Peak Oil and The Economics of Energy Efficiency

Peak Oil and The Economics of Energy Efficiency - Overview (The end of cheap oil) Scott Waterman Alaska Housing Finance Corp For a list of citations from this presentation write: swaterma@ahfc. state. ak. us 907 -330 -8195

Today……. On Planet Earth l l l We need to fully understand the scale of the problem to maximize the solution Fossil fuel use far outstrips any other source of energy Fossil fuels are finite. After production peaks, fossil fuels become MUCH more expensive Our economy has revolved around cheap oil Climate Change driven in large part by fossil fuel burning

Alaska l Alaska is on the leading edge of problems – We live at the end of the supply chain – Energy costs are rising rapidly - Our villages pay up to $8. 00 per gallon, and up to $. 65 per Kw. H for electricity – North Slope Natural Gas ? ? – Climate Changes are more prevalent here than in other parts of the planet – Kivalina, Newtok, Shishmaref & Unalakleet are eroding into the sea, or threatened by rising sea levels – Arctic National Wildlife Refuge Oil Drilling – Ocean Acidification affects salmon runs High CO 2 levels

Along the Railbelt l l Cook Inlet Gas Reserves are running low Deliverability fears Flint Hills Refinery cuts production Utility generation uncertainties plague forecasters – G R E T C Enstar prices double since 2002 Huge potential for renewable electricity Many questions at this time reater l l l ailbelt nergy ransmission orporation

What is Peak Oil? l Is not “running out of oil” l It is about the halfway point of production of the available resource. l It is the peak of production.

It’s the Economy, Stupid! Bill Clinton, 1992 l Every recession in the US since 1929 has been preceded by a run-up in energy costs l Economic issues overwhelm those of energy and climate change l Energy and climate change will drive the economy – in either direction

Economic activity is closely related to energy use

How much oil do we need?

Oil – Black Gold – Texas Tea l Oil allowed for great productivity, transportation, goods, economic and military power l Over 23, 000 hours of human labor equivalent in a barrel of oil l Has supplied up to 85% of Alaska’s budget since 1976

DEFINITION of EROI (Sometimes EROEI) Energy return on investment for an activity: Energy delivered to society EROI = _____________ Energy put into that activity Usually consider energy invested from society

l l l US: In 1900 -- 1930, US got 100 barrels of oil back for each barrel invested in seeking it (EROEI = 100: 1) In 1970 got about 25 for 1 In 1990 s got about 11 to 18 for one barrel (EROEI = ~15: 1) Much less for finding and recovering new oil (EROEI = 3: 1? ) Global Projection: Gagnon and Hall 2009 : ?

Oil shock and interruptions l October 1973 – Arab Oil Embargo – production dropped 9% - panic l 1979 – Iranian Revolution – supplies dropped 4% - panic l Carter Doctrine – Oil is vital to the national security interests of the United States – By any means necessary, the US will maintain access to the Persian Gulf Oil Fields

Oil – It is the economy l l l l Gap between imports and domestic production increased from 8% In 1971, to 33% in 1973 Dependence on imports – 65% and rising Costs are up - volatility erodes prosperity 2008 Balance of trade deficits - $695. 9 B $309. 4 B of BOT deficit is energy Each $1 billion of trade deficit costs America 27, 000 jobs USDOE (251 x 27, 000 =6. 77 M Jobs) Inefficiency threatens competitiveness National security is threatened

Imported Oil – Supply and Demand l Daily global oil production is 84. 5 million barrels per day, demand is 84. 9 million barrels per day. l The world cannot import oil (IEA projections September 10, 2009)

40 % comes from unknown or undeveloped sources

Crude Oil Imports (Top 10 Countries) (Thousand Barrels per Day) Source EIA August 2009 Crude Oil Imports (Top 10 Countries) (Thousand Barrels per Day) Country 9 -Jul 9 -Jun YTD 2009 8 -Jul YTD 2008 CANADA 2, 110 2, 001 1, 916 1, 976 1, 934 1, 137 902 1, 063 1, 676 1, 538 985 1, 099 1, 136 1, 200 1, 197 865 1, 134 1, 015 1, 187 1, 035 NIGERIA 858 769 668 741 992 BRAZIL 375 269 342 241 224 IRAQ 365 390 453 696 677 ANGOLA 320 435 504 640 517 286 261 178 182 267 305 272 202 127 SAUDI ARABIA MEXICO VENEZUELA COLOMBIA RUSSIA

