housing Finance Corp
For a list of citations from this presentation write:
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907-330-8195
Today…….On Planet Earth
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We need to fully understand the scale of the
problem to maximize the solution
Fossil fuel use far outstrips any other source
of energy
Fossil fuels are finite.
After production peaks, fossil fuels become
MUCH more expensive
Our economy has revolved around cheap oil
Climate Change driven in large part by fossil
fuel burning
Alaska

Alaska is on the leading edge of problems
– We live at the end of the supply chain
– Energy costs are rising rapidly - Our villages pay up to
$8.00 per gallon, and up to $.65 per KwH for electricity
– North Slope Natural Gas ????
– Climate Changes are more prevalent here than in other
parts of the planet – Kivalina, Newtok, Shishmaref &
Unalakleet are eroding into the sea, or threatened by
rising sea levels
– Arctic National Wildlife Refuge Oil Drilling
– Ocean Acidification affects salmon runs High CO2
levels
Along the Railbelt
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Cook Inlet Gas Reserves are running low
Deliverability fears
Flint Hills Refinery cuts production
Utility generation uncertainties plague
forecasters – G R E T
C
Enstar prices double since 2002
Huge potential for renewable electricity
Many questions at this time
reater
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ailbelt
nergy
ransmission
orporation
What is Peak Oil?
Is not “running out of oil”
 It is about the halfway point of
production of the available resource.
 It is the peak of production.
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It’s the Economy, Stupid!

Bill Clinton, 1992
Every recession in the US since 1929 has
been preceded by a run-up in energy costs
 Economic issues overwhelm those of
energy and climate change
 Energy and climate change will drive the
economy – in either direction
Economic activity is closely related to energy use
How much oil do we need?
Oil – Black Gold – Texas Tea
Oil allowed for great productivity,
transportation, goods, economic and
military power
 Over 23,000 hours of human labor
equivalent in a barrel of oil
 Has supplied up to 85% of Alaska’s
budget since 1976
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DEFINITION of EROI
(Sometimes EROEI)
Energy return on investment for an activity:
Energy delivered to society
EROI = __________________________
Energy put into that activity
Usually consider energy invested from
society

