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Topic 4 – Fossil Fuels

Topic 4 – Fossil Fuels. A – Energy Transitions B – Coal C – Petroleum D – Natural Gas. A. Energy Transitions. Factors Behind Energy Transitions Peak Oil Energy Markets. 1. Factors Behind Energy Transitions. Energy transition Shift from one dominant source of energy to another.

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Topic 4 – Fossil Fuels

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  1. Topic 4 – Fossil Fuels A – Energy Transitions B – Coal C – Petroleum D – Natural Gas

  2. A. Energy Transitions Factors Behind Energy Transitions Peak Oil Energy Markets

  3. 1. Factors Behind Energy Transitions • Energy transition • Shift from one dominant source of energy to another. • Fossil fuels resources remain abundant. • Transition linked with three factors: • Demand: • Growth in the amount of energy used incites finding more abundant energy sources. • Price: • Function of availability and demand. • Higher prices incite finders alternative sources. • Technology: • Which types of energy forms are harnessed, processed, and delivered to the final consumers as well as where these activities take place. • Better technology enables access to a wider variety of energy sources.

  4. 1. Factors Behind Energy Transitions • Energy Quality • Difference in the ability of a unit of energy to produce goods and services for people. • One joule of electricity is not the same than one joule of coal. • Combination of physical, chemical, technical, economic, environmental and social attributes that are unique to each form of energy.

  5. 1. Determinants of Energy Quality

  6. 1. Evolution of Energy Sources

  7. 1. Total World Electricity Generation by Type of Fuel, 2002

  8. 1. Primary Energy Production by Source, United States, 1750-2009

  9. 1. Global Energy Systems Transition, (% of market) 100 Wood Coal 80 Gases Solids 60 Hydrogen 40 Liquids 20 Oil Natural Gas 0 2000 2050 2100 2150 1850 1900 1950

  10. 2. Peak Oil • Hubbert’s peak • Geologist who predicted in the 1950s that oil production in the United States would peak in the early 1970s: • US oil production peaked in 1973. • Assumption of finite resource. • Production starts at zero. • Production then rises to a peak which can never be surpassed. • Once the peak has been passed, production declines until the resource is depleted. • Peak was estimated to be around 2004-2008: • One estimate placed it symbolically at Thanksgiving 2005. • Kuwait announced around Thanksgiving 2005 that the world’s second largest oil field (Burgan) has reached its peak. • As of 2010, peak oil remains unconfirmed.

  11. 2. World Annual Oil Production (1900-2009) and Peak Oil (2010)

  12. 2. Peak Oil • The case for Peak Oil • Largest oil fields discovered more than 50 years ago. • The peak of oil discovery year was 1965. • Some large discoveries in the 1970s (Alaska, North Sea), but none since then. • The last year when more oil was discovered than consumed was 1980. • Tar sands • Large supplies, particularly in Canada (Alberta). • A bottleneck in extraction and distribution. • Require a lot of energy to extract and transform into a usable form.

  13. 3. Energy Markets • Importance • Used to be informal and locally oriented (e.g. wood). • The growth in the use of fossil fuels created large and lucrative energy markets: • Became national and global. • Increasingly capital intensive. • Contracts between suppliers and customers: • Price, quantity and time of delivery (location). • Permitted the emergence of large multinational corporations. • Large financial markets: • Financing activities such as exploration, exploitation, transportation and refining.

  14. 3. The World’s 20 Largest Corporations by Market Value, 2009 ($US millions)

  15. The Breaking of Standard Oil (1908)

  16. 3. West Texas Intermediate, Monthly Nominal Spot Oil Price (1970-2010) Third Oil Shock Second Oil Shock 2 1 B A D First Oil Shock C

  17. 3. Major Oil Price Fluctuations

  18. 3. Energy Markets • Challenges to energy markets • Supply sources: • Low diversity of energy sources. Foreign sources. Dependence on oil. Keeping natural resources for future use. Low oil prices instead of an energy policy. • Affordability: • Economies of scale. Waste involves less profits. Market forces and profit margins. • Environmental impacts: • Lobbying against environmental legislation.

  19. B. Coal Characteristics Coal Use Challenges

  20. 1. Characteristics • Nature • Formed from decayed swamp plant matter that cannot decompose in the low-oxygen underwater environment. • Coal was the major fuel of the early Industrial Revolution. • High correlation between the location of coal resources and early industrial centers: • The Midlands of Britain. • Parts of Wales. • Pennsylvania. • Silesia (Poland). • German Ruhr Valley. • Three grades of coal.

  21. 1. Characteristics • Anthracite (7%) • Highest grade; over 85% carbon. • Most efficient to burn. • Lowest sulfur content; the least polluting. • The most exploited and most rapidly depleted. • Bituminous (75%) • Medium grade coal, about 50-75% carbon content. • Higher sulfur content and is less fuel-efficient. • Most abundant coal in the USA. • Lignite (18%) • Lowest grade of coal, with about 40% carbon content. • Low energy content. • Most sulfurous and most polluting.