Problems among the counties exporting oil to US l l l l Saudi Arabia – Wahabi – Terrorism Venezuela – US supported coup, China Mexico – Corruption at Pemex, Decline of Cantarell (World’s 3 rd largest oilfield) Nigeria – corruption, environmental disaster, vote fraud Angola – increasing civil insurrection, Iraq – Russia – oil fields overproduced, rising internal demand Columbia – Civil war - corruption

June 2004

Energy Task Force Advisor Mathew Simmons

Fossil Fuels are a finite resource They will peak at some point, and eventually not be useful on the scale they are today. We will never completely run out of fossil fuels

The End of Cheap Oil l In 1956, M. King Hubbert predicted US oil production would peak in 1970 l Production starts at zero; l Production then rises to a peak which can never be surpassed; l Once the peak has been passed, production declines until the resource is depleted, or the field is abandoned.

Hubbert Curve for Alaska Crude Oil Production Billions of Barrels per Year 2. 5 2 1. 5 1 0. 5 0 1960 1970 1980 1990 2000 2010

The Hubbert Curve – Peak Oil! l He was roundly criticized – then widely respected l Today there may be 2000 -2300 Gb of recoverable conventional oil in the ground. We have used nearly half of that. (CJ Campell, Petroconsultants) l The second half is more expensive to produce than the first half. l What are the recoverable reserves today?

World Oil Production Growth l l l 2003 – 3. 51% 2004 – 4. 16% 2005 – 2010 – 1. 5% Actual production has been flat since 2005 $17 Trillion needed to maintain today’s rate of production Demand expected to increase to 120 M Bbls/day by 2020 EIA, IEA

Global Oil Reserves Estimates vary from 838 - 1000 GB conventional oil remaining to pump (Campbell/Leherrere) l Mid 80’s oil price collapse caused OPEC countries to inflate reserve numbers to increase quota share (300 Billion bbls) l Venezuela, Iraq, Kuwait all doubled reserves reporting - Abu Dahbi tripled, Saudi Arabia increased by 50% l Reserve info is inaccurate – politics, economics, secrecy, fear are the reasons l

Oil Discovery Declining

1981 l The year rig counts peaked l The year tanker capacity peaked l The year refinery capacity peaked

Oil Discoveries Oil discoveries have lagged behind consumption every year for the past 20 years. l Discoveries have replaced only 33% of annual production, with 31+BBls used, 10+ BBls produced l Declines in major fields are about 5% per year globally. This means a loss of 4 mbpd each year l 4 mbpd = all tar sands, biofuels, and heavy oil combined l

Oil Discoveries l l l No major oil finds in ‘ 04 or ’ 05 Tiber in Gulf of Mexico ’ 06 – Production costs could run to $50/bbl. 7 k underwater, 25 k feet deep - 500 mbls - 15 gbbls 2007 - Brazil’s Tupi field is 7 K underwater, 16 k feet deep - 8 gbbls – Could cost $100 B more than other fields its size What was discovered was smaller quantities in deeper wells in deeper water offshore More gas, less oil. Haynesville Shale

Hirsch Report PEAKING OF WORLD OIL PRODUCTION: IMPACTS, MITIGATION, & RISK MANAGEMENT l Peak Oil predictions are difficult due to poor reserve data and secrecy, political bias l Peak Oil problems will not be temporary, l past “energy crisis” experience provides little guidance. l Oil peaking deserves immediate, serious attention, and mitigation must begin now.

Hirsch Report Peaking oil = dramatically higher oil prices, protracted economic hardship in the US and the world. l Timely, aggressive mitigation initiatives addressing supply and demand will be required. l Greater end-use efficiency is essential, yet not sufficient to solve the problem.

Hirsch Report l Oil peaking will create a severe liquid fuels problem for the transportation sector l Mitigation will require a minimum of a decade of intense, expensive effort - scale of liquid fuels mitigation is inherently extremely large. l Government intervention required, …or the implications of Peak Oil will be chaotic.