US: In 1900 -- 1930, US got 100 barrels of oil back for
each barrel invested in seeking it (EROEI = 100:1)
 In 1970 got about 25 for 1
 In 1990s got about 11 to 18 for one barrel (EROEI = ~15:1)
 Much less for finding and recovering new oil (EROEI =
3:1?)
 Global Projection: Gagnon and Hall 2009 :
60
BP
50
Laherrere + BP Gas
Herold
EROI
40
30
20
?
10
1990
1995
2000
2005
2010
Year
2015
2020
2025
2030
Oil shock and interruptions
October 1973 – Arab Oil Embargo –
production dropped 9% - panic
 1979 – Iranian Revolution – supplies
dropped 4% - panic
 Carter Doctrine – Oil is vital to the
national security interests of the United
States – By any means necessary, the
US will maintain access to the Persian
Gulf Oil Fields
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Oil – It is the economy
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Gap between imports and domestic production
increased from 8% In 1971, to 33% in 1973
Dependence on imports – 65% and rising
Costs are up - volatility erodes prosperity
2008 Balance of trade deficits - $695.9B
$309.4B of BOT deficit is energy
Each $1 billion of trade deficit costs America
27,000 jobs USDOE (251 x 27,000 =6.77M Jobs)
Inefficiency threatens competitiveness
National security is threatened
Imported Oil – Supply and
Demand
Daily global oil production is 84.5 million
barrels per day, demand is 84.9 million
barrels per day.
 The world cannot import oil
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(IEA projections September 10, 2009)
40 % comes from unknown or
undeveloped sources
Crude Oil Imports (Top 10 Countries)
(Thousand Barrels per Day) Source EIA August 2009
Crude Oil Imports (Top 10 Countries)
(Thousand Barrels per Day)
Country
9-Jul
9-Jun
YTD 2009
8-Jul
YTD 2008
CANADA
2,110
2,001
1,916
1,976
1,934
1,137
902
1,063
1,676
1,538
985
1,099
1,136
1,200
1,197
865
1,134
1,015
1,187
1,035
NIGERIA
858
769
668
741
992
BRAZIL
375
269
342
241
224
IRAQ
365
390
453
696
677
ANGOLA
320
435
504
640
517
286
286
261
178
182
267
305
272
202
127
SAUDI ARABIA
MEXICO
VENEZUELA
COLOMBIA
RUSSIA
Problems among the counties
exporting oil to US
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Saudi Arabia – Wahabi – Terrorism
Venezuela – US supported coup, China
Mexico – Corruption at Pemex, Decline of
Cantarell (World’s 3rd largest oilfield)
Nigeria – corruption, environmental disaster,
vote fraud
Angola – increasing civil insurrection,
Iraq –
Russia – oil fields overproduced, rising internal
demand
Columbia – Civil war - corruption
June 2004
Energy Task Force Advisor
Mathew Simmons
Fossil Fuels are a finite resource
They will peak at some point, and eventually not be
useful on the scale they are today.
We will never completely run out of fossil fuels
The End of Cheap Oil
In 1956, M. King Hubbert predicted US
oil production would peak in 1970
 Production starts at zero;
 Production then rises to a peak which
can never be surpassed;
 Once the peak has been passed,
production declines until the resource
is depleted, or the field is abandoned.
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Hubbert Curve for Alaska Crude
Oil Production
Billions of Barrels per Year
2.5
2
1.5
1
0.5
0
1960
1970
1980
1990
2000
2010
The Hubbert Curve – Peak Oil!
He was roundly criticized – then widely
respected
 Today there may be 2000-2300 Gb of
recoverable conventional oil in the
ground. We have used nearly half of
that. (CJ Campell, Petroconsultants)
 The second half is more expensive to
produce than the first half.
 What are the recoverable reserves
today?
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World Oil Production Growth
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2003 – 3.51%
2004 – 4.16%
2005 – 2010 – 1.5%
Actual production has been flat since 2005
$17 Trillion needed to maintain today’s rate of
production
Demand expected to increase to 120M
Bbls/day by 2020 EIA, IEA
Global Oil Reserves

