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National Petroleum Council

July 2007

A comprehensive
view to 2030 of
global oil and
Instructions for navigating natural gas

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2007
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NATIONAL
PETROLEUM COUNCIL
A comprehensive
view to 2030 of
global oil and
natural gas

2007

NATIONAL
PETROLEUM COUNCIL
July 18, 2007

The Honorable Samuel W. Bodman


Secretary of Energy
Washington, D.C. 20585

Dear Mr. Secretary:

In response to the questions posed in your letter of October 5, 2005, the National Petroleum Council conducted
a comprehensive study considering the future of oil and natural gas to 2030 in the context of the global energy
system. The complexity of today's integrated energy markets and the urgency surrounding today's energy issues
demanded a study that included:

• An integrated view of supply, demand, infrastructure, technology, and geopolitics


• A comprehensive review of public and aggregated proprietary energy outlooks
• In-depth analysis of technology trends and opportunities
• Policy options viewed through economic, security, and environmental lenses
• More than 350 participants from diverse backgrounds and organizations
• Dialogue with more than 1,000 persons and groups actively involved in energy.

The Council found that total global demand for energy is projected to grow by 50-60 percent by 2030, driven by
increasing population and the pursuit of improving living standards. At the same time, there are accumulating risks
to the supply of reliable, affordable energy to meet this growth, including political hurdles, infrastructure
requirements, and availability of a trained work force. We will need all economic, environmentally responsible
energy sources to assure adequate, reliable supply.

There is no single, easy solution to the global challenges ahead. Given the massive scale of the global energy
system and the long lead-times necessary to make material changes, actions must be initiated now and sustained
over the long term.

Over the next 25 years, the United States and the world face hard truths about the global energy future:

• Coal, oil, and natural gas will remain indispensable to meeting total projected energy demand growth.
• The world is not running out of energy resources, but there are accumulating risks to continuing expansion
of oil and natural gas production from the conventional sources relied upon historically. These risks create
significant challenges to meeting projected total energy demand.
• To mitigate these risks, expansion of all economic energy sources will be required, including coal, nuclear,
biomass, other renewables, and unconventional oil and natural gas. Each of these sources faces significant
challenges including safety, environmental, political, or economic hurdles, and imposes infrastructure
requirements for development and delivery.
• "Energy Independence" should not be confused with strengthening energy security. The concept of energy
independence is not realistic in the foreseeable future, whereas U.S. energy security can be enhanced by
moderating demand, expanding and diversifying domestic energy supplies, and strengthening global
energy trade and investment. There can be no U.S. energy security without global energy security.
The Hon. Samuel W. Bodman
July 18, 2007
Page Two

• A majority of the U.S. energy sector workforce, including skilled scientists and engineers, is eligible to retire
within the next decade. The workforce must be replenished and trained.
• Policies aimed at curbing carbon dioxide emissions will alter the energy mix, increase energy-related costs,
and require reductions in demand growth.

The Council proposes five core strategies to assist markets in meeting the energy challenges to 2030 and beyond.
All five strategies are essential—there is no single, easy solution to the multiple challenges we face. However, we are
confident that the prompt adoption of these strategies, along with a sustained commitment to implementation, will
promote U.S. competitiveness by balancing economic, security, and environmental goals.

The United States must:

• Moderate the growing demand for energy by increasing efficiency of transportation, residential,
commercial, and industrial uses.
• Expand and diversify production from clean coal, nuclear, biomass, other renewables, and unconventional
oil and gas; moderate the decline of conventional domestic oil and gas production; and increase access for
development of new resources.
• Integrate energy policy into trade, economic, environmental, security, and foreign policies; strengthen
global energy trade and investment; and broaden dialog with both producing and consuming nations to
improve global energy security.
• Enhance science and engineering capabilities and create long-term opportunities for research and
development in all phases of the energy supply and demand system.
• Develop the legal and regulatory framework to enable carbon capture and sequestration. In addition, as
policymakers consider options to reduce carbon dioxide emissions, provide an effective global framework
for carbon management, including establishment of a transparent, predictable, economy-wide cost for
carbon dioxide emissions.

The attached report, Facing the Hard Truths about Energy, details findings and recommendations based on
comprehensive analyses developed by the study teams.

The Council looks forward to sharing this study and its results with you, your colleagues, and broader
government and public audiences.

Respectfully submitted,

Lee R. Raymond Andrew Gould John J. Hamre


Chair Vice Chair, Technology Vice Chair, Geopolitics
& Policy

David J. O'Reilly Daniel H. Yergin


Vice Chair, Supply Vice Chair, Demand

Attachment
A comprehensive
view to 2030 of
global oil and
natural gas

A report of the National Petroleum Council


July 2007
Committee on Global Oil and Gas
Lee R. Raymond, Chair
NATIONAL PETROLEUM COUNCIL

Lee R. Raymond, Chair


Claiborne P. Deming, Vice Chair
Marshall W. Nichols, Executive Director

U.S. DEPARTMENT OF ENERGY

Samuel W. Bodman, Secretary

The National Petroleum Council is a federal


advisory committee to the Secretary of Energy.

The sole purpose of the National Petroleum Council


is to advise, inform, and make recommendations
to the Secretary of Energy on any matter
requested by the Secretary
relating to oil and natural gas
or to the oil and gas industries.

All Rights Reserved


Library of Congress Control Number: 2007937013
© National Petroleum Council 2007
Printed in the United States of America

The text and graphics herein may be reproduced


in any format or medium, provided they are reproduced accurately,
not used in a misleading context, and bear acknowledgement of
the National Petroleum Council’s copyright
and the title of this report.
T ABLE OF CONTENTS
Each entry on Table of Contents is hyperlinked to the corresponding page

Preface................................................................................................................................................... 1
National Petroleum Council......................................................................................................... 1
Study Request................................................................................................................................ 1
Study Organization........................................................................................................................ 1
Study Scope and Approach........................................................................................................... 3
Study Report................................................................................................................................... 4

Executive Summary............................................................................................................................. 5
The Growing Demand for Energy.................................................................................................. 6
The Energy Supply Landscape....................................................................................................... 7
The Changing World Energy Map................................................................................................ 10
United States and Global Energy Security.................................................................................. 10
Investment in Global Energy Development .............................................................................. 11
Technology Advancements.......................................................................................................... 12
Addressing Carbon Constraints................................................................................................... 13
Strategies for U.S. Energy Policy.................................................................................................. 13
Moderate Demand by Increasing Energy Efficiency........................................................... 14
Improve Vehicle Fuel Economy . ................................................................................... 14
Reduce Energy Consumption in the Residential and Commercial Sectors............... 15
Increase Industrial Sector Efficiency............................................................................. 16
Expand and Diversify U.S. Energy Supply........................................................................... 17
Understanding the Range of Production Forecasts...................................................... 17
Reduce Declines in U.S. Conventional Oil and Natural Gas Production.................... 19
Increase Access for New Energy Development............................................................. 20
Diversify Long-Term Energy Production...................................................................... 20
Strengthen Global and U.S. Energy Security ...................................................................... 22
Reinforce Capabilities to Meet New Challenges.................................................................. 24
Develop a Comprehensive Forecast of U.S. Infrastructure Requirements................. 24
Rebuild U.S. Science and Engineering Capabilities..................................................... 25
Create Research and Development Opportunities...................................................... 26
Improve the Quality of Energy Data and Information................................................. 27

Table of Contents 
Address Carbon Constraints.................................................................................................. 28
Enable Carbon Capture and Sequestration................................................................... 28
Potential Effect of Recommended Strategies....................................................................... 30

Chapter One: Energy Demand.......................................................................................................... 33


Demand Study Observations....................................................................................................... 34
Demand Summary........................................................................................................................ 36
Major Areas to Moderate Demand by Increasing Energy Efficiency.................................. 42
Vehicle Fuel Economy..................................................................................................... 42
Consumption in the Residential and Commercial Sectors.......................................... 42
U.S. Industrial Sector Efficiency..................................................................................... 44
U.S. Electric Power Generation Efficiency..................................................................... 44
Capturing Efficiency Potential.............................................................................................. 45
Demand Data Evaluation............................................................................................................. 45
Electric Generation Efficiency..................................................................................................... 59
Coal Impact................................................................................................................................... 64
Industrial Efficiency...................................................................................................................... 67
Cultural/Social/Economic Trends............................................................................................... 71
Residential/Commercial Efficiency............................................................................................. 79
United States Residential/Commercial Energy Use............................................................ 80
Translating Efficiency Into Reduced Energy Demand—
“Consumption-Based Efficiency”................................................................................. 83
Demand Study Potential Policy Options..................................................................................... 84
Policy Recommendations ............................................................................................................ 85
Improve Vehicle Fuel Economy ............................................................................................ 85
Reduce Energy Consumption in the Residential and Commercial Sectors...................... 86
Building Energy Codes.................................................................................................... 86
Appliance and Equipment Standards ........................................................................... 87
Increase Industrial Sector Efficiency.................................................................................... 87

Chapter Two: Energy Supply............................................................................................................. 89


Supply Summary........................................................................................................................... 89
Data Sources........................................................................................................................... 89
Resource Endowment............................................................................................................ 90
Resources to Production........................................................................................................ 91
Understanding the Range of Production Forecasts............................................................. 92
Diversification........................................................................................................................ 92
Key Findings . ......................................................................................................................... 93
Prospects for Energy Supply......................................................................................................... 94
Energy Endowment and Recoverable Resources................................................................. 94
Why We Do Endowment Assessments........................................................................... 94

ii Facing the Hard Truths about Energy


Types of Hydrocarbons................................................................................................... 94
Hydrocarbon Assessment Terminology......................................................................... 95
Previous Estimates—Results, Methodology, Differences, and Challenges................. 97
Primary Energy Mix.............................................................................................................. 101
Historical Energy Consumption................................................................................... 101
Projected Energy Consumption................................................................................... 101
Oil and Natural Gas Supply................................................................................................. 103
Oil.................................................................................................................................... 103
Natural Gas.................................................................................................................... 105
Coal........................................................................................................................................ 105
Biomass................................................................................................................................. 106
Nuclear.................................................................................................................................. 107
Non-Bio Renewables............................................................................................................ 107
Energy Conversion and Delivery Infrastructure................................................................ 108
Analysis of Energy Outlooks....................................................................................................... 108
Oil and Other Liquids........................................................................................................... 108
Key Observations—Oil and Other Liquids.................................................................. 108
Crude Oil Endowment.................................................................................................. 109
Global Total Liquids Production.................................................................................. 113
Conventional Oil Production . ..................................................................................... 114
Unconventional Liquids Production .......................................................................... 122
Oil Supply Challenges................................................................................................... 127
Peak Oil .......................................................................................................................... 127
Investment..................................................................................................................... 130
Geopolitics..................................................................................................................... 131
Natural Gas........................................................................................................................... 131
Key Observations—Natural Gas .................................................................................. 131
Global Natural Gas Endowment and Technically Recoverable Resources . ............. 131
U.S. Technically Recoverable Gas Resource ............................................................... 132
Global Natural Gas Production.................................................................................... 134
North American Gas Production.................................................................................. 136
Gas Supply Challenges.................................................................................................. 140
Liquefied Natural Gas (LNG)........................................................................................ 141
Coal ....................................................................................................................................... 144
Key Observations—Coal .............................................................................................. 144
Global Coal Endowment & Resources......................................................................... 144
U.S. Coal Resource Base .............................................................................................. 145
Total U.S. Coal Production and Disposition................................................................ 148
Global Coal Production and Disposition .................................................................... 150
Coal Supply Challenges................................................................................................. 154

Table of Contents iii


Biomass................................................................................................................................. 154
Key Observations—Biomass......................................................................................... 154
Biomass Forecasts......................................................................................................... 155
Ethanol........................................................................................................................... 156
Infrastructure................................................................................................................. 156
Biomass Resource Potential......................................................................................... 156
Non-Bio Alternative Energy Sources.................................................................................. 158
Key Observations—Non-Bio Alternatives................................................................... 158
Hydropower and Ocean................................................................................................ 159
Wind............................................................................................................................... 159
Solar................................................................................................................................ 159
Geothermal.................................................................................................................... 159
Nuclear........................................................................................................................... 159
Hydrogen........................................................................................................................ 160
Energy Conversion and Delivery Infrastructure................................................................ 161
Key Observations—Energy Infrastructure................................................................... 161
Refining and Manufacturing........................................................................................ 162
Analysis of Refining Forecasts...................................................................................... 165
Access to Resources.................................................................................................................... 166
United States Onshore......................................................................................................... 166
Arctic National Wildlife Refuge . ......................................................................................... 167
Marginal Wells...................................................................................................................... 167
North America Offshore....................................................................................................... 169
Global Access........................................................................................................................ 170

Chapter Three: Technology.............................................................................................................. 171


Key Findings ............................................................................................................................... 173
Technology Development and Deployment............................................................................. 175
Personnel Issues.......................................................................................................................... 177
Carbon Capture and Sequestration........................................................................................... 178
Summary: Technical Issues................................................................................................. 181
Summary: Nontechnical Issues.......................................................................................... 182
Conventional Wells (including EOR and in the Arctic)............................................................ 182
Exploration Technology.............................................................................................................. 186
Deepwater Technology............................................................................................................... 191
Unconventional Natural Gas Reservoirs—Tight Gas, Coal Seams, and Shales ..................... 193
Tight Gas Sands.................................................................................................................... 194
Coal Seams............................................................................................................................ 195
Shale Gas............................................................................................................................... 195
Tables of Advances............................................................................................................... 196

iv Facing the Hard Truths about Energy


Unconventional Hydrocarbons: Heavy Oil, Extra-Heavy Oil, and Bitumen.......................... 199
Unconventional Hydrocarbons: Oil Shale................................................................................ 202
Unconventional Hydrocarbons: Gas Hydrates......................................................................... 203
Arctic Hydrates..................................................................................................................... 203
Marine Hydrates................................................................................................................... 205
Coal to Liquids............................................................................................................................ 205
Biomass Energy Supply . ............................................................................................................ 206
Nuclear Outlook and Its Impact on Oil and Natural Gas......................................................... 208
Transportation Efficiency .......................................................................................................... 209
General Conclusions............................................................................................................ 210
Light Duty Vehicles............................................................................................................... 211
Heavy Duty Vehicles............................................................................................................. 211
Air.......................................................................................................................................... 211
Marine Shipping................................................................................................................... 211
Rail Transport....................................................................................................................... 211

Chapter Four: Geopolitics................................................................................................................ 213


How the World is Changing........................................................................................................ 214
Dramatic Growth in Global Demand.................................................................................. 214
New Patterns of Trade.......................................................................................................... 215
The Pressures of Globalization ........................................................................................... 216
Changing Evaluation of Risks.............................................................................................. 218
Governance and Resource Nationalism............................................................................. 219
The Growing Power of National Oil Companies................................................................ 220
Climate Change.................................................................................................................... 221
Sustainable Development and Related Policy Challenges................................................ 222
Security and Terrorism......................................................................................................... 223
Other Risks and Scenarios .................................................................................................. 224
Implications for the United States............................................................................................. 225
Energy Security..................................................................................................................... 225
Engagement and Cooperation ........................................................................................... 226
Conclusions................................................................................................................................. 228
U.S. Leadership.................................................................................................................... 228
Energy Security..................................................................................................................... 229
New Policy Tools................................................................................................................... 229
National Oil Companies...................................................................................................... 229
U.S. Policy Priorities............................................................................................................. 229
Climate Change.................................................................................................................... 230
Corporate Environmental Strategies.................................................................................. 230
A Global Response................................................................................................................ 230

Table of Contents 
Chapter Five: Carbon Management................................................................................................ 231
Carbon Management.................................................................................................................. 233
The Continued Use of Domestic Energy Resources under Carbon Constraint.............. 234
Energy Efficiency and Demand Reduction............................................................................... 236
Transportation............................................................................................................................. 236
Carbon Capture and Sequestration........................................................................................... 237
What is the Contribution of CCS to Maintaining Energy Supply from Fossil Fuels?...... 237
What is the Level of Readiness for Large Scale CCS?......................................................... 237
Does the Capacity for Underground Storage Exist?........................................................... 238
What is the Cost of CCS Compared to Other Approaches to Carbon Mitigation?.......... 238
What is the Role of CO2-Based Enhanced Oil Recovery (CO2-EOR) in CCS?................... 238
Regulation............................................................................................................................. 240
CCS Conclusion.................................................................................................................... 240

Chapter Six: Recommendations..................................................................................................... 241


Moderate Demand by Increasing Energy Efficiency................................................................ 241
Improve Vehicle Fuel Economy .......................................................................................... 241
Reduce Energy Consumption in the Residential and Commercial Sectors.................... 241
Increase Industrial Sector Efficiency.................................................................................. 242
Expand and Diversify U.S. Energy Supply................................................................................. 242
Understanding the Range of Production Forecasts........................................................... 242
Reduce Declines in U.S. Conventional Oil and Natural Gas Production......................... 242
Increase Access for New Energy Development.................................................................. 242
Diversify Long-Term Energy Production............................................................................ 242
Strengthen Global and U.S. Energy Security . .......................................................................... 243
Reinforce Capabilities to Meet New Challenges....................................................................... 243
Develop a Comprehensive Forecast of U.S. Infrastructure Requirements...................... 243
Rebuild U.S. Science and Engineering Capabilities.......................................................... 244
Create Research and Development Opportunities........................................................... 244
Improve the Quality of Energy Data and Information...................................................... 244
Address Carbon Constraints...................................................................................................... 244
Enable Carbon Capture and Sequestration....................................................................... 244

Chapter Seven: Methodology . ........................................................................................................ 247


Guiding Principles...................................................................................................................... 248
Study Organization..................................................................................................................... 250
Task Groups.......................................................................................................................... 250
Demand Task Group...................................................................................................... 250
Supply Task Group......................................................................................................... 251
Technology Task Group................................................................................................. 251
Geopolitics & Policy Task Group.................................................................................. 251

vi Facing the Hard Truths about Energy


Cross-Cutting Groups.......................................................................................................... 252
Integration Team.................................................................................................................. 252
Information Management.......................................................................................................... 252
An Analytical Approach....................................................................................................... 252
Storing Information—The Data Warehouse...................................................................... 252
Public Data and Information.............................................................................................. 253
Proprietary Data and Information...................................................................................... 254
Parallel Studies..................................................................................................................... 255
Summary...................................................................................................................................... 255

Appendices
Appendix A: Request Letter and Description of the NPC...................................................... A-1
Appendix B: Study Group Rosters............................................................................................ B-1
Appendix C: Study Outreach Process and Sessions................................................................ C-1
Appendix D: Parallel Studies—Process and Summaries........................................................ D-1
Appendix E: Additional Materials on the CD........................................................................... E-1
Acronyms and Abbreviations*................................................................................................ AC-1
Conversion Factors

*A detailed glossary of terms used in this report is available at www.npc.org


and on the CD that accompanies the printed report.

Table of Contents vii


P REFACE

National Petroleum Council growing world demand. Specifically, the Secretary


stated that key questions to be addressed in the study

T
he National Petroleum Council (NPC) is an organi- may include:
zation whose sole purpose is to provide advice to
ó What does the future hold for global oil and natural
the federal government. At President Harry Tru-
gas supply?
man’s request, this federally chartered and privately
funded advisory group was established by the Secre- ó Can incremental oil and natural gas supply be
tary of the Interior in 1946 to represent the oil and gas brought on-line, on-time, and at a reasonable price
industries’ views to the federal government: advising, to meet future demand without jeopardizing eco-
informing, and recommending policy options. Dur- nomic growth?
ing World War II, under President Franklin Roosevelt, ó What oil and gas supply strategies and/or demand-
the federal government and the Petroleum Industry side strategies does the Council recommend the
War Council had worked closely together to mobilize U.S. pursue to ensure greater economic stability
the oil supplies that fueled the Allied victory. Presi- and prosperity?
dent Truman’s goal was to continue that successful
cooperation in the uncertain postwar years. Today, (Appendix A contains a copy of the Secretary’s
the NPC is chartered by the Secretary of Energy under request letter and a description of the NPC.)
the Federal Advisory Committee Act of 1972.

About 175 in number, Council members are selected Study Organization


by the Energy Secretary to assure well-balanced
Responding to the Secretary’s request, the Coun-
representation from all segments of the oil and gas
cil established a Committee on Global Oil and Gas to
industries, all sections of the country, and from large
study this topic and to supervise preparation of a draft
and small companies. Members are also selected
report for the Council’s consideration. The Council
from outside the oil and gas industries, representing
also established a Coordinating Subcommittee and
academic, financial, research, Native-American, and
four Task Groups—on Demand, Supply, Technology,
public-interest organizations and institutions. The
and Geopolitics & Policy—to assist the Committee in
Council provides a forum for informed dialogue on
conducting the study. These study groups were sup-
issues involving energy, security, the economy, and the
ported by three dozen Subgroups focused on specific
environment in an ever-changing world.
subject areas. The box on the next page lists those
who served as leaders of the study.
Study Request
The members of the various study groups were
By letter dated October 5, 2005, Secretary of Energy drawn from NPC members’ organizations as well
Samuel W. Bodman requested that the National as from many other U.S. and international indus-
Petroleum Council undertake a study on the ability tries, U.S. and international governments, non-
of global oil and natural gas supply to keep pace with governmental organizations, financial institutions,

Preface 
Global Oil and Natural Gas Study Leaders

Chair Chair – Coordinating Subcommittee


Lee R. Raymond Alan J. Kelly
Retired Chairman and Former General Manager, Corporate Planning
Chief Executive Officer and Manager, Global Logistics Optimization
Exxon Mobil Corporation Exxon Mobil Corporation

Government Cochair Cochair – Coordinating Subcommittee


Jeffrey Clay Sell James A. Slutz
Deputy Secretary of Energy Deputy Assistant Secretary for Oil and Natural Gas
U.S. Department of Energy U.S. Department of Energy

Vice Chair – Demand Chair – Demand Task Group


Daniel H. Yergin James Burkhard
Chairman Managing Director, Global Oil Group
Cambridge Energy Research Associates Cambridge Energy Research Associates

Vice Chair – Supply Chair – Supply Task Group


David J. O’Reilly Donald L. Paul
Chairman of the Board and Vice President and Chief Technology Officer
Chief Executive Officer Chevron Corporation
Chevron Corporation

Vice Chair – Technology Chair – Technology Task Group


Andrew Gould Rodney F. Nelson
Chairman and Chief Executive Officer Vice President
Schlumberger Limited Innovation and Collaboration
Schlumberger Limited

Vice Chair – Geopolitics & Policy Chair – Geopolitics & Policy Task Group
John J. Hamre Frank A. Verrastro
President and Chief Executive Officer Director and Senior Fellow
Center for Strategic & International Studies Center for Strategic & International Studies

consultancies, academia, and research groups. More man contacted 19 energy ministries around the world
than 350 people served on the study’s Committee, to encourage supply and demand data from govern-
Subcommittee, Task Groups, and Subgroups. (Appen- ments and national energy companies. Many coun-
dix B contains rosters of these study groups.) tries provided constructive responses.

In addition to these study group participants, many The data and feedback provided by the global energy
more people were involved through outreach activi- community and other interested parties involved in
ties. These efforts were an integral part of the study the outreach sessions were documented and used to
with the goal of informing and soliciting input from develop the insights for the future of the energy sector
a broad range of interested parties. More than two and to ensure that the study was addressing the critical
dozen sessions were held with staff of U.S. execu- issues associated with energy. This stakeholder input
tive branch agencies, U.S. congressional committees, represented a wide range of views/opinions. This
and state and local governments; non-governmental information was an integral part of the data sets ana-
organizations; academia; professional societies; and lyzed and considered to develop the key findings and
industries. The outreach process also included key recommendations. (Appendix C provides a descrip-
consuming and producing countries. Secretary Bod- tion of the study’s outreach process and sessions.)

 Facing the Hard Truths about Energy


Figure P-1 illustrates the diversity of participation
in the study process.

Study group and outreach participants contributed NGOs


in a variety of ways, ranging from full-time work in mul-
ACADEMIA/
tiple study areas, to involvement on a specific topic, to PROFESSIONAL
reviewing proposed materials, or to participating solely SOCIETIES GOVERNMENTS
in an outreach session. Involvement in these activities
should not be construed as endorsement or agree-
ment with all the statements, findings, and recommen­ CONSULTANTS/
dations in this report. Additionally, while U.S. govern- FINANCIAL
ment participants provided significant assistance in
the identification and compilation of data and other OTHER OIL AND GAS
information, they did not take positions on the study’s INDUSTRIES INDUSTRY
policy recommendations. As a federally appointed and
chartered advisory committee, the National Petroleum
Council is solely responsible for the final advice pro-
vided to the Secretary of Energy. However, the Council
believes that the broad and diverse study group and
65% PARTICIPANTS FROM OUTSIDE
outreach participation has informed and enhanced its OF OIL AND GAS INDUSTRY
study and advice. The Council is very appreciative of
the commitment and contributions from all who par- 350+ PARTICIPANTS, PLUS INPUT
FROM 1,000+ OTHERS
ticipated in the process.
Figure P-1. Broad Participation
Study Scope and Approach
The study’s primary focus was on oil and natural gas.
However, all energy forms were assessed as they are ele- ó Make recommendations supported by data and sci-
Figure P-1. Broad Participation
ments of an interrelated and competitive global energy ence, and develop policy options and recommen-
market. In fact, an understanding of all energy forms dations
ALSOonly
USED after completing
AS Figure M-7 the study analyses,
was necessary in order to provide meaningful advice interpretation, and findings phase to guard against
on oil and natural gas. The study was conducted with predetermined conclusions
a set of guiding principles that the study would:
ó Frame detailed questions to ensure all study teams
ó Not create another “grassroots” energy forecast work within their scope and on time
of demand, supply, or prices, but rather focus on
ó Comply fully with antitrust laws and regulations,
analysis of existing projections to identify underly-
and the Federal Advisory Committee Act. While the
ing assumptions, understand why they differ, and
Council recognizes the important role price plays
thereby identify important factors governing the in both demand and supply actions, antitrust sen-
future of oil and gas sitivities precluded the study from addressing such
ó Gather and analyze public data (from government, impacts or accessing future price levels.
academia, and others) and aggregated proprietary
A large, broad, and diverse group of other studies
data (from international oil companies and
and projections served as the underpinning of the
consultants)
NPC analyses. The NPC attempted to examine and
ó Solicit input from a broad range of interested par- use the full range of available projections:
ties including non-governmental organizations
ó Data were provided by the International Energy
and foreign countries
Agency (IEA) and U.S. Energy Information Admin-
ó Emphasize long-term conditions to 2030 and istration (EIA)—the two most widely used and
beyond, not near-term energy market volatility respected sources of energy projections.

