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Fossil Fuels’ Encore

December 18, 2012

natgas-methane-moleculeEconomic Growth! Energy independence! Climate Change! There are countless arguments for moving beyond fossil fuels, for world energy needs. Unfortunately, many hurdles must be overcome before we can feasibly count on other sources of energy to replace coal, oil and possibly natural gas, which all together provide the lion’s share of the world’s electricity generation and transportation fuels.

Even if there were no greenhouse effect, all of the fossil fuels we rely on will probably be depleted within a few hundred years. If humankind is going to have a future on this planet, at least a high-technology future, it is absolutely inevitable that we’ll have to find an alternate energy pathway.

Energy Landscape

Two profound questions loom over all other energy concerns: will there be enough affordable energy in the near future to sustain the world’s economies? And, if not, what are the long term solutions?

There are no simple answers, today’s global energy economy is faced with increasing energy demand, depleting resources, rising energy prices, limited availability and reinforcement of countermeasures to reduce pollution and the effects of global warming.

The answers depend on each region’s inventory of resources and energy needs as well as their political and cultural environment.

The 1973 and 2009 fuel share of the world’s total energy supply is shown in the following chart: 1973 data is represented by the green columns, 2009 data the blue columns.

World Energy Supply by Fuel 1973- 2009At present, fossil fuels still dominate world primary energy supply. Oil leads both coal and natural gas. However, between 1972 and 2009, oil showed a drop in share relative to coal and natural gas. Of the three fossil fuels, natural gas showed the largest increase between the two target years.

By 2009, biofuels and waste-to-energy made up another 10% of total supplies, followed by nuclear and conventional hydropower such as dams. Renewable energy sources round out the roster, accounting for less than 2% of production – mostly as the result of investments in wind and solar.

These sources and their proportions will have to change eventually, since the planet’s known supplies of fossil fuels are limited. But during the next couple of decades, the nation’s energy menu is unlikely to be substantially different from today – assuming “business as usual” conditions.

The total world energy consumption by country is illustrated in this map: the darker the color, the higher the energy consumption. Following the map is a chart showing the actual and projected growth rates of energy consumption by OEDC and and Non-OEDC countries from 1990 to 2040.


OEDC vs Non OEDC Energy Growth“The Organization for Economic Co-operation and Development countries (OEDC), which were the center of energy demand, was impacted by the economic crisis, lower population growth and changes in their economic industrial structure. Their energy consumption fell in line with the drop in the European Union and the stagnation in North America. The demand for energy shifted from the OEDC countries to China, India, Africa and the Mideast; where energy consumption continued to grow steadily; with China widening the gap with the United States.” Source ExxonMobil

One of the most potentially important trends in the energy field is how emerging economies’ development priorities are shaping energy markets. These emerging countries are expected to make up the bulk of growth in demand for energy in the coming decades, with countries outside OEDC accounting for 83% of the expected growth in energy demand between now and 2035.

As the global centers of expansion, these non-OEDC countries will increasingly influence how new energy markets evolve. Many of these countries have new notions of sustainable development – that are likely to bring about energy systems different from U.S. or European models of energy infrastructure and use.

On the consumption side, this chart shows 1973 and 2009 fuel shares of the world’s total consumption.  1973 data is represented by the green columns, 2009 data the blue columns.   Source: IEA 2011 Key World Energy Statistics

World Energy ConsumptionjpgFollowing a similar trend with production, consumption is dominated by fossil fuels.  Biofuels and waste-to-energy collectively called biomass emerge as a viable energy resource in the world market. However, their share has remained steady over the target periods.

As renewable sources of energy, wind, solar, geothermal and wave-action make a negligible contribution to world energy consumption. But in all fairness, if not supplied, it will not get consumed.

Electricity can’t be pumped out of the ground like oil or captured from moving air like wind energy. So it is called a secondary source of energy. Meaning it is produced from primary energy resources which include the remaining fuels shown in the chart.

Experts predict a 35% increase in demand for electricity by 2030. In practical terms, that means an equivalent increase in demand for coal and gas, at least for the next decade.

Electricity generating plants now consume a sizeable portion world energy from all sources, including 70% of world’s coal and nearly 40% of its natural gas. There is no immediate way to alter that situation. In the near term, renewable resources are unlikely to substantially change the mix of world energy supply.