Estimates vary from 838 - 1000GB
conventional oil remaining to pump (Campbell/Leherrere)
 Mid 80’s oil price collapse caused OPEC
countries to inflate reserve numbers to
increase quota share (300 Billion bbls)
 Venezuela, Iraq, Kuwait all doubled reserves
reporting - Abu Dahbi tripled, Saudi Arabia
increased by 50%
 Reserve info is inaccurate – politics,
economics, secrecy, fear are the reasons
Oil Discovery Declining
1981
The year rig counts peaked
 The year tanker capacity peaked
 The year refinery capacity peaked
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Oil Discoveries
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Oil discoveries have lagged behind
consumption every year for the past 20 years.
 Discoveries have replaced only 33% of
annual production, with 31+BBls used, 10+
BBls produced
 Declines in major fields are about 5% per year
globally. This means a loss of 4 mbpd each
year
 4 mbpd = all tar sands, biofuels, and heavy oil
combined
Oil Discoveries
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No major oil finds in ‘04 or ’05
Tiber in Gulf of Mexico ’06 – Production costs
could run to $50/bbl. 7k underwater, 25k feet
deep - 500 mbls - 15gbbls
2007 - Brazil’s Tupi field is 7K underwater, 16k
feet deep - 8gbbls – Could cost $100B more
than other fields its size
What was discovered was smaller quantities in
deeper wells in deeper water offshore
More gas, less oil. Haynesville Shale
Hirsch Report
PEAKING OF WORLD OIL PRODUCTION:
IMPACTS, MITIGATION, & RISK MANAGEMENT
Peak Oil predictions are difficult due to poor
reserve data and secrecy, political bias
 Peak Oil problems will not be temporary,
 past “energy crisis” experience provides little
guidance.
 Oil peaking deserves immediate, serious
attention, and mitigation must begin now.
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Hirsch Report
Peaking oil = dramatically higher oil prices,
protracted economic hardship in the US and
the world.
 Timely, aggressive mitigation initiatives
addressing supply and demand will be
required.
 Greater end-use efficiency is essential, yet
not sufficient to solve the problem.
Hirsch Report
Oil peaking will create a severe liquid fuels
problem for the transportation sector
 Mitigation will require a minimum of a decade
of intense, expensive effort - scale of liquid
fuels mitigation is inherently extremely large.
 Government intervention required, …or the
implications of Peak Oil will be chaotic.
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He finishes with…..
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“This problem is truly frightening. This problem is like
nothing that I have ever seen in my lifetime. And the
more you think about it and the more you look at the
numbers, the more uneasy any observer gets. It’s so
easy to sound alarmist,… but there simply is no
question that the risks here are beyond anything that
any of us have ever dealt with, and the risks to our
economies and our civilization are enormous. And
people don’t want to hear that.… This is really an
incredibly difficult and incredibly severe problem.” Robert
L. Hirsch, in interview with David Room for Global Public Media, November 17, 2005ix
Other quotes from around the globe
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“The least bad scenario, I think, is a
deep worldwide recession. And if we
don't work together, it could be the
equivalent of the four horsemen of the
apocalypse: War, famine, pestilence,
and death.” Congressman Roscoe Bartlett, R-MD, co-founder, House Peak
Oil Caucus, CNN Situation Room with Wolf Blitzer, March 15, 2006xvii
Oil Officials See Limit Looming on
Production
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Some predict that, despite the world's
fast-growing thirst for oil, producers could
hit that ceiling as soon as 2012. This
rough limit -- which two senior industry
officials recently pegged at about 100
million barrels a day -- is well short of
global demand projections over the next
few decades. Current production is about
85 million barrels a day. WSJ November 19, 2007
Tony Hayward CEO, BP Inc.
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“Our view is that, at least in the medium term,
the era of cheap energy is over . . . High oil
prices are a wake-up call. The world urgently
needs more energy investment of all kinds. We
need all forms of energy from all sources and
we need to focus on energy efficiency.”
Times online, June 12, 2008
President George W. Bush in his
State of the Union Address.
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"Keeping America competitive
requires affordable energy, and here
we have a serious problem: America
is addicted to oil, which is often
imported from unstable parts of the
world."
Climate Change
Munich Re – Natural disasters
doubled from 2006, insured losses
reached $30 Billion in 2007
 2005 losses were $99 billion,
economic losses topped $220 billion
 Higher insurance premiums are
resulting.
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Cook Inlet Natural Gas Production
Cook Inlet Historic and Projected Natural Gas Production
1958 - 2022
Under-Developed
All Other
250.0
Swanson River
Kenai
McArthur River
Beluga River
North Cook Inlet
150.0
100.0
50.0
Division of Oil and Gas, 2003 Annual Report
20
22
20
18
20
14
20
10
20
06
20
02
19
98
19
94
19
90
19
86
19
82
19
78
19
74
19
70
19
66
19
62
0.0
19
58
Bcf per Year
200.0
Reserves Growth Supply and
Demand
250
Reserves Growth
All Supply Aggregated
Base Supply + Reserves Growth
Base Supply
Urea
LNG
Power Generation
Gas Utility
Gas, Bcf/year
200
150
100
50
0
2000
2005
2010
2015
2020
2025
The End of Cheap Gas – Shortages?
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85% of Cook Inlet Gas is gone. We export
half of what is produced(ISER 9-2006)
 Shortages could develop by 2009 if
industrial fields remain dedicated to
industry (Tony Izzo, former CEO, ENSTAR 6-05)
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Agrium Fertilizer Plant in Nikiski
shutdown December 2007 – 140 jobs
and Kenai Peninsula’s 2nd largest
property taxpayer - Looking at coal
gasification to keep operating
The End Of Cheap Gas
 Storage
adds significant costs and
without it the system is vulnerable
 Binding contracts with producers to
insure local gas supplies, and allows
3rd party producers to use LNG plant,
encouraging additional exploration ADN
January 16, 2008
 Some,
years
not much exploration past 2
The End of Cheap Gas –
What to Do?
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Conservation and Efficiency
Improve efficiency of power plants
Find new reserves – maybe as much as 13
Tcf = >$5 billion investment … And/or
Develop other sources of power – Wind
Anchorage and Healy, Hydro and
Geothermal WCI
Pipeline Spur from Minto Flats and
Nenana ($500 million cost)
Storage of gas to meet peak demand
The End of Cheap Gas – Prices Rise
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Cook Inlet gas now indexed to 36 month
average of Henry Hub (lower 48) prices
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Wind Energy
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Fastest growing Sector of
Energy Industry
Cost Competitive with
fossil fuels
System size is growing 1.8
to 5.6 MW per turbine
AVEC AWA Wind Utility of
the Year 2008
8,500 MW of wind added in
2009. equivalent to 8.5 GW
or nine nuclear plants.
16,618 Mw are currently
installed in US -
Wind Energy in Alaska
Wind Mapping project done 2004
 Great potential in coastal areas
 Wind projects now functioning in
Kotzebue, Selewik, Wales, St Paul
 2 new projects at or near completion,
Tooluksak, and Kasigluk- Chevak,
Savoonga and Gambell planned by
AVEC
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Solar Energy for Electricity
Solar Energy in Alaska
Passive solar design works very well
 Silicon nanowire battery show promise
 PV currently used mostly for remote
stand-alone applications –RR crossing,
Park buildings, remote cabins.
 Still expensive compared to fossil fuel
but that is changing
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The earth has its own energy
Geothermal in Alaska
Mt Spurr + Lake Chakachamna
= 400 -600Mw of electric generation, plus
heat enough to heat all of Anchorage, melt
road ice, and heat enough greenhouses to
feed the city.
 Geothermal Mapping done by AIDEA 2004
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Hydro Power in Alaska
Four Dam Pool – Kodiak, Wrangell,
Glennallen, Ketchikan - $482.7M in AK
funding - Sold at a $177M loss in 2002
 Bradley Lake – 90 Mw, Eklutna – 37Mw
 Lake Chakachamna 330 MW power
plant proposed - permit process
underway by TDX Corporation
 Susitna??
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Coal in Alaska
Plants in Fairbanks – UAF, Eilson, Healy
 Large coal reserves in AK
 High air pollution in standard plants –
Acid Rain in northeast US
 Harvard University estimates 30K
deaths/annually from coal in US
 Clean coal technology not there yet
 Clean Coal plant in Healy sits idle at
double estimated cost
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Nuclear In Alaska
10 MW mini nuclear plant proposed for
Galena - a gift from Toshiba Corp.
 2 MW now needed, may need five in 20
years – excess could produce hydrogen
or fuel greenhouses
 30 year plant life, entire plant removed at
end of life cycle
 ISER estimates lowest cost electricity of
all options studied – diesel, coal, nuclear
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Ocean Power
Leases in Lower Cook Inlet in 2007-’08
 Two forms, Mechanical and Thermal
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– Wave or tidal action
– Using the heat to turn turbines
New systems going in on European
coastlines
 Can be used as a base for wind
turbines.
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Which makes more sense?
Transportation
Transportation Energy Users use
28% of all energy and Use 67% of all
petroleum in US
Cars and Light
trucks
Heavy Trucks
24%
16%
60%
Mass Transit
Arctic National Wildlife Refuge