Preface 
ó A broad survey of proprietary energy projections Study Report
was also conducted. As an integral part of this pro-
cess, the NPC engaged the public accounting firm In the interest of transparency and to help readers
Argy, Wiltse & Robinson, P.C. to receive, aggregate, better understand this study, the NPC is making the
and protect proprietary data responses. study results and many of the documents developed
by the study groups available to all interested parties
ó A Wide-Net process collected additional publicly
as follows:
available projections from academia, governmen-
tal organizations, non-governmental groups, and ó Executive Summary provides insights on energy
other interests. market dynamics as well as advice on an integrated
set of actions needed immediately to ensure ade-
ó A Data Warehouse was developed to store and assist
quate and reliable supplies of energy, while assur-
in analysis of all collected projections. The ware-
ing continued expansion of prosperity including
house data are included on the CD accompanying
economic growth, global security, and environ-
printed copies of this report.
mental responsibility.
ó A Parallel Studies process examined numerous
ó Report Chapters contain summary results of the
other recent reports regarding aspects of energy
analyses conducted by the Demand, Supply, Tech-
policy to inform the work of the NPC study’s Co-
nology, and Geopolitics & Policy Task Groups; a
ordinating Subcommittee. (Appendix D provides
discussion on Carbon Management; a full listing
summaries of the studies.)
of the study’s recommendations; and a description
The Demand and Supply Task Groups focused pri- of the study’s methodology. These chapters pro-
marily on the analysis and interpretation of the range vide supporting data and analyses for the findings
of projections for world energy demand and supply to and recommendations presented in the Executive
2030 and the key assumptions/drivers underlying those Summary.
projections. The Technology Task Group examined the ó Appendices contain Council and study group ros-
range of technology assumptions in the projections sur- ters, a description of the study’s outreach process,
veyed and how these technologies might affect world and other information.
energy supply/demand over the next 25 years. The
Geopolitics & Policy Task Group had two focus areas. Its ó Topic Papers, which can be found on the CD inside
geopolitical analyses assessed how sovereign national, the back cover of this report, include detailed, spe-
regional, and global policy decisions might affect global cific subject matter papers and reports prepared by
supply and demand outlooks. Its policy work involved the Task Groups and their Subgroups. These Topic
the integration of options from the various study groups Papers formed the basis for the analyses that led
into a concise set of recommendations for the Secretary to development of the summary results presented
of Energy reflecting the tradeoffs among the economy, in the report’s Executive Summary and Chapters.
security, and the environment. In addition to the work The Council believes that these materials will be
of the Task Groups, the study addressed several over- of interest to the readers of the report and will help
arching themes: energy efficiency, carbon management, them better understand the results. The members
and macroeconomic issues. of the National Petroleum Council were not asked
to endorse or approve all of the statements and
The output from these multiple efforts underpin conclusions contained in these documents but,
the NPC’s recommended supply- and demand-side rather, to approve the publication of these materi-
strategies, and form the basis for its policy recom- als as part of the study process. (See the descrip-
mendations to the Secretary of Energy. tion of the CD in Appendix E for abstracts on topic
papers and a list of other documents included.)
(See the Report Chapters and Topic Papers for more
detailed descriptions of the scopes of work, framing (Published copies of the report and the CD can be
questions, and approaches used by the various study purchased from the NPC or viewed and downloaded
groups.) from its website: www.npc.org)

 Facing the Hard Truths about Energy


E
T
XECUTIVE SUMMARY

he American people are very concerned about


energy—its availability, reliability, cost, and envi-
ronmental impact. Energy also has become a sub-
ject of urgent policy discussions. But energy is a com-
rity; and increasing constraints on carbon dioxide
(CO2) emissions that could impose changes in future
energy use. While risks have always typified the energy
business, they are now accumulating and converging
plex subject, touching every part of daily life and the in new ways.
overall economy, involving a wide variety of technolo-
gies, and deeply affecting many aspects of our foreign The National Petroleum Council (NPC) examined
relations. The United States is the largest participant a broad range of global energy supply, demand, and
in the global energy system—the largest consumer, technology projections through 2030. The Council
the second largest producer of coal and natural gas, identified risks and challenges to a reliable and secure
and the largest importer and third largest producer of energy future, and developed strategies and recom-
oil. Developing a framework for considering Ameri- mendations aimed at balancing future economic,
ca’s oil and natural gas position now and for the future security, and environmental goals.
requires a broad view and a long-term perspective;
The United States and the world face hard truths
both are provided in this study.
about the global energy future over the next 25 years:
During the last quarter-century, world energy ó Coal, oil, and natural gas will remain indispensable
demand has increased about 60 percent, supported to meeting total projected energy demand growth.
by a global infrastructure that has expanded to a
massive scale. Most forecasts for the next quarter- ó The world is not running out of energy resources,
century project a similar percentage increase in but there are accumulating risks to continuing
energy demand from a much larger base. Oil and nat- expansion of oil and natural gas production from
ural gas have played a significant role in supporting the conventional sources relied upon historically.
economic activity in the past, and will likely continue These risks create significant challenges to meeting
to do so in combination with other energy types. Over projected energy demand.
the coming decades, the world will need better energy ó To mitigate these risks, expansion of all economic
efficiency and all economic, environmentally respon- energy sources will be required, including coal,
sible energy sources available to support and sustain nuclear, renewables, and unconventional oil and
future growth. natural gas. Each of these sources faces significant
challenges—including safety, environmental, polit-
Fortunately, the world is not running out of energy
ical, or economic hurdles—and imposes infrastruc-
resources. But many complex challenges could keep
ture requirements for development and delivery.
these diverse energy resources from becoming the
sufficient, reliable, and economic energy supplies ó “Energy Independence” should not be confused
upon which people depend. These challenges are with strengthening energy security. The concept
compounded by emerging uncertainties: geopolitical of energy independence is not realistic in the fore-
influences on energy development, trade, and secu- seeable future, whereas U.S. energy security can

Executive Summary 
be enhanced by moderating demand, expanding framework for carbon management, including
and diversifying domestic energy supplies, and establishment of a transparent, predictable, econ-
strengthening global energy trade and investment. omy-wide cost for CO2 emissions.
There can be no U.S. energy security without global
energy security. The Council identified these strategies by drawing
upon more than 350 expert participants with wide-
ó A majority of the U.S. energy sector workforce, ranging backgrounds to provide analysis, informa-
including skilled scientists and engineers, is eligi- tion, and insight. Additionally, extensive outreach
ble to retire within the next decade. The workforce efforts involved more than 1,000 people actively
must be replenished and trained. engaged in energy. Task Groups for this study
ó Policies aimed at curbing CO2 emissions will alter reviewed a broad range of public and aggregated
the energy mix, increase energy-related costs, and proprietary studies in order to understand and eval-
require reductions in demand growth. uate the many assumptions and forces behind recent
global energy projections.
Free and open markets should be relied upon wher-
ever possible to produce efficient solutions. Where Given the massive scale of the global energy system
markets need to be bolstered, policies should be and the long lead times necessary to make significant
implemented with care and consideration of possible changes, concerted actions must be taken now, and
unintended consequences. The Council proposes five sustained over the long term, to promote U.S. com-
core strategies to assist markets in meeting the energy petitiveness by balancing economic, security, and
challenges to 2030 and beyond. All five strategies are environmental goals. The Council’s findings and rec-
essential—there is no single, easy solution to the mul- ommendations are summarized below and explained
tiple challenges we face. However, the Council is con- in detail in the report chapters.
fident that the prompt adoption of these strategies,
along with a sustained commitment to implementa-
tion, will promote U.S. competitiveness by balancing
THE GROWING DEMAND
economic, security, and environmental goals. The FOR ENERGY
United States must:
Over the coming decades, energy demand will grow
ó Moderate the growing demand for energy by to increasingly higher levels as economies and popula-
increasing efficiency of transportation, residential, tions expand. This will pressure the supply system and
commercial, and industrial uses. require increased emphasis on energy-use efficiency.
ó Expand and diversify production from clean coal,
Energy is essential to the economic activity that
nuclear, biomass, other renewables, and uncon-
sustains and improves the quality of life. Projections
ventional oil and natural gas; moderate the decline
for future energy needs generally assume expanding
of conventional domestic oil and natural gas pro-
economies and populations, which drive continued
duction; and increase access for development of
energy demand growth. Over time, the efficiency of
new resources.
energy use has improved, thanks to the combined
ó Integrate energy policy into trade, economic, envi- effects of technological advancement, education of
ronmental, security, and foreign policies; strengthen consumers, and policy initiatives. These develop-
global energy trade and investment; and broaden ments have allowed growth in economic activity to
dialogue with both producing and consuming outpace growth in energy use. Differing assump-
nations to improve global energy security. tions for the world’s population, economic activity,
ó Enhance science and engineering capabilities and and energy efficiency result in varying projections for
create long-term opportunities for research and future energy demand, as shown in Figure ES-1.
development in all phases of the energy supply and
Historically, energy consumption has been con-
demand system.
centrated in the developed world, where economic
ó Develop the legal and regulatory framework to activity has been centered. Today, the developed
enable carbon capture and sequestration (CCS). world, represented by the Organisation for Economic
In addition, as policymakers consider options to Co-operation and Development (OECD),1 uses half of
reduce CO2 emissions, provide an effective global the world’s total energy to produce half of the world’s

 Facing the Hard Truths about Energy


900
HISTORICAL PROJECTED
(1.7 PERCENT PER YEAR)
800

700
QUADRILLION BTU PER YEAR

600

500

400
PROJECTED (PERCENT PER YEAR)
EIA HIGH ECONOMIC GROWTH (2.5)
300
EIA REFERENCE (2.0)
IEA REFERENCE (1.8)
200 IEA ALTERNATIVE POLICY (1.4)
EIA LOW ECONOMIC GROWTH (1.5)
100

0
1980 1990 2000 2010 2020 2030
YEAR
Note: A quadrillion Btu is one million billion British thermal units. One quadrillion Btu per year
is the energy equivalent of about 500,000 barrels per day of oil.
Sources: EIA: U.S. Energy Information Administration, International Energy Outlook 2006.
IEA: International Energy Agency, World Energy Outlook 2006.

Figure ES-1. World Energy Demand — Average Annual Growth Rates

Figure ES-1. World Energy Demand – Average Annual Growth Rates

Gross Domestic Product.2 However, over


ALSO AS FIGURES10
80 percent
USED D-II-2 and D-III-2
of the world’s population is projected to live in devel-
oping countries by 2030, as shown in Figure ES-2.

Many developing countries are just reaching the 8


point where individual wealth and energy consump-
tion start to accelerate. For example, while the num-
ber of cars in China more than doubled between 6
BILLIONS

2000 and 2006, there remains just one car for every NON-OECD – OTHER
40 people3 whereas the United States has one car for
every two people.4 Thus, dramatic further growth in
4
vehicle sales and demand for fuel in China are very
likely. As this accelerating consumption combines
with large and growing populations, it becomes likely NON-OECD – CHINA AND INDIA
that most new energy demand growth will occur in 2
the developing world, with one projection shown in
Figure ES-3. OECD
0
THE ENERGY SUPPLY 1990 2000 2010 2020 2030
YEAR
LANDSCAPE Source: UN World Population Prospects.

The world uses a wide variety of energy sources today.


Oil and natural gas now provide nearly 60 percent of Figure ES-2. World Population

Executive Summary 

Figure ES-2. World Population


2004 – 445 QUADRILLION BTU PER YEAR 1980 – 288 QUADRILLION BTU PER YEAR

NON-OECD OECD
44% 56%

2004 – 445 QUADRILLION BTU PER YEAR

2030 – 678 QUADRILLION BTU PER YEAR

NON-OECD OECD
2030 – 678 QUADRILLION BTU PER YEAR
60% 40%

Source: IEA, World Energy Outlook 2006.

Figure ES-3. World Energy Demand Growth


from 2004 to 2030

world primary energy,5 as shown in Figure ES-4, and it


Figure ES-3. World Energy Demand Growth from 2004 to 2030
is a hard truth that oil and natural gas will remain indis-
pensable to meeting the projected growth in energy
ALSO USED as Fig. G-2
demand.
OIL COAL NUCLEAR WIND/SOLAR/
GAS BIOMASS HYDRO GEOTHERMAL
It is another hard truth that a rapidly growing world
economy will require large increases in energy sup- Source: IEA, World Energy Outlook 2006.
plies over the next quarter-century. Expansion of all
economic energy sources will be required to meet Figure ES-4. World Energy Supply –
demand reliably, including coal, nuclear, renewables, Historical and Projected
Figure ES-4. World Energy Supply – Historical and Projected
 Facing the Hard Truths about Energy
WAS Figure ES-5 in earlier drafts
and unconventional oil and natural gas. All energy of investment, technology development, and infra-
sources have their own challenges that must be over- structure expansion. This study observed a range of
come to be produced, delivered, and used on an ever- oil projections from less than 80 to 120 million barrels
increasing scale. per day in 2030. This wide range results from differing
assumptions about these uncertainties.
Current assessments for both oil and natural gas
indicate large in-place volumes of resource. The Biomass, mainly wood and dung burned for heat, is
natural gas resource appears more than adequate to today’s largest non-fossil energy source. Liquid fuels
meet the increased natural gas production typically from biomass, such as ethanol from corn and sugar-
anticipated by energy outlooks over the study period. cane, have grown rapidly in recent years, but given the
scale of total oil consumption, liquids from biomass
Future oil supply will come from a variety of sources, contribute only about 1 percent of the energy provided
including existing production capacities, development by oil. Potential cellulosic biomass resources, from
of existing reserves, application of enhanced oil recov- wood, energy crops, and food crop waste, are large in
ery, expansion of unconventional liquids, and devel- the United States; the U.S. Departments of Agricul-
opment of new discoveries. Figure ES-5 is an illustra- ture and Energy estimate that the United States could
tive example of these sources as depicted by the IEA generate sufficient biomass to produce up to 4 mil-
in its World Energy Outlook 2004. There is uncertainty lion barrels per day of oil-equivalent liquids.6 As with
about the potential of the oil resource base to sustain the expansion of any energy source, challenges must
growing oil production rates. Additional uncertainty be overcome before biofuels production can achieve
surrounds the industry’s potential to overcome mul- significant volumes. For example, technology does
tiple increasing risks, including access to promis- not yet exist to convert cellulosic material economi-
ing areas for development, and the rate and timing cally at scale to liquid fuels. Ethanol expansion in the

125

DEVELOPMENT OF
NEW DISCOVERIES
100
UNCONVENTIONAL
MILLION BARRELS PER DAY

ENHANCED
OIL RECOVERY
75

50 DEVELOPMENT OF
EXISTING RESERVES
EXISTING
CAPACITIES
25

0
1971 1980 1990 2000 2010 2020 2030
YEAR
Source: IEA, World Energy Outlook 2004.

Figure ES-5. Illustrative Total Liquids Supply

Executive Summary 
United States faces compound challenges: increas- THE CHANGING WORLD
ing rail, waterway, and pipeline transport capacity;
scaling up distribution systems; and balancing food
ENERGY MAP
uses and water requirements. Growth in energy production has been supported by
global trade and open markets, combined with capi-
Wind and solar energy have also grown rapidly, now
tal investment to produce and deliver energy. Energy
contributing about 1 percent to the world’s energy
consumption in the developing world is projected
mix. Wind and solar energy are expected to continue
to increase dramatically, while oil and natural gas
their rapid expansion, with associated challenges that production in the United States and Europe decline.
include economics, intermittent availability, land-use This combination will require a substantial increase
considerations, and the need for grid interconnection in international oil and natural gas trade, profoundly
and long distance transmission lines. redrawing the world energy map.
Hydroelectric power supplies about 2 percent of Forecasts for growth in oil and liquefied natural gas
today’s energy. It is not generally expected to grow (LNG) shipments place greater emphasis on reliable
significantly, except in developing Asia-Pacific areas, transport, trade, and delivery systems while raising
since the most suitable locations in developed coun- geopolitical, environmental, and security concerns.
tries are already in use. Today, more than half the world’s inter-regional oil
movements pass through a handful of potential
Nuclear power contributes about 6 percent of
“choke points,” including the Suez Canal, the Bospo-
world energy today, and its use is generally expected rus, and the Straits of Hormuz and Malacca.8
to increase outside the United States. Nuclear power
expansion faces concerns about safety and security, Figure ES-6 shows one projection of significant
the management and disposal of radioactive waste, changes in regional oil imports and exports between
and weapons proliferation. Further expansion of now and 2030. Natural gas supply and demand are
nuclear power could be promoted to limit CO2 emis- projected to make similar shifts.
sions or bolster energy security through diversifica-
tion. On the other hand, additional restrictions on In addition to increases in the international trade
the nuclear industry, such as early plant retirements of oil and natural gas, the world energy map is chang-
or limits on projected new installations, would raise ing in another dimension. Conventional oil and nat-
demand for alternatives to generate electricity, such ural gas resources are increasingly concentrated in
as natural gas, coal, wind, and solar. a handful of non-OECD countries. The national oil
companies and energy ministries in these countries
Coal supplies the second largest share of world play central roles in policy decisions about how to
energy today, after oil. In forecasts where CO2 emis- develop and produce their resources. Producers may
sions are not constrained, coal is generally expected increasingly leverage their assets when dealing with
to increase its share. Projected increases in coal use oil companies and consumer nations, either to gain
are driven mainly by growing electricity demand in commercial benefits or to further national or foreign
developing countries. Remaining coal resources are policy objectives. The trend of market liberalization
far larger than for oil and natural gas; at current con- that expanded global energy trade and investment in
sumption rates, the United States has economically the 1990s has come under renewed pressure.
recoverable resources for at least another 100 years.7
China also has large coal resources, although major UNITED STATES AND GLOBAL
deposits are far from consuming areas, and transpor-
ENERGY SECURITY
tation infrastructure is limiting. In addition to the
logistical challenges of rail, water, and power lines, U.S. and global energy security depend upon reli-
coal combustion also produces more CO2 per unit able, sufficient energy supplies freely traded among
of energy than natural gas or oil from conventional nations. This dependence will rise with the growth
sources. The combination of coal, natural gas, and required in international oil and natural gas trade,
oil is generally expected to provide over 80 percent of and may be increasingly influenced by political goals
global energy needs in 2030, exacerbating the chal- and tensions. These trends are prompting renewed
lenge of constraining CO2 emissions. concerns about U.S. energy security.

10 Facing the Hard Truths about Energy


9
12 8
9

15
11
11
4
36
8
7
20 4.5
5
23 1.5 3.5

IMPORTS EXPORTS
Note: Numbers shown are
2005 2005
million barrels per day. 2030 2030
Source: IEA, World Energy Outlook 2006, Reference Case.

Figure ES-6. Net Regional Oil Imports and Exports

These energy security concerns have spurred INVESTMENT IN GLOBAL ENERGY


calls for the United States to become totally self-
DEVELOPMENT
sufficient in energy supply, often referred to as
“energy independence.” This concept is unrealis- Building new, multi-billion-dollar oil platforms in
tic in the foreseeable future and incompatible with water thousands of feet deep, laying pipelines in dif-
broader foreign policy objectives and treaty obliga- ficult terrain and across country borders, expanding
Figure ES-6.
tions. Policies espousing “energy Net Regional Oilrefineries,
independence” Imports and Exports
constructing vessels and terminals to
may create considerable uncertainty among inter- ship and store liquefied natural gas, building rail-
national trading partners and hinder investmentWAS in
Figure ES-4
roads to transport coal and biomass, and stringing
international energy supply development. 9
new high-voltage transmission lines from remote
wind farms—all will require large investments over
It is a hard truth that energy independence is decades. Higher investment in real terms will be
not necessary for energy security. Rather than needed to grow production capacity. Future projects
pursuing energy independence, the United States are likely to be more complex and remote, result-
should enhance its energy security by moderat- ing in higher costs per unit of energy produced.10 A
ing demand, expanding and diversifying domes- stable and attractive investment climate will be nec-
tic energy supplies, and strengthening global essary to attract adequate capital for evolution and
energy trade and investment. Indeed, even if expansion of the energy infrastructure.
the United States could become physically self-
sufficient in energy, it could not disengage from The United States should actively engage energy
global energy activity, trade, and finance. There can suppliers, encouraging open trade and investment
be no U.S. energy security without global energy to expand international energy production and
security. infrastructure. International trade and diplomatic

Executive Summary 11
negotiations should routinely incorporate energy There is no single technology capable of ensuring
issues to promote the rule-of-law, fiscal stability, that the world’s future energy needs will be met in an
equitable access, and the environmentally respon- economical and environmentally responsible way.
sible development of all energy resources. Many advances and breakthroughs will be required
on numerous fronts. To do this, significant financial
and human resources must be engaged over a sus-
TECHNOLOGY tained period. Meanwhile, the U.S. energy industry
ADVANCEMENTS faces a dramatic human resource shortage that could
undermine the future development of technological
Human ingenuity and technological advances
advances needed to meet the demand for increas-
create the potential to develop new energy sources,
ingly diversified energy sources. A majority of the
to further develop existing resources, and to use
industry’s technical workforce is nearing retirement
energy in more efficient and environmentally
eligibility, and the number of American graduates in
friendly ways. The oil and natural gas industry engineering and geosciences has dropped substan-
has a long history of technological advancement, tially during the last quarter century, compromising
and today it operates using materials, chemistry, future delivery of technology advances.
engineering, computing, and sensing techniques
well beyond anything envisioned several decades The Council’s findings echo many in the National
ago. Technology has led to large savings in energy Academy of Sciences report “Rising Above the Gath-
demand and additions to supply while reducing ering Storm: Energizing and Employing America for a
the industry’s environmental “footprint.” Technol- Brighter Economic Future,” which calls for a focus on
ogy advances are expected to continue, although mathematics and science education, long-term basic
broad-ranging technology impact can take over a research, and ensuring that the United States is the
decade from initial concept to large-scale imple- premier place in the world for research and techno-
mentation.11 logical innovation.

Key Information: Energy Systems Scale and Timeline


The scale of the world energy system and the ó A new average-sized U.S. refinery (120,000 barrels
time required to make significant changes, both on per day of crude oil distillation capacity) would
the demand and on the supply sides, are frequently cost $3 billion or more14 and would increase U.S.
underestimated. A few examples: refining capacity less than 1 percent.

ó The world currently uses about 86 million bar- ó The United States has about 200,000 miles of oil15
rels per day of oil—40,000 gallons every second. and about 280,00016 miles of natural gas pipeline,
built up over the last century.
ó New, large oil discoveries can take 15-20 years
from exploration until production actually be- ó It can take over two decades for a newly com-
gins, and production can continue for 50 years mercialized technology to be broadly applied in
or more. the vehicle fleet actually on the road—examples
include fuel injection and front-wheel drive.
ó A major new oil platform can cost billions
and take a decade or more to complete. The ó Buildings typically last for decades. Many of the
Hibernia platform off the east coast of Canada attributes that affect energy consumption are
cost $5 billion, took 19 years from discovery to costly and difficult to retrofit after initial instal-
production, and produces only 0.2 percent of lation, for example wall thickness, insulation,
structural tightness, and windows.
world oil demand.12 The Thunder Horse plat-
form in the U.S. Gulf of Mexico cost $4 billion, ó Commercializing new technology in the oil and
is not yet operating eight years after discovery, gas market takes an average of 16 years to prog-
and has a capacity of 0.3 percent of world oil ress from concept to widespread commercial
demand.13 adoption.