While nuclear generation is A zero-atmospheric-emissions alternative that already produces  around 15% of the world’s electricity, efforts to increase that capacity face large, though not insurmountable, hurdles: high capital investment costs and resistance from citizens groups that oppose the use and storage of radioactive material.

The trend in international energy prices for fossil fuels is another important factor driving fuel utilization.

This series of charts show the variation and volatility in global spot prices for oil, coal and natural gas from 1985 to 2011, source: BP Energy Outlook 2030. Each fuel is displayed on a separate chart. The colored lines are prices from different traders; for the most part the lines are similar in shape and value.

2011 IEA Key Energy Statistics (Coal price pages)

2011 IEA Key Energy Statistics (Crude Oil price pages)2011 IEA Key Energy Statistics (Natural Gas price pages)

Historically, oil prices are unstable and rise and fall in response to world economics, stability, speculation and rumors. The peaks and valleys can be traced back to any one or a number of these factors.

Global crude oil markets have seen an erratic upward spiral in prices for many years. Looking down the road, there are no indications that this upward price pressure will ease in the foreseeable future; forcing price increases throughout the supply chain.

Coal prices have also been on the increase since 2005 and recently are hitting all-time highs. The rising price reflects the boom in demand for energy resources in China and India, as well as supply problems related to Australia’s floods.

Much to the dismay of environmentalists, the use of coal has increased over the past few decades both in absolute terms and as a percentage of total primary energy supply.  It is expected that this surging need for energy in emerging economies will not ease, especially with China. The continued pressure on coal demand over the next five years will have strong implications for world coal prices.

The boom in production of natural gas trapped in shale formations, which has been unlocked by new technology, has driven U.S. gas prices to a 10-year low – about where they were in 1976, and various low points in the 90s. This has proved a huge blessing for big industrial users of natural gas.

The gap between U.S. and international gas prices has expanded to all-time highs, giving American industries a competitive advantage. Energy intensive industries in Europe and Asia are becoming increasingly aware of the huge edge gained by shale gas production.

The fact is industrial countries are almost fully adapted to fossil fuels. Coal and natural gas provide the majority of power generation; Nuclear power, biofuel, waste-to-energy, and hydro-electric power all made inroads to replace fossil fuels in the world economy.

Energy Flow

The chart below shows the flow of energy and resource utilization, measured in petajoules (PJ – 1015 joules, 1 kilojoule = 0.948 BTU) across the energy system of 136 countries for 2007.   Source: Lawrence Livermore National Laboratory, U.S. Department of Energy

Global Energy Flow - Lawrence Livermore Labs

This chart illustrates the connections between primary energy resources (fossil, nuclear, hydro and renewables), shown at the far left, and end-use sectors categorized into residential, commercial, industrial, and transportation.

Electricity and Heat (E&H) generation is listed midway between the primary sources of energy and the final demand centers. The reason for this is E&H’s role as a secondary source of energy; consuming primary energy sources and supplying energy to end-use sectors.

Also in the end-use sector is non-energy, located between the industrial and transportation categories on the right hand side of the chart. Non-energy is the conversion of primary energy sources to durable products such as derived fuels.

The grey boxes on the far right quantify “Rejected Energy” and “Energy Services”, referring to energy that’s lost and not used (such as waste heat) energy that is used to perform work, respectively. The size of each box and the thickness of each line is a relative measure of the amount of energy delivered or received.

The total World energy capacity in 2007 was 490,000 PJ. To better understand what all this means, we will follow the flow of energy into and out of electricity and heat generation, or E&H, which has a total energy capacity of 190,000 PJ. Starting from top to bottom, the primary energy sources flowing into and consumed by E&H are:
• Wind: 630 PJ
• Nuclear: 30,000 PJ
• Hydro: 11,000 PJ
• Solar: 21 PJ
• Geothermal: 1,900 PJ
• Natural gas: 43,000 PJ
• Coal: 92,000 PJ
• Biomass: 2,900 PJ
• Petroleum: 13,000 PJ.

The energy from each fuel source not consumed by E&H flows to other demand sectors.  For example, only 92,000 PJ, or 70% of coal’s total capacity, is consumed by E&H, with the remaining energy supplied to the Industrial and Non-Energy sectors.

Almost immediately it becomes apparent that every fuel source is used to generate electricity, with coal and Natural gas comprising two-thirds of E&H’s energy portfolio. Nuclear, hydro, and biomass are low mid-tier suppliers. The remaining fuels—geothermal, wind and solar—are all renewable resources that comprise only a small fraction of E&H’s energy supply.