16 Billion Barrels (Bb) Technically
Recoverable (5% chance Frank Murkowski,
USGS)
5.7 Bb Technically Recoverable (95%
chance, EIA)
 Development and Extraction will take
51 years to recover all oil there
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Oil savings/production, 10 years
30
25
40 mpg by 2017
20
15
Close light truck loophole
10
5
0
Cumulative oil savings/production, 2012–2040
in Billion Barrels
Drill in ANWR and adjacent
areas
Vehicles
80% of the energy used in an auto is
lost as heat and exhaust
 20% is delivered to the drive wheels
 Only 5% is needed to move the weight
of the driver
 20% x 5% = 1% of the energy to move
the driver
 Cars burn their weight in gasoline
each year
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Hydraulic Hybrids
EPA and Ford have agreement for
SUV’s and light trucks.
 Should improve gas mileage by 3050%
 NAC working with refuse haulers and
FEDEX to develop Hydraulic vehicles
for heavier use
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Hybrids Electric Vehicles
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Hybrid electric vehicles
first developed in the
1920’s
 Current Toyota Prius and
Honda Civic achieve 50+
MPG
 Hybrid technology can
improve performance or
fuel economy, or both
 Next generation Hybrids
might achieve 100+ MPG
1921 Owens Hybrid
Electric Model 60 Touring
Sedan
Hypercars
Concept by Amory Lovins, Rocky Mountain
Institute
 Safe, Comfortable and lightweight
 99 mpg-equivalent (EPA 84 highway, 115
city
 Carries five adults
 0-60 in 8 seconds
 Drive by wire – Water as the only emission
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Opel developed Eco
Speedster -155 MPH –
Hypercars
94 MPG
 Volkswagon has L1 –
for 1 liter per 100 Km –
235+ MPG
 Plug-in electric hydraulic diesel
hybrids running on
2006 Supermileage Competition
Biodiesel 235 MPG
Winner – 3415 MPG
Energy Efficiency