12 Facing the Hard Truths about Energy


ADDRESSING CARBON efficiency steps such as increased insulation and bet-
ter windows can be difficult and costly. Power plants
CONSTRAINTS and industrial facilities often last fifty years or more,
Constraints on CO2 emissions are emerging, with limiting the rate of capital turnover in these sectors.
profound implications for energy supply and demand. Achieving any significant increase in efficiency, shift
Worldwide CO2 emissions from energy use are gener- in fuels used, and capture of CO2 emissions for stor-
ally predicted to grow, as shown in Figure ES-7. Rising age will require major changes over decades to vehi-
cles, buildings, industrial plants, electric generation
concerns about climate change may lead to further
facilities, and infrastructure.
limits on these emissions. It is a hard truth that poli-
cies aimed at curbing carbon emissions will alter the
energy mix, increase energy-related costs, and require STRATEGIES FOR
reductions in demand growth. U.S. ENERGY POLICY
Significantly reducing CO2 emissions will require No single, easy solution can solve the world’s energy
major changes in energy production, infrastructure, challenges. The world will need all the economic, envi-
and use: reducing demand, substituting low-carbon ronmentally responsible energy sources that can be
or carbon-neutral fuels, and capturing and sequester- found to support and sustain prosperity in the com-
ing the emissions from burning coal, oil, and natural ing decades. To assure this, actions on multiple fronts
gas. Implementing effective changes on a sufficient must be taken now, and sustained over the long term.
scale will require time, money, and technology. It The NPC study participants developed recommenda-
can take over two decades for newly commercial- tions to achieve the following five strategic goals:
ized vehicle technology to be incorporated into the ó Moderate demand by increasing energy efficiency
vehicle fleet actually on the road. Improvements in
building efficiency are made slowly—because build- ó Expand and diversify U.S. energy supply
ings can stand for many decades, and retrofitting ó Strengthen global and U.S. energy security

60
HISTORICAL PROJECTED
(1.3 PERCENT PER YEAR)
BILLION METRIC TONS PER YEAR

40

20 PROJECTED (PERCENT PER YEAR)


EIA HIGH ECONOMIC GROWTH (2.5)
EIA REFERENCE (2.0)
IEA REFERENCE (1.8)
IEA ALTERNATIVE POLICY (1.2)
EIA LOW ECONOMIC GROWTH (1.5)
0
1980 1990 2000 2010 2020 2030
YEAR
Sources: EIA: U.S. Energy Information Administration, International Energy Outlook 2006.
IEA: International Energy Agency, World Energy Outlook 2006.

Figure ES-7. World Carbon Dioxide Emissions — Growth Projections

Executive Summary 13
ó Reinforce capabilities to meet new challenges The Corporate Average Fuel Economy (CAFE) stan-
ó Address carbon constraints. dards have been the primary policy used to promote
improved car and light-truck fuel economy in the
While the focus of this report has been concen- United States over the last three decades. The original
trated on identifying key findings and relevant and standards created one economy requirement for cars,
effective recommendations, it is prudent to be mind- and another less stringent one for light trucks to avoid
ful of the lessons of the past. The prospect of unin- penalizing users of work trucks. At the time, light-
tended consequences or the adverse impacts of poor truck sales were about one-quarter of car sales. Since
policy choices should not be underestimated.17 Poli- then, sport utility vehicles and minivans classified as
cies aimed at penalizing industry segments may have light trucks have increased their share of the market.
political appeal but often undermine security goals Now, these light-truck sales exceed car sales, and the
and broader national objectives. increase at the lower truck fuel economy standard has
limited overall fuel economy improvement.
Moderate Demand by Increasing
Cars and trucks sold today are more technically
Energy Efficiency efficient than those sold two decades ago. However,
Improve Vehicle Fuel Economy the fuel economy improvements that could have
been gained from this technology over the last two
Nearly half of the 21 million barrels of oil products decades have been used to increase vehicle weight,
that the United States consumes each day is gasoline horsepower, and to add amenities. Consequently, car
used for cars and light trucks. The Reference Case in and truck fuel economy levels have been about flat for
the U.S. Energy Information Administration’s (EIA) two decades, as shown in Figure ES-8.
Annual Energy Outlook 2007 projects that gasoline
consumption will increase by an average of 1.3 per- Based on a detailed review of technological poten-
cent per year, totaling an increase of 3 million barrels tial, a doubling of fuel economy of new cars and light
per day between 2005 and 2030. trucks by 2030 is possible through the use of existing

30

CAR

25
COMBINED
U.S. NEW VEHICLE MPG

LIGHT TRUCKS

20

15

10

0
1975 1985 1995 2005
MODEL YEAR
Source: U.S. EPA, Light Duty Automotive Technology and Fuel Economy Trends: 1975 through 2006.

Figure ES-8. U.S. Car and Light-Truck Fuel Economy

14 Facing the Hard Truths about Energy


and anticipated technologies, assuming vehicle per- building technologies have outpaced current U.S.
formance and other attributes remain the same as federal, state, and local policies. If applied, currently
today.18 This economy improvement will entail higher available efficiency technology would reduce energy
vehicle cost. The 4 percent annual gain in CAFE stan- use an additional 15-20 percent.20
dards starting in 2010 that President George W. Bush
suggested in his 2007 State of the Union speech is not Buildings typically last for decades. Many of the fea-
inconsistent with a potential doubling of fuel econ- tures of buildings that affect their energy consumption,
omy for new light duty vehicles by 2030. Depend- such as wall thickness, insulation, structural tightness,
ing upon how quickly new vehicle improvements are and windows, will go largely unchanged throughout
incorporated in the on-road light duty vehicle fleet, the life of the building. Technologies and practices
U.S. oil demand would be reduced by about 3-5 mil- affecting these long-lived systems will be slow to pen-
lion barrels per day in 2030.19 Additional fuel economy etrate the building stock and affect their overall effi-
improvements would be possible by reducing vehicle ciency, making it important to implement policies
weight, horsepower, and amenities, or by developing early to achieve significant long-term savings.
more expensive, step-out technologies.
Major barriers to energy efficiency investments
include initial costs, insufficient energy price signals,
Recommendation split incentive (where the consumer is different from
the facility provider), and individual consumer’s lim-
The NPC makes the following recommenda- ited information. To reduce energy consumption sig-
tions to increase vehicle fuel economy: nificantly below the projected baseline will require
ó Improve car and light-truck fuel economy policy-driven improvements in energy efficiency.
standards at the maximum rate possible by
applying economic, available technology. Building Energy Codes
− Update the standards on a regular basis. Building energy codes have proved to be a significant
policy tool to encourage increased energy efficiency
− Avoid further erosion of fuel economy
standards resulting from increased sales in new buildings, and in buildings undergoing major
of light trucks, or, alternatively, adjust renovations. Building codes are administered by the
light-truck standards to reflect changes in 50 states and by thousands of local authorities. To help
relative light-truck and car market shares. state and local governments, national model energy
codes are developed and updated every few years.
Potential Effect: 3-5 million barrels of oil per Under federal law, states are not obligated to impose
day in the United States from the increased energy codes for buildings, although at least 41 states
base in 2030. have adopted some form of building energy code.

Adopting a building code does not guarantee energy


Reduce Energy Consumption in the savings. Code enforcement and compliance are also
Residential and Commercial Sectors essential. Some jurisdictions have reported that one-
third or more of new buildings do not comply with
Forty percent of U.S. energy is consumed in the resi- critical energy code requirements for windows and air
dential and commercial sectors, including the energy lost conditioning equipment, which are among the easi-
while generating and distributing the electricity used. est energy saving features to verify.21
The EIA projects that U.S. residential and commercial
energy use will increase almost one-third by 2030. Building energy codes typically target only new
buildings and major renovations. Additional policies
Significant efficiency improvements have been made are needed to encourage incremental, significant sav-
in buildings over the last several decades. Improve- ings in existing buildings.
ment areas include the building structure itself; heat-
ing, cooling, and lighting systems; and appliances. Appliance and Equipment Standards
However, these improvements have been partly offset
by increased building sizes and by use of larger and Standards for appliances and other equipment
multiple appliances. Cost-effective energy efficiency are major policy measures that reduce energy use in

Executive Summary 15
existing buildings. These products may not consume Increase Industrial Sector Efficiency
much energy individually, but collectively they repre-
sent a significant portion of the nation’s energy use.22 The industrial sector consumes about one-third
of U.S. energy, and contributes to a large share of
Energy efficiency standards currently do not apply the projected growth in both oil and natural gas use
to many increasingly common products, including globally and in the United States. Worldwide, indus-
those based on expanded digital technologies. Prod- trial demand for natural gas is expected to double by
uct coverage must be continuously evaluated and 2030. Worldwide, industrial sector demand for oil is
expanded when appropriate to assure inclusion of expected to increase by 5 million barrels per day, or
all significant energy consuming devices. In addi- 15 percent of total oil demand growth through 2030.
tion, industry and other stakeholders have negoti-
ated standards for other products, such as residential The industrial sector is a price-responsive energy
furnaces and boilers. Implementing and enforcing consumer. U.S. energy-intensive industries and
expanded and strengthened standards would reduce manufacturers rely on internationally competitive
energy consumption below the levels that will result energy supplies to remain globally competitive. In
from current Department of Energy requirements.23 recent years, U.S. natural gas prices have risen faster
than those in the rest of the world. As a result, U.S.
Residential and commercial efficiency gains are energy-intensive manufacturers using natural gas as
partially consumed by increased use of the services a fuel or feedstock have responded by increasing the
and products that become more efficient. For exam- efficiency of their operations and/or by shifting more
ple, U.S. house sizes have increased steadily over of their operations to lower energy cost regions out-
the years, offsetting much of the energy efficiency side the United States.
improvements that would have resulted had house
sizes not swelled. Similarly, household refrigerators Across the industrial sector, there are opportunities
have increased in number and size, consuming much to increase energy efficiency by about 15 percent.24
of the reduced energy use per refrigerator gained by Areas for energy savings include waste-heat recov-
efficiency standards. Energy efficiency programs ery, separation processes, and combined heat and
should consider steps to avoid increasing the demand power.25 While 40 percent of that opportunity could
for energy services. be implemented now, further research, development,
demonstration, and deployment are required before
the remaining savings can be achieved. Providing
programs that encourage deployment of energy effi-
Recommendation
ciency technologies and practices will hasten their
The NPC makes the following recommenda- implementation. Making the federal research and
tions to improve efficiency in the residential development tax credit permanent is one way to
and commercial sectors: encourage private investment in these areas. How-
ó Encourage states to implement and enforce ever, a lack of technically trained workers can impede
more aggressive energy efficiency building the implementation of efficiency projects while the
codes, updated on a regular basis. uncertainty from price volatility can make justifying
those projects difficult.
ó Establish appliance standards for new
products.
Recommendation
ó Update federal appliance standards on a
regular basis. The NPC makes the following recommenda-
tions to improve efficiency in the industrial
Potential Effect: 7-9 quadrillion Btu per
sector:
year by 2030 in the United States, including
2-3 quadrillion Btu per year of natural gas ó The Department of Energy should conduct
(5-8 billion cubic feet per day), 4-5 quadril- and promote research, development, dem-
lion Btu per year of coal, and ~1 quadrillion onstration, and deployment of industrial
Btu per year (0.5 million barrels per day) of energy efficiency technologies and best
oil. practices.

16 Facing the Hard Truths about Energy


creasingly large and complex technical challenges.
ó The research and development tax credit Environmental concerns that limit access to some
should be permanently extended to spur pri- U.S. resources may compete with security concerns
vate research and development investments. that would promote expanded access. Carbon issues
Potential Effect: 4-7 quadrillion Btu per year challenge coal use while energy security consider-
by 2030 in the United States, about equal parts ations may encourage it. Carbon constraints would
coal, gas, and oil. require huge capital investments to maintain energy
production. These uncertainties, and the risks they
generate, describe the background for understanding
energy supply prospects during the next few decades.
Generation of electricity uses a significant amount
of energy. In the United States, about 30 percent of pri- Endowment and recoverable resources are funda-
mary energy is used by the electric power generating mental concepts in any discussion of fossil fuel sup-
sector. Only modest generation efficiency improve- plies. Endowment refers to the earth’s physical store
ments appear economically feasible in existing plants of potential energy sources: barrels of oil, cubic feet of
(2 to 6 percent), as efficiency improvements are incor- natural gas, and tons of coal. The endowment of fossil
porated during routine maintenance. The major fuels is fixed: it can be depleted but not replenished.
potential for efficiency improvement comes when Recoverable resources are a subset of the endow-
existing generation plants are replaced with facilities ment—the portion that can be produced and con-
using updated technology and designs. Retirement of verted to fuel and power.
existing facilities and selection of replacement tech-
nology and design is driven by economics affected by The total global fossil endowment estimates appear
fuel cost, plant reliability, and electricity dispatching huge, but only a fraction of these estimated volumes
considerations. can be technically produced. The total endowment of
oil is estimated at 13-15 trillion barrels, natural gas at
Expand and Diversify 50 quadrillion cubic feet, and coal at 14 trillion tons.
U.S. Energy Supply Renewable resources such as biomass, wind, and
solar represent huge additional energy endowments
Oil, natural gas, and coal—the fossil fuels used for
that are continuously replenished, unlike fossil fuels.
transportation, heating, power, and industrial uses—
are by far the largest energy sources in industrial
economies. While alternative sources, particularly Understanding the Range
fuel from biomass and other renewables, are likely to of Production Forecasts
contribute increasingly to total energy supply, these
This study examined a comprehensive range of oil
three fossil fuels are projected to dominate through
production forecasts including integrated supply/
at least 2030.
demand studies from EIA and IEA; publicly available
The prospects for oil and natural gas production projections from a diverse range of other sources;
raise complex questions. It is a hard truth that the global and a unique set of aggregated proprietary forecasts
supply of oil and natural gas from the conventional from international oil companies (IOCs) and energy
sources relied upon historically is unlikely to meet pro- consulting groups. The diversity of this range of pro-
jected 50-60 percent growth in demand over the next jections is shown in Figure ES-9, which highlights the
25 years. There are accumulating risks to replacing EIA reference, the Association for the Study of Peak Oil
current production and increasing supplies of conven- (ASPO) – France, and the average of the IOC forecasts
tional oil and natural gas. They involve a growing set of for 2030. The distribution of production forecasts,
global uncertainties ranging from production capabili- spanning a range from less than 80 million to more
ties through environmental constraints, infrastructure than 120 million barrels per day, highlights the effect
needs, and geopolitical complications. of assigning different levels of risk and uncertainty to
both resource and above-ground factors. This distri-
While risks have always typified the energy busi- bution of outcomes, along with evaluation of assess-
ness, they are now accumulating and converging in ments of the total resource base, indicates that the key
new ways. Geopolitical changes coincide with in- consideration for energy supplies is not endowment

Executive Summary 17
140

120
MILLION BARRELS PER DAY

EIA REFERENCE CASE


IOC –
100 AVERAGE*

ASSOCIATION FOR
THE STUDY OF PEAK OIL – FRANCE
80

0
2000 2010 2020 2030
YEAR
* Average of aggregated proprietary forecasts from international oil companies (IOC) responding to the NPC survey.
See Chapter Two (Energy Supply), Analysis of Energy Outlooks, Global Total Liquids Production, for identification
of other aggregations and outlooks shown here.
Source: EIA, International Energy Outlook 2006, and the NPC Survey of Outlooks.

Figure ES-9. Understanding the Range of Global Oil Forecasts

but “producibility.” Over the next 25 years, risks above Explanations for the variance in projections for
ground—geopolitical, technical, and infrastructure— both conventional oil and natural gas production are
are more likely to affect oil and natural gas produc- widely discussed as part of the “peak oil” debate. As a
tion rates than are limitations of the below-ground result, this study sees the need for a new assessment
endowment. This range of outcomes emphasizes the of the global oil and natural gas endowment and
need for proactive strategies to manage the accumu- resources to provide more current data for the con-
lating risks to liquids delivery in 2030. tinuing debate.

Key Information: The Peak Oil Debate


Concerns about Figure ES-9. Understanding
the reliability of production the Range
theirofcase,
Global Oil Forecasts
including: historical peaks in pro-
forecasts and estimates of recoverable oil resources duction for individual countries; extrapolations
raise questions about future oil supply and deliv- of the production cycle from individual wells to
erability. These concerns are strongly expressed fields, basins, and the world; and the histori-
in peak oil forecasts in which (1) oil production cal dominance of large reservoirs in supplying
does not grow significantly beyond current levels the world’s oil. These historical indicators for
and (2) an inevitable decline in oil production is production of conventional oil are countered
increasingly near at hand. Views about oil supply by expectations for new discoveries, enhanced
tend to diverge after 2015, with peak oil forecasts recovery techniques, advancing technology for
providing the lower bound. These forecasts gener-
producing oil from unconventional sources, and
ally consider oil supply independently of demand
reassessments and revisions of known resources.
and point to supply shortfalls. Such views contrast
The economic and investment climate, as well
with forecasts and economic models that expect
as access to resources, will also affect the pro-
market forces to provide incentives for develop-
ing global hydrocarbon and other resources to duction base.
meet energy needs through at least 2030.
For further discussion of peak oil forecasts and
Forecasts that see an imminent peak in oil related issues, please see Chapter 2, “Energy Sup-
production use several indicators to support ply,” in this report.

18 Facing the Hard Truths about Energy


Reduce Declines in U.S. Conventional Oil 25
and Natural Gas Production
The United States was once the largest oil producer
in the world, but is now the third largest daily producer, 20

MILLION BARRELS PER DAY


after Saudi Arabia and Russia. U.S. oil production has
declined steadily over the past 35 years, as shown by CONSUMPTION
Figure ES-10. U.S. natural gas production has been 15
more stable, as shown by Figure ES-11, but demand
for both oil and natural gas has increased steadily,
creating a gap that is filled by imports. Many forecasts
project that the gap between supply and demand 10
for domestic oil and natural gas will widen over the
next 25 years and beyond. Historically, technology PRODUCTION
advances have increased the recovery from existing 5
wells and reservoirs. Technology such as enhanced
oil recovery (EOR) has the potential to improve recov-
ery factors and reduce declining production.26
0
In 2005, over 17 percent of oil and 9 percent of natu- 1965 1975 1985 1995 2005
ral gas produced onshore in the United States came YEAR
from marginal oil wells. The nation has more than Source: BP Statistical Review of World Energy 2006.
400,000 marginal oil wells27 each producing on average
Figure ES-10. U.S. Oil Production
2.2 barrels per day. Without these wells, U.S. imports and Consumption
would increase by nearly 7 percent to make up for the
shortage. Increasing operational and regulatory costs,
and diminishing access to markets via pipelines, are
all key factors that can contribute to the premature
abandonment of marginal wells. When wells and Figure
70 ES-10. U.S. Oil Production and Consumption
fields are prematurely abandoned, the associated oil
CONSUMPTION
WAS Fig. ES-7a, ES-9
and gas resources may never be recovered due to eco-
nomics, lease termination, and related issues. Access
to existing fields provides the opportunity to deploy
BILLION CUBIC FEET PER DAY

new technologies to enhance the ultimate recovery of 60


oil and natural gas from these fields.

Recommendation
The NPC makes the following recommen- 50
dations to promote enhanced oil recovery PRODUCTION
(EOR) from existing reservoirs:
ó Support regulatory streamlining and re-
search and development programs for
40
marginal wells.
ó Expedite permitting of EOR projects, pipe-
lines, and associated infrastructure. 0
1965 1975 1985 1995 2005
Potential Effect: An additional 90 to 200 bil- YEAR
lion barrels of recoverable oil in the United Source: BP Statistical Review of World Energy 2006.
States alone, which could help moderate the
current decline in production. Figure ES-11. U.S. Natural Gas Production
and Consumption

Executive Summary 19
Increase Access for contribute to sustaining supply over a longer period.
New Energy Development Similarly, there are large deposits of crude oil in uncon-
ventional formations where production is currently
For various reasons, access to some domestic increasing with recent technology innovations.
energy resources has become restricted. In the United
States, an estimated 40 billion barrels of technically Vast hydrocarbon deposits exist in the oil shales in
recoverable oil resources are either completely off- the Rocky Mountain region of the United States. Until
limits or are subject to significant lease restrictions. recently, technology has been unavailable to produce
These resources are evenly split between onshore and these oil shale deposits at a competitive cost and with
offshore locations, as shown in Figure ES-12. Similar acceptable environmental impact. Research, devel-
restrictions apply to more than 250 trillion cubic feet opment, and demonstration programs are increasing
of natural gas. Another estimated 11 billion barrels of to advance the technologies required to expand eco-
oil resources and 51 trillion cubic feet of natural gas nomically and environmentally sustainable resource
resources are restricted in Canada. Advancements in production. However, successful production at scale
technology and operating practices may now be able may still be several decades away.
to alleviate the environmental concerns that originally
contributed to some of these access restrictions.
Recommendation
The NPC makes the following recommen-
Recommendation dations to increase unconventional oil and
The NPC makes the following recommenda- natural gas production:
tions to expand access to the most favorable ó Accelerate U.S. oil shale and oil sands
U.S. oil and natural gas basins: research and development and leasing.
ó Conduct national and regional basin- ó Accelerate U.S. unconventional natural gas
oriented resource and market assessments leasing and development.
to identify opportunities for increasing oil
and natural gas supply. Potential Effect: Double U.S. unconven-
tional natural gas production to more than
ó Use technology and operational advance- 10 billion cubic feet per day, increasing total
ments to allow environmentally responsi-
U.S. natural gas production by about 10 per-
ble development of high potential onshore
cent.
and offshore areas currently restricted by
moratoria or access limitations.
Potential Effect: Material increases to current Implementing these strategies can slow the inevi-
reserves within 5 to 10 years from currently table decline in U.S. oil and natural gas production,
inaccessible areas could approach 40 billion
but is unlikely to reverse it. The gap between U.S.
barrels of oil and 250 trillion cubic feet of nat-
production and demand will continue to widen, par-
ural gas with current technology.
ticularly for oil. Long lead-times and higher capital
requirements to develop economical energy from
new or remote locales, and from unconventional oil
There is vast potential for oil and natural gas from and natural gas resources, all contribute to the chal-
“unconventional” resources that could be significant lenge of moderating the U.S. production decline.
contributors to U.S. oil and natural gas produc-
tion over the next 25 years. Unconventional natural Diversify Long-Term
gas exists in formations of “tight” or physically con- Energy Production
strained deposits, in coalbeds, and in shale for-
mations. This represents a significant and growing Accelerate the Development of Energy
segment of U.S. natural gas production, estimated to be from Biomass
20-25 percent of current U.S. natural gas production.
Typically, unconventional natural gas wells are pro- As total U.S. energy demand grows, there will be
ductive longer than conventional wells, and they can an increasing need to supplement energy supplies

20 Facing the Hard Truths about Energy


ROCKY
MOUNTAIN BASINS

GREAT LAKES

5 TCF
0.4 B-BBL
93 TCF
3 B-BBL
EASTERN
BASINS
19 TCF
11 B-BBL
3 TCF
0.1 B-BBL 37 TCF
4 B-BBL
PACIFIC

22 TCF ATLANTIC
4 B-BBL
65 TCF
17 B-BBL
EASTERN
GULF OF MEXICO
ALASKA

Note: TCF = Trillion Cubic Feet; B-BBL = Billion Barrels.


Source: U.S. Department of the Interior.

Figure ES-12. U.S. Oil and Natural Gas Resources Affected by Access Restrictions

with diversified domestic energy sources that are crops like corn, sugarcane, soybeans, and palm
Figure ES-12. U.S. Oil and Natural Gas Resources
economically and environmentally viable and oil. Developing second-generation biomass con-
Affected by Access Restrictions
can be developed at commercial scale. Coal and version technologies, such as cellulosic ethanol,
nuclear power already play a significant role, which would use trees, energy crops, and plant
and biomass is emerging as an option, primarily waste as a feedstock, could allow non-food vegeta-
for conversion to transportation fuels. Wind and tion to become a significant resource for fuel pro-
solar energy are forecast to grow faster than over- duction.
all energy demand, although their total projected
contribution will remain small over this study As with any newly developed energy sources, cer-
period. Taken together, all these energy sources tain technical, logistical, and market requirements
can contribute to reducing risks posed to energy must be met for biofuels to achieve significant
supply security. scale. Challenges include: expanding rail, water-
way, and pipeline transportation; scaling up etha-
Biomass includes wood, cultivated crops, and nol production plants and distribution systems;
naturally growing vegetation that potentially can developing successful cellulosic ethanol conver-
be converted to energy sources. First-generation sion technology; and maximizing the potential of
biomass conversion to fuels has been based on arable land.

Executive Summary 21
Expand Domestic Nuclear Capability
Recommendation
Energy projections generally show a continuing
The NPC makes the following recommen- role for nuclear energy, notwithstanding concerns
dations to accelerate development of bio- about safety, security, radioactive waste, and weap-
mass energy sources at large commercial ons proliferation. In a carbon constrained environ-
scale: ment, nuclear energy may need to become a much
ó Support research into second-genera- larger part of the energy mix. Nuclear energy must
tion biofuel crops that have lower input remain viable over the 25 years considered in this
requirements or are suited to more mar- study—both to meet projected demand and to pro-
ginal lands. vide expanded capacity, if necessary, to reduce CO2
emissions.
ó Promote agricultural policies that enhance
global production of both food crops and
biomass for fuel.
Recommendation
ó Support policies that promote the devel-
The NPC makes the following recommen-
opment of the infrastructure for harvest-
dations to expand the domestic technical
ing, storing, and transporting energy
and industrial capabilities of the nuclear
crops, and facilitate the integration of
energy/power industry:
biofuels into the national transportation
fuel supply. ó Implement the recommendation by the
National Commission on Energy Policy29
Potential Effect: Increase U.S. production by
to provide $2 billion over ten years from
up to 4 million barrels per day of oil-equiva-
federal energy research, development,
lent liquids.28
demonstration, and deployment bud-
gets for demonstration of one to two new
advanced nuclear facilities.

