Where it comes from


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  • Most of us think that the cost of gasoline is about $1.40 per gallon. This retail price is based on production costs, delivery to local service stations, taxes, and profits throughout the system. But like taxes, a lot of the costs of our petroleum-based energy system are hidden. They don’t show up in the price we pay at the pumps. Instead, they’re paid in other ways. A number of studies have attempted to estimate the environmental costs of burning oil. But the resulting figures vary widely because it all depends on the value you place on particular environmental losses. And it’s difficult to determine the increase in health care costs that are directly related to the pollution from burning oil. But a conservative estimation is that environmental degradation translates into real costs that factor out to about $45 per barrel of oil. In other words, we can add $45 to the cost of a barrel of oil just to pay for the resulting environmental damage. Another cost paid through higher taxes, instead of through higher motor fuel prices, is the military expenses that are directly related to protecting Middle East oil supplies. We’d have military expenses anyway, even if we didn’t have to pay for protecting oil supplies. But if we isolate only those expenses that are directly related to protecting Middle East oil interests, it factors out to about $9 per barrel of imported oil. The estimates vary widely on how this would affect motor fuel prices if all the related costs were factored in. I’ve seen figures as low as $10 - $12 per gallon, up to as high as $16 per gallon. But the reality is that we’re paying for it anyway - through higher insurance premiums, increased health care expenses, and higher taxes. These estimations are based on the level of military expenses, health care costs, and environmental damage today. But in many cases, we’re just letting the damage build up for future generations to pay. And effects of global warming could send these costs right through the ceiling over the next 25 years or so. So it really comes down to the question of whether we can actually afford to continue with this petroleum-based energy system. My sense of it is that, even with more expensive vehicle technologies and more costly alternative fuels, we’ll be saving a bundle of money by moving away from oil, not to mention the improvement in air quality and the security of having a long-term sustainable energy system.
  • Where it comes from

    1. 1. Where it comes from & where it goes Energy:- Hint: it’s all about geology and cars and heating and...
    2. 2. Estimated World Energy Consumption Two different estimates Source: US Dept of Energy
    3. 3. Who will be using it? Source: US Dept of Energy Industrialized countries use two-thirds of total now, soon will be about equal
    4. 4. Primary uses are: transportation and electricity Petroleum products are useful because they’re portable which is easily distributed between fixed points for other uses Both these are growing fields !
    5. 5. EE/FSU= Eastern Europe & Former Soviet Union We like our cars ...and so does everyone else NB: Europe & Industrial Asia aren’t projected to grow much; compare w/ other places Source: US Dept of Energy
    6. 6. Electricity demands are projected to grow over the next 20 years Note the different geographic distribution Source: US Dept of Energy
    7. 7. Why does energy consumption increase? Note the different geographic distribution Source: US Dept of Energy 1) Popul’n 2) Std of Living
    8. 8. Various economic scenarios: The better off people are, the more energy we’re gonna need. Source: US Dept of Energy
    9. 9. All right, so there’s a real need. What are our energy sources? Yep, it’s oil, folks Oil + Natl Gas = ~ 3 X Coal others negligible Source: US Dept of Energy NB: current usage
    10. 10. Oil prices are interesting... Source: US Dept of Energy Prices have varied by a factor of 6 over the last 30 years . (So why the smooth projection? ) How good is it for the year 2002?
    11. 11. Didja see any evidence of positive feedback in the oil market on the last slide? The OPEC oil ministers have declared that they wish to keep the price low enough that further exploration will not be economically viable (Negative feedback)
    12. 12. When Gulf Oil opened the first gas station back in 1913, the price was $0.27/gallon. That was about 3 hours work at the prevailing average wage. Scaling into today’s regime, we’d be talking about $25 – 30 for a gallon of gas.
    13. 13. THE REAL COST OF PETROLEUM MOTOR FUEL <ul><li>Environmental Damage </li></ul><ul><li>Agricultural Losses </li></ul><ul><li>Increased Health Care Expenses </li></ul><ul><li>Higher Insurance Premiums </li></ul>U.S. Military Expenses for Protecting Middle East Oil Supplies $45/Barrel $15/Barrel $9/Barrel Price of a Barrel of Oil Actual Cost of Oil is at Least $69 Per Barrel One man’s opinion on: Source: Robert Q. Riley Consulting
    14. 14. Back in 1949 a geophysicist named M. King Hubbert, working for Shell, got interested in the total oil supply. Using his geologic estimates for future discoveries, he predicted production levels amazingly accurately: Hubbert curves show production rates in b/yr This shows 2 of Hubbert’s early projections; note the peak years
    15. 15. 50 years experience makes Hubbert look pretty good overall This chart adds the effects of “ unconventional” production --extends our supply a little, but doesn’t change much Source: CJ Campbell, Oil & Gas Journal, March, 2000
    16. 16. Note that production curves tail off while need curves just keep increasing!
