Energy Sources

Petroleum

Facts

Although not a major source for power generation, petroleum is the primary source of fuel for transportation – and demand continues to grow. Even so, new refineries are not being built in most North American and European countries because of high construction costs, stagnating demand, environmental restrictions and community opposition. Despite these challenges however, capacity has increased at many existing refineries due to debottlenecking and reconfiguration.

Most of today’s refineries are located near port cities in countries that rely heavily on petroleum imports. Built on anywhere from several hundred to a few thousand acres, refinery sites can also be located inland near drilling sites.

Source: "US Refiners Stretch to Meet Demand," MSNBC, November 22, 2004

With oil prices stabilizing over the past year, investment in oil production has been increasing rapidly. Many projects—such as developments in the Canadian oil sands—that were delayed following the 2008 price drops have been re-started, and continued strong demand from developing countries is expected to keep prices high.

Source: “Oil Prices Find a Sweet Spot for World Economy.” NY Times, March 2010. http://www.nytimes.com/2010/03/31/business/energy-environment/31oil.html

An increase of just 1% in the average recovery factor at existing oil fields would add more than 80 billion barrels to recoverable resources, about 3 years supply for the world. Even if conventional crude oil production does peak in the near future, resources of unconventional oil are estimated to be large enough to keep total oil production rising for several decades.

Source: “World Energy Outlook 2010.” International Energy Agency

Overview

World liquid fuels use will grow from 85.5 million barrels of oil equivalent per day in 2008 to 88.7 million in 2015, an increase of 3.7%.

Source: “International Energy Outlook 2010”; Energy Information Administration

In 2009, President Obama announced new fuel economy standards for vehicles that would raise the average fuel economy for new vehicles to 35.5 miles per gallon by 2016. The measures will save 1.8 billion barrels of oil between 2011 (when the new standards are implemented) and 2016. Currently, the standard for new cars is 27.5 miles per gallon, but this is due to increase to 30.2 mpg in 2011.

Source: White House; available: http://www.whitehouse.gov/the_press_office/President-Obama-Announces-National-Fuel-Efficiency-Policy/

Source: National Highway Transport Safety Administration; available: http://www.nhtsa.dot.gov/CARS/rules/CAFE/overview.htm

The European fuel economy standard is currently 40 miles per gallon and will soon increase to 49 miles per gallon, while Japan is expected to implement a standard of 47 miles per gallon by 2015. In China, it is estimated that the average new vehicle gets 35.8 miles per gallon and will be required to get 42.2 miles per gallon by 2015.

Source: “New CAFE Standards”; M.I.T. Technology Review; available: http://www.technologyreview.com/read_article.aspx?ch=specialsections&sc=transportation&id=20067

Source: “China is Said to Plan Strict Mileage Rules”; New York Times; available: http://www.nytimes.com/2009/05/28/business/energy-environment/28fuel.html

If India achieved the same level of car ownership as there is in developed countries, about 700 cars for every 1,000 people, it would double the worldwide number of cars on the road.

Source: “Fears Nano will Drive up Oil Price, Pollution”; Australian Broadcasting Corporation; available: http://abc.gov.au/news/stories/2009/03/24/2524868.htm?site=news

Holding all other factors constant, an increase of 1% per year above the growth rate of car ownership that is currently forecast in China would result in an additional 95 million cars on the road by 2035. This would drive an 800,000 barrels per day increase in the amount of oil required, representing 0.8% of global demand. Were this faster growth rate applied to all non-OECD countries, there would be a 4% increase in global demand for oil, leading to an additional 3.6 million barrels of consumption per day.

Source: “World Energy Outlook 2010.” International Energy Agency

World energy consumption is projected by the U.S. Energy Information Administration to increase by 39% between 2007 and 2030. Liquid fuels, including oil, are projected to remain the single largest source of energy. Consumption of liquid fuels will grow 21.5% from 85.5 million barrels per day in 2008 to 103.9 million barrels per day in 2030.

Source: "International Energy Outlook 2010," Energy Information Administration

On a global basis, the transportation sector will account for 89% of the increase in liquid fuel consumption between now and 2030. There are currently no significant quantities of alternative fuels that compete with oil.

Source: "International Energy Outlook 2010," Energy Information Administration

Pump prices of gasoline and diesel vary enormously across countries, owing to differences in tax rates and—in some countries—subsidies. In the United States, for example, low fuel taxes and, hence, low pump prices mean that owners of conventional hybrid vehicles recoup the difference in purchase costs between hybrid and conventional vehicles only after about six years. This is too long to persuade most motorists to opt for the former type of vehicle. However, a 30% decline in the cost of buying a hybrid would cut the length of time to recoup costs to four years, helping to increase the attractiveness of these vehicles.