Enable the Long-Term Environmental ó Fulfill existing federal commitments on


nuclear waste management.
Viability of Coal for Power, Fuel, and
Feedstock Potential Effect: Reestablish U.S. lead-
ership capability. Maintaining a viable
Given the vast coal resource base in the United nuclear energy option will increase policy
States—by some estimates, the world’s largest—and choices in future carbon constrained cir-
the major contribution that coal makes to electric- cumstances.
ity generation today, coal needs to remain a viable
long-term component of U.S. energy supply. Many
studies forecast growth in coal use for power, plus
additional growth for direct conversion of coal to
liquids to diversify the fuel supply. However, coal Strengthen Global and
combustion is also the largest source of CO2 emis- U.S. Energy Security
sions from energy production. Adding coal-to-
liquids production at scale, as with conversion of Besides expanding U.S. oil and natural gas pro-
most heavy unconventional hydrocarbons, would duction and developing additional domestic energy
generate large additional CO2 volumes. Therefore, types at commercial scale, it will be necessary to
addressing carbon constraints at scale will likely enlarge and diversify oil and natural gas supplies
be an essential requirement for retaining coal as a from global markets. The long lead-times needed
viable part of the energy supply system. Recom- to build domestic energy alternatives at commer-
mendations for maintaining coal’s long-term viabil- cial scale will require the United States to remain
ity are discussed specifically in the section entitled engaged in international energy markets beyond
“Address Carbon Constraints” later in this Executive the time frame considered in this study. Moreover,
Summary. oil and natural gas supplies from major resource-

22 Facing the Hard Truths about Energy


Key Information: Energy Security and Strategic Petroleum Stocks
This study examined the long-term energy crude oil production and nearly 30 percent of
future and focused on fundamental supply and U.S. refining capacity. The IEA coordinated a
demand, since a robust supply/demand balance release of oil from stockpiles worldwide, and
is necessary for global energy security. In the the global market quickly rebalanced, with the
short term, there is another aspect to energy secu- United States receiving petroleum product sup-
rity—the availability of strategic stocks to respond plies from around the world—including Europe
to a short-term disruption in supplies. and Japan.

Following the oil supply shocks of 1973-74, In total, the OECD countries currently hold
the OECD countries agreed to maintain strategic about 1.4 billion barrels of strategic oil stocks.
petroleum stocks and created the International The U.S. Strategic Petroleum Reserve (SPR) alone
Energy Agency to coordinate measures in times of holds nearly 700 million barrels of crude oil today.
oil supply emergencies. Today, OECD countries To put the U.S. SPR in perspective, its volume cur-
are committed to individually hold oil stocks equal rently represents sixteen months of United States
to 90 days of their imports. oil imports from Venezuela.

This strategic stockholding proved its worth in The total OECD strategic stockpile volume rep-
the aftermath of Hurricanes Katrina and Rita in resents almost 19 months of the entire volume
the U.S. Gulf of Mexico in the fall of 2005. At one of Iranian crude oil exports30 (none of which are
point, the hurricanes shut down all Gulf Coast currently imported into the United States).

holding countries often bear lower production and other nations. In years to come, security threats to
development costs than do U.S. domestic sources. the world’s main sources of oil and natural gas may
Maintaining U.S. access to these sources will con- worsen.
tribute to an affordable U.S. energy supply and pro-
mote U.S. competitiveness in the global market- In geoeconomic terms, the biggest impact will
place. come from increasing demand for oil and natural
gas from developing countries. This demand may
The world is entering a period in which interna- outpace timely development of new supply sources,
tional energy development and trade are likely to be thereby pressuring prices to rise. In geopolitical
influenced more by geopolitical considerations and terms, the consequences of shifting the balance
less by the free play of open markets and traditional between developed and developing countries will
commercial interactions among international energy be magnified by the accelerating demand coming
companies. Global competition for oil and natu- most strongly from China, India, and other emerging
ral gas will likely intensify as demand grows, as new economies.
parties enter the market, as some suppliers seek to
exploit their resources for political ends, and as con- These developments are taking place against a
sumers explore new ways to guarantee their sources background of rising hostility to globalization in
of supply. large parts of the world, including in many industri-
alized countries that benefit from it. This hostility
These shifts pose profound implications for U.S. could possibly fracture the global trading system.
interests, strategies, and policy making as well as for The political will to complete multilateral trade
the ways that energy companies conduct business. negotiations may be ebbing as major producers and
Many of the expected changes could heighten risks consumers seek bilateral or regional preferential
to U.S. energy security in a world where U.S. influ- agreements that can fragment world trade, increase
ence is likely to decline as economic power shifts to costs, and diminish market efficiency.

Executive Summary 23
ó Encouraging technology advancement
Recommendation ó Enhancing the quality of energy data and informa-
The NPC makes the following recommen- tion, including expanding knowledge of resource
dations to promote global and U.S. energy endowments.
security:
ó Integrate energy policy into trade, eco-
Develop a Comprehensive Forecast of
nomic, environmental, security, and for- U.S. Infrastructure Requirements
eign policies by having the Department
Transportation infrastructure plays a vital role
of Energy share an equal role with the
in delivering energy and other commodities from
Departments of Defense, State, Treasury,
resource locations to shipping centers, to manu-
and Commerce on policy issues relating to
facturing plants for processing, and ultimately to
energy and energy security.
demand centers for consumption. The transpor-
ó Continue to develop the international tation system as a whole is an immense network
energy marketplace by expanding the of pipelines, railways, waterways, ports, terminals,
energy dialogue with major consuming and roadways that has evolved over the past two
and producing nations, including China, centuries. The system today is a highly complex,
India, Canada, Mexico, Russia, and Saudi robust delivery network that operates in a safe, reli-
Arabia. able manner and serves as the foundation for the
ó Promote an effective global energy market- country’s economic activity.
place by sustaining and intensifying efforts
Shipments of goods have increased substantially
to encourage global adoption of transpar-
using all modes of transport. The spare capac-
ent, market-based approaches to energy
ity and redundancies in the various infrastructure
through multilateral and international
systems that existed 25 to 30 years ago have dimin-
institutions—including the World Trade
ished. Continuing growth will require additions to
Organization, G8, Asia-Pacific Economic
infrastructure.
Cooperation (APEC), IEA, International
Energy Forum, and the Joint Oil Data Ini- New infrastructure investments will also be
tiative (JODI). required as nontraditional energy sources grow.
ó Assist and encourage global adoption of Infrastructure requirements for many alternative
energy efficiency technologies through energy sources, such as biofuels and unconven-
technology transfer programs and lend- tional oil and natural gas, will be significant and
lease arrangements. yet are often underestimated. The potential scale
of CCS activities would also require significant new
Potential Effect: Restricted resource access
infrastructure.
and curtailed production could put potential
2030 global liquid (25-35+ million barrels per Energy supply and demand projections to 2030
day) and gas (150-200+ billion cubic feet per generally assume infrastructure will be built if it
day) incremental growth at risk. is economic to do so. These forecasts generally
assume no constraints on the ability to finance, per-
mit, and build the infrastructure required to supply
increasing kinds and amounts of energy. In practice,
Reinforce Capabilities to however, social, environmental, and land-use con-
Meet New Challenges straints do affect infrastructure planning and devel-
opment. Complex permitting processes lengthen
To meet the world’s growing energy needs, critical the time and cost of infrastructure construction and
capabilities for delivering energy supplies will need maintenance or may entirely preclude the infra-
to be improved. These critical capabilities include: structure needed for certain energy options. Addi-
tional information is needed to understand the full
ó Assessing future infrastructure requirements
requirements for energy infrastructure additions
ó Developing human resources and the potential limitations to timely investment.

24 Facing the Hard Truths about Energy


education, recruitment, development, and reten-
Recommendation tion—much as companies strive to develop and
renew energy supplies.
The NPC makes the following recommen-
dations to improve understanding of infra- Federal and state governments can play an impor-
structure needs to meet future U.S. energy tant role by funding university research and develop-
system growth: ment in science and technology. Consistent support
ó The Department of Energy (DOE) should for university research programs relating to the energy
develop an integrated study of the energy industry will signal prospective students that these
infrastructure needs to 2030. subjects are vital to the country. For example, several
universities have recently increased petrotechnical
ó The EIA should incorporate infrastructure- enrollment by active recruiting aimed at high school
related data into its energy information col- seniors, their parents, and their counselors. These
lection system. results indicate that vigorous recruiting can yield pos-
itive results, but efforts need to be more widespread.

Rebuild U.S. Science and


Engineering Capabilities Recommendation
The NPC makes the following recommenda-
As the post-World-War-II baby-boom generation tion to enhance U.S. science and technical
begins to retire, the energy industry faces a severe education programs:
human resource challenge. Nearly half of personnel
in the U.S. energy industries will be eligible for retire- ó Provide support to those seeking engi-
ment within the next 10 years, and fewer people have neering and other technical degrees, both
entered the workforce over the past generation. A undergraduate and graduate, by increas-
“demographic cliff” is looming in all areas of energy ing scholarships and research funding
industry employment.31 A hard truth is that the U.S. at universities and support for technical
energy workforce must be replenished and trained, schools.
although too few young people are preparing for the
opportunities.

An American Petroleum Institute survey in 2004 There is insufficient time to train enough young pro-
indicated that by 2009 there will be a 38-percent fessionals to fill the positions opening over the next
shortage of engineers and geoscientists and a 28-per- decade. Accelerating competencies through knowl-
cent shortage of instrumentation and electrical work- edge sharing, coaching, and mentoring will become
ers in the U.S. oil and gas industry. Statistics for other critical. Many retirees might prefer to phase-in retire-
science, engineering, and technology professions ment, but face regulatory barriers that restrict their
specifically within the energy industry are not avail- part-time work. These individuals’ expertise should
able, but the problem extends to those areas as well. be harnessed to prepare the next generation in both
One of the more important predictors for the future professional and vocational training programs.
supply of potential employees in oil and natural gas is
the number of students earning university degrees in
petroleum engineering and geosciences. Enrollment Recommendation
in these petrotechnical programs has dropped about The NPC makes the following recommen-
75 percent over the last quarter-century. dation to make it easier for retirees to con-
tinue working as consultants, teachers, and
The United States has traditionally been a leader in
coaches:
the global energy industry, but that position is threat-
ened by the anticipated loss of experience through ó Modify the U.S. tax code and retirement
retirements, without adequate replacements. The plan regulations to allow part-time work
U.S. government and the energy industry should after retirement without penalty.
work actively to renew this vital workforce through

Executive Summary 25
Across continents, there is a geographical dispar- Create Research and Development
ity in the supply of new graduates for some energy Opportunities
related fields (Figure ES-13). Over the next ten years,
the number of foreign nationals allowed to work in The oil and natural gas industry uses advanced,
the United States will be restricted by the number of state-of-the-art technology. Exploration specialists
work permits issued each year. Increasing the quo- interpret geologic structures miles beneath the earth’s
tas on work and study permits can help alleviate this surface. Drilling engineers access the resources found
geographical imbalance, and support U.S. energy at extreme depths, at high temperature and pressure,
productivity. and often in remote and physically challenging places.
Production engineers bring the oil and natural gas to
the surface through miles of pipeline, also under some-
Recommendation times extreme conditions, and deliver them to refin-
The NPC makes the following recommenda- eries. Once there, increasingly heavy and sulfurous
tion to increase the supply of trained energy crude oils are refined into useful products. All these
professionals in the United States: accomplishments are achieved today with a smaller
environmental “footprint” than even a decade ago, and
ó Increase student and immigration quo- are conducted more economically than ever before.
tas for trained professionals in energy and
technical fields. Most energy technology is developed by industry in
response to a resource opportunity, such as opening

DEFICIT
-160

DEFICIT
-420

SURPLUS
+410
+100
SURPLUS +100
SURPLUS
+500 SURPLUS
DEFICIT
+900
-350

SURPLUS
DEFICIT
ANNUAL AVERAGE
OVER NEXT 10 YEARS

Source: Schlumberger Business Consulting study, 2005.

Figure ES-13. The Regional Imbalance of Petrotechnical Graduates

26 Facing the Hard Truths about Energy


exploration in the deepwater Gulf of Mexico. Fewer Improve the Quality of Energy Data
investments are being directed to researching possi- and Information
bilities for energy production in the continental United
States, where accessible conventional opportunities As the study teams examined multiple forecasts,
are maturing. Government has a role in creating new they observed that some of the important basic data
opportunities and developing the regulatory framework and information were incomplete, inconsistent,
and infrastructure needed to extract new resources. dated, or oversimplified. Investment and policy deci-
Enhanced oil recovery is an activity for which funding sions are increasingly informed by such uncertain
by the DOE for research could pay significant dividends data. For example, some disparities in predictions
through increased domestic production. Coalbed meth- for future oil and natural gas supplies result from
ane and oil shale present additional opportunities. divergent estimates of the underlying resources and
their deliverability. Additionally, little or no quantita-
The decline in DOE-funded oil and natural gas- tive data are available to clearly understand the need
related research and development in the past two years for additional infrastructure capacity.
has affected both universities and the National Labora-
tories. Government funding in engineering and science,
when distributed to universities and National Labora- Recommendation
tories, sustains these important institutions. It is vital
The NPC makes the following recommenda-
that this funding is accompanied by contracts that call
tions to enhance the quality of energy data
for spending accountability and research delivery.
and information:
The national interest is also well served when the ó Expand data collected by EIA and IEA to pro-
government supports large-scale demonstration proj- vide additional sources of production and
ects, such as the FutureGen program to integrate large- consumption data for inclusion in annually
scale electricity generation with carbon capture and prepared public domain energy outlooks.
sequestration. In addition, government and industry
would benefit from collaborating in several critical ó Expand funding for data collection and
areas, including advanced materials, bioprocess, and analysis of energy transportation systems to
meteorological and oceanic (metocean) research. enable informed infrastructure decisions.

Recommendation
The NPC makes the following recommenda- There are many energy outlooks, but most base
tions to expand research and development op- their projections for future fossil-fuel production
portunities to support long-term study goals: on a few publicly available resource estimates, most
notably the U.S. Geological Survey (USGS) assess-
ó Review the current DOE research and devel-
ments. Since these assessments are comprehen-
opment portfolio to refocus spending on
sively updated only every decade or so, the funda-
innovative, applied research in areas such as
mental data for energy policy decisions may not
EOR, unconventional oil and natural gas, bio-
reflect the most current perspectives. In addition,
fuels, nuclear energy, coal-to-fuels, and CCS.
the many organizations involved in energy forecast-
ó Maintain a fundamental research budget in ing and analysis often apply different methodolo-
the DOE Office of Science to support novel gies and assumptions to the assessments, which can
technologies. create misunderstandings about future production
capabilities.
ó Focus and enhance research in the U.S.
universities and National Laboratories.
This study’s results confirm the primary importance
ó Encourage DOE, Department of Defense, of maintaining comprehensive, up-to-date, funda-
and industry cooperation in innovative areas mental assessments of the global oil, natural gas, and
of development, such as advanced materials coal endowment and recoverable resources. Although
and metocean information and analyses. each such assessment produces inherent uncertain-
ties based on the state of geological knowledge and

Executive Summary 27
observational information, a new, comprehensive 50
assessment would more accurately frame the condition
of the fossil resource base for policy decision making
and strategy. Additionally, given the growing contribu-
40
tion expected from biomass-based energy sources by

BILLION METRIC TONS


2030, a global assessment of this renewable resource
would provide a more complete outlook for the avail-
able energy endowment. 30

In order to increase the reliability and timeliness


of fundamental endowment and resource data, the 20
United States should collaborate with other global NON-OECD
stakeholders to improve the collection, manage-
ment, interpretation, and communication of data
and estimates for energy endowments and recover- 10
able resources. OECD

0
Recommendation 1980 1990 2000 2010 2020 2030
The NPC makes the following recommen- YEAR
dations to update publicly available global
Source: IEA, World Energy Outlook 2006, Reference Case.
endowment and resource estimates:
ó The USGS should conduct a comprehensive Figure ES-14. World Carbon Dioxide Emissions
geological assessment of U.S. and global oil
and natural gas endowment and recover-
able resources. CO2 emissions constraints on energy and opportuni-
− Incorporate wider participation of ties for technology application. Limits on CO2 emis-
industry and international experts and sions could restrict fossil fuel use, which currently
current data. provides more than 80 percent of the world’s energy.
Therefore, it is increasingly important to plan for
ó The USGS should conduct a new, compre- potential constraints on CO2 emissions as part of any
hensive survey of U.S. and global recover- overall energy strategy.
able coal resources and reserves using com-
mon analysis and reporting methodologies. By its nature, climate change is global. CO2 emis-
sions from burning fossil fuels contribute to the overall
ó The U.S. Departments of Energy and Agri-
flux of carbon between the atmosphere, the land, and
culture should conduct a global biomass
the oceans. By mixing in the atmosphere, CO2 emitted
resource assessment.
anywhere in the world is distributed around the globe.
Potential Effect: Timely and better informed
policy decisions based on shared understand- The United States was the world’s largest CO2 emit-
ing of critical resource data. ter from energy use as of 2005,32 both in total emis-
sions and on a per-capita basis, but most projected
growth of CO2 emissions is in the developing world, as
illustrated in Figure ES-14. Significantly reducing CO2
Address Carbon Constraints emissions would require global, broad-based actions
over decades, with major and sustained investment.
There is growing concern that the global climate is
warming, and that CO2 emissions from human activ- Enable Carbon Capture and Sequestration
ity play a role. The NPC did not examine the science
of climate change. But recognizing that an increasing Coal combustion is the largest source of CO2
number of initiatives to reduce these emissions are emissions from energy use, and coal is projected to
emerging, the NPC considered the potential effect of remain a major fuel for electricity generation in most

28 Facing the Hard Truths about Energy


forecasts. The resource base for coal is much larger
than that for oil and natural gas, and the United States − Continue federal research and develop-
has the world’s largest coal resource by some esti- ment support for advanced coal-to-fuel
mates.33 One opportunity for reducing CO2 emissions technologies.
is carbon capture and sequestration, which traps CO2 Potential Effect: Maintaining coal’s pro-
and stores it underground. Extensive, commercial jected 25 percent contribution to the future
scale deployment of this technology could allow con- U.S. energy mix, including potential coal-
tinued coal use in a carbon constrained future. Addi- to-liquids production, even in carbon-
tionally, some unconventional oil production requires constrained circumstances.
substantial energy, increasing CO2 emissions per unit
of delivered energy, and future development could be
influenced by the availability of CCS. An initial suite
of technologies for large-scale CCS implementation A comprehensive approach to carbon management
already exists within the oil and natural gas indus- would include measures to: boost energy efficiency
try, although such technologies have yet to be dem- and reduce demand; increase use of power that is
onstrated in combination and at commercial scale. not carbon based (nuclear, wind, solar, tidal, ocean-
More importantly, a legal and regulatory framework thermal, and geo-thermal); shift to lower carbon fuels,
for long-term CO2 storage is still lacking. including renewables; and deploy CCS. Putting a cost
on carbon emissions across all economic sectors,
Scale is also a major consideration for CCS. In
whether through a carbon tax or a carbon cap-and-
the United States, if all the CO2 from today’s coal-
trade mechanism, would allow the marketplace to
fired electricity generation were collected and com-
find the lowest cost combination of steps to achieve
pressed, it would total 50 million barrels per day.34
carbon reduction. Any cost should be imposed in a
This amounts to 2½ times the volume of oil handled
predictable manner over the long term, since regu-
daily in the United States. To accommodate such vol-
latory uncertainty weakens the investment climate
umes, potential storage sites need to be mapped and
and has the potential to disrupt economic activity.
assessed.
Any cost imposed should also consider the actions
of other countries and the resulting effect on U.S.
competitiveness.
Recommendation
The NPC makes the following recommen-
dations to enable long-term environmental
viability of coal for both power and fuel: Recommendation
ó Establish a legal and regulatory framework As policymakers consider actions to reduce
which is conducive to CCS. CO2 emissions, the NPC recommends in-
cluding: 
− Provide regulatory clarity for land use
and liability policies. ó An effective global framework for carbon
management incorporating all major emit-
− Provide access to federal lands for storage.
ters of CO2 and focusing particularly on
ó Enable full scale CCS and clean coal tech- opportunities for U.S.–China cooperation.
nology demonstration.
ó A U.S. mechanism for setting an effective
− Organize efforts between the power and cost for emitting CO2 that is:
oil/natural gas industries.
− Economy-wide, market-based, visible,
ó Undertake a national CO2 sequestration transparent, applicable to all fuels.
capacity assessment.
− Predictable over the long term for a
− Build on the existing efforts being under- stable investment climate.
taken by the DOE Regional Partnerships.
ó A credit for CO2 used in enhanced oil and
− Encourage global application. natural gas recovery.

Executive Summary 29
Key Information: Policy Avenues to Limit Carbon Dioxide Emissions
Direct regulation: CO2 emissions could be con- ó What level of emissions should be permitted and
strained by imposing limits on emissions from whether any “safety valve” is provided to limit
individual sources, such as power plants and the volatility or price of permits.
industrial facilities. Economists generally regard
ó Whether permits should be allocated at no cost
this sort of regulation as inefficient, because
or auctioned.
it does not allow for the likelihood that some
sources may be able to achieve emissions reduc- ó Whether there should be a single permitting sys-
tions more economically than others. Encourag- tem covering all affected sectors or multiple sys-
ing greater emissions reductions by the sources tems for different sectors.
that can do so most economically would yield a
Fundamentally, a cap-and-trade system estab-
larger total reduction for a given total cost, but
lishes a level of emissions, and the marketplace
this can be difficult to accomplish with fixed reg-
then establishes the cost.
ulatory targets.
Carbon taxes or fees: A tax or fee could be levied
Cap-and-trade regulation: Cap-and-trade
on CO2 emissions, establishing the cost of emis-
systems seek to overcome the inefficiency of
sions while letting the market then establish the
direct regulation by providing a market-based
emissions level. In principle, any level of emissions
mechanism to encourage those who can reduce
reduction that could be achieved with a cap-and-
CO 2 emissions most economically to do so. Reg-
trade scheme could also be achieved with taxes
ulators must determine which sources will be
or fees. For CO2 emissions from combustion, the
covered by the system and the total amount of
simplest method would levy the fee on the primary
emissions that will be allowed within a speci-
fuel, with a credit system for any use that doesn’t
fied period of time. Permits to emit a given
emit CO2 such as production of petrochemicals.
amount, such as one metric ton of CO 2, are
then allocated or auctioned. The permits can A tax or fee system has the advantages of estab-
be traded, encouraging sources that can elimi- lishing a predictable cost, thus encouraging long-
nate emissions for less than the market price of term planning and investment, and not requir-
a permit to do so, while sources for whom emis- ing the regulatory complexity of determining the
sions control is more costly can buy permits equitable emissions allowance levels by sector and
from others. facility. A tax or fee system has the disadvantage
that the level of resulting emissions is not estab-
Creating a cap-and-trade system involves impor-
lished in advance. A tax or fee system also poses
tant policy choices:
the challenge of how to equitably return the rev-
ó Which sectors to include. enues to the economy.

Potential Effect of of conventional supplies, and strategies to further


expand and diversify supplies are shown in dark green.
Recommended Strategies The combined effect of the recommended strategies
would reduce the gap between domestic demand and
The Council proposes five core strategies to assist
supply by about one-third from 2006 to 2030 in this
markets in meeting the energy challenges to 2030
illustration—improving the outlook for energy avail-
and beyond. An illustration of the potential effect of
ability, reliability, cost, and environmental impact.
implementing all the recommended strategies is
shown in Figure ES-15. Starting with the EIA Refer- Given the massive scale of the global energy system
ence Case for U.S. liquid fuel demand, the potential and the long lead-times necessary to make signifi-
effect of the recommended demand reduction strat- cant changes, concerted actions to implement these
egies is shown in light green. The potential effects recommendations must be taken now, and sustained
of recommended strategies to moderate the decline over the long term, to promote U.S. competitiveness

30 Facing the Hard Truths about Energy


30

U.S. LIQUID FUELS DEMAND


MILLION BARRELS PER DAY – LIQUIDS

MODERATE

20
GLOBAL TRADE
(NET IMPORTS)

EXPAND/DIVERSIFY

10

U.S. LIQUID FUELS SUPPLY

0
2000 2010 2020 2030
YEAR

Source: EIA, International Energy Outlook 2006, Reference Case / NPC Global Oil and Gas study estimates.

Figure ES-15. Illustrative Effect of Recommended Strategies for the United States

by balancing economic, security, and environmental the electricity to the end user, such that the energy value of
electricity finally used is less than the energy value of the coal
goals. The following report chapters detail more fully initially burned. In this example, coal is the primary energy, not
the challenges posed by the complexity of the world’s the final electricity used.
integrated energy system and the opportunities to
6 The “Billion Ton Study” – Biomass as a Feedstock for a Bioenergy
secure a more reliable energy future. and Bioproducts Industry: The Technical Feasibility of a Billion-
Figure ES-15. Illustrative Effect of Ton Annual
Recommended Supply, USDA
Strategies andUnited
for the USDOE, States
April 2005, available at
http://www.osti.gov/bridge.
Endnotes
WAS ES-15
7 About 240 years based on the most recent study by USGS in
1 The OECD (Organisation for Economic Co-operation and De-
1974. Just prior to publication of this NPC study, the National
velopment) includes Australia, Austria, Belgium, Canada, Czech
Academy of Sciences issued a report suggesting that economi-
Republic, Denmark, Finland, France, Germany, Greece, Hun-
cally recoverable coal reserves in the U.S. might be lower than
gary, Iceland, Italy, Japan, Korea, Luxembourg, Mexico, Nether-
the 1974 USGS study—approximately 100 years of current con-
lands, New Zealand, Norway, Poland, Portugal, Slovak Repub-
sumption.
lic, Spain, Sweden, Switzerland, Turkey, United Kingdom, and
United States of America. 8 See in this report, “New Patterns of Trade” section in Chapter 4,
Geopolitics.
2 For 2003, per the IEA’s World Energy Outlook 2005 and the EIA’s
International Energy Outlook 2006. 9 See World Oil Outlook 2007, OPEC Secretariat, especially pages
2, 7, and 8.
3 As of year-end 2005, 31.6 million cars and 1.3 billion people, as
reported by the China National Statistics Bureau. 10 IEA World Energy Outlook 2006, Chapter 12, page 315.
4 Per the U.S Bureau of Transportation Statistics, the United States 11 Refer to the Technology Development Topic Report accompany-
had 137 million cars in 2004; population was 281 million. But ing this report, Section F.
the U.S. also has a large number of trucks/SUVs used as passen-
ger vehicles, which are unfortunately not reported separately. A 12 The Hibernia platform discovery in 1979, first production in
close approximation would be the category of “other vehicles— 1997, producing 180,000 barrels per day. http://www.hiber-
two axle, four wheel,” which would add 92 million vehicles and nia.ca
bring the total for U.S. “passenger vehicles” to 228 million, for a
ratio of 8 passenger vehicles for 10 people. 13 The Thunder Horse Platform discovery in 1999, design capacity
250,000 barrels per day. http://www.bp.com
5 “Primary Energy” refers to first use of an energy source. For
example, coal can be burned to produce electricity. There are 14 Per reported estimates for a proposed new refinery by the Ari-
losses of energy in the process of generating and transmitting zona Refining Company, http://www.arizonacleanfuels.com

Executive Summary 31
15 American Association of Oil Pipelines. 24 From the Chemical Bandwidth Study, DOE, 2004; Energy Band-
width for Petroleum Refining Processes, DOE, 2006; Pulp and Pa-
16 National Petroleum Council, Balancing Natural Gas Policy, 2003. per Industry Energy Bandwidth Study, AIChE, 2006.