    17. 17. Basic problem is that discovery rate is now less than consumption Discovery peak was in the ’70’s leading to the production peak now We now consume 4 times as much as we discover! Source: CJ Campbell, House of Commons testimony
    18. 18. Oil production lags discovery Source: CJ Campbell, House of Commons testimony
    19. 19. US oil discovery & production as an example: Discovery Prod’n Source: CJ Campbell, House of Commons testimony
    20. 20. The US was the first country to have an oil industry The discovery peak was 1930’s Production peak was 1970’s For the North Sea and Alaskan fields, it’s only 28 years between discovery & production peaks This in spite of much more difficult production & distribution conditions --better technology gained us speed
    21. 21. Global discovery peak was in the 1970’s 25 - 30 years of well-funded effort by some very smart people prospecting around the world hasn’t increased the discovery rate
    22. 22. The slowing Discovery Rate: Includes oil “ discovered” in known reservoirs (“backdated”) <ul><li>a major </li></ul><ul><li>source of </li></ul><ul><li>“ new” oil for </li></ul><ul><li>the past 30 </li></ul><ul><li>years! </li></ul>Source: CJ Campbell, House of Commons testimony
    23. 23. Fourth Quarter 2001 API Drilling Statistics WASHINGTON, January 16 — Estimated completions of U.S. oil wells, natural gas wells and dry holes decreased by 8 percent in the fourth quarter of 2001 compared with the same period of 2000, the American Petroleum Institute reported today. Oil well completions dropped 23 percent, and natural gas completions dropped 3 percent for the quarter compared to the same period of 2000. According to the 2001 Quarterly Well Completion Report: Fourth Quarter, an estimated 8,309 oil wells, natural gas wells and dry holes were completed in the fourth quarter. In the fourth quarter of 2000, there were an estimated 9,038 completions. For the fourth quarter of 2001, gas completions were down 3 percent to 5,365; oil well completions decreased 23 percent to 1,931, and dry holes rose 3 percent to 1,013. Total exploratory completions were up 26 percent in the fourth quarter and development completions were down 11 percent compared to the same quarter last year. API also reported a 1 percent increase in total footage drilled in the fourth quarter for a total of 41,534,000 feet. From the API:
    24. 24. Source: CJ Campbell, House of Commons testimony Contrast this with the popular image: “ This notion is believed by many Politicians.” --Colin Campbell
    25. 25. Leading to some laughable consumer decisions
    26. 26. In Europe, where gasoline prices have been over $5 per gallon for many years,
    27. 27. … they’ve taken to using cars that you put on like a sweater The Smart Car serves quite well for most urban purposes
    28. 28. … or even a T-shirt… (This one’s in Italy & must get a jillion miles per gallon.)
    29. 29. We can do OK in this country, too Here’s an experimental car built by some students at Berkeley that gets over 1,000 miles per gallon Not even trying for production, of course…
    30. 30. Production is another matter: Some serious players think that we could do a lot better than we are: The 1985 Chevy Blazer got 20 mpg, the 2002 model gets 18 Fleet averages fell from 26 to 24 in the same interval…
    31. 31. Here’s a potentially useful technology: “ Hybrid” cars are an attempt to maximize the relative advantages of gasoline and electrical power systems Honda and Toyota both have production versions of hybrid cars available in the U.S. now. The price is $20,000, and the gas mileages are 56 & 48 mpg, respectively.
    32. 32. Hubbert curves for all petroleum-like resources that we have fashioned to date change the picture a little But not much Source: CJ Campbell, House of Commons testimony
    33. 33. The underlying cause is that petroleum occurrence is a pretty rare thing Must have the right: Initial cond’s History Geologic Environm’t Source: CJ Campbell, House of Commons testimony
    34. 34. So, we are faced with a scenario something like this:
    35. 35. and it’s interesting to note just where the oil reserves are …
    36. 36. WORLD PETROLEUM RESERVES Billion Barrels Total Oil Recovered Since 1859 & Total Remaining as of 1990 Protecting Against Limited Supplies, Future Monopolies, and Price Increases Total Remaining Total Recovered United States Canada Mexico, Central America, & South America Western Europe Mid-East Eastern Europe, Former U.S.S.R., China Other Eastern Hemisphere
    37. 37. <ul><li>So it looks like, in YOUR lifetime </li></ul><ul><li>you will be: </li></ul><ul><li>Paying a LOT more for gasoline </li></ul><ul><li>Very concerned with Middle East politics </li></ul><ul><li>Trying new energy technologies </li></ul><ul><li>Looking for alternate sources of energy </li></ul>
    38. 38. with regard to alternate sources, consider these data on energy available from non-renewable sources: Source Total Energy (J) Uranium 1.6 E 23 Coal 1.4 E 23 Syncrude 1.4 E 22 (tar sands, shale oil) Crude oil 1.0 E 22 Nat’l Gas 8.0 E 21
    39. 39. and from renewable ones: Source Energy (J/yr) Solar 4.0 E 24 Biomass ~2 E 21 Hydroelectric 9.2 E 19 Geothermal 8.0 E 19 Wind energy unknown
    40. 40. Afterword: Comparing energy prices for different fuels: Fuel $/Mbtu Oil 3.49 Nat’l Gas 4.29 Coal 1.19 How about wood, ethanol, wind, geothermal, solar, tidal, …?