An Overview of Global Energy Issues

1. An Overview of Global Energy Issues Presented by Robert Rapier Merica International, LLC For Orlando Energy Conference November 16, 2009

2. Outline • My Paradigm • The Easy Oil is Gone • The Global Oil Picture • The Pressure on Prices • What will replace oil? • Understanding energy intensity and scale • Energy Policy in Brazil • A model for the world? • Brazil versus U.S. energy statistics • Energy Policy Mistakes • Solutions that would make a difference • Building a Sustainable Platform • Strategy

3. My Paradigm • The days of substantial excess oil production capacity are over • Oil price volatility will continue, but long term price trends for oil are much higher • Replacing fossil fuels with biomass will be a huge challenge • Each year we burn >400 years of ancient biomass* • Energy density of oil is 3 times that of biomass • Biomass costs will rise due to competition • Net BTU efficiency will become more important • How many net BTUs can you extract? *Burning Buried Sunshine: Human Consumption of Ancient Solar Energy

4. The Easy Oil is Gone Graphic Source: Colin Campbell

5. Global Oil Picture • Global oil production – 85.4 million bpd* • On a plateau since 2005 • Some spare capacity, but… • Projects are being delayed – setting up price surge • Oil exporters building refineries to capture more of the value chain • Saudi Arabia would like to ship finished products • U.S. crude oil production – 5 million bpd • Peak U.S. production was 9.6 million bpd • EIA predicts turnaround is just around the corner • U.S. oil consumption – 19.5 million bpd • U.S. refining capacity – 17.7 million bpd *Source: Energy Information Administration

6. Global Oil Picture • The good news • U.S. oil demand down by 1.2 million bpd from 2004-2008 • The bad news • Largely recession-induced • Demand from China and India up by 1.9 million bpd • Oil at $80 the new norm • How does the recession end if oil prices remain at recession-inducing levels? *Source: Energy Information Administration

7. Pressure on Oil Prices • If excess capacity remains constant and substantial, prices are relatively stable and related to the cost of production

8. Pressure on Oil Prices • However, eroding capacity means higher prices, higher volatility, and sometimes much higher profits for oil producers

9. My View in July 2007 • When spare capacity is gone, prices will ultimately go much higher • How high? In Europe, consumers pay the equivalent of $250/bbl* - 3x U.S. prices • *Based on Dutch gasoline price in Q1 2009

10. The Biomass Contribution • The “Billion Ton Study” • Over 1.3 billion dry tons/year of biomass potential • Enough to produce “biofuels to meet more than one-third of the current demand for transportation fuels” • Converting to ethanol at 90 gallons/ton* yields • 117 billion gallons • Correcting for lower energy content yields • 77 billion gallons of gasoline equivalent • This is <45% of the BTUs of the starting biomass • This is not net of energy to harvest and transport biomass • Net energy unknown as no large commercial cellulosic ethanol facilities • U.S. gasoline usage is around 140 billion gal/yr • Is that cup half full? *Source: Private communication from POET.

11. Key Questions for Alternatives • Is the process enabled by fossil fuels? • Does the process impact food supplies? • Can the process operate without straining water supplies? • Does the process lower the soil quality? • Does the process impact local biodiversity? • What are the emissions from the process?

12. Sustainable Alternatives? • Renewable electricity • Biomass, solar, geothermal, wind paired up with plug-in hybrid electric vehicles (but some technical issues need solutions) • Micro-CHP • Biogas • Simple systems; lower energy inputs • Pyrolysis oil • Fast and simple • Used for stationary power or upgraded to transportation fuel • Green diesel • Biomass gasification or hydrocracked lipids • Ethanol in some cases • Byproduct of sugar processing • Corn ethanol in Iowa for Iowans? • Renewable petroleum • Microbial or catalytic approaches

13. The Unsustainable Alternative Graphic Source: Energy Information Administration

14. A Word on Energy Intensity • The energy balance matters • How many BTUs of fossil fuel to produce a BTU of renewable energy? • If production costs are high because energy inputs are high, you have a receding horizon problem • Cost position may worsen as oil prices increase • The problem of receding horizons • "Oil Shale Development Imminent” – headline circa 1900 • When oil was $20/bbl, oil shale needed $40/bbl • At $80/bbl, oil shale still not economical • Two high-profile examples of energy intensive processes in the renewable energy world • Cellulosic ethanol • Algal biofuel