17 For example, see The Crude Oil Windfall Profit Tax of the 1980s— See also Curbing Global Energy Demand Growth: The Energy
Implications for Current Energy Policy, Congressional Research Productivity Opportunity, McKinsey Global Institute, May 2007.
Service, 2006, available at http://nationaljournal.com/policy-
council/energy/legnar/031406CRS_Crude.pdf. 25 “Combined heat and power” refers to using the excess heat from
generating electricity to meet processing or building heat needs.
18 See in this report, “Transportation Efficiency” section of Chapter This combination is frequently called “cogeneration” and results
3, Technology. The extent to which technologies translate into re- in a substantial increase in efficiency versus generating electric-
ductions in fuel consumption depends on several factors, includ- ity and heat separately.
ing costs, consumer preferences, availability, deployment, and
timing. 26 See in this report, “Conventional Oil” section in Chapter 3, Tech-
nology, for a full discussion of potential technologies that may
19 The potential fuel savings of 3 to 5 million barrels per day in increase conventional oil and gas recovery.
2030 is relative to a scenario where current fuel economy stan-
dards remain unchanged through 2030. 27 A “marginal well” is one that produces less than 10 barrels of oil
per day.
20 Baseline projections taken from Energy Information Adminis-
tration, Annual Energy Outlook 2007 with Projections to 2030, 28 The “Billion Ton Study” – Biomass as a Feedstock for a Bioenergy
Table 2, February 2007, http://www.eia.doe.gov/oiaf/aeo/ex- and Bioproducts Industry: The Technical Feasibility of a Billion-
cel/aeotab_2.xls; savings estimates taken from several studies Ton Annual Supply, USDA and USDOE, April 2005, available at
including Building on Success, Policies to Reduce Energy Waste in http://www.osti.gov/bridge.
Buildings, Joe Loper, Lowell Ungar, David Weitz and Harry Mi-
suriello – Alliance to Save Energy, July 2005. “Achievable” used 29 See www.energycommission.org/files/contentFiles/report_non
here means that the measures are currently available and the interactive_44566feaabc5d.pdf, page IV.
savings can be realized with a reasonable level of effort and with
acceptable reductions, if any, in perceived amenity value. 30 Iranian oil exports were 2.5 million barrels per day in 2006 per
the EIA.
For additional discussion, see the National Action Plan for En-
ergy Efficiency, which is available at: http://www.epa.gov/clean- 31 U.S. Department of Labor: “Identifying and Addressing Work-
rgy/actionplan/eeactionplan.htm. force Challenges in America’s Energy Industry,” President’s High
Growth Job Training Initiative, U.S. DOL Employment Training
21 From Building on Success, Policies to Reduce Energy Waste in Administration (March 2007).
Buildings, Joe Loper, Lowell Ungar, David Weitz and Harry
Misuriello – Alliance to Save Energy, July 2005, pp. 18-19. For 32 According to a preliminary estimate by the Netherlands En-
a compilation of compliance studies, see U.S. Department of vironmental Assessment Agency, China overtook the United
Energy, Baseline Studies, on web site (http://www.energycodes. States in total CO2 emissions for the year 2006. More informa-
gov/implement/baseline_studies.stm). Arkansas reports 36 of tion at http://www.mnp.nl/en/dossiers/Climatechange/more-
100 homes in the study sample did not meet the HVAC require- info/Chinanowno1inCO2emissionsUSAinsecondposition.
ments of the state energy code. html.

22 From Building on Success, Policies to Reduce Energy Waste in 33 Based on the 1974 USGS assessment. A very recent study by the
Buildings, Joe Loper, Lowell Ungar, David Weitz and Harry Mi- National Academy of Science suggests that the U.S. economi-
suriello – Alliance to Save Energy, July 2005, p. 24. cally recoverable coal resource may only be ~40% of the USGS
estimate.
23 For additional savings potential see Steven Nadel, Andrew
deLaski, Maggie Eldridge, & Jim Kleisch, Leading the Way: Con- 34 Based on 150,000 barrels per day of supercritical CO2 from a
tinued Opportunities for New State Appliance and Equipment one-gigawatt coal-fired power plant and 2,090 terawatt-hours
Efficiency Standards, March 2006, http://www.standardsasap. of coal-fired electricity generation in the United States in 2004
org/a062.pdf. per the EIA.

32 Facing the Hard Truths about Energy


1
Chapter
ENERGY DEMAND

Abstract
Demand for energy is growing steadily, and is efficiency gains; coal demand and supply trends; and
likely to reach increasingly higher levels as popu- how cultural, social, and economic conditions and
lations and economies expand. During the last other non-technical forces shape energy demand.
quarter-century, world energy demand increased
by over half, and a similar increase is projected The outline of the Energy Demand chapter is as
between now and 2030. However, future growth follows:
builds from today’s much larger base, meaning ó Demand Study Observations
that tomorrow’s energy requirements are unprece-
dented in scale. This will pressure the global supply ó Demand Summary
system and require increased emphasis on energy- ó Demand Data Evaluation
use efficiency in transportation, residential, com-
mercial, and industrial sectors. ó Electric Generation Efficiency
ó Coal Impact
This chapter examines how credible, inte-
grated modeling efforts portray the future world ó Industrial Efficiency
energy situation, and identifies the implications
ó Cultural/Social/Economic Trends
of those projections. Subgroups examined a wide
range of demand data from public and aggregated ó Residential/Commercial Efficiency
proprietary sources, making no attempt to pro-
ó Demand Study Potential Policy Options
duce a new, consensus projection. Expert teams
assessed technologies that hold potential for critical ó Policy Recommendations.

T
he Demand Task Group organized its activities into ó The purpose of the Demand Data Evaluation sub-
six subgroups (Demand Data Evaluation, Electric group was to summarize and compare the output
Generation Efficiency, Coal Impact, Industrial from publicly available, integrated energy projec-
Efficiency, Cultural/Social/Economic Trends, and tions for the world, to understand the underly-
Residential/Commercial Efficiency). The output ing basis of those projections, and to compare the
of these efforts led to a series of observations and results with other projections that were either non-
development of potential policy options. Detailed integrated or available only as aggregated propri-
discussions of the work of each subgroup have been etary studies.
included in the report as topic papers. These topic
papers are included on the CD distributed with the ó The intent of the Electric Generation Efficiency
report (a list of all the topic papers can be found in subgroup was to understand the efficiency poten-
Appendix E). tial in the electric generation sector and estimate

Chapter 1 – Energy Demand 33


the portion of that potential that is included in the based. The rest of the observations can be found in
available projections. the individual demand subgroup reports located in the
topic papers.
ó The Coal Impact subgroup examined both the coal
supply and demand trends. The primary goals were 1. Income and population are prime drivers of
to compare the projected demand for coal in the energy demand.
outlooks examined with the potential future sup-
ply of coal on a worldwide and regional basis and to The assumed rate of economic growth is a key vari-
evaluate coal transportation factors. able in projections of global energy demand. Popula-
tion growth and the size of a region’s population are
ó The focus of the Industrial Efficiency subgroup also important variables. Projected annual average
was to define the potential for energy-efficiency global economic growth from 2000 to 2030 ranges
improvement in the industrial energy sector and from 3 percent to 4.4 percent in the publicly avail-
to compare that potential to an estimate of the effi- able integrated energy outlooks. From 1980 to 2000,
ciency that is embedded in the outlooks examined global economic growth averaged 3.1 percent.
for the study. This effort also investigated historical
patterns of industrial feedstock use and how they 2. There are varying views on the rate of global en-
changed over time. ergy demand growth.
ó The Cultural/Social/Economic Trends subgroup Projected annual average global energy demand
undertook a broad area of investigation aimed at growth from 2000 to 2030 ranges from 1.5 percent
examining how non-technical factors affect energy to 2.5 percent. Global energy demand growth
demand, including how these factors have changed averaged 1.7 percent from 1980 to 2000. High and
over time and how they might be expected to low projections of economic growth result in high
change in the future. and low projections, respectively, of future energy
growth. The difference in energy demand in 2030
ó The Residential/Commercial Efficiency sub-
between the high and low growth rates is 224 qua-
group looked at the potential for energy-efficiency
drillion Btu—equivalent to roughly half of global
improvement in the residential and commercial
demand in 2005.
end-use sectors. Much of this effort focused on the
potential to reduce energy losses in existing struc-
3. There is a range of views on the rate of U.S.
tures, the potential impact of appliance standards
economic and energy demand growth.
on energy use, and the potential impact of new
building standards. Projections of annual average U.S. economic
growth from 2000 to 2030 in the public energy out-
ó Each of these subgroup efforts resulted in forma- looks range from 2.3 percent to 3.3 percent. The
tion of observations associated with the respective
1980 to 2000 average was 3.2 percent. Projected
areas. The Demand Task Group reviewed all of the
annual average U.S. energy demand growth ranges
observations and organized them into a list of those
from 0.5 percent to 1.3 percent. The 1980 to 2000
that appear to be the most significant.
average was 1.2 percent. The difference between
ó The next step in the process was to develop poten- the high and low energy demand growth rates from
tial policy options, which were used as input into the 2000 to 2030 is 37 quadrillion Btu—equivalent to
study recommendations process after the Demand 37 percent of 2005 total U.S. energy demand.
Task Group reduced the overall list to those it iden-
tified as most significant. 4. In most cases, carbon dioxide emissions are
closely related to projected energy use.

Demand Study Observations Projected global carbon dioxide emissions gen-


erally grow at roughly the same rate as projected
The output of each of the demand subgroups pro-
vides a broad view of historical and projected world-  Unless otherwise noted, data referred to in this chapter and
wide and regional energy use. Many observations were used in its figures and tables are from the Energy Information
derived from the subgroups’ efforts. The list of obser- Administration’s (EIA) International Energy Outlook 2006 and
the International Energy Agency’s (IEA) World Energy Outlook
vations were reduced to eighteen that the Demand Task 2006. These data were gathered by the NPC Survey of Global
Group deemed to be the most significant and broad Energy Supply/Demand Outlooks.

34 Facing the Hard Truths about Energy


energy demand, while growth in the United States 10. Nuclear energy use is projected to contribute
is slightly slower than energy demand growth. a declining share to world energy and U.S.
energy consumption, but it grows in absolute
5. Fossil fuels remain the largest source of energy. terms.
In 2030, fossils fuels (oil, natural gas, and coal) are Both world and U.S. projections show nuclear
projected to account for between 83 and 87 per- energy use growing slower than total energy
cent of total world energy demand compared with demand, and losing its share of the energy mix.
85 percent in 2000. The share for the United States
ranges from 81 to 87 percent in 2030. The U.S. 11. Transportation oil use is the largest component
share in 2000 was 86 percent. of oil demand growth in the world and the United
States.
6. The projections indicate that a large and, in many
Transportation increases its share of world and
cases, growing share of energy use will be met by
U.S. oil use.
coal.

In all of the projections but one, annual aver- 12. The share of natural gas use in the major end-use
age demand growth for coal is faster than in the sectors—residential/commercial, industrial, and
past for both the United States and the world. electric generation—changes over time.
Resources do not appear to be limiting the pro- The publicly available projections show a declin-
jected growth in coal use. However, use of coal will ing share of world natural gas use in the residen-
require infrastructure development, especially for tial and commercial sectors, essentially a constant
transportation and unconventional uses such as share for industrial purposes, and an increasing
coal to liquids. share for electric generation. In the United States,
the natural gas share remains essentially con-
7. In most of the outlooks, world natural gas de-
stant in the residential/commercial sector, while
mand is projected to increase at a slower rate
it declines in the industrial sector and grows for
than in the past (1980 to 2000).
electric generation.
Natural gas demand growth is still faster than total
energy demand from 2000 to 2030. The result is 13. Energy demand in Asia/Oceania is projected
natural gas gaining in market share. to grow at a faster rate than the global and U.S.
averages.
8. Growth in U.S. natural gas demand is projected Projected energy growth in the publicly available
to be significantly slower than in the past (1980 integrated projections indicates that Asia/Oce-
to 2000), which results in a decline in its share of ania’s share of total world energy demand will
total U.S. energy. increase by about 10 percent between 2000 and
Despite slower demand growth, absolute U.S. con- 2030. Over the same period, despite rising abso-
sumption of natural gas is projected to continue to lute consumption, the United States’ share of total
grow. world energy use is projected to decline by about
2 percent.
9. Projected world demand growth for oil is faster
than in the past (1980-2000), but less than the 14. Energy use is projected to grow slower than eco-
projected overall increase in energy demand re- nomic activity in both the world and the United
sulting in a declining market share for oil. States, resulting in a projected decline in energy
intensity.
Annual average growth in world oil demand
between 2000 and 2030 is projected to increase World energy use is projected to grow slower
at an annual average rate ranging from 1.0 to than economic growth. This is a continuation
1.9 percent. From 1980 to 2000, annual growth in of past trends. The United States is expected
world oil demand averaged 0.9 percent. In most to exhibit a similar profile. Energy intensity
cases, U.S. oil demand growth equals or exceeds (energy use per unit of gross domestic product,
the 0.6 percent annual average growth rate from GDP) declines at a faster rate in Asia/Oceania
1980 to 2000. than in North America.

Chapter 1 – Energy Demand 35


15. Global and U.S. energy consumption, per capita, Demand Summary
is projected to increase.
The NPC Demand Task Group reviewed, analyzed,
With the exception of one case, in all the publicly
and compared projections of world energy demand.
available integrated projections, energy use per
These projection data were gathered by the NPC Sur-
capita increases in the world, Asia, and the United
vey of Global Energy Supply/Demand Outlooks and
States. From 1980 to 2000, energy use per capita
collected in the NPC data warehouse, a repository
was essentially constant in the United States, while
for data and information used in this study, which
it increased in Asia.
is discussed in the Methodology chapter. Publicly
available demand data from the U.S. Department of
16. U.S. per capita energy consumption is projected
Energy’s Energy Information Administration and the
to remain higher than the world average.
International Energy Agency were the main focus of
In most publicly available projections, U.S. energy the analysis. Aggregated proprietary data and data
use per capita in 2030 is projected to be 4 times from other, generally less complete, public outlooks
greater than the world average and 6 times greater were used primarily to establish whether the EIA and
than in Asia. In 2000, the U.S. to world ratio was 5 IEA outlooks provided a reasonable range of projec-
and U.S. to Asia ratio was 11. tions for analysis.

17. U.S. energy efficiency improvement, as mea- The three major input assumptions behind both the
sured by energy intensity, is projected to be EIA and the IEA projections are economic growth, pop-
equal to—or less than—the historical rate from ulation, and energy policies. In general, the economic
1980 to 2000. growth projections (2000 to 2030) for the world exceed
past (1980 to 2000) growth. World population growth
Data limitations constrain insights into the projections in all cases are essentially the same. Popu-
amount of efficiency increase outside the United lation growth rates are projected to be generally lower
States that is built into the projections. However, than historical growth rates.
the decrease in energy intensity suggests that
there is an increase in energy efficiency under- The EIA projections generally include only those
pinning many of the projections. U.S. new light energy policies that are currently in effect and allow
duty vehicle miles per gallon (mpg) appears to most policies to expire as currently enacted at their
be projected to increase at 0.6 percent per year. sunset dates. The IEA Reference Case, however,
U.S. industrial efficiency is estimated to increase assumes the likely extension of public policies. The
by 5 percent over the projection period. There is IEA Alternative Policy Case provides a significantly
potential for further energy efficiency improve- different energy policy approach, assuming not only
ment in both of these sectors as well as in the existing energy policies and their logical extension,
residential/commercial sectors. but also other policies that are under consideration
around the world. Projected worldwide energy
18. Applying additional policy initiatives could demand is shown in Figure 1‑1, while projected U.S.
change the energy, economic, and environmen- energy demand is shown in Figure 1‑2.
tal outlook.
World demand for petroleum liquids is projected
In a projection that assumed the enactment of to grow from about 76 million barrels per day in 2000
several additional policies—the IEA Alternative to between 98 and 138 million barrels per day in 2030
Policy Case—total world energy demand growth (Figure 1‑3). U.S. petroleum liquids demand is pro-
from 2000 to 2030 was about 0.4 percent per year jected to grow from about 19 million barrels per day
lower then in the IEA Reference Case. In the same in 2000 to between 21 and 30 million barrels per day
Alternative Policy Case, growth in U.S. energy in 2030 (Figure 1‑4).
demand was 0.3 percent per year lower than in
the Reference Case. Global carbon dioxide emis- World natural gas demand is projected to range
sions are 6 billion metric tons lower (34 billion from 356 to 581 billion cubic feet per day in 2030,
metric tons) in 2030 in the IEA Alternative Policy compared with 243 billion cubic feet per day in 2000
Case than in the IEA Reference Case (40 billion (Figure 1‑5). U.S. natural gas demand, which was
metric tons). 64 billion cubic feet per day in 2000, is projected to

36 Facing the Hard Truths about Energy


900
HISTORICAL – 1.7 PERCENT PROJECTED
800

700
QUADRILLION BTU

600

500

400
PROJECTED (PERCENT)
EIA HIGH ECONOMIC GROWTH (2.5)
300
EIA REFERENCE (2.0)
IEA REFERENCE (1.8)
200 IEA ALTERNATIVE POLICY (1.4)
EIA LOW ECONOMIC GROWTH (1.5)
100

0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-1. World Energy Demand — Average Annual Growth Rates

Figure 1-1. World Energy Demand — Average Annual Growth Rates


160
HISTORICAL – 1.2 PERCENT PROJECTED
ALSO USED AS FIGURE 1-11

120
QUADRILLION BTU

80

PROJECTED (PERCENT)
40 EIA HIGH ECONOMIC GROWTH (1.3)
EIA REFERENCE (1.0)
IEA REFERENCE (0.8)
IEA ALTERNATIVE POLICY (0.5)
EIA LOW ECONOMIC GROWTH (0.7)
0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-2. U.S. Energy Demand — Average Annual Growth Rates

Chapter 1 – Energy Demand 37


160
HISTORICAL – 0.9 PERCENT PROJECTED

120
MILLION BARRELS PER DAY

80

PROJECTED (PERCENT)
40 EIA HIGH ECONOMIC GROWTH (1.9)
EIA REFERENCE (1.5)
IEA REFERENCE (1.4)
IEA ALTERNATIVE POLICY (1.0)
EIA LOW ECONOMIC GROWTH (1.0)
0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-3. World Petroleum Demand — Average Annual Growth Rates

Figure 1-3. World Petroleum Demand — Average Annual Growth Rates

ALSO USED AS FIGURE 1-13

35
HISTORICAL – 0.6 PERCENT PROJECTED

30
MILLION BARRELS PER DAY

25

20

15
PROJECTED (PERCENT)
10 EIA HIGH ECONOMIC GROWTH (1.4)
EIA REFERENCE (1.1)
IEA REFERENCE (0.8)
5 IEA ALTERNATIVE POLICY (0.5)
EIA LOW ECONOMIC GROWTH (0.7)

0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-4. U.S. Petroleum Demand — Average Annual Growth Rates

38 Facing the Hard Truths about Energy

Figure 1-4. U.S. Petroleum Demand — Average Annual Growth Rates


700
HISTORICAL – 2.6 PERCENT PROJECTED

600
BILLION CUBIC FEET PER DAY

500

400

300

PROJECTED (PERCENT)
200 EIA HIGH ECONOMIC GROWTH (2.9)
EIA REFERENCE (2.4)
IEA REFERENCE (2.0)
100 IEA ALTERNATIVE POLICY (1.6)
EIA LOW ECONOMIC GROWTH (2.0)
0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-5. World Natural Gas Demand — Average Annual Growth Rates

Figure 1-5. World Natural Gas Demand — Average Annual Growth Rates
80 ALSO USED AS FIGURE 1-17
HISTORICAL – 1.9 PERCENT PROJECTED
BILLION CUBIC FEET PER DAY

60

40

PROJECTED (PERCENT)
20 EIA HIGH ECONOMIC GROWTH (0.9)
EIA REFERENCE (0.7)
IEA REFERENCE (0.3)
IEA ALTERNATIVE POLICY (0.1)
EIA LOW ECONOMIC GROWTH (0.5)
0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-6. U.S. Natural Gas Demand — Average Annual Growth Rates

Chapter 1 – Energy Demand 39


45

40
2000
35 2030 EIA REFERENCE
2030 EIA HIGH ECONOMIC GROWTH
2030 EIA LOW ECONOMIC GROWTH
30 2030 IEA REFERENCE
2030 IEA ALTERNATIVE POLICY
PERCENT

25

20

15

10

0
OIL GAS COAL NUCLEAR OTHER
FUEL TYPE

Figure 1-7. World Energy Supply Shares


Figure 1-7. World Energy Supply Shares

45

40
2000
35 2030 EIA REFERENCE
2030 EIA HIGH ECONOMIC GROWTH
2030 EIA LOW ECONOMIC GROWTH
30 2030 IEA REFERENCE
2030 IEA ALTERNATIVE POLICY
PERCENT

25

20

15

10

0
OIL GAS COAL NUCLEAR OTHER
FUEL TYPE

Figure 1-8. U.S. Energy Supply Shares

40 Facing the Hard Truths about Energy


Figure 1-8. U.S. Energy Supply Shares
range from 59 to 78 billion cubic feet per day in 2030
(Figure 1‑6). 2030
2000 IEA
On a world basis, oil use is generally expected to IEA Ref. Case
lose share, while share gain is expected in the United
States. On the other hand, worldwide natural gas North America 27% 21%
use share is projected to increase (Figure 1‑7). In the
Central and South
United States, the projections indicate little change to
America 5% 5%
a slight decline in natural gas use share (Figure 1‑8).
OECD Europe 18% 13%
Worldwide carbon dioxide emissions grow from
24 billion metric tons in 2000 and are projected Non-OECD
to range from 34 to 51 billion metric tons in 2030 Europe & Eurasia 10% 8%
(Figure 1‑9). In all cases, carbon dioxide emissions
Middle East 4% 6%
increase at about the same rate as energy demand.
In 2030, projected carbon dioxide emissions in the Asia/Oceania 31% 41%
United States range from 6.3 to 9 billion metric tons
compared with 5.8 billion metric tons in 2000. Africa 5% 6%

Regional shares of energy use are projected to


change over time. The share of total worldwide energy Table 1-1. Regional Energy Shares
consumed in North America, OECD Europe, and
Non-OECD Europe & Eurasia is projected to fall in all
of the cases, while the share in Asia/Oceania grows the change in the share of total energy consumption,
(Table 1‑1). In general, the change in the oil share with industrialized regions losing share and the Asia/
of total worldwide oil consumed by region parallels Oceania oil share increasing significantly.