Looking at the output side of E&H, the one aspect of the chart that is blatantly obvious is most of E&H’s energy output is rejected. That is 120,000 PJ—more than 60% of all energy produced by E&H—is lost and wasted as heat. Quite remarkable!

Only the remaining 75,000 PJ, less than 40%, is supplied to several demand sectors as useful energy to provide work, which in turn rejects some of this supplied energy as wasted heat.

The Energy Flow diagram can be summarized accordingly.

• The big three fossil fuels; coal, petroleum and natural gas are the primary sources of energy consumed in the world.
• The major consumer of energy is electrical generation followed by transportation
• Renewables account for a small fraction of the world’s energy portfolio.
• Oil remains king of transportation, and is essential in many industrial processes such as the manufacture of plastics and fertilizers.
• The transportation industry is the most inefficient sector, losing 75% of its energy supply as heat, as shown by the thick GREY LINE on its output side,
• Electrical generation is the major consumer of fuels in the global economy and like transportation is extremely inefficient
• Industry is the most balanced; uses an equal combination of most primary fuels – and is highly efficient, turning 80% of what it consumes into useful work
• On a relative basis homes and business are equally efficient..

This suggests that sustainable practices aimed at improving the efficiency of the world energy mix should be targeted to vehicles and electricity generation.

If successful, this would have a tremendous impact on reducing energy usage throughout the economy, eliminate the need to build more power stations, and reduce consumption of petroleum by the transportation industry. The chart also suggests that investing in sustainable solutions to make residential homes and commercial building more energy efficient will have a minor impact on reducing world energy supplies.

So what is natural gas?

Natural gas is a mixture of hydrocarbons that varies across the board, depending on where it is found, but its chief component is “methane”, which usually makes up about 80-95 % of the gas. The rest of the gas consists of varying amounts of other small chain hydrocarbons like ethane, propane, and butane. The chemical formula of Methane is CH4. By weight, methane is 60% carbon. Carbon content is important in terms carbon emissions, which we will discuss shortly.

Gasoline is a complex mixture of over 150 hydrocarbons that may have between 5 to 12 carbon atoms per molecule. Octane with 8 carbon atoms is the principal component of gasoline. Gasoline may also contain chemicals such as corn ethanol, lubricants, anti-rust agents and anti-icing agents that are added to improve vehicle performance. The chemical formula of Octane is C8 H18.  By weight, gasoline is 73% carbon; an increase of 13% over natural gas.

Coal varies widely in its composition containing both combustible organic compounds and inorganic impurities.  It’s composed chiefly of rings of six carbon atoms joined together in a highly complex composition of layered arrangements that has significant amounts of oxygen and nitrogen and trace amounts of sulfur and other environmental pollutants such as mercury, arsenic, cadmium, lead and zinc.  Mercury and sulfur are present in hazardous concentrations. The chemical formula of coal has been approximated as C135 H96 O9 NS. By weight, coal is 81% carbon; an increase of 21% over natural gas.

Natural gas is the cleanest of all the fossil fuels, as evidenced in this chart; coal – green; Petroleum – blue; Natural gas – light blue columns. The level of each primary pollutant is presented as percent difference from coal, where coal is given a relative value of 1. For example, the CO2 level of oil is about 80% that of coal. The CO2 level of natural gas is about 55% that of coal, and so on with the other pollutants.

Fossil Fuel Emission Levels

Source: EIA Natural Gas Issues and Trends

Because of their complex make up, when combusted, coal and for the most part oil emit higher levels of carbon dioxide, carbon monoxide, nitrogen oxides (NOx), and sulfur dioxide (SO2). Coal also releases ash, particulates and mercury into the environment, substances that do not burn but instead are carried into the atmosphere and contribute to pollution.

The combustion of natural gas, on the other hand, releases very small amounts of sulfur dioxide and nitrogen oxides, with virtually no ash, particulate matter or mercury, and lower levels of carbon dioxide, carbon monoxide, and other reactive hydrocarbons.

What Is Renewable Energy

The effort to reduce the world’s dependency on fossil fuels is approached in two different ways – clean energy and sustainability. Where, clean energy refers to renewable energy technologies and sustainability usually refers to energy conservation achieved through energy efficiency programs.