Energy Efficiency doesn’t even
qualify as low hanging fruit. Rather, it
is fruit lying on the ground.
Steven Chu, US Secretary
of Energy

We have gotten more energy out of
efficiency improvements over the
past 35 years than from all supply
side expansion in the US. That is
without even trying that hard.
John Holdren, Chief
Science Advisor to President Obama
Case study – Light bulbs
Incandescent light bulbs use 8% of
their energy to produce light
 92% of the energy is producing heat
 Alaska looses 71% of its electricity to
generation and transmission
 29% X 8% = 2.32% is used for light
 97.68% is used for heat or wasted
getting to the light fixture
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Savings Calculator for replacing incandescent light bulbs with compact fluorescents (CFL’s)
INPUT YOUR DATA HERE
CFL
Incandescent
Number of Bulbs
10
10
Number of bulbs in analysis
CFL Wattage
15
75
Watts used per bulb
Bulb Cost
$2.25
$0.75
Cost per bulb
Bulb Lifetime
10000
750
Hours of bulb life
10
10
Average hours / day light is on
$0.10
$0.10
Electricity cost per Kwh
Average daily usage
Electricity Cost
Your Results
CFL
Electricity Cost Per year
Five year Cost
Payback in months
Bulb Replacement time in months
Incandescent
54.75
273.75
$314.81
$1,551.25
Actual Savings
219.00
$1,236.44
1.2
32.9
2.5
30.4
Life Cycle Cost Analysis
Refrigerator Life Cycle Cost Analysis
Cost
Kwh/Year
Old Cheapo
50
2500
$
0.10
$
250.00
$
1,250.00
Maytag 19 Cubic
Foot (EE)
610
450
$
0.10
$
45.00
$
225.00
Difference
-560
2050
$
-
$
205.00
$
1,025.00
**21% interest, two year term
Fuel Cost
Annual Cost
5 year cost
Interest
Total Cost
$ 1,300.00
$
140.00**
$
975.00
$
325.00
Alaska AKWarm Rating compared
by Age of Housing
Annual Cost/sf
Rating score Average
100
84.7
80
60
47.6
55.1
61.5
63.3
86.9
71.3
40
20
0
Pre 1950
1950- 1960-69 1970-79 1980-89 1990-99 2000-04
1959
$2.00
$1.75
$1.50
$1.25
$1.00
$0.75
$0.50
$0.25
$-
$1.67 $1.64
$1.42 $1.43 $1.39
$0.99
Pre 1950
$0.85
1950- 1960-69 1970-79 1980-89 1990-99 2000-04
1959
So what to do?
Air Leakage
 Heating System
 Insulation
 Water Heat
 Electrical