60
HISTORICAL – 1.3 PERCENT PROJECTED
BILLIONS OF METRIC TONS

40

20 PROJECTED (PERCENT)
EIA HIGH ECONOMIC GROWTH (2.5)
EIA REFERENCE (2.0)
IEA REFERENCE (1.8)
IEA ALTERNATIVE POLICY (1.2)
EIA LOW ECONOMIC GROWTH (1.5)
0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-9. World Carbon Dioxide Emissions — Average Annual Growth Rates

Chapter 1 – Energy Demand 41


Improvement in the efficiency of energy use is an The 50 percent improvement in new vehicle effi-
important factor determining future energy use. The ciency that has been discussed thus far is not consis-
models used to project future energy use are complex, tent with the general public understanding of light
which makes it difficult to provide precise estimates duty vehicle efficiency. The general measure used to
of the efficiency improvement built into the projec- indicate the fuel-use characteristic of a vehicle is miles
tions. However, energy use intensity (energy use per traveled per gallon of fuel used (mpg). A 50 percent
unit of GDP) provides a useful proxy and is projected reduction in fuel used per mile of travel (efficiency)
to decline in all regions. is, mathematically, equivalent to a doubling of—or a
100 percent increase in—mpg.
Major Areas to Moderate Demand by There are many ways to build a fuel use estimate of
Increasing Energy Efficiency the impact of incorporating a new light duty vehicle
efficiency improvement. Consequently, any estimate
Vehicle Fuel Economy is, at best, an indication of magnitude and not a pro-
jected actual outcome. If it is assumed that the total
The major use of liquid fuels in the United States is
100 percent improvement in new vehicle fuel economy
for transportation. The projections that were stud-
is implemented by the year 2030, the potential impact
ied indicate that transportation will likely remain
appears to lower light duty vehicle fuel consumption
the primary use of liquid fuels in the United States.
by 3 to 5 million barrels per day relative to a future with
Among various transportation uses, light duty vehi-
no improvement in new vehicle fuel economy. Fac-
cle use (automobiles and light trucks) is the largest
tors such as rate of new vehicle technology penetra-
component. Significant potential exists for effi-
tion and new vehicle replacement in the on-road fleet
ciency improvements, but most projections do not
have impacts on reduction in fuel use. New vehicle
expect this potential to be fully realized. In most
fuel economy improvement might vary from the rapid
of the other transportation uses, the EIA Reference
improvement rate in new vehicle fuel economy that
Case projection uses most or all of the potential for
occurred when the Corporate Average Fuel Economy
efficiency improvement now or expected to be avail-
program was instituted in the 1970s to a gradual incor-
able.
poration of new vehicle efficiency over the period to
Technically, there appears to be a potential for 2030. Replacement of on-road light duty vehicles by
improving the efficiency of new light duty vehicles new light duty vehicles has taken about 15 years. If the
(fuel used per unit travel) by about 50 percent using replacement period for light duty vehicles in the on-
technology improvements in several areas: engine road fleet increases or decreases, the potential fuel use
efficiency; body improvements; driveline changes; reduction decreases or increases.
accessory modifications; and hybrid technology use.
Some of the changes are likely to have costs associ- Obviously there are many other factors that are
ated with them as well as possible broader economic likely to change with time. Consequently, the estimate
effects (see Technology chapter). of potential savings should not be applied to any spe-
cific future projection of U.S. light duty fuel demand,
The NPC global oil and gas study has not been but should be used to indicate potential magnitude.
conducted in a way that provides for internally gen- The ultimate outcome will depend on the specifics of
erated projections. However, it is possible to under- program design and implementation.
stand the potential size of an impact on U.S. light
duty fuel consumption from incorporating an effi- Consumption in the Residential and
ciency improvement of 50 percent in the U.S. new Commercial Sectors
vehicle sales mix by 2030. By removing assump-
tions that relate to changes in the vehicle sales mix, There appears to be sizeable potential to reduce
increases in vehicle performance, increases in vehi- energy consumption in U.S. residential and com-
cle energy use created by added comfort and con- mercial sectors. The EIA Annual Energy Outlook
venience options, and increases in miles driven per 2007 (AEO 2007) reported the residential/commercial
licensed driver, most of the factors that complicate efficiency factors that are included in the projec-
direct understanding of a single factor like vehicle tion. The factors shown in Table 1‑2 are greatly influ-
efficiency increase are set aside. enced by the replacement of old, relatively inefficient

42 Facing the Hard Truths about Energy


Efficiency
Category Appliance
Improvement

Appliance Refrigerators 22%


Freezers 8%

Space heating Electric heat pumps 10%


Natural gas heat pumps 14%
Geothermal heat pumps 5%
Natural gas furnaces 6%
Distillate furnaces 2%

Space cooling Electric heat pumps 20%


Natural gas heat pumps 10%
Geothermal heat pumps 6%
Central air conditioners 22%
Room air conditioners 7%

Water heaters Electric 3%


Natural gas 6%
Distillate fuel oil 0%
Liquefied petroleum gases 6%

Building shell efficiency Space heating – Pre 1998 homes 7%


Note: Index includes size of
Space cooling – Pre 1998 homes 2%
structure in the calculation
Space heating – New construction 2%
Space cooling – New construction 2%

Source: Energy Information Administration, Annual Energy Outlook 2007, table 21, http://www.eia.doe.gov/oiaf/aeo/supplement/sup_rci.xls.

Table 1-2. Residential Stock Efficiency Improvements, 2007-2030

equipment. Efficiency improvement in new equip- plish savings of these magnitudes are indicated to be
ment is expected to be less than the aggregated available in the marketplace. However, some of these
improvements in the table. measures have initial cost and retrofit issues associ-
ated with their use.
Studies for efficiency improvements are largely spe-
cific to regions, and often to energy types. A review While significant efficiency improvements have
of these studies suggests that anticipated energy use been made over the last several decades in building
in the residential and commercial sectors could be shells, systems, and appliances, these have been offset
reduced by roughly 15 to 20 percent through deploy- in part by additional energy service demand require-
ment of cost-effective energy-efficiency measures ments that have been imposed as a result of increased
that use existing, commercially available technolo- structure sizes and larger and multiple appliance use.
gies. Assuming that all these measures are put in place As much as possible, programs to increase the effi-
over the next decades and that all other factors such ciency in the U.S. residential/commercial sector need
as level of services are held constant, U.S. residential/ to avoid inclusion of measures that inadvertently
commercial energy consumption could be reduced encourage using energy services that decrease the
by 7 to 9 quadrillion Btu. Technologies to accom- effectiveness of energy-efficiency measures.

Chapter 1 – Energy Demand 43


U.S. Industrial Sector Efficiency Table 1‑3 indicates some of the barriers to adopting
industrial energy efficiency measures.
The industrial sector is a price-responsive con-
sumer of energy. U.S. energy-intensive industries Research, development, and demonstration are
and manufacturers rely on internationally competi- needed to prove the technologies. However, focus on
tive energy supplies to remain globally competitive. deployment of improved technologies and practices
In recent years, U.S. natural gas prices have risen rela- is particularly important because of the risk-averse
tive to those in the rest of the world. As a result, U.S. character of manufacturing companies, the high
energy-intensive industries and manufacturers using capital cost of new equipment, the long life cycle of
existing industrial equipment, access to unbiased
natural gas as a fuel or feedstock have responded by
information on technology performance, and lack
increasing the efficiency of their operations and/or by
of technically trained human resources.  Addressing
shifting a greater proportion of their operations out-
these issues will speed the diffusion of improved tech-
side the United States.
nologies and practices.
Energy efficiency opportunities exist for reducing
Making the federal research and development tax
energy use by about 15 percent broadly across the
credit permanent, instead of legislatively renewing it
industrial sector. Areas of opportunity include waste
every few years, is a way to encourage private invest-
heat recovery, separations, and combined heat and
ment in industrial energy-efficiency research, devel-
power. While 40 percent of that opportunity could be opment, demonstration, and deployment.
implemented now, research, development, demon-
stration, and deployment are required before the rest U.S. Electric Power Generation Efficiency
can be implemented. If all of this efficiency could be
put in place over the next 20 years, U.S. energy demand U.S. electricity generation efficiencies indicated in
could be reduced by 4 to 7 quadrillion Btu compared both the EIA and IEA outlooks show improvements
with what it would be without the improvements. over time. The expected improvements come mainly

Energy Cost ó Price volatility


Environment ó Lack of transparency to end-users of the real cost of energy

Business ó Technical and economic risk (uncertain return on investment) associated with
Environment efficiency projects
ó Initial capital costs influence decisions more than long-term energy costs
ó Lack of incentives for development and use of new technology
ó Lack of R&D investments in efficiency
ó Long service life of existing equipment

Regulatory ó Election cycles and impact on R&D priorities


Environment ó Uncertainty related to future regulation, particularly environmental, and power
ó Permitting hurdles for upgrading existing equipment

Education ó Inadequate industry awareness of new technology


Environment ó Lack of technical expertise

Sources: Energetics, Technology Roadmap: Energy Loss Reduction and Recovery in Industrial Energy Systems, 2004; Global Environmental
Facility (GEF), Operation Program Number 5:  Removal of Barriers to Energy Efficiency and Energy Conservation, 2003; Marilyn Brown,
Market Failures and Barriers as a Basis for Clean Energy Policies, 2001; A.B. Jaffe, R.G. Newell, R.N. Stavins, “Energy-Efficient Technologies
and Climate Change Policies: Issues and Evidence,” Resources for the Future, Climate Issue Brief No. 19, 1999.

Table 1-3. Barriers to Adopting Energy Efficiency Measures

44 Facing the Hard Truths about Energy


from the replacement of retired plants with new suming and paying for the energy, are likely to ben-
plants that have better efficiencies. However, installa- efit from prudent application of technically practical
tion of environmental control systems will add inter- and economically rational policies. Areas such as
nal energy requirements reducing the efficiency of a light duty vehicle fuel use and residential and com-
power generation plant. mercial energy use could potentially benefit from
well developed and implemented energy conserva-
There are a few changes that can be made to tion/efficiency policies.
make an existing power generation plant more effi-
cient. Studies suggest the potential to improve the
efficiency of existing U.S. power plants by 2 to 6 per- Demand Data Evaluation ✦
cent. Existing electric generation plant efficiency
The Demand Data Evaluation Subgroup of the
improvements generally fall into the following cat-
Demand Task Group reviewed, analyzed, and com-
egories.
pared projection data collected in the NPC data ware-
ó Improved operation and maintenance practices house, which is discussed in the Methodology chap-
ter. Publicly available demand data from EIA and IEA
ó Replacement/upgrade of: were the main focus of the analysis. The aggregated
proprietary data available in the NPC data warehouse
− steam turbines
were used primarily to establish whether the EIA and
− forced draft, primary air, and induced draft fans IEA projections provided a reasonable range of pro-
− condensers jection results. Other public projections, generally
less complete than the EIA and IEA projections, were
− air heaters also used as a reasonableness check.
− operating controls
The three major input assumptions behind both
− soot blowers the EIA and the IEA projections are economic growth,
− burners. population, and effect of associated energy policies.
In general, the economic growth projections (2000 to
If these efficiency improvements could be captured in 2030) for the world exceed past (1980 to 2000) growth
the next decades, energy savings would equal about except for that used in the EIA Low Economic Growth
1 quadrillion Btu. Case (Figure 1‑10). By region and country, the pat-
tern is somewhat different. Economically developed
Capturing Efficiency Potential regions (North America and OECD Europe), and both
developing and economically emerging Asia are pro-
Current energy-efficiency polices will place down- jected to grow more slowly than in the past. Countries
ward pressure on future U.S. energy consumption. in Africa, Central and South America, the Middle East,
However, further energy reduction would be possible and Non-OECD Europe and Eurasia are projected to
if additional energy-conservation-related policy is grow more rapidly than historically. The faster global
put in place. economic growth is driven by the rapidly growing
emerging Asian economies becoming a larger share
In commercially oriented end-uses such as indus- of the global economy.
trial, electric generation, and commercially oriented
transportation, the market price mechanism creates World population growth in all cases is essentially
an incentive for using economically available energy the same, drawn from United Nations or U.S. Census
efficiency technology. Programs to assist in research, projections of population growth. Population growth
development, demonstration, and deployment of rates are projected to be generally lower then histori-
energy-efficient technology would bolster the market cal growth rates.
mechanism in these areas.
The EIA, generally, only included those energy pol-
Energy conservation and efficiency use in areas icies that are currently in effect and allows most poli-
where individual consumers are faced with com- cies to expire at their currently enacted sunset date.
plex choices that are not well understood, and where The IEA Reference Case, however, assumes the likely
decisions are made by third parties who are not con- extension of public policies. The IEA Alternative

Chapter 1 – Energy Demand 45


180
HISTORICAL – 3.1 PERCENT PROJECTED (PERCENT)
160 EIA HIGH ECONOMIC
GROWTH (4.4)
140 EIA REFERENCE (3.7)
TRILLIONS OF 2000 DOLLARS

IEA REFERENCE (3.3)


IEA ALTERNATIVE
120 POLICY (3.3)
EIA LOW ECONOMIC
100 GROWTH (3.0)

80

60

40

20

0
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
YEAR

Figure 1-10. World Economy — Average Annual Growth Rates

Figure 1-10. World Economy — Average Annual Growth Rates


Policy Case provides a significantly different energy day in 2000 (Figure 1‑14). The IEA Alternative Pol-
policy approach, assuming not only existing energy icy Case is the only public case in which growth in
policies and their logical extension, but also other U.S. petroleum liquids demand is slower than in the
policies now under consideration around the world. past. This indicates that the policies assumed in this
IEA used the same economic projections in its Refer- case could have a significant impact on the growth
ence Case and Alternative Policy Case. in petroleum liquids demand relative to the policies
in place today.
Worldwide energy demand is projected to grow 1.4
to 2.5 percent per year, versus the historical growth According to the EIA projection for the United
rate of 1.7 percent per year (Figure 1‑11). The pro- States, two-thirds of the volume and most of the pro-
jected U.S. energy demand growth of 0.5 to 1.3 per- jected growth in demand for petroleum liquids is in
cent per year was generally less than the historical transportation services (Figure 1‑15). That projected
rate of growth of 1.2 percent per year (Figure 1‑12). growth in transportation is led by increased demand
by light duty vehicles (60 percent) (Figure 1‑16). The
World demand for petroleum liquids is projected key drivers of light duty vehicle growth are increased
to grow at 1.0 to 1.9 percent per year versus the his- vehicle penetration and annual miles traveled per
torical growth rate of 0.9 percent per year. In 2030, vehicle, which more than offset improvement in vehi-
petroleum demand is projected to range from 98 cle efficiency (miles per gallon).
to 138 million barrels per day, up from 76 million
barrels per day in 2000 (Figure 1‑13). Despite this The transportation sector provides the greatest
growth, petroleum as a share of total energy declines potential for reducing oil consumption. The Technol-
in all cases. U.S. petroleum demand is projected to ogy Task Group, through its Transportation Efficiency
grow 0.5 to 1.4 percent per year versus 0.6 percent subgroup, developed an estimate of transportation
per year historically. In 2030, U.S. petroleum liquids efficiency potential for five classes of transportation:
demand is projected to range from 21 to 30 million light duty vehicles, heavy duty vehicles, air, marine,
barrels per day, compared to 19 million barrels per and rail (see Technology chapter).

46 Facing the Hard Truths about Energy


900
HISTORICAL – 1.7 PERCENT PROJECTED
800

700
QUADRILLION BTU

600

500

400
PROJECTED (PERCENT)
EIA HIGH ECONOMIC GROWTH (2.5)
300
EIA REFERENCE (2.0)
IEA REFERENCE (1.8)
200 IEA ALTERNATIVE POLICY (1.4)
EIA LOW ECONOMIC GROWTH (1.5)
100

0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-11. World Energy Demand — Average Annual Growth Rates

Figure 1-11. World Energy Demand — Average Annual Growth Rates


160
HISTORICAL – 1.2 PERCENT PROJECTED
ALSO USED AS FIGURE 1-1

120
QUADRILLION BTU

80

PROJECTED (PERCENT)
40 EIA HIGH ECONOMIC GROWTH (1.3)
EIA REFERENCE (1.0)
IEA REFERENCE (0.8)
IEA ALTERNATIVE POLICY (0.5)
EIA LOW ECONOMIC GROWTH (0.7)
0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-12. U.S. Energy Demand — Average Annual Growth Rates

Chapter 1 – Energy Demand 47


160
HISTORICAL – 0.9 PERCENT PROJECTED

120
MILLION BARRELS PER DAY

80

PROJECTED (PERCENT)
40 EIA HIGH ECONOMIC GROWTH (1.9)
EIA REFERENCE (1.5)
IEA REFERENCE (1.4)
IEA ALTERNATIVE POLICY (1.0)
EIA LOW ECONOMIC GROWTH (1.0)
0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-13. World Petroleum Demand — Average Annual Growth Rates

Figure 1-13. World Petroleum Demand — Average Annual Growth Rates

ALSO USED AS FIGURE 1-3

35
HISTORICAL – 0.6 PERCENT PROJECTED

30
MILLION BARRELS PER DAY

25

20

15
PROJECTED (PERCENT)
10 EIA HIGH ECONOMIC GROWTH (1.4)
EIA REFERENCE (1.1)
IEA REFERENCE (0.8)
5 IEA ALTERNATIVE POLICY (0.5)
EIA LOW ECONOMIC GROWTH (0.7)

0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-14. U.S. Petroleum Demand — Average Annual Growth Rates

48 Facing the Hard Truths about Energy

Figure 1-14. U.S. Petroleum Demand — Average Annual Growth Rates


30
HISTORICAL – 0.6 PERCENT PROJECTED – 1.2 PERCENT
MILLION BARRELS PER DAY OF OIL EQUIVALENT

25

20

1.4% TRANSPOR-
15 TATION

1.4%
10
INDUSTRIAL

5 RESIDENTIAL /
0.0% 0.8% COMMERCIAL
POWER
-1.0% -0.4% GENERATION
0
1980 2005 2030
YEAR

Figure 1-15. U.S. Demand for Petroleum Liquids by Sector


(EIA Reference Case) — Average Annual Growth Rates

Figure 1-15. U.S. Demand for Petroleum Liquids by Sector (EIA Reference Case) — Average Annual Growth Rates
20
HISTORICAL – 1.4 PERCENT PROJECTED – 1.4 PERCENT
MILLION BARRELS PER DAY OF OIL EQUIVALENT

MARINE / RAIL

AVIATION
0.6%
15
1.4%
HEAVY DUTY
VEHICLES
1.8%
0.6%
10
1.6%
2.6%
LIGHT DUTY
VEHICLES
5 1.4%

1.2%

0
1980 2005 2030
YEAR

Figure 1-16. U.S. Demand for Transportation Fuels by Transportation Mode


(EIA Reference Case) — Average Annual Growth Rates

Figure
Chapter 1-16.Demand
1 – Energy U.S. Demand for Transportation Fuels by Transportation Mode (EIA Reference Case) — 49
Average Annual Growth Rate
The EIA Reference Case for the United States proj- the EIA estimates. New technologies will need to be
ects that in 2030 technology improvements will result discovered to achieve additional improvements in
in ~10 percent improvement in new light duty vehi- efficiency.
cle fuel consumption (Btu per mile) from 2005 lev-
els. It is estimated that this includes technological The EIA Reference Case is based on a 5 percent
improvements of ~30 percent at constant vehicle per- improvement in marine shipping fuel consump-
formance, and vehicle attribute changes that reduce tion by 2030. This improvement level is achievable
this improvement by about half. Based on this study’s with operational solutions and existing technologies.
analysis, technologies (drive-train and body improve- Improvements greater than 5 percent will require
ments, and hybridization) exist, or are expected to new hull designs and new propeller designs. Given
be developed, that have the potential to reduce fuel the long life of ships (greater than 20 years), migration
consumption by 50 percent relative to 2005. This of these solutions into the fleet will not have a large
assumes constant vehicle performance, characteris- impact until later in the study period. Operational
tics, and sales mix between light trucks and autos and changes, affecting the entire fleet, may be more sig-
entails higher vehicle cost. nificant sooner than technological improvements.

Improvements beyond 50 percent will require The EIA Reference Case assumes that fuel con-
breakthroughs in batteries or fuel cells, resulting sumption will improve by 2.5 percent between 2005
in significantly higher vehicle costs and potentially and 2030 for rail use in the United States. Incremen-
significant infrastructure investments. The fuel effi- tal improvements in engine design, aerodynamics,
ciency improvement estimates beyond the initial and use of hybrids have the potential to reduce new
50 percent warrant careful scrutiny as other energy locomotive fuel consumption by up to 30 percent
forms such as electricity and hydrogen are incorpo- over 2005 technology. Rollout of new technology into
rated in the fuel mix. The conversion and transforma- the fleet is slow due to low turnover and will be dif-
tion of primary fuels to secondary energy types may ficult to achieve during the years considered in this
significantly decrease the overall energy efficiency of study. More stringent emissions standards will tend
these advanced technologies. to increase fuel consumption.

Technologies exist to reduce new heavy-duty-truck World natural gas demand is projected to grow
fuel consumption by 15-20 percent in the United 1.6 to 2.9 percent per year versus 2.6 percent per
States by 2030, which is about equal to the EIA Ref- year historically (Figure 1‑17). Despite the slowing
erence Case assumption. These technologies (e.g., of gas demand growth rates, gas is still projected to
engine efficiency, rolling resistance, and aerodynamic gain market share versus other energy sources in all
improvements) will involve higher cost and require cases. Natural gas demand grows in all regions. Gas
appropriate incentives. Operational improvements demand ranges from 356 to 581 billion cubic feet
such as reduced idling and improved logistics can per day in 2030, compared with world natural gas
provide a benefit of 5 to 10 percent across the fleet demand of 243 billion cubic feet per day in 2000. In
during this period. all cases, the projected growth rate in U.S. natural gas
demand is lower than the historical rate. U.S. natural
Advanced technology solutions, such as hybrid- gas demand ranges from 59 to 78 billion cubic feet per
ization and fuel cells, offer fuel consumption reduc- day in 2030, compared with 64 billion cubic feet per
tions of an additional 25 percent, and applications day in 2000 (Figure 1‑18).
would likely be initiated in local delivery, short-haul,
medium-duty delivery trucks, and buses. As in the In contrast with projected U.S. oil demand, which is
light duty vehicles, the conversion and transforma- concentrated in the transportation sector (Figure 1‑15),
tion of primary fuels to secondary energy types may natural gas use in the United States is more evenly
significantly decrease the overall energy efficiency of spread across three sectors: residential/commercial,
these advanced technologies. industrial, and electric utility (Figure 1‑19).

Fuel consumption improvements for aircraft on Worldwide, coal demand growth is projected to
the order of 25 percent are the basis for the EIA Ref- be faster in the future than in the past in all outlooks
erence Case. This is an aggressive projection and all except for the Alternative Policy Case where the growth
of the known technologies appear to be included in is slightly less than in the past. More than two‑thirds

50 Facing the Hard Truths about Energy


700
HISTORICAL – 2.6 PERCENT PROJECTED

600
BILLION CUBIC FEET PER DAY

500

400

300

PROJECTED (PERCENT)
200 EIA HIGH ECONOMIC GROWTH (2.9)
EIA REFERENCE (2.4)
IEA REFERENCE (2.0)
100 IEA ALTERNATIVE POLICY (1.6)
EIA LOW ECONOMIC GROWTH (2.0)
0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-17. World Natural Gas Demand — Average Annual Growth Rates

Figure 1-17. World Natural Gas Demand — Average Annual Growth Rates

80 ALSO USED AS FIGURE 1-5


HISTORICAL – 1.9 PERCENT PROJECTED
BILLION CUBIC FEET PER DAY

60

40

PROJECTED (PERCENT)
20 EIA HIGH ECONOMIC GROWTH (0.9)
EIA REFERENCE (0.7)
IEA REFERENCE (0.3)
IEA ALTERNATIVE POLICY (0.1)
EIA LOW ECONOMIC GROWTH (0.5)
0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-18. U.S. Natural Gas Demand — Average Annual Growth Rates

Chapter 1 – Energy Demand 51


30
HISTORICAL – 0.6 PERCENT PROJECTED – 0.8 PERCENT
MILLION BARRELS PER DAY OF OIL EQUIVALENT

25

20

15
0.7%
TRANSPORTATION
0.6%
10 0.8% INDUSTRIAL

0.0%
0.8% RESIDENTIAL /
5 COMMERCIAL
0.3%
0.7% POWER
1.5% GENERATION
0
1980 2005 2030
YEAR

Figure 1-19. U.S. Natural Gas Demand by Sector (EIA Reference Case) — Average Annual Growth Rates

Figure 1-19. Natural Gas Demand by Sector (EIA Reference Case) — Average Annual Growth Rates
of the projected growth in coal demand from 2000 As shown in Figure 1‑20, worldwide carbon dioxide
to 2030 is in China and India, where the economies emissions grow in all of the projections. Carbon diox-
are growing rapidly and coal is very competitive ide emissions are projected to range from 34 billion
with other fuels. The indication is that share of total metric tons in 2030 in the IEA Alternative Policy Case
world energy consumption met by coal is projected to to 51 billion metric tons in the EIA High Economic
increase in all cases except where policies are enacted Growth Case, compared with 24 billion metric tons in
that place a limit on the use of coal. 2000. In all cases, carbon dioxide emissions increase at
about the same rate as energy demand. Carbon diox-
Worldwide nuclear consumption growth in all out- ide emissions in the United States are also expected
looks is projected to be slower in the future than it has to grow in all projections, although not as fast as for
been in the past. The nuclear share of total worldwide the world. In 2030, carbon dioxide emissions in the
energy demand declines in all projections except for United States range from 6.3 billion metrics tons in
the Alternative Policy Case, in which it increases very the IEA Alternative Policy Case to 9 billion metric tons
slightly. While the specific numbers are different in in EIA High Economic Growth Case (5.8 billion met-
the U.S. projections, the trends are the same. The rics tons in 2000).
nuclear share of energy consumption is projected
to decline slowly in the United States through 2030. The regional shares of energy use are projected
The projections suggest that a major shift in nuclear to change over time. The share of total world-
policy will be required to increase the nuclear share of wide energy consumed in North America, OECD
energy use. Europe, and Non-OECD Europe and Eurasia is pro-
jected to fall in all of the cases, while the share in
The share of total worldwide energy consumption Asia/Oceania grows. China is a major contributor
accounted for by other energy sources (hydro, bio- to the substantial growth in Asia/Oceania share.
fuels, wind, solar, etc.) is projected to be higher in In general, the change in the oil share of total
2030 than in 2000. worldwide oil consumed by region parallels the

