Bureau of Economic Geology Jackson School of Geosciences The University of Texas at Austin

1. RMS-AAPG and COGADenver, CO July, 2008 Global Energy Myths, Realities and Paradoxes Scott W. Tinker Bureau of Economic GeologyJackson School of GeosciencesThe University of Texas at Austin

2. The Global Energy Road • Fossil fuels are the bridge to an alternate energy future. • Alternate energies will take time, technology, and money to scale up. • The cost to reduce carbon is high; everyone must play and pay or we risk the global economy.

3. Webster’s Online: Myth Main Entry: myth Pronunciation: \ˈmith\ Function: noun Etymology: Greek mythos Date: 1830 1 a: a usually traditional story of ostensibly historical events that serves to unfold part of the world view of a people or explain a practice, belief, or natural phenomenon b:parable, allegory 2 a:a popular belief or tradition that has grown up around something or someone; especially: one embodying the ideals and institutions of a society or segment of society <seduced by the American myth of individualism — Orde Coombs> 2 b:an unfounded or false notion

4. Webster’s Online: Paradox Main Entry: par·a·dox Pronunciation: \ˈper-ə-ˌdäks, ˈpa-rə-\ Function: noun Etymology: Latin paradoxum, from Greek paradoxon, from neuter of paradoxos contrary to expectation, from para- + dokein to think, seem — more at decent Date: 1540 1:a tenet contrary to received opinion 2 a:a statement that is seemingly contradictory or opposed to common sense and yet is perhaps true 2 b: a self-contradictory statement that at first seems true 2 c: an argument that apparently derives self-contradictory conclusions by valid deduction from acceptable premises

5. Ten Energy Myths 6. “Big Oil” controls the price of oil and gasoline and makes “obscene” profits. 7. Cutting oil imports will stabilize gasoline prices. 8. Global production of oil and natural gas are “peaking” and we are running out of fossil energy soon. 9. All coal is dirty. 10. The cost of energy increasing.

6. Ten Energy Myths 1. The US can be energy independent in the next 25 years. 2. “Renewable energy” can reduce dependence on fossil fuels significantly in the next 25 years. 3. The economy will adapt easily to a rapid, federally imposed energy transition. 4. Energy efficiency and savings (alone) will solve the problem. 5. There is plenty of low cost (conventional) oil ready to be found.

7. Energy Paradoxes Crisis/Policy Paradox Sound energy policy is necessary to prevent an energy crisis, yet crisis is seemingly necessary to cause policy to be considered.

8. Energy Paradoxes Economy/Carbon Paradox Emissions from the combustion of fossil fuels enhance global warming which harms the economy, yet a healthy economy relies on fossil energy today. or The road to an alternate (clean) energy future must be paved with fossil energy.

9. Energy Paradoxes Government/Markets Paradox Government policies are needed to enhance free market behavior.

10. Energy Paradoxes Nationalization/Globalization Paradox The US should be energy independent in order to remain a global leader in an interdependent world.

11. Myth 8 Global production of oil and natural gas are “peaking” and we are running out of fossil energy soon.

12. Global Energy Energy Use (Quadrillion Btu) Asia & Oceania United States Europe Coal Eurasia Oil Gas Central & South America Nuclear Middle East All Other Canada & Mexico Africa 0 20 40 60 80 100 120 140 160 Quadrillion Btu We depend upon fossil fuels today. Data: EIA, October 2007

13. US Transportation Energy Demand (2006 Btu) Uranium 592 147 Hydro 688 611 Light-Duty Vehicles 1333 Commercial Light Trucks 1 Buses 2647 Conventional Oil Freight Trucks Coal Air 3 Water Rail 16407 4892 Lubricants Pipeline Fuel Natural Gas Military Use 264 Biomass 618 Natural Gas US Energy Mix Electricity Transportation We depend upon fossil fuels today. Heat Data from EIA 2007