Source: “World Energy Outlook 2010.” International Energy Agency

Petroleum prices can vary greatly depending on economic and political factors. In July 2008 the price of a barrel of oil peaked at over $140. Five months later, in the midst of a deepening global economic downturn, the price had fallen to just over $30 a barrel. Prices have since risen, averaging just over $80 per barrel for most of the second half of 2010 and finishing the year at $90 per barrel.

Source: EIA: http://www.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=D

Crude oil prices are projected to be highly variable between today and 2030. The Energy Information Administration projects the price of a barrel could be as low as $50 in 2009 dollars or as high as $200. Considering the anticipated increase in demand, it is likely that oil prices will be significantly higher than they are today.

Source: EIA “International Energy Outlook 2010”

OPEC countries influence oil prices because they collectively determine their production levels. Together, these countries produce 40% of the world’s oil and hold more than 75% of the world’s estimated reserves.

Source: Council on Foreign Relations; available: http://www.cfr.org/publication/14554

The production of unconventional oil generally emits more greenhouse gases per barrel than that of most types of conventional oil, although most emissions from unconventional sources result from extraction and production. In the case of Canadian oil sands, CO2 emissions are between 5% and 15% higher than conventional sources of oil. Mitigation measures will be needed to reduce emissions from unconventional oil production, including more efficient extraction technologies, and carbon capture and storage (CCS). Improved water and land management will also be required to make the development of these resources and technologies acceptable to the greater public.

Source: “World Energy Outlook 2010.” International Energy Agency

The Global Fuel Economy Initiative claims that it is possible to increase global fuel economy by 50% by 2050 at low cost. Doing so would reduce emissions of carbon dioxide by over 1 gigaton (Gt) a year by 2025 and over 2 Gt a year by 2050, and result in savings in annual oil import bills alone worth over $300 billion in 2025 and $600 billion in 2050.

Source: Global Fuel Economy Initiative; available: www.fiafoundation.org/50by50/Documents/50BY50_report.pdf

In April 2010 an oil spill resulting from an explosion on the Deepwater Horizon drilling rig in the Gulf of Mexico led to about 4.4 million barrels of crude oil being released into the Gulf—the largest marine oil spill in history. The oil spill severely damaged local marine and wildlife habitats, and the White House called the incident the “worst environmental disaster the U.S. has faced.” The spill has been costly for BP, the rig’s operator. BP has already spent $10 billion plugging the well and cleaning up the oil spill, The company has committed to give up to $20 billion to affected families and businesses, and faces between $5.4 billion and $21.1 billion in fines from the U.S. government. Additionally, the company could be forced to make further payments resulting from lawsuits.

Source: “New Estimate Puts Gulf Oil Leak at 205 Million Gallons.” PBS, August 2010: New Estimate Puts Gulf Oil Leak at 205 Million Gallons; “Gulf of Mexico oil leak ‘worst U.S. environmental disaster.” BBC, May 2010: http://www.bbc.co.uk/news/10194335; “Macondo slugs insurance rates.” Upstream Online, June 2010: http://news.yahoo.com/s/ap/20101229/ap_on_bi_ge/us_gulf_oil_spill_bp_s_costs.

Cleaner-burning reformulated gasoline (RFG) can have significant environmental benefits. Since RFG was first introduced in several U.S. cities in 1995, it has reduced pollutants in the air by an amount equivalent to that emitted by over 16 million vehicles. Overall, 75 million people are breathing cleaner air because of RFG.

Source: Environmental Protection Agency; available: http://www.epa.gov/otaq/rfg/information.htm

By diversifying sources of supply including reducing dependence on petroleum imported from unstable countries, a country can improve its energy security. In 2010, the U.S. relied on foreign sources for 52% of its petroleum.

Updated from EIA at http://www.eia.doe.gov/energyexplained/index.cfm?page=oil_home#tab2

Unconventional oil resources are huge—several times larger than conventional oil resources—and will help to ensure that overall oil production rates remain high in the coming decades. Actual rates of production will be determined by the price of conventional crude oil and the cost of mitigating emissions. Some unconventional oil projects may not be feasible with low oil prices and/or high mitigation costs.

Source: “World Energy Outlook 2010.” International Energy Agency

Petroleum: Opportunities

Technological factors drive oil recovery.

Technology is improving oil field recovery rates and leading to the discovery of petroleum in newly surveyed locations.

Drillers head for deeper water.

New technologies are allowing for the development of oil reserves located further offshore in increasingly deep water, although the recent spill in the Gulf of Mexico highlights the potential risks these opportunities present.

Petroleum: Challenges

World supply strains as demand increases.

World liquid fuels use, including petroleum, will increase 3.7% by 2015. Without heavy investment in infrastructure and alternative fuels, the world could see even higher fuel prices and the increased likelihood of disruptive shortages.

Emerging markets put pressure on the oil market.

As countries such as China and India grow economically, members of their sizable populations will demand an increasing material standard of living, with some segment of the population reaching that found in rich countries such as the United States and in Europe. Growing demand for automobiles and transportation in these countries will put pressure on world liquid fuels supplies.