Looking at clean energy, there is much debate about how to define and distinguish renewable from non-renewable energy, and the terms and definitions chosen can have huge impacts on policy and regulatory efforts aimed at promoting clean energy resources.

The definition of renewable energy seems clear cut: The sun continues to shine, so solar energy is renewable. The wind continues to blow, so wind turbines churn out renewable power. “But what about a banana — you can just about grow them forever and when it goes into the garbage and gets burned,” it produces energy and emissions.”   Also, if seemingly clean sources of energy have a long history of use, such as conventional hydropower or dams, why not classify it as renewable. The prevailing thought is by considering existing dams a renewable source of energy it would allow utilities to satisfy any renewable-energy mandates, and therefore, provide little incentives to install new clean energy facilities such as wind, solar or tidal power.

Environmentalists argue that one of the goals of renewable energy is to cut back on the heat-trapping gases emitted from burning organic matter, whether fossil fuels or bananas. Where there is no fire, there are no emissions. A purist would not consider burning bananas a renewable resource.

As a tradeoff, renewable energy can be considered any new energy resource that is naturally replenishable, but flow-limited. That is they generate energy only when the wind is blowing or sun is shining. They are virtually inexhaustible in duration but limited in the amount of energy that is available per unit of time.

Geothermal, biomass and bananas may be stock-limited in that stocks are depleted by use, but on a time scale of decades, or perhaps centuries, they can probably be replenished. Coal and oil can take hundreds of millions of years to form. Of the fossil fuels, only natural gas can be produced anywhere from a few years to hundreds of millions of years.

Furthermore, renewables do not produce toxins or pollutants that are harmful to the environment.

Renewable energy resources are derived:

• directly from the sun, such as   – thermal,   – photochemical,   – photoelectric.

• indirectly from the sun, such as    – wind,   – hydropower,   –  photosynthetic energy stored in biomass and bananas.

• or from other natural movements and mechanisms of the environment, such as   – geothermal,   –  tidal energy.

What is Sustainability

The trend is clear; the world has to steadily improve its ability to produce more with less energy. Concerns about energy affordability, energy independence, profitability, a clean environment and reduced GHG emissions have heightened interest in the potential for sustainable practices to help address these important issues.

In this sense, renewable energy and sustainability have the same bottom line goals of conserving resources and providing a cleaner environment.  However, they tackle this goal in different ways. In this sense they are separate parallel activities leading to reduced carbon usage.

Sustainability is an approach or even mindset in the sense of an organization and its operation’s simultaneous and balanced concern for:
• People – in terms of an improvement towards labor, the community and region,
• Planet – in terms of benefits towards the ecology and the environment, and
• Profits – in terms of real economic benefits enjoyed by the residential, commercial and industrial sectors.

This combination of people, planet and profits are referred to as the triple bottom line.

The key words in defining sustainability are “organization” and “profits.” Rather than the utility base approach of renewable energy, sustainability is the responsibility of an organization and what that organization can do to conserve energy and save money. Their interest is to improve their own balance sheet rather than the balance sheet of other organizations. It’s a matter of internal energy waste management and the programs they implement to reduce their utility bills and operation expenses.

Therefore, the main point of departure between renewable energy and sustainability is how, where and why they are used. Renewable energy is fuel-based and for the most part involves fuel-switching by utilities as a result of policy mandates.

On the other hand, sustainability is organizational-based and for the most part involves implementing energy efficiency programs in the need to reduce expenses. Industries can be more competitive by saving energy and cutting costs and thrive in the global economic landscape.

Overall, society needs both sustainable and renewable resources. Neither precedes or succeeds each other. We can immediately benefit from the implementation of energy efficiency programs while working diligently on a broad spectrum of renewable energy technologies. In this way, we will continuously reduce our dependence on fossil fuels, improve the environment and reap significant financial benefits.

Levelized Cost of Energy

To determine the most economical technology for the type of demand for which new capacity is needed, we need to look at Levelized costs. The Levelized Cost of Electricity  (LCOE) is a convenient summary measure of the overall competiveness of different generating technologies.

Levelized cost represents, the per kilowatt hour cost of building and operating a generating plant over an assumed financial life and duty cycle. It assumes a 30-year cost recovery period.

Key inputs to calculating LCOE include overnight capital costs, fuel costs, fixed and variable operations and maintenance (O&M) costs, financing costs, and an assumed utilization rate for each type of plant, follwoing figure.