He finishes with…. . l “This problem is truly frightening. This problem is like nothing that I have ever seen in my lifetime. And the more you think about it and the more you look at the numbers, the more uneasy any observer gets. It’s so easy to sound alarmist, … but there simply is no question that the risks here are beyond anything that any of us have ever dealt with, and the risks to our economies and our civilization are enormous. And people don’t want to hear that. … This is really an incredibly difficult and incredibly severe problem. ” Robert L. Hirsch, in interview with David Room for Global Public Media, November 17, 2005 ix

Other quotes from around the globe l “The least bad scenario, I think, is a deep worldwide recession. And if we don't work together, it could be the equivalent of the four horsemen of the apocalypse: War, famine, pestilence, and death. ” Congressman Roscoe Bartlett, R-MD, co-founder, House Peak Oil Caucus, CNN Situation Room with Wolf Blitzer, March 15, 2006 xvii

Oil Officials See Limit Looming on Production l Some predict that, despite the world's fastgrowing thirst for oil, producers could hit that ceiling as soon as 2012. This rough limit -- which two senior industry officials recently pegged at about 100 million barrels a day -- is well short of global demand projections over the next few decades. Current production is about 85 million barrels a day. WSJ November 19, 2007

Tony Hayward CEO, BP Inc. l “Our view is that, at least in the medium term, the era of cheap energy is over. . . High oil prices are a wake-up call. The world urgently needs more energy investment of all kinds. We need all forms of energy from all sources and we need to focus on energy efficiency. ” l Times online, June 12, 2008

President George W. Bush in his State of the Union Address. l "Keeping America competitive requires affordable energy, and here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world. "

Climate Change l Munich Re – Natural disasters doubled from 2006, insured losses reached $30 Billion in 2007 l 2005 losses were $99 billion, economic losses topped $220 billion l Higher insurance premiums are resulting.

Cook Inlet Natural Gas Production Division of Oil and Gas, 2003 Annual Report

Reserves Growth Supply and Demand

The End of Cheap Gas – Shortages? 85% of Cook Inlet Gas is gone. We export half of what is produced(ISER 9 -2006) l Shortages could develop by 2009 if industrial fields remain dedicated to industry (Tony Izzo, former CEO, ENSTAR 6 -05) l l Agrium Fertilizer Plant in Nikiski shutdown December 2007 – 140 jobs and Kenai Peninsula’s 2 nd largest property taxpayer - Looking at coal gasification to keep operating

The End Of Cheap Gas l Storage adds significant costs and without it the system is vulnerable l Binding contracts with producers to insure local gas supplies, and allows 3 rd party producers to use LNG plant, encouraging additional exploration ADN January 16, 2008 l Some, not much exploration past 2 years

The End of Cheap Gas – What to Do? l l l Conservation and Efficiency Improve efficiency of power plants Find new reserves – maybe as much as 13 Tcf = >$5 billion investment … And/or Develop other sources of power – Wind Anchorage and Healy, Hydro and Geothermal WCI Pipeline Spur from Minto Flats and Nenana ($500 million cost) Storage of gas to meet peak demand

The End of Cheap Gas – Prices Rise l Cook Inlet gas now indexed to 36 month average of Henry Hub (lower 48) prices

Wind Energy l l l Fastest growing Sector of Energy Industry Cost Competitive with fossil fuels System size is growing 1. 8 to 5. 6 MW per turbine AVEC AWA Wind Utility of the Year 2008 8, 500 MW of wind added in 2009. equivalent to 8. 5 GW or nine nuclear plants. 16, 618 Mw are currently installed in US -

Wind Energy in Alaska l Wind Mapping project done 2004 l Great potential in coastal areas l Wind projects now functioning in Kotzebue, Selewik, Wales, St Paul l 2 new projects at or near completion, Tooluksak, and Kasigluk- Chevak, Savoonga and Gambell planned by AVEC

Solar Energy for Electricity

Solar Energy in Alaska l Passive solar design works very well l Silicon nanowire battery show promise l PV currently used mostly for remote stand-alone applications –RR crossing, Park buildings, remote cabins. l Still expensive compared to fossil fuel but that is changing

The earth has its own energy

Geothermal in Alaska l Mt Spurr + Lake Chakachamna = 400 -600 Mw of electric generation, plus heat enough to heat all of Anchorage, melt road ice, and heat enough greenhouses to feed the city. l Geothermal Mapping done by AIDEA 2004

Hydro Power in Alaska l Four Dam Pool – Kodiak, Wrangell, Glennallen, Ketchikan - $482. 7 M in AK funding - Sold at a $177 M loss in 2002 l Bradley Lake – 90 Mw, Eklutna – 37 Mw l Lake Chakachamna 330 MW power plant proposed - permit process underway by TDX Corporation l Susitna? ?