52 Facing the Hard Truths about Energy


60
HISTORICAL – 1.3% PROJECTED
BILLIONS OF METRIC TONS

40

20 PROJECTED (PERCENT)
EIA HIGH ECONOMIC GROWTH (2.5)
EIA REFERENCE (2.0)
IEA REFERENCE (1.8)
IEA ALTERNATIVE POLICY (1.2)
EIA LOW ECONOMIC GROWTH (1.5)
0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-20. World Carbon Dioxide Emissions — Average Annual Growth Rates

change in the share of total energy consumption,


with industrialized regions losing share and the 2030
Asia/Oceania oil share increasing significantly, 2000 IEA
Figure 1-20. World Carbon DioxideasEmissions — Average Annual Growth Rates
shown in Table 1‑4. IEA Ref. Case
ALSO USED AS FIGURE 1-9
Energy consumption per unit of GDP (energy inten- North America 27% 21%
sity) is projected to decline in all regions. The Middle
Central and South
East, while not exhibiting the highest energy inten-
America 5% 5%
sity in 2000, is projected to have the highest energy
intensity in 2030 in all cases. North America, the OECD Europe 18% 13%
region exhibiting the highest energy use per person in
Non-OECD
2000, is still projected to have the highest energy use
Europe & Eurasia 10% 8%
per person in 2030, but it declines in the IEA cases.
Energy consumption per person in all other regions is Middle East 4% 6%
projected to be higher than or equal to 2000 levels in
Asia/Oceania 31% 41%
2030, as shown in Table 1‑5.
Africa 5% 6%
Part of the study effort involved collecting energy
demand projections from organizations other than
EIA or IEA. Some of these projections were propri- Table 1-4. Regional Energy Shares
etary and, therefore, were collected by a third party
with the data aggregated before being made available
to study participants. Details of the aggregated data The results of the aggregated proprietary data
collection process are discussed in Chapter 7, “Meth- collection effort confirmed that using the EIA and
odology.” IEA projections was reasonable. As can be seen on

Chapter 1 – Energy Demand 53


submissions) fall generally in the range of the EIA and
2030 IEA projections for total energy. The same is true for
2000 IEA all the major energy types.
IEA Ref. Case
For the U.S. situation, there were an insufficient
North America 9.51 6.18 number of submissions to provide a high and low
Central and South average. Figure 1‑22 shows that the average for the
America 6.53 4.88 proprietary data is in the range of the EIA and IEA pro-
jections for total energy. Similar observations hold for
OECD Europe 6.49 4.35 major energy types.
Non-OECD
Other studies were provided to the study effort as
Europe & Eurasia 21.27 9.40
public projections. Generally, the information in these
Middle East 15.23 12.04 studies was in less detail than provided in the EIA and
IEA studies. There were other organizations that had
Asia/Oceania 8.04 4.64
sufficient data available to provide partially complete
Africa 12.00 7.07 data input templates. The other studies support the
finding that the EIA and IEA projections provide a rea-
sonable range of results for assessing energy issues.
Table 1-5. Regional Energy Intensity With the exception of the IEA Alternative Policy Case,
(1,000 Btu/2000$ GDP) policy assumptions underpinning the projections are
extensions of polices in place today. It is interesting
to note that projections with lower energy demand
Figure 1‑21, the aggregated proprietary projections growth rates are based on lower economic growth
for all three levels of the total submissions output rates. As an example of the congruence of study
(average of the two highest submissions, average of results, the energy and carbon dioxide growth rates
the two lowest submissions, and the average of all are shown in Table 1‑6. There were other projections

900
HISTORICAL PROJECTED

800

700

600
QUADRILLION BTU

500

400 PROJECTED
EIA HIGH ECONOMIC GROWTH
EIA REFERENCE
300 IEA REFERENCE
IEA ALTERNATIVE POLICIES
200 EIA LOW ECONOMIC GROWTH
PROPRIETARY AVERAGE
PROPRIETARY HIGH
100 PROPRIETARY LOW

0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-21. World Energy Demand — Public and Proprietary Projections

54 Facing the Hard Truths about Energy


Figure 1-21. World Energy Demand — Public and Proprietary Projections
160
HISTORICAL PROJECTED

120
QUADRILLION BTU

80

PROJECTED
EIA HIGH ECONOMIC GROWTH
40 EIA REFERENCE
IEA REFERENCE
IEA ALTERNATIVE POLICIES
EIA LOW ECONOMIC GROWTH
PROPRIETARY AVERAGE
0
1980 1990 2000 2010 2020 2030
YEAR

Figure 1-22. U.S. Energy Demand — Public and Proprietary Projections

World World World World


Economy Population Energy CO2
 
Figure 1-22. U.S. Energy Demand — Public and Proprietary Projections
Energy Information Administration – reference 3.7% 1.0% 1.9% 2.0%

Energy Information Administration – low economic 2.9% 1.0% 1.4% 1.4%

Energy Information Administration – high economic 4.5% 1.0% 2.5% 2.6%

International Energy Agency – reference 3.7% 1.0% 1.6% 1.7%

International Energy Agency – alternative policy 3.4% 1.0% 1.2% 1.0%

European Commission 3.1% 0.9% 1.7% 1.6%

Institute of Energy Economics, Japan 3.1% 1.0% 1.7% 1.8%

Greenpeace & European Renewable Energy Council 3.1% 0.9% 1.4% 1.5%

U.S. Climate Change Science Program – MERGE 2.6% 0.8% 1.0% 1.2%

U.S. Climate Change Science Program – MINICAM 2.3% 0.9% 1.7% 1.5%

U.S. Climate Change Science Program – IGSM 3.1% 1.0% 1.9% 2.1%

Table 1-6. Outside Study Comparison of Average Annual Growth Rates


from 2004 to 2030

Chapter 1 – Energy Demand 55


that were submitted or captured in other efforts that potential for energy savings (Productivity of growing
did not have sufficient definition of underlying bases global-energy demand: A Microeconomic Perspec-
or data detail to be included in the comparison. tive). The study provides an assessment of poten-
tial savings without regard for the time needed to
The Petroleum Federation of India (PFI) provided achieve the estimated savings, or for the practicality
a series of outlooks for India. These projections offer of achieving them. The McKinsey study used 2020
perspective on the expected Indian energy situation. as its horizon year. As indicated in Table 1‑7, the
The data are limited, but there is sufficient informa- McKinsey study suggests that between 2003 and
tion to look at the 2020 energy mix. The PFI total 2020 essentially all U.S. energy growth, and about
energy projection has a 2004 to 2020 energy demand 75 percent of world energy growth, could be recov-
growth rate of 3.3 percent per year for the Business as ered by efficiency/conservation measures assum-
Usual Case. This growth rate is slightly higher than ing they could be instituted within the time period.
the 3.0 and 2.8 percent per growth rates developed in The McKinsey study adds support to the NPC study
the EIA and IEA Reference Cases, respectively. One recommendations that efficiency/conservation mea-
difference between the projections is in petroleum sures are an important piece for providing a balanced
demand, where the PFI projection has an indicated U.S. energy program.
2004 to 2020 growth rate of 4.7 percent per year while
the other two projections have indicated growth rates When preparing its International Energy Outlook,
of 2.6 to 3.2 percent per year. Offsetting this differ- the EIA uses the Annual Energy Outlook as a major
ence, to some extent, is the lower growth in coal use source of U.S. data. The EIA released an updated
expected by PFI relative to the other projections. version of its Annual Energy Outlook during the
first quarter of 2007. Table 1‑8 contains a 2004 to
McKinsey Global Institute conducted a study in 2030 growth rate comparison between the 2006
November 2006 that approached the issue of the and 2007 Annual Energy Outlooks. There are only

  McKinsey EIA

  U.S. World U.S. World

Energy consumption
2003 – quadrillion Btu 92 422 101 433
2020 – quadrillion Btu 113 615 121 613
Growth – percent per year 1.2% 2.2% 1.0% 2.1%
2020-2003 – quadrillion Btu 21 193 19 181

Potential 2020 reduction


Low estimate – quadrillion Btu 19 117 19 117
High estimate – quadrillion Btu 27 173 27 173
Percent of 2003 to 2020 growth
Low – percent 90% 61% 99% 65%
High – percent 129% 90% 140% 96%

Sources: McKinsey Global Institute, Productivity of Growing Global-Energy Demand: A Microeconomic Perspective, November 2006; Energy
Information Administration, Annual Energy Outlook 2007.

Table 1-7. Comparison of Data from


McKinsey Global Institute and Energy Information Administration

56 Facing the Hard Truths about Energy


Council’s Global Oil and Gas Study. However, there
AEO AEO are some interesting differences between IEO 2006
2006 2007 and IEO 2007 that should be noted. A comparison
between the two Reference Case outlooks is shown
Primary Energy in Table 1‑9.

Petroleum Products 1.1% 1.0% World economic growth is higher in IEO 2007.
From a regional perspective, the major differences are
Natural Gas 0.7% 0.6%
in Asia/Oceania where projected economic growth is
Coal 1.7% 1.6% faster, and in North America, where it is slower. All
Nuclear 0.4% 0.5% other regions show a greater growth in economy than
in IEO 2006 with the Non-OECD Europe and Eurasia
Other 1.7% 1.6% region projected difference slightly greater than in
Total 1.1% 1.1% other regions.

While the economic growth projections used as


Sectors a basis for IEO 2007 are generally greater than in
Residential 0.8% 0.7% IEO 2006, energy growth projections are equal or
less than they were in IEO 2006. This suggests that
Commercial 1.6% 1.6%
the energy efficiency/conservation assumptions
Industrial 0.9% 0.7% underpinning IEO 2007 are greater than in IEO 2006.
Energy intensities (energy use per unit of economic
Transportation 1.4% 1.3%
activity) calculated from the two outlooks show that
Electric Generation 1.3% 1.2% in all regions except North America energy intensity
is lower in IEO 2007, supporting the idea that there is
Subtotal 1.2% 1.1%
more energy efficiency/conservation incorporated
Electricity 1.6% 1.4% in IEO 2007 than in IEO 2006.

Total 1.1% 1.1% The projected regional energy consumption pat-


tern in IEO 2007 is little different than in IEO 2006.
Gross Domestic Product 3.0% 2.9% The biggest difference is in Asia/Oceania, where
projected 2030 energy use share increased from
37.6 percent to 39.2 percent.
Table 1-8. Comparison of
Considering the type of energy consumption, the
EIA Annual Energy Outlook 2006 and 2007
Reference Cases’ Average Annual most significant difference appears to be a lower
Growth Rates from 2004 to 2030 projection of world natural gas use. Both nuclear
and coal use are projected to be higher. There was
an accounting convention change between the two
minor differences between the two projections, outlooks for the way in which renewable liquids were
which suggests that the overall analysis that uses handled. In IEO 2007, liquids from renewables are
the 2006 International Energy Outlook (IEO 2006) shown as petroleum products instead of as “other.”
is basically unchanged as a result of the recently This change accounts for most of the reduction in
released EIA U.S. outlook. Data availability issues other energy use, but suggests that petroleum liq-
have lead to some of the analyses that support vari- uids from more traditional sources are somewhat
ous components of the demand effort being based lower in IEO 2007 than in IEO 2006.
on the AEO 2007, which should not present any dif-
ficulties. An output from both projections is an estimate of
carbon dioxide emissions. In 2030, the IEO 2006 esti-
The EIA released the 2007 version of the Interna- mate for Reference Case carbon dioxide emissions
tional Energy Outlook (IEO 2007) on May 21, 2007. was 43.7 billion metric tons. The IEO 2007 carbon
IEO 2007 suggests no changes in the overall demand dioxide emissions estimate for 2030 is 42.9 billion
related conclusions of the National Petroleum metric tons.

Chapter 1 – Energy Demand 57


2003–2030 2030 2030 2007-2006 2030 2030

Difference Intensity
(Quadrillion (1,000 Btu/
Growth Rate (%/Year) Share (%) Btu) 2000$ GDP)

IEO 2006 IEO 2007 IEO 2006 IEO 2007 IEO 2006 IEO 2007

Primary Energy              

Petroleum Products 1.4% 1.4% 33.1% 34.1% -0.2    

Natural Gas 2.4% 2.0% 26.3% 24.3% -19.5    

Coal 2.5% 2.6% 27.1% 28.4% 3.6    

Nuclear 1.0% 1.5% 4.8% 5.7% 5.0    

Other 2.4% 1.8% 8.6% 7.6% -8.9    

Total 2.0% 1.9% 100.0% 100.0% -20.0    

Regions (Energy)              

North America 1.3% 1.2% 23.0% 23.0% -4.6 5.99 6.01

OECD Europe 0.7% 0.5% 13.1% 12.7% -5.3 4.87 4.48

Central and South America 2.8% 2.4% 6.3% 5.9% -4.3 5.49 4.67

Middle East 2.5% 2.5% 5.2% 5.4% 0.5 9.23 9.03

Non-OECD Europe and


Eurasia 1.8% 1.4% 10.9% 10.2% -7.5 8.60 7.24

Africa 2.6% 2.3% 3.7% 3.5% -1.9 3.85 3.36

Asia/Oceania 3.1% 3.1% 37.6% 39.2% 3.2 4.20 3.56

Total 2.0% 1.9% 100.0% 100.0% -19.9 5.14 4.55

Gross Domestic Product Difference


(billion 2000 dollars)         (B $2000)    

North America 3.1% 2.9% 19.8% 17.4% -849    

OECD Europe 2.2% 2.3% 13.8% 12.9% 519    

Central and South America 3.8% 4.0% 5.9% 5.7% 541    

Middle East 4.2% 4.3% 2.9% 2.7% 145    

Non-OECD Europe and


Eurasia 4.4% 4.7% 6.5% 6.4% 691    

Africa 4.4% 4.6% 5.0% 4.8% 438    

Asia/Oceania 4.8% 5.5% 46.1% 50.0% 12,498    

Total 3.8% 4.2% 100.0% 100.0% 13,983    

Table 1-9. Comparison of EIA International Energy Outlook — 2006 and 2007 Reference Cases

58 Facing the Hard Truths about Energy


Electric Generation kilowatt-hour. The United States has also demon-
strated such technology since the 1950s. However, the
Efficiency ✦ U.S. coal fleet current operating heat rate is nowhere
Power plant efficiencies presented in the EIA near those levels, at 10,400 Btu per kilowatt-hour.
and IEA outlooks both show improvements over
Existing coal-fired power plants worldwide do not
time. These expected improvements mainly come
achieve the highest efficiency possible based on their
from the replacement of retired old plants with new
design. The efficiency loss can be categorized as con-
plants that have better efficiencies. There are a few
trollable or non-controllable. Controllable losses are
changes that can be made to make an existing unit
generally due to poor operation and maintenance
more efficient. However, these changes typically will
practices. Non-controllable losses are due to environ-
only result in a few percentage point improvements
mental conditions (e.g., cooling-water temperature),
to efficiency.
dispatching requirements (e.g., customer demand),
Given the large aggregate capacity of existing coal- and normal deterioration.
fired power plants and their long useful lives, efforts
Deterioration naturally occurs and, if left unchecked,
to improve the average efficiency of the existing stock
can become substantial. Therefore, some amount of
by 1 or 2 percent could have a significant near term
normal deterioration will always be present and non-
impact on fuel consumption rates and greenhouse gas
controllable. Most of the normal deterioration can
emissions. Efficiency improvement potential for exist-
be recovered with regularly scheduled maintenance
ing U.S. power plants is related to the age of the plant,
intervals, the frequency of which determines the aver-
the age of specific pieces of equipment in a plant, a
age based on the resulting saw-tooth curve shown in
plant’s design, and the economics of the specific plant
Figure 1‑23. There is a gradual increase in the unre-
situation. When all is considered, most plants will fall
coverable portion as the unit ages, which would
in the 3-6 percent range of possible improvement. The
require a replacement rather than a refurbishment
practical or economic values will be lower. The newer
to eliminate. Poor maintenance practices regarding
plants might be in the 2-4 percent range and a certain
the timing of the intervals and the amount of refur-
population might be 2 percent or less because they
bishment may result in excessive deterioration and is
were already upgraded. The overall range of poten-
controllable.
tial efficiency improvement for existing U.S. coal fired
power plants should be in the 2 to 4 percent range. Figure 1‑24 shows historical and projected heat
rates from U.S. natural gas and coal-fired power
Much of the discussion surrounding power plant
plants. Historical calculations are based upon EIA
efficiency will focus on the heat rate (Btu per kilowatt-
data that include both central station generation and
hour). This is an ideal measure of efficiency since it
end-use generation of electricity. The post-war boom
defines the ratio of the input as fuel (Btu) to output as
of the late 1940s and 1950s saw a large increase in
power (kilowatt-hour). The efficiency of a new power
new power plants. However, these were, by today’s
plant is largely a function of economic choice. The tech-
standards, highly inefficient plants, with the overall
nology is well understood in order to produce a highly
fleet heat rate starting in 1949 at nearly 15,000 Btu per
efficient plant. In order to produce higher efficiencies,
kilowatt-hour. By the end of the 1950s, more-efficient
higher pressures and temperatures are required. This
plant constructions drove the fleet heat rate to about
increases the cost of the plant as special alloy materials
10,300 Btu per kilowatt-hour, where it remained rela-
will be needed. Technology improvements could assist
tively unchanged until the end of the century.
by lowering the cost of these special materials through
discovery and better manufacturing process. The overbuilding of natural gas combined-cycle
units in the late 1990s decreased the natural gas fleet
Coal power plant efficiency merits much focus
heat rate below 9,000 Btu per kilowatt-hour, where it
since coal represents over 50 percent of current gen-
currently resides. However, with the recent higher
eration in the United States. Many countries in the
natural gas prices, coal generation still represents over
world from Germany to Japan have demonstrated
50 percent of current U.S. power generation. There-
coal plants with heat rates of less than 9,000 Btu per
fore, overall U.S. fleet heat rate was not affected by the
 Equipment Refurbishing and Upgrading Options (taken from large gas combined-cycle build since coal-fired heat
Asia Pacific Economic Cooperation document, June 2005). rates remain around 10,400 Btu per kilowatt-hour.

Chapter 1 – Energy Demand 59


RECOVERABLE HEAT RATE
HEAT RATE INCREASE (PERCENT)

}
RATE OF HEAT RATE DETERIORATION } UNRECOVERABLE
HEAT RATE

“AS-NEW” HEAT RATE

0 5 10 15 20 25 30
YEARS SINCE INITIAL STARTUP
Source: General Electric GER-3696D, Upgradable Opportunities for Steam Turbines, 1996.

Figure 1-23. Change in Heat Rate over Time

16
HISTORICAL PROJECTED
15
BTU PER KILOWATT-HOUR (THOUSANDS)

14

13

12 Figure 1-23. Change in Heat Rate over Time

11

10

9
EIA COAL
8 EIA GAS
EIA TOTAL
7 IEA COAL
IEA GAS
6

0
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030
YEAR

Figure 1-24. U.S. Operating Heat Rates

60 Facing the Hard Truths about Energy

Figure 1-24. U.S. Operating Heat Rates


The EIA is projecting the natural gas fleet heat rate to (vs. natural gas plants) to construct, and risk of a CO2-
continue to improve. Around the year 2023, electricity constrained environment, this is not achieved very
generation from natural gas units decreases faster than quickly. The difference in fuel price (coal vs. natural
consumption, resulting in a slight increase to 8,300 Btu gas) is another major driver for increased efficiencies
per kilowatt-hour. Currently, best technology com- in gas plants compared to coal plants. Major increases
bined-cycle units can achieve ~5,700 Btu per kilowatt- in combined-cycle efficiencies will make those units
hour [General Electric H-System]. The gas heat rate more competitive with coal in dispatch. With coal’s
includes combustion turbine plants that could have current fuel price advantage, there is less incentive
heat rates as high as 13,000 and as low as 8,550 Btu per to make wholesale improvements in efficiency ver-
kilowatt-hour in the future according to the EIA. These sus focusing on availability. Table 1‑10 shows the EIA
types of units will continue to be needed as they have assumptions for new build heat rates for 2005, nth-of-
the ability to turn on and off over a short time period a-kind plant in the future and the best observed heat
leading to increased system stability. rates to date. Observed data for combustion turbines
are not provided because efficiency is not their primary
The EIA projects moderate improvements in the coal role in the supply stack. These units are used primarily
fleet heat rate, achieving 9,700 Btu per kilowatt-hour by as peakers, where efficiency is not of utmost concern.
2030. In terms of percentage improvement, it is about
the same trend as gas units. This indicates many more Because historical data do not align properly be-
new coal plants as compared to new gas plants in the tween EIA and IEA due to differences in data definitions,
projection. To see any appreciable improvement in heat-rate improvements were examined for the world
fleet heat rate, a large number of new, efficient units and China, as opposed to absolute heat-rate values.
would need to replace a large number of old, ineffi- Figures 1‑25, 1‑26, 1‑27 show the percentage improve-
cient units and/or existing units would have to be ret- ments in heat rate for EIA and IEA from each agency’s
rofitted. With 40-year life spans and high capital costs base year. As expected, heat-rate improvements in

Heat Rate Best


Heat Rate
Technology nth-of-a-kind Current
in 2005
(% improvement from 2005) (2004)*

Scrubbed Coal 8,844 8,600 (2.8%) 8,842†

Integrated Gasification 8,309 7,200 (13.3%) N/A


Combined Cycle (IGCC)

IGCC w/carbon sequestration 9,713 7,920 (18.5%) N/A

Conventional Combined Cycle 7,196 6,800 (5.5%) 6,335‡

Advanced Combined Cycle 6,752 6,333 (6.2%) N/A

Advanced Combined Cycle 8,613 7,493 (13.0%) N/A


w/carbon sequestration

Conventional Combustion Turbine 10,842 10,450 (3.6%) N/A

Advanced Combustion Turbine 9,227 8,550 (7.3%) N/A

* “Operating Performance Rankings Showcase Big Plants Running Full Time,” Electric Light & Power, Nancy Spring, managing editor,
November 2005.
† Coal = TVA, Bull Run Plant.
‡ Conventional Combined Cycle = Sempra, Elk Hills Power.

Table 1-10. EIA Heat-Rate Assumptions (Btu per Kilowatt-Hour)

Chapter 1 – Energy Demand 61


70

EIA GAS CHINA


60

50

40
PERCENT

EIA GAS WORLD


30
IEA GAS CHINA
20
IEA GAS WORLD
10

0
2000 2005 2010 2015 2020 2025 2030
YEAR

Figure 1-25. Natural Gas Heat Rate Improvements


Figure 1-25. Gas Heat Rate Improvements

35

30
IEA COAL CHINA

25

20
IEA COAL WORLD
PERCENT

15

10
EIA COAL
CHINA
5
EIA COAL WORLD
0

-5

-10
2000 2005 2010 2015 2020 2025 2030
YEAR

Figure 1-26. Coal Heat Rate Improvements

62 Figure 1-26. Coal Heat Rate Improvements


Facing the Hard Truths about Energy
35

30
IEA TOTAL CHINA
25

20
EIA TOTAL WORLD
PERCENT

15

10
IEA TOTAL
WORLD
5
EIA TOTAL CHINA
0

-5

-10
2000 2005 2010 2015 2020 2025 2030
YEAR

Figure 1-27. Total Heat Rate Improvements

China are projected to outpace worldwide improve- a rapid increase of combined-cycle units, the gas heat
ments. Rapidly growing power demand is expected to rate quickly improves. The large improvements in
drive a large increase in the number of new builds. With coal-fired heat rates could be justified by determining
a larger percentage of fleet capacityFigure
coming 1-27. Total Heatthat
from newer, Rate Improvements
gas-fired heat rates are asymptotically approach-
efficient units, it is expected that overall improvements ing their maximum achievable efficiency (though not
would increase rapidly in China. Worldwide heat-rate achievable, 100 percent efficiency is 3,412 Btu per kilo-
improvements are projected to increase moderately watt-hour). Steam cycle coal units theoretically have
for both gas and coal plants according to both EIA and more room for improvement since they are less effi-
IEA. Again, this is the result of gradual replacement cient from the start.
of older, inefficient units that have outlived their eco-
nomic lives with new, efficient ones. The slower pace Recently, a blue book of energy in China (The Energy
of this replacement leads to the slower increase in effi- Development Report of China, Edited by M. Cui,
ciency when compared with China alone. etc., Social Sciences Academic Press of China, 2006)
reports that the average heat rates of thermal power
An important distinction to note between the EIA plants in China improved 15.2 percent from 1980 to
and IEA projections is the heat-rate improvements 2002. Figure 1‑28 shows the average heat rates of
for coal and natural gas. The EIA projects natural thermal power plants in China, compared with those
gas improvements for the world and China to greatly in the United States and Japan. Natural gas consists
outpace improvements to coal-fired generation. of only a small percentage of China’s energy mix on a
Inversely, the IEA projects coal to improve more rap- Btu basis. For example, natural gas comprised only
idly than for natural gas-fired plants. There are two 2.62 percent in 2002, in comparison to 65.28 percent
schools of thought that can justify either scenario. One for coal. In 2002, 54.7 percent of coal consumption
could argue that gas heat rates are expected to rapidly in China went to power plants, and the report does
improve due to a large buildup of highly efficient com- not give the percentage of natural gas consumed by
bined-cycle units. This is the same phenomenon that the power plants, but states that most of its natural
was seen in the United States during the 1990s. With gas went to residential use. The IEA World Energy

Chapter 1 – Energy Demand 63


13,000

12,000
BTU PER KILOWATT-HOUR

11,000

10,000

9,000

CHINA − THERMAL POWER PLANTS


8,000 U.S. − THERMAL POWER PLANTS
JAPAN − THERMAL POWER PLANTS
DERIVED HEAT RATES FOR CHINA'S COAL-FIRED PLANTS
0
1980 1985 1990 1995 2000 2005
YEAR
Source: The Energy Development Report of China, Edited by M. Cui, etc., Social Sciences Academic Press of China, 2006.