  22. 1. Main Coal Regions of the United States Lignite Powder River Basin (40%) Bituminous Bituminous Lignite

  23. 1. Global Coal Production, 2002 (M short tons)

  24. 2. Coal Use • Coal use • Thermal coal (about 90% use): • Used mainly in power stations to produce high pressure steam, which then drives turbines to generate electricity. • Also used to fire cement and lime kilns. • Until the middle of the 20th Century used in steam engines (“Steam Coal”). • Coking coal: • Specific type of metallurgical coal derived from bituminous coal. • Used as a source of carbon, for converting a metal ore to metal. • Removing the oxygen in the ore by forcing it to combine with the carbon in the coal to form CO2. • Used for making iron in blast furnaces (without smoke). • New redevelopment of the coal industry: • In view of rising energy prices. • “Clean Coal” technologies, less ashes but same CO2.

  25. 2. Coal Consumption, 1965-2009 (in millions of tons of oil equivalent)

  26. 2. Coal as % of Energy Use and Electricity Generation, 1998

  27. 2. Coal Costs per Ton (USD), Selected Markets

  28. 3. Challenges • Advantages of coal use • Easily combustible. • Easy to store and transport. • Relatively inexpensive. • Wide availability of sources. • Technologically simpler to use for energy generation. • Disadvantages of coal use • Non-renewable resource. • Combustion by-products (e.g. SO2 and sooth). • Coal mining is generally environmentally damaging.

  29. C. Petroleum The Economic Importance of Petroleum Oil Reserves The Geopolitics of Petroleum

  30. 1. The Economic Importance of Petroleum • Nature • Formation of oil deposits (biotic perspective): • Decay under pressure of billions of microscopic plants in sedimentary rocks. • “Oil window”; 7,000 to 15,000 feet. • Created over the last 600 million years. • A-biotic perspective. • Exploration of new sources of petroleum: • Related to the geologic history of an area. • Located in sedimentary basins. • About 90% of all petroleum resources have been discovered. • Production vs. consumption: • Geographical differences. • Contributed to the political problems linked with oil supply.

  31. 1. The Economic Importance of Petroleum • Use • Transportation: • The share of transportation has increased in the total oil consumption. • Accounts for more the 55% of the oil used. • In the US, this share is 70%. • Limited possibility at substitution. • Other uses (30%): • Lubricant. • Plastics. • Fertilizers. • Choice of an energy source: • Depend on a number of utility factors. • Favoring the usage of fossil fuels, notably petroleum.

  32. 1. Petroleum Production and Consumption, 2002 (M barrels per day)

  33. 1. World Oil Consumption, 1965-2009 (1000s of barrels per day)

  34. 1. Factors of Oil Dependency

  35. 2. Oil Reserves • “Scarce Abundance” • The world oil production is currently running at capacity: • Limited opportunities to expand production. • 20% of the world’s output comes from 14 fields. • Ghawar: • The world’s largest oil field; been on production since 1951. • Produces approximately 4.5 million barrels of oil per day. • 55 to 60% of Saudi Arabia’s production. • Expected to decline sharply (use of water injection). • Could be 90% depleted. • OPEC countries may have overstated their reserves: • Production quotas are based upon estimated reserves. • The larger the reserves, the more an OPEC country can export. • In the 1980s, most OPEC reserves doubled “on paper”. • Extraction continues while reserves remain the same(?).

  36. 2. Proven Oil Reserves, 1980-2009 (thousand million barrels)

  37. 2. Cost of Finding Oil, 1981-2006

  38. 2. The World’s Largest Oil Fields, 2005

  39. 2. Oil Production of Some Declining Regions, 1973-2009

  40. 2. Major Crude Oil Reserves, 2009 (Thousand Million Barrels)

  41. 2. Estimated Oil Reserves, Selected OPEC Countries, 1980-1991 (billions of barrels)

  42. 2. Remaining Proven Oil Reserves for “Middle Eastern Five” According to Major Assessors, 2005

  43. 2. Global Oil Reserves, 2003

  44. 2. Export Land Theory

  45. 2. Crude Oil Production and Consumption, China, 1980-2009 (in 1,000 of barrels per day)

  46. 2. Petroleum Production, Consumption and Imports, United States, 1949-2009

  47. 3. The Geopolitics of Petroleum • The Seven Sisters • Petroleum has for long been the object of geopolitical confrontations. • The ability to fix the price and the production of oil was first established in 1928 by the Achnacarry Agreements. • Between the “seven sisters” forming an oil oligopoly. • Major oil multinationals (Exxon, Texaco, British Petroleum, Shell, Gulf, Standard Oil and Mobil Oil). • Invested massively in extraction infrastructures, especially in the Middle East. • Several producing countries, most of them in the Third World, wanted to have a more important share of the incomes of this lucrative market.

  48. 3. The Geopolitics of Petroleum • OPEC • Venezuela, Iran, Iraq, Saudi Arabia and Kuwait founded the Organization of Petroleum Exporting Countries (OPEC) in 1960 at the Baghdad conference. • Several other oil-producing nations joined thereafter the organization: • Qatar (1961), Indonesia (1962), Libya (1969), Algeria (1970), Nigeria (1971), Ecuador (1973-1992, left the organization in order to avoid production quotas), The United Arab Emirates (1973) and Gabon (1973-1994). • From its foundation until the beginning of the 1970s, OPEC was unable to increase oil prices. • Production was very important in non-member countries. • Difficulty of OPEC members to agree on a common policy.

  49. 3. OPEC Members and Countries with more than 10 Billion Barrels of Oil Reserves

  50. 3. Major Oil Flows and Chokepoints, 2005-6

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