Coal in Alaska l Plants in Fairbanks – UAF, Eilson, Healy l Large coal reserves in AK l High air pollution in standard plants – Acid Rain in northeast US l Harvard University estimates 30 K deaths/annually from coal in US l Clean coal technology not there yet l Clean Coal plant in Healy sits idle at double estimated cost

Nuclear In Alaska l 10 MW mini nuclear plant proposed for Galena - a gift from Toshiba Corp. l 2 MW now needed, may need five in 20 years – excess could produce hydrogen or fuel greenhouses l 30 year plant life, entire plant removed at end of life cycle l ISER estimates lowest cost electricity of all options studied – diesel, coal, nuclear

Ocean Power l Leases in Lower Cook Inlet in 2007 -’ 08 l Two forms, Mechanical and Thermal – Wave or tidal action – Using the heat to turn turbines l New systems going in on European coastlines l Can be used as a base for wind turbines.

Which makes more sense?

Transportation

Arctic National Wildlife Refuge l 16 Billion Barrels (Bb) Technically Recoverable (5% chance Frank Murkowski, USGS) l 5. 7 Bb Technically Recoverable (95% chance, EIA) l Development and Extraction will take 51 years to recover all oil there

Oil savings/production, 10 years 30 25 40 mpg by 2017 20 15 Close light truck loophole 10 5 0 Cumulative oil savings/production, 2012– 2040 in Billion Barrels Drill in ANWR and adjacent areas

Vehicles l 80% of the energy used in an auto is lost as heat and exhaust l 20% is delivered to the drive wheels l Only 5% is needed to move the weight of the driver l 20% x 5% = 1% of the energy to move the driver l Cars burn their weight in gasoline each year

Hydraulic Hybrids l EPA and Ford have agreement for SUV’s and light trucks. l Should improve gas mileage by 3050% l NAC working with refuse haulers and FEDEX to develop Hydraulic vehicles for heavier use

Hybrids Electric Vehicles Hybrid electric vehicles first developed in the 1920’s l Current Toyota Prius and Honda Civic achieve 50+ MPG l Hybrid technology can improve performance or fuel economy, or both l Next generation Hybrids might achieve 100+ MPG l 1921 Owens Hybrid Electric Model 60 Touring Sedan

Hypercars l Concept by Amory Lovins, Rocky Mountain Institute l Safe, Comfortable and lightweight l 99 mpg-equivalent (EPA 84 highway, 115 city l Carries five adults l 0 -60 in 8 seconds l Drive by wire – Water as the only emission

Opel developed Eco Speedster -155 MPH – Hypercars 94 MPG l Volkswagon has L 1 – for 1 liter per 100 Km – 235+ MPG l Plug-in electric hydraulic diesel hybrids running on 2006 Supermileage Competition Biodiesel 235 MPG l Winner – 3415 MPG

Energy Efficiency l Energy Efficiency doesn’t even qualify as low hanging fruit. Rather, it is fruit lying on the ground. Steven Chu, US Secretary of Energy l We have gotten more energy out of efficiency improvements over the past 35 years than from all supply side expansion in the US. That is without even trying that hard. John Holdren, Chief Science Advisor to President Obama

Case study – Light bulbs l Incandescent light bulbs use 8% of their energy to produce light l 92% of the energy is producing heat l Alaska looses 71% of its electricity to generation and transmission l 29% X 8% = 2. 32% is used for light l 97. 68% is used for heat or wasted getting to the light fixture