14. 1,400.00 $100.00 1,200.00 $90.00 $80.00 1,000.00 $70.00 800.00 $60.00 Global Reserves (bbo) Oil Price ($2007) $50.00 600.00 $40.00 $30.00 400.00 $20.00 200.00 $10.00 40 $0.00 0.00 35 30 25 R/P 20 World Oil Production (Thousand Barrels) 15 Oil Price Average in $/bbl Inflation Adjusted 2007 World Oil Reserves (Billion Barrels) Global Reserves and Production 35,000,000 (mbo) 30,000,000 25,000,000 20,000,000 15,000,000 Global Annual Production 10,000,000 5,000,000 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Source: 1980-2007 Energy Information Administration As of January 2008 (www.eia.doe.gov/pub/international/iealf/crudeoilreserves.xls ), 1950-1980 OPEC (http://www.opec.org/library/)

15. The Conventional Oil “Wedge” M ~35 MMBD new demand If China and India grow from 1 B/P/Ytoday to 5 B/P/Yby 2030, it will create 48 MMBD of new demand Unconventionals Plus EOR ExxonMobil, 2005. http://www.exxonmobil.com/Corporate/Citizenship/Corp_citizenship_energy_outlook.asp

16. Options to Conventional Oil OptionTime to InitiateImpact (+10 Yrs) (Yrs)(MM bpd) • Enhanced Oil Recovery 5 3 • Heavy Oils / Oil Sands 3 8 • Shale Oil 10 2 • Coal Liquids 4 5 • Gas-To-Liquids 3 2 • Biofuels 2 1 21 after Hirsch et.al, 2005

17. One More Option to Conventional Oil… 1 MMBOPD and 1.4 TCFY in 15 years Access Restrictions ARI, 2006

18. R/P (yrs) 70 60 Supply Demand Global Natural Gas Supply and Demand *Supply = world natural gas production & Demand =world natural gas consumption. 110 100 90 Natural Gas (Tcf) 80 70 60 50 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Year Data: EIA, October 2007

19. 10 9 8 7 Tight Gas 6 5 Annual Natural Gas Production (TCF) 4 3 Coalbed Methane 2 1 Total Natural Gas Gas Shales 0 Conventional Gas 1990 1995 2000 2005 2010 2015 2020 2025 Year Difference U.S. Natural Gas Production 25,000 20,000 15,000 U.S. Natural Gas Production (Bcf) 10,000 Unconventionals 5,000 0 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 Year Conventionals: EIA (1949-1990) and NPC (1991-2015) Unconventionals: 1970-1988 data from GRI, 1999. Updated data from 1989-2005 is from EIA, 2007

20. US Dry Natural Gas Reserves Technology and Ideas 350,000 300,000 250,000 Unconventionals 200,000 Reserves (Bcf) 150,000 100,000 50,000 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

21. Myth 8 Realities • Easy to produce (but hard to find!) conventional oil will plateau and then decline; i.e. the conventional oil “plateau” • Global natural gas production is a few decades away from a plateau • Easy to find (but hard to produce!) unconventional oil and natural gas are playing a growing role (function of environmental policy, economics and technology) • Fossil fuel resources combined (oil, natural gas and coal) could provide over two hundred years at current consumption rates

22. Myth 2 “Renewable energy” can reduce dependence on fossil fuels significantly in the next 25 years.

23. 1 0 0 8 0 6 0 Percentage of total market H/C<1 (Wood, Coal) 4 0 H/C~2 (Oil) 2 0 H/C>4 (Natural Gas, Nuclear, All others) 0 Global Energy Consumption 1850 1900 1950 2000 U.S. Data: Annual Energy Review 1999 (EIA, 2000) World Data: International Energy Annual 1999 (EIA, 2000) Year QAc9841c