15. Understanding Scale • While we have been successful at rapidly ramping up corn ethanol, it barely registers on the scale of our petroleum demand

16. Energy Policy in Brazil • Sugarcane ethanol has long been a cornerstone of Brazil’s energy policy • Can be produced from byproduct molasses – food and fuel • The key to the process is bagasse • A readily available energy source for fueling boilers • Minimal fossil fuel inputs relative to corn ethanol

17. Can the World Emulate Brazil? • “As a result [of ethanol], Brazil has virtually stopped importing expensive foreign oil.” – Dan Rather in The Ethanol Solution • “If Brazil can do it, so can we.” – Bill Clinton, promoting California’s Prop 87 • “As Brazil's ‘energy independence miracle’ proves, an aggressive strategy of investing in petroleum substitutes like ethanol can end dependence on imported oil.” – Vinod Khosla and Tom Daschle in Miles per Cob (a New York Times editorial) • “I'm driving a Chevrolet in the middle of Brazil on ethanol, pure ethanol, not a drop of oil, imported oil in this tank. And here is the stuff grown all around us that is the fuel. So I'm thinking, why can't I do this in America? Why aren't we doing it?” – Frank Sesno in CNN’s We Were Warned

18. Reality Check • Annual ethanol usage in Brazil: 0.33 barrels* per person • Annual oil usage in Brazil: 4.4 barrels per person • Oil still supplies more than 90% of Brazil’s transportation needs • Brazil celebrated energy independence in 2006 • Brazilian President Luiz da Silva made the announcement on the P-50 oil rig in the Albacora Leste field in the Atlantic Ocean * Barrels of oil equivalent (BOE)

19. Reality Check – It Gets Worse • Annual oil usage in US: 23.4 bbl/person* • Annual oil usage in Brazil: 4.4 bbl/person • Annual oil production in US: 8.1 bbl/person • Annual oil production in Brazil: 3.5 bbl/person • U.S. supply imbalance: 15.3 bbl/person • Brazil’s supply imbalance: 0.9 bbl/person • Consumption and production are: • Grossly unbalanced in the US • Fairly balanced in Brazil • So, how can the US emulate Brazil? • By cutting oil consumption by 2/3rds • Or by tripling oil production * Consumption and production figures are from 2008

20. Energy Policy Mistakes • Leaders mislead the public • “We can be just like Brazil” • Can create demand for a pseudo-sustainable solution • Leaders change energy policy every year • Uncertainty of tax policies inhibits investment • Lack of long-term planning is detrimental • Leaders attempt to choose technology winners • Which is influenced by: • Misleading arguments from various ‘experts’ • Vested interests • Desire to please constituents

21. Suggested Solutions • Cease the delusions of ‘cheap gas for everyone’ • Cheap gas encourages fossil fuel consumption • Trade off fossil fuel taxes for income taxes • Rebate income taxes to make it revenue neutral • Encourages energy conservation • Encourages alternatives • Encourages mass transit • Encourage behaviors that reduce energy consumption • Rebates for solar water heaters, fuel efficient cars

22. Vision of a Sustainable Platform • The Forestry Leg • Managed forest plantations • Utilize trees that can improve soil quality • By managing the biomass, we • Manage the sustainability • Ensure our supplies • The Logistical/Trading Leg • Moves biomass from forestry leg to conversion leg • Potentially sources 3rd party biomass as appropriate • The Conversion Leg • Utilizes appropriate conversion technologies that fit the local biomass resource and local energy need (e.g., torrefaction to displace coal) • The Distribution Leg • Gets fuel into the marketplace

23. Strategy • Assess the energy profile of a location • Liquid fuels – gas, diesel, jet fuel • Electricity – coal-fired, liquid fueled, natural gas • Heating • Assess the potential renewable resources • Biomass, solar, wind, geothermal, hydropower, etc. • Evaluate the conversion technologies • Is there a match between the biomass, the conversion technology, and the demand? • Conduct the life cycle assessment • Engage the community • Will local jobs be created? • What are the land use impacts? • Execute • Lots of “good ideas” are executed poorly

24. Thank You