The following chart shows the estimated Levelized cost of new electricity generating technologies in the U.S. for a variety of fossil fuel and renewable energy plants.  Each column of the graph is divided into the various financial components of Levelized cost:
• capital costs are illustrated by the green section of each column
• fixed O&M  –  purple
• variable O&M  including fuel –  light blue, and
• transmission investment  – dark blue sections.

Alongside each colored column is a gray bar representing the utilization rate for each plant type, which is the ratio of the actual output to its potential output had it operated at full nameplate capacity the entire time. The trend emerges that the lower the utilization rate the higher the LCOE.

Estimated LCOE New Generation Resources 2017

Source: U.S. EIA Levelized Cost of New Generation Resources

Clearly, the lowest plant costs are for natural gas-fired power. For plants entering service in 2017, the EIA recently projected [] that combined cycle plants would be by far the least expensive, at around $65/MWh. Though not shown on this chart, at the other extreme are solar PV and solar thermal plants, at more than$150/MWh and $240/MWh, respectively.

Traditionally, natural gas had trouble competing on the variable cost portion but was much more capital-efficient to build. Today, coal-fired plants have skyrocketed in cost due to uncertain future fuel prices and environmental compliance. The EIA and others have projected that the spread between coal and natural gas will continue to increase, making gas-fired plants more attractive. This has made it very difficult for other energy sources to compete with gas.

The demands on coal-fired plants have made biomass power stations a competitive option. The Levelized costs steadily increase from biomass and geothermal to nuclear and hydro, before skyrocketing to wind and solar power.

Without question, the most important barrier to a larger‐scale implementation of all of these low carbon technologies comes down to one factor: the cost of the technology, and in particular, the private cost born by the organization implementing the technology.

Technological, regional and policy factors can influence investment decisions including technological and regional characteristics of a project, such as:
• the existing resource mix in a region,
• capacity value, which depends on both the existing capacity mix and load characteristics in a region,
• policy-related factors and incentives for specified resources,
• the uncertainty about future fuel prices and future policies may cause plant owners or investors who finance plants to place a value on portfolio diversification rather than the Levelized cost, and
• penalties and taxes.

The Bridge to the Future

Any projections on the future of the world’s energy production, consumption, and trends are marked with many uncertainties. World economics, politics, environmental concerns, and new technological advances can alter any projection.Brooklyn Bridge

Like it or not, renewable energy has a long way to go to make an impact on any one country’s energy inventory.

Every year more and more power is generated by natural gas and less by coal. Natural gas is a more efficient source of electricity, since it takes 60% more coal to produce 1 kWh of electricity. Fuel-switching power generation to natural gas makes economic and practical sense.

Just about every internal combustion engine could run on natural gas. Natural gas fueled vehicles could make the impact on reducing petroleum consumption that Electric Vehicles (EVs) hoped to achieve.

Natural gas is a step in the right direction. It’s abundant. Recent advances in technology have unlocked vast supplies of natural gas. Technically recoverable unconventional shale gas resources exist around the world. These reserves are located in 33 countries and make up 22% of the nearly 850 Tcm of proven and technically recoverable global natural gas supplies.

Countries that have capitalized on their shale gas resources have found it to have a profound impact on job growth; consumer costs of gas and electricity; tax revenue; economic growth, and reducing greenhouse gas emissions. Under a scenario that envisions a worldwide momentum towards policies aimed at cutting greenhouse gas emissions, electric utilities and other sectors of the economy will have no other choice but to adopt natural gas as a logical alternative.

Natural gas will buy time to further develop, cleaner fuels. Hopefully on the other side of the bridge there will be a viable renewable energy industry, whether it’s 50 years or the end of the century. But it’s not here today.

References: Various statements made in this article are direct quotations from:
[1] International Energy Agency (IEA), for their report, “Key Energy Statistics.”
[2] British Petroleum for “Energy Outlook 2030” and “Statistical Review of World Energy.”
[3] Lawrence Livermore National Laboratory and the U.S. Department of Energy for their “Global Energy Flow Diagram.”
[4] ExxonMobil, 2012 The Outlook for Energy: A View to 2040.”
[5] U.S. Energy Information Administration (EIA) for their report, “Annual Energy Outlook 2012.”
[6] McKinsey & Company for their report “Unlocking Energy in the U.S. Economy.”
[7] KPMG International for “Taxes and Incentives for Renewable Energy.”


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