24. 91% 87% 80% 700 600 500 400 Global Energy Consumption (Quads) 300 Unconventional Gas 200 Unconventionals/Res Growth 100 0 2X every 7 yrs 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 32 4 8 16 Future Global Trends 1.25% Global Annual Demand Growth 50% 45% Petroleum 40% 35% Sound energy policy is necessary to prevent an energy crisis, yet crisis is seemingly necessary to cause (poor) policy to be considered. and The road to an alternate (clean) energy future must be paved with fossil energy. Coal 30% % Total Consumption 25% Natural Gas 20% 15% Nuclear Hydroelectric 10% 5% Biomass, Geothermal, Solar & Wind 0% 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 200.00 1.25% annual demand growth 180.00 160.00 140.00 120.00 Global Energy Consumption (quads) 100.00 80.00 60.00 40.00 20.00 0.00 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 Historical Data: EIA October 2007: Forecasts: Tinker, 2008

25. Myth 2 Realities • Energy is not “renewable” • One of the great challenges of alternate energy is scale • Energy transitions take time and are expensive • Oil is beginning to plateau • Disruptive breakthroughs in electricity storage and transmission are needed to facilitate alternate energy

26. Myth 1 The US can be energy independent in the next 25 years.

27. Bush 1 Nixon Ford Carter Reagan Clinton Bush 2 US Economy and Oil Price GDP Growth (Percentage points at annual rates) Crude Oil Domestic Wellhead Price ($2000) 10.00 60 8.00 50 6.00 40 4.00 GDP Growth (% points at annual rates) Oil Domestic Wellhead Price ($) 30 2.00 20 0.00 1970 1975 1980 1985 1990 1995 2000 2005 10 -2.00 -4.00 0 Data: EIA February 2007 and US department of Commerce Year

28. 100 45Q Total Energy 10 Annual Use (Quads) Energy used to produce electricity 1 0.1 1800 1855 1910 1965 2020 Electricity’s Role Electricity will play an ever greater role in the energy end use mix. After Huber and Mills, 2005. Data: EIA, Annual Review, 2003. US Census Bureau, Historical Statistics of the US Colonial Ties to 1970

29. Uranium Hydro Imports Conventional Oil Coal Biomass Natural Gas Electricity Transportation Heat Data from EIA 2007

30. Electricity Options • Natural Gas • Abundant, reliable, price volatility, and cleaner • Challenges: Global deliverability (LNG) and Access • Coal • Abundant, reliable, cheap and dirty • Challenge: Sequestration (IGCC w/CCS), financing, public perception • Nuclear • Abundant, reliable, moderate price and cleaner • Challenges: Waste disposal, security, public perception • Renewables • Cleaner, less reliable and more expensive • Challenge: Capacity impacts cost and reliability • Efficiency • Fuel, lighting, electronics, insulation • Challenge: Rebound effect

31. Asia & Oceania Global Carbon Emissions 12,000 10,000 8,000 Annual Anthropogenic CO2 (mmT) 6,000 4,000 2,000 1983 1986 1992 2001 1980 1989 1995 1998 2004 Africa NA Europe ME Eurasia Cent & SA EIA, 2007

32. Asia & Oceania GDP/Carbon Emissions 2.50 2.00 Emissions from the combustion of fossil fuels enhance global warming which harms the economy, yet a healthy economy relies on fossil energy today. and Government policies are needed to enhance free market behavior. 1.50 GDP ($B2000)/CO2 (MMT) 1.00 0.50 0.00 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Year Africa Eurasia NA Europe ME Cent & SA

33. Myth 1 Realities • The world is “flattening;” resource interdependence is becoming the norm • Independence requires realistic, scalable alternatives, which take time and are very expensive ($ trillions) • Concerns about climate and security have placed the public sights squarely on fossil energy, especially coal and oil • Energy and economies are inextricably linked and mandated transitions don’t really work

34. Summary Thoughts • The Three E Waltz (Energy, Economy, Environment) is a sensitive dance • Oil and natural gas provide nearly 2/3 of the world’s energy • We need to be realistic about a carbon constrained world • It is coming, it will take time, it won’t be cheap • Everyone needs to play and pay • Research funding and talent are vital • Government, private, academic partnerships