Figure 1-28. Historical Heat Rates


Figure 1-28. Historical Heat Rates

Outlook 2006 reports the electricity generation from large percentage of higher-efficiency coal-fired new
thermal power plants. For China, coal consists of builds drives China’s average heat rates down quickly.
more than 90 percent of thermal power generation
since 1990, and continues to increase its share.
Coal Impact ✦
Japan has the lowest coal percentage in its thermal-
The primary consumer of coal in the United States
generated electricity of the three countries. To con-
is the electric power industry, consuming 92 percent of
servatively estimate the average heat rate for Chinese
the 1.1 billion tons used in 2005. About half the U.S.
coal-fired power plants, it is assumed that 1 percent
electricity generated in 2005 was from coal. EIA proj-
of electricity generated from thermal power plants
ects that coal consumed to generate power in the elec-
came from natural gas before 2004, and assume that
tricity sector will account for 85 percent of total U.S.
the average heat rate of gas-fired plants is 30 percent
coal consumption by 2030 (Figure 1‑30). In the AEO
better than that of coal-fired plants and that the aver-
2006 Reference Case projection, the emergence of a
age heat rate of oil-fired power plants is the same as
coal-to-liquids (CTL) industry accounts for virtually all
that of coal-fired power plants. The derived heat rates
of the growth in coal use in the non-electricity sectors.
for coal-fired plants in China are about 0.2 percent
higher than the average heat rates of its thermal power Coal is consumed in large quantities throughout
plants. Of the three countries, China had improved its the United States. As shown in Figure 1‑31, coal pro-
thermal power plants efficiency the most from 1980 duction is focused in relatively few states, meaning
to 2002. The great improvement in efficiency in the that huge amounts of coal must be transported long
thermal power plants in China can be attributed to a distances. Therefore, U.S. coal consumers and pro-
large number of new builds. Figure 1-29 also shows ducers have access to the world’s most comprehen-
increases in China’s electricity output in the same sive and efficient coal transportation system.
period, of which the coal-fired plants contributed
the most. For example, thermal power plants gener- All major surface-transportation modes carry large
ated 82.64 percent of electricity in China in 2004. The amounts of coal. According to the EIA, about two-

64 Facing the Hard Truths about Energy


18 450
THERMAL

INCREASE IN ELECTRICITY GENERATED


HEAT RATE IMPROVEMENT (PERCENT)

16 POWER PLANTS 400


(LEFT AXIS)
CHINA – ELECTRICITY GENERATED
CHINA
14 U.S. 350
JAPAN
12 300

(PERCENT)
10 250

8 200

6 150

4 100

2 50

0 0
1980 1985 1990 1995 2000 2005
YEAR
Source: The Energy Development Report of China, edited by M. Cui, etc., Social Sciences Academic Press of China, 2006.

Figure 1-29. Changes in Efficiency and Electricity Generated in China

thirds of U.S. coal shipments wereChanges


Figure 1-29. deliveredintoEfficiency
their and Electricity Generated in China
final domestic destinations by rail in 2004, followed
by truck (12 percent), the aggregate of conveyor belts,
slurry pipelines, and tramways (12 percent), and water
(9 percent, of which 8 percent were inland waterways
and the remainder tidewater or the Great Lakes).
ELECTRIC POWER
85%
Over the past 15 years, the rail share of coal trans-
port has trended upward, largely reflecting the
growth of western coal moved long distances by rail.
The truck share has fluctuated, but has also trended
upward since 1990, while the waterborne share has
fallen.

The extent to which coal is able to help meet U.S.


future energy challenges will depend heavily on the
performance of coal transporters. If the past is a reli-
able guide, the various modes will be able to accom- CTL LIQUIDS
modate increased coal transportation demand, albeit PRODUCTION 5%
COKE PLANTS 1%
perhaps with occasional “hiccups” and “bottlenecks” CTL HEAT AND
along the way. POWER 5% OTHER INDUSTRIAL 4%
Source: EIA, Annual Energy Outlook 2006.
Railroads, barges, and trucks are all critical coal
transportation providers. Each mode faces challenges,

 Energy Information Administration, “Coal Distribution Current Figure 1-30. U.S. Coal Consumption
and Back Issues,” web site www.eia.doe.gov. by Sector — 2030

Figure 1-30. U.S. Coal Consumption by Sector — 2030


Chapter 1 – Energy Demand 65
PRODUCTION
CONSUMPTION

Source: Energy Information Administration.

Figure 1-31. U.S. Coal Consumption and Production by 2005

some of which are unique to it and some of which are they can do so only if regulations or laws do not hin-
common to each of the modes. For each mode, hav- der their earnings.
Figure
ing capacity that is adequate 1-31. growing
to meet U.S. Coal Consumption and Production by 2005
demand
is perhaps the most pressing need. Worldwide, coal trade patterns have shown a steady
ALSO USED AS Fig. S3D-18 since the early days of the international
evolution
Available truck capacity will be determined by fac- coal industry. As long ago as the early 1980s, Austra-
tors such as the amount of public spending on high- lia was still a minor coal exporter. Indonesia, now the
ways, how well the industry resolves the driver reten- world’s largest thermal coal exporter, did not emerge
tion issue, and fuel costs. as a force in the international market until the 1990s.
A similar pattern exists on the demand side. In the
Like trucks, waterways depend on publicly owned 1970s, there was regional trade in Europe with sup-
and maintained infrastructure. Waterway infrastruc- ply coming from Germany and Poland. The 1980s
ture is, in general, in need of significant maintenance were dominated by Japan’s demand for coal, while
and improvement. The availability of public funds the 1990s saw Korea and Taiwan as significant mar-
to provide these improvements will feature promi- kets. The early years of this decade have seen rapid
nently in how well waterways can handle future coal- increases in demand from smaller countries in Asia,
transportation needs. as well as the emergence of China as both a significant
coal exporter and a major import market.
Railroads, on the other hand, rely overwhelm-
ingly on privately owned, maintained, and operated Trade patterns are hard to project because some
infrastructure. As private-sector companies, rail- countries have dedicated export facilities as well as
roads must be confident that traffic and revenue will mines that are intended for purely domestic purposes.
remain high enough in the long term to justify the The current major exporters of coal are Indonesia, Aus-
investments before they expand capacity. Railroads tralia, China, South Africa, Russia, and Colombia. All of
will continue to spend huge amounts of private capi- these countries, except Indonesia and China, have cur-
tal to help ensure that adequate capacity exists, but rent reserves-to-production ratios in excess of 100.

66 Facing the Hard Truths about Energy


Industrial Efficiency ✦ the paper and metals industries. Figure 1‑33 tracks the
aggregate trade balance for the steel, paper, and chemi-
The industrial sector is a large and price-responsive cals industries compared to the price of natural gas.
consumer of energy, consuming roughly one-third Significantly, the correlation between the two data series
of the energy used in the United States. U.S. energy- is -89 percent, indicating that high natural gas prices
intensive industry and manufacturers in associated have hurt U.S. competitiveness in these industries.
value chains rely on competitive energy supplies to
remain globally competitive. The extent to which U.S. industry can continue to
compete for the domestic market is unclear. For
As natural gas prices have risen in the United States instance, imports have provided 40 percent of the
relative to those in the rest of the world, manufactur- increase in U.S. gasoline use over the last 10 years.
ers with energy-intensive processes have responded The impact of factors such as international sup-
in two ways: (1) by increasing the efficiency of their ply and demand balances for oil and natural
operations (shown as energy intensity on Figure 1‑32), gas, geopolitical issues, the advent of disrup-
and/or (2) by shifting a greater proportion of energy- tive technologies, and the evolution of the world’s
intensive industry outside the United States (shown economies is unknown. The uncertainty in U.S.
by declining industrial energy use). industrial energy consumption carries through
to global balances. Since product consumption is
Despite this decrease in energy intensity, energy- unlikely to decline, product needs that are unmet by
intensive manufacturers in the United States struggle to local production likely will be met by imports.
remain competitive in the global marketplace. U.S. man-
ufacturers are investing for strategic growth in regions Projecting historical industrial energy patterns
of the world where energy costs are lower. For example, forward may illustrate this uncertainty. In the first
over the last 10 years, the United States has gone from scenario (called Stays), industrial use grows as it
one of the world’s largest exporters of chemicals to an did between 1983 and 1996. In the second sce-
importer. Although less dramatic, trends are similar in nario (Flight), industrial consumption declines as it

28 2,000

INDUSTRIAL ENERGY INTENSITY (BTU/2000$)


27
DELIVERED INDUSTRIAL ENERGY

26 1,750
(QUADRILLION BTU)

25
DELIVERED ENERGY
24 1,500

23
ENERGY INTENSITY
22 1,250

21

0 1,000
1987 1990 1995 2000 2005
YEAR
Sources: Delivered Industrial Energy Consumption data from EIA, Annual Energy Review 2005.
GDP data from Bureau of Economic Analysis website.

Figure 1-32. U.S. Industrial Energy Consumption and Energy Intensity

Chapter 1 – Energy Demand 67


15 10

PRICE OF NATURAL GAS AT HENRY HUB


10
NET EXPORTS NATURAL GAS PRICE
5 8

(DOLLARS PER MILLION BTU)


NET EXPORTS (BILLIONS)

0
-5
6
-10
-15
4
-20
-25
-30 2
CORRELATION = -89%
-35
-40 0
1995 1997 1999 2001 2003 2005 2006
(ANNUALIZED)
YEAR
Source: U.S. Dept. of Commerce data for SITC Code 5 (Chemicals and Related Products), 64 (Paper and Paperboard),
and 67 (Iron and Steel) from tse.export.gov web site. Price data from Platt’s.

Figure 1-33. Trade Balance for Energy-Intensive Industry

did between 1996 and 2005. These projections are AEO 2007 projects a wide range of energy-intensity
intended to bound the EIA’s AEO 2007 Base Case pro- improvements in the manufacturing sector from 2005
jection. Energy use growth rates for each are shown in to 2030, reflecting expected changes in that sector given
Table 1‑11 and depicted in Figure 1‑34.

Bandwidth studies conducted for the U.S. DOE Growth Total Natural
on the most energy-intensive manufacturing sectors Rates Energy Oil Gas
(chemical, petroleum, and forest products industries)
suggest energy-efficiency opportunities of up to 5 qua- 1949-1973 3.0% 3.9% 4.8%
Figure
drillion Btu per year, or just 1-33.
under Trade Balance
15 percent of 2005 for Energy-Intensive
1996-2005 Industry
-1.1% 0.5% -2.2%
industrial energy use. Of these opportunities, about
1983-1996 1.7% 1.4% 2.7%
2 quadrillion Btu per year can be achieved by using
existing technology (Table 1‑12). Processes requiring Base
additional research and development include separa- 2005-2030 0.7% 0.4% 0.7%
tion, distillation, catalysts, alternate feedstocks, foul- Flight
ing, heat integration, drying, forming, and pressing. 2005-2030 -1.1% 0.5% -2.2%
Adopting existing technology for combined heat Stays
and power systems (CHP) and implementing “best 2005-2030 1.7% 1.4% 2.7%
practices” for steam systems would each yield savings
of about 1 quadrillion Btu per year without requiring Note: Growth rates average 2004/2005 values as a starting point
to minimize the impact of Hurricanes Katrina and Rita on growth
significant research. Despite its thermal efficiency rate calculations.
advantages, CHP implementation in the U.S. industrial Source: EIA, Table 2.1.d Industrial Sector Energy Consumption,
sector totals 72 gigawatts, which is about 50 percent 1949-2005, and Annual Energy Outlook 2007.
of the total potential for CHP in the industrial sector
(CHP Installation Database and Onsite Energy, 2000). Table 1-11. U.S. Industrial Energy Use Scenarios

68 Facing the Hard Truths about Energy


18

16
'83-'96 TREND
QUADRILLION BTU PER YEAR

14

12
AEO 2007
10

4
'96-'05 TREND
2

0
1940 1960 1980 2000 2020 2040
YEAR

Source: EIA, Table 2.1.d Industrial Sector Energy Consumption, 1949-2005, and Annual Energy Outlook 2007.

Figure 1-34. U.S. Industrial Energy Use Scenarios

current conditions and trends. For example, the energy There are significant impediments to greater indus-
intensity of the aluminum sector is expected to decrease trial efficiency. First, U.S.-government-funded energy
as secondary smelting, a less energy-intensive pro- R&D has fallen at least 70 percent in real terms from
cess, becomes the dominant technology in the United its peak in the late 1970s. Second, price volatility makes
States. On the other hand, the energy intensity of the approval of efficiency projects difficult. Finally, lack of
Figure 1-34. U.S. Industrial Energy Use Scenarios
petroleum refining industry is expected to increase as adequate, technically trained human resources impedes
liquids from coal come into use (Figure 1‑35). implementation of efficiency projects. Figure 1‑36

Size R&D
Opportunity
(Quadrillion Btu per Year) Required?

Waste Heat Recovery 0.9 Yes

Industrial Boilers, Heat Recovery from Drying 0.8 Yes

Adoption of Best Practices in Heat and 0.9 No


Power Systems and Steam Systems

Other – Requiring R&D 1.4 Yes

Other – Implementing Best Practices 1.1 No

Source: U.S. Department of Energy, Energy Use, Loss and Opportunities Analysis: U.S. Manufacturing and Mining, 2004.

Table 1-12. Approximate Size of Efficiency Technology Opportunities

Chapter 1 – Energy Demand 69


ENERGY-INTENSIVE
FOOD
PAPER
PETROLEUM REFINERIES
BULK CHEMICALS
GLASS
CEMENT
IRON AND STEEL
HIGH
ALUMINUM TECHNOLOGY
NON-ENERGY-INTENSIVE REFERENCE
FABRICATED METALS 2006 TECHNOLOGY
MACHINERY
COMPUTERS AND ELECTRONICS
TRANSPORTATION EQUIPMENT
ELECTRICAL EQUIPMENT
WOOD PRODUCTS
PLASTICS AND RUBBER PRODUCTS
BALANCE OF MANUFACTURING

-2.5 -2.0 -1.5 -1.0 -0.5 0 0.5 1.0


PERCENT PER YEAR
Source: EIA, Annual Energy Outlook 2007.

Figure 1-35. Average Change in Energy Intensity in the Manufacturing Subsectors, 2005-2030

300 Figure 1-35. Average Change in Energy Intensity in the


FIRST UNIVERSITY* ENGINEERING GRADUATES

Manufacturing Subsectors, 2005-2030

250 CHINA
JAPAN
SOUTH KOREA
UNITED STATES
200 GERMANY
(THOUSANDS)

150

100

50

0
1985 1987 1989 1991 1993 1995 1997 1999 2000 2001 2002
YEAR
* International equivalent to a bachelor’s degree.
Source: “U.S. Manufacturing Innovation at Risk,” a study by Joel Popkin and Kathryn Kobe for The Manufacturing Institute
and the Council of Manufacturing Associations, February 2006.

Figure 1-36. Engineering School Graduates, by Year

70 Facing the Hard Truths about Energy

Figure 1-36. Engineering School Graduates, by Year


shows the number of engineering-school graduates per 35%
year from several countries.

Industrial energy consumers play an important


role in mitigating energy price volatility. Manufac- 26%
turing provides a quick-acting buffer against supply
20-25%
or demand shocks in the energy industry. However,
as demonstrated in Figure 1‑37, this role has been
reduced as the U.S. capability for fuel switching has
fallen over the past decade, in both the power genera-
tion and industrial sectors. 10-15%

Cultural/Social/Economic
Trends ✦
This area of investigation is extremely broad. How-
ever, after an analysis of the data, the following eight 1995 2003 1995 2003
broad findings became apparent. The data analysis NATURAL GAS NATURAL GAS
AND OIL-BASED AND OIL-BASED
relied heavily on the Reference Case projections in INDUSTRIAL POWER GENERATION
WEO 2006 and IEO 2006. CONSUMPTION CONSUMPTION
Source: NPC Natural Gas Study, 2003.
1. Income is the biggest determinant of demand for
energy.
Figure 1-37. Fuel Substitution Capability
Due to the strong influence of income on energy
demand, even small changes in assumptions about the
Gross Domestic Product (GDP) have major implica- Figure 1-37. Fuel Substitution Capability
tions for energy growth. Energy projections by the IEA conservation. For perspective, businesses and con-
and EIA are highly sensitive to GDP assumptions. In sumers haveALSO
shownUSED
theirAS FIGURE 1-46
unwillingness to make effi-
WEO 2006, a 1 percent growth in global GDP results in ciency investments with returns of 10 percent. Two-
a 0.5 percent increase in primary energy consumption. year paybacks for businesses are often cited as the
This is consistent with the observation that the income minimum for energy efficiency investments. Con-
elasticity of demand fell from the 0.7 in the 1970s to the sumers often make decisions that imply returns of
0.4 from 1991‑2002 as shown in Figure 1‑38. WEO 2006 50 percent or more. Lack of awareness and know-how
cites warmer winter weather in the northern hemisphere are examples of barriers to investments in improved
(which reduced heating-fuel demand) and improved energy efficiency. It is likely that policy action would
energy efficiency for the reduction in income elasticity be required to encourage energy efficiency and con-
for energy as a whole between the two periods.
servation.
Assuming that projected economic growth is desired,
History suggests that energy-intensity reductions
then to maintain current U.S. energy consumption
resulting from improved efficiency and structural
would require a 45 percent reduction in energy inten-
change will be offset by increased demand for energy
sity by 2030. To maintain current developing-country
services unless policies are put in place to prevent
energy consumption levels would require a 70 percent
reduction in global energy intensity by 2030. Put in such offsets. For example, technology that could have
perspective, over the last 55 years (1949-2005), U.S. been used to increase vehicle miles per gallon in light
energy intensity has fallen by a little more than half duty vehicles has been used to increase vehicle horse-
(Figure 1‑39). To maintain energy consumption at cur- power and weight. Likewise, improvements in the effi-
rent levels would require a global reduction in energy ciency (energy use per unit of service) of appliances
intensity of roughly twice that amount. and buildings have been offset by increased numbers
of appliances and building sizes. While policies to
Aside from structural changes in the economy, the promote improved energy efficiency may be more
only way to reduce energy is through efficiency and politically palatable than those that restrict demand

Chapter 1 – Energy Demand 71


11,000

10,000
MILLION TONS OIL EQUIVALENT

9,000

8,000

7,000

6,000 GDP 1971-1980


GDP 1981-1990
GDP 1991-2002
5,000 WORLD PRIMARY
ENERGY DEMAND

0
15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000
BILLION DOLLARS (2000) USING PPP
Source: IEA, World Energy Outlook 2004.

Figure 1-38. World Primary Energy Demand and GDP, 1971-2002

Figure 1-38. World Primary Energy Demand and GDP, 1971-2002


20
ENERGY/GDP (THOUSANDS)

15

10

0
1949 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
YEAR
Source: EIA, Annual Energy Review 2005.

Figure 1-39. U.S. Energy Intensity

72 Facing the Hard Truths about Energy


for energy services, those improving efficiency may Globally, electric generation and industry are the
not be sufficient to yield significant reductions from major sources of natural gas demand growth. Natural
baseline projected energy demand. gas demand for electric generation and industry are
expected to double. Natural gas use for building heat-
2. Oil and natural gas demand are projected to in- ing is also expected to increase (Figure 1‑40).
crease rapidly in coming decades.
Perhaps less obvious, electricity use in build-
Global oil consumption is expected to increase by
ings will indirectly be a major source of natural gas
40 percent from 2005 levels by 2030. Global natural gas
demand growth. Appliances and other “buildings”
demand is expected to increase by two-thirds by 2030;
related energy uses represent the largest component
U.S. natural gas demand is expected to increase more
of electricity demand growth, and thus have major
slowly. The increase in demand for fossil fuels in non-
impact on the demand for natural gas. A large portion
OECD countries will be far more rapid than in OECD
of electric generation growth is expected to be fueled
countries, both in absolute and percentage terms.
by natural gas.
Transportation, industry, and “other” (mostly build-
ing heating) are the major sources of oil demand growth 3. Carbon dioxide from fossil fuel combustion is
in the WEO 2006. Electric power sector demand is growing.
expected to decrease by about 1 million barrels per day.
Oil demand growth in the transportation sector will Global CO2 emissions are expected to increase
exceed growth for all other uses combined. Projected by about half between 2004 and 2030, from around
industry and “other” category oil consumption are 27 billion tons to 40 billion tons (Figure 1‑41). With
expected to increase by a large amount as well. These slow growth in nuclear energy, and with renewable
categories are expected to grow by 13 million barrels energy growing fast but starting from a low base, the
per day, which compares with a transportation oil con- carbon intensity of the global energy economy is pro-
sumption growth of around 22 million barrels per day. jected to increase.

90

80
INDUSTRIAL ELECTRIC POWER OTHER
70
TRILLION CUBIC FEET

60

50

40

30

20

10

0
2003 2010 2015 2020 2025 2030
YEAR
Sources: 2003: Derived from Energy Information Administration (EIA), International Energy Annual 2003;
Projections: EIA, International Energy Outlook 2006.

Figure 1-40. World Natural Gas Consumption by End-Use Sector, 2003-2030

Figure 1-40. World Natural Gas Consumption by End-Use Sector, 2003-2030


Chapter 1 – Energy Demand 73
45

40 NATURAL GAS
LIQUIDS
35 COAL
BILLION METRIC TONS

30

25

20

15

10

0
1990 2004 2010 2015 2020 2025 2030
YEAR
Source: EIA, International Energy Outlook 2006.

Figure 1-41. World Energy-Related Carbon Dioxide Emissions by Fuel in the Reference Case
Figure 1-41. World Energy-Related Carbon Dioxide Emissions by Fuel in the Reference Scenario

The biggest contributor to global CO2 emissions is The fastest CO2 emissions growth among major
coal, followed closely by oil and natural gas. Outside countries is occurring in China (Figure 1‑43). Chinese
China, India, and the United States—all have large emissions growth in 2000-2004 exceeded the rest of
coal reserves—natural gas is expected to contribute the world’s combined growth due to increased use of
significantly to the increase in CO2 emissions. coal and rapidly growing petroleum demand. Chi-
nese CO2 emissions are projected to pass U.S. emis-
The electric power sector is expected to be the sions late in this decade.
dominant source of CO2 emissions in the United
States and globally—increasing from 40 percent in While it is hard to overstate the ever-increasing
2004 to 44 percent in 2030 worldwide (Table 1‑13). importance of China in global energy markets and
The transportation sector, which is dominated by oil, as a carbon emitter, it is important to put these num-
will continue to be responsible for about one-fifth of bers in perspective. The United States has had fast
CO2 emissions. Yet much of the growth in electricity rates of energy and emissions growth for decades. As
demand will come from residential and commercial recently as the last decade (1990-2000), U.S. emis-
buildings, which are already the largest single-sector sions growth was nearly as fast as China’s is today.
source of CO2 emissions when including the electric- Even in 2030, China’s projected oil demand will be
ity generated that is used in buildings. less than the oil demand projected for the United
States, both in per capita and absolute terms.
4. Keeping China in perspective.
China has made major strides in reducing the car-
Chinese energy use and GDP are projected to bon intensity of its economy (CO2 per GDP). China’s
exceed those of the United States some time in the carbon intensity is roughly equal to that of the United
second half of the next decade. Chinese oil demand States, and the intensities of both countries are pro-
is projected to increase by twice as much as the U.S. jected to decrease at the same rate.
oil demand through 2030 (Figure 1‑42). Growth in
China’s oil demand is often cited as one of the major Nevertheless, while Chinese and U.S. carbon inten-
causes of higher global oil prices. sity will be similar during the next decade, per capita

74 Facing the Hard Truths about Energy


1990 2004 2010 2015 2030 2004-2030*

Power Generation 6,955 10,587 12,818 14,209 17,680 2.0%

Industry 4,474 4,742 5,679 6,213 7,255 1.6%

Transport 3,885 5,289 5,900 6,543 8,246 1.7%

Residential and 3,353 3,297 3,573 3,815 4,298 1.0%


Services†

Other‡ 1,796 2,165 2,396 2,552 2,942 1.2%

Total 20,463 26,069 30,367 33,333 40,420 1.7%

* Average Annual Growth Rate.


† Includes agriculture and public sector.
‡ Includes international marine bunkers, other transformation, and non-energy use.

Table 1-13. World Energy-Related Carbon Dioxide Emissions by Sector


in IEA’s World Energy Outlook 2006 Reference Case (Million Metric Tons)

carbon emissions will still be far lower in China. Like- 5. New technologies don’t necessarily lead to reduced
wise, on a per capita basis, U.S. oil demand is 10 times energy consumption.
China’s, and the United States will still consume 6 times
as much per capita as China in 2030 (Figure 1‑44). There are any number of ways that information tech-
nologies could be used to reduce energy consumption,
including telecommuting, dematerialization (i.e., the
paperless office), and energy-efficient digital control
systems in cars, buildings, and factories. The rapid
10
penetration of information technologies in the econ-
9 omy has led some observers to predict accelerated
reductions in U.S. and global energy intensity.
8
While the notion that technology development will
MILLION BARRELS PER DAY

7 lead to net reductions in energy use is appealing, is it


proven, or even likely? Increased electric-plug loads
6 associated with computers and other types of office
CHINA equipment, and growing energy demand resulting
5 from increased economic growth fueled by new infor-
mation technologies, could induce a net increase in
4 energy demand rather than a net decrease.

3 Based on various studies of information technology


U.S. energy use, it can be estimated that information tech-
2 nology equipment currently uses about 210 terawatt-
hours (210 trillion watt-hours), or about 5 percent of
1
U.S. electricity consumption. This is almost as much
electricity as could be saved by 2010 through effi-
0
ciency measures with a cost of 10 cents or less per kilo-
Source: IEA, World Energy Outlook 2006. watt-hour. In other words, the electricity consumed
by information technologies in the United States,
Figure 1-42. Oil Demand Growth by 2030 most introduced over the last decade, exceeds the

Figure 1-42. Oil Demand Growth by 2030


Chapter 1 – Energy Demand 75