– Refrigeration
– Lighting
– Appliances

Windows and doors
What do we want?
Mobility
 A solid economy and jobs-prosperity
 Abundant and healthy food, locally
produced
 Clean water and air
 Reliable systems sustainable into
future generations
 Stability, security, law and order

Energy Efficiency Economics
Energy Efficiency Programs create
more jobs than Highway or hospital
construction (ISER 1989)
 Weatherization creates greater
economic development potential
than tax incentives or traditional ED

(Ball St. University)
Economic Benefits
If the US were as Energy Efficient as
Japan or Sweden, we would spend
$800 billion less per year on energy
at oil prices of $80/bbl
 If we made improvements to energy
efficiency and if ANWR oil ever really
needed, it will have greater value
then than it does presently

Energy Efficiency
The Foundation for Renewable Energy
 Efficiency costs about $12 to save a barrel
of oil - Oil price today?
 There's no cheaper, cleaner power than
power you don't have to produce Gary Zarker of

Seattle City Light

Winning the Oil Endgame –
– $40 purchase the book
– Free online if you download from
www.oilendgame.org
Benefits of Efficiency and
Renewable Energy
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Renewable energy is produced locally,
creating jobs with good wages and quality
health care
Reduces reliance on limited, expensive
fossil fuels
Reduce dependence on unstable countries
producing oil and gas
Cleaner water and air, reduce species loss
New technologies and industries for the
future – economic stability
Climate change mitigation - insurance
How do we get there?

Save and use petroleum products for
lubricants, plastics, synthetic fibers
and rubber, solvents, and other
petrochemicals that have no other
replacement, while finding other
energy sources
How do we get there?
Multi-faceted approach – No Silver Bullets
 Combinations of efficiency, wind, solar,
tidal – hydro, geothermal and other
renewables – Coal and Nuclear will be
pushed as well with bigger drawbacks
 Develop non-petroleum liquid fuels,
Hydrogen, bio-fuels, recycled plastics
 Power Down – Learning to live with less
energy, or different forms

How do we get there?
Increase mass transit, denser
neighborhoods creating tighter
community
 Mixed used neighborhoods
encourage walking, cut down on
short driving trips decreasing
congestion and crime

How do we get there?
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Don’t wait for the government -You are part of the
solution
Think globally, act and buy locally
Grow your own food or know someone who does
Buy or become the renewable energy utility of
America by reducing your energy footprint –
maximize efficiency and conserve.
Generate your own power
Use oil and gas royalties to make a renewable
energy “permanent fund” for our future
A vision for Alaska
330 MW Chakachamna hydro, 250 Mt Spurr
Geothermal, 200 MW Wind Fire Island &
Healy gives us clean, renewable, fixed cost
power for 40 years (also heats Anchorage)
 Brings in Google/Microsoft type companies
 Adds steady rate power to industrial base
for value added products to export
 Greenhouses grow enough food for AK
 We then export that technology

Funding availability
State Energy Program $28 Million
 Energy Efficiency Conservation
Block Grant $9.59 Million
 Home Energy Rebate $160 Million
 Weatherization Assistance $218.5
million

“There’s a better
way to do it…
find it”