Savings Calculator for replacing incandescent light bulbs with compact fluorescents (CFL’s) INPUT YOUR DATA HERE CFL Number of bulbs in analysis Watts used per bulb Cost per bulb Hours of bulb life Average hours / day light is on Electricity cost per Kwh Incandescent Number of Bulbs 10 CFL Wattage 15 Bulb Cost $0. 75 10000 750 Average daily usage 75 $2. 25 Bulb Lifetime 10 10 Electricity Cost 10 $0. 10 Your Results CFL Incandescent Electricity Cost Per year Five year Cost Payback in months Bulb Replacement time in months 273. 75 $314. 81 $1, 551. 25 1. 2 32. 9 2. 5 Actual Savings 219. 00 $1, 236. 44 54. 75 30. 4

Life Cycle Cost Analysis Refrigerator Life Cycle Cost Analysis Cost Kwh/Year Fuel Cost Old Cheapo 50 2500 $ 0. 10 $ 250. 00 $ 1, 250. 00 $ 1, 300. 00 Maytag 19 Cubic Foot (EE) 610 450 $ 0. 10 $ 45. 00 $ 225. 00 $ 140. 00** $ 975. 00 Difference -560 2050 $ - $ 205. 00 $ 1, 025. 00 $ 325. 00 **21% interest, two year term Annual Cost 5 year cost Interest Total Cost

Alaska AKWarm Rating compared by Age of Housing

So what to do? l Air Leakage l Heating System l Insulation l Water Heat l Electrical – Refrigeration – Lighting – Appliances l Windows and doors

What do we want? l Mobility l A solid economy and jobs-prosperity l Abundant and healthy food, locally produced l Clean water and air l Reliable systems sustainable into future generations l Stability, security, law and order

Energy Efficiency Economics l Energy Efficiency Programs create more jobs than Highway or hospital construction (ISER 1989) l Weatherization creates greater economic development potential than tax incentives or traditional ED (Ball St. University)

Economic Benefits l If the US were as Energy Efficient as Japan or Sweden, we would spend $800 billion less per year on energy at oil prices of $80/bbl l If we made improvements to energy efficiency and if ANWR oil ever really needed, it will have greater value then than it does presently

Energy Efficiency l The Foundation for Renewable Energy l Efficiency costs about $12 to save a barrel of oil - Oil price today? l There's no cheaper, cleaner power than power you don't have to produce Gary Zarker of Seattle City Light l Winning the Oil Endgame – – $40 purchase the book – Free online if you download from www. oilendgame. org

Benefits of Efficiency and Renewable Energy l l l Renewable energy is produced locally, creating jobs with good wages and quality health care Reduces reliance on limited, expensive fossil fuels Reduce dependence on unstable countries producing oil and gas Cleaner water and air, reduce species loss New technologies and industries for the future – economic stability Climate change mitigation - insurance

How do we get there? l Save and use petroleum products for lubricants, plastics, synthetic fibers and rubber, solvents, and other petrochemicals that have no other replacement, while finding other energy sources

How do we get there? l Multi-faceted approach – No Silver Bullets l Combinations of efficiency, wind, solar, tidal – hydro, geothermal and other renewables – Coal and Nuclear will be pushed as well with bigger drawbacks l Develop non-petroleum liquid fuels, Hydrogen, bio-fuels, recycled plastics l Power Down – Learning to live with less energy, or different forms

How do we get there? l Increase mass transit, denser neighborhoods creating tighter community l Mixed used neighborhoods encourage walking, cut down on short driving trips decreasing congestion and crime

How do we get there? l l l Don’t wait for the government -You are part of the solution Think globally, act and buy locally Grow your own food or know someone who does Buy or become the renewable energy utility of America by reducing your energy footprint – maximize efficiency and conserve. Generate your own power Use oil and gas royalties to make a renewable energy “permanent fund” for our future

A vision for Alaska l 330 MW Chakachamna hydro, 250 Mt Spurr Geothermal, 200 MW Wind Fire Island & Healy gives us clean, renewable, fixed cost power for 40 years (also heats Anchorage) l Brings in Google/Microsoft type companies l Adds steady rate power to industrial base for value added products to export l Greenhouses grow enough food for AK l We then export that technology

Funding availability l State Energy Program $28 Million l Energy Efficiency Conservation Block Grant $9. 59 Million l Home Energy Rebate $160 Million l Weatherization Assistance $218. 5 million

“There’s a better way to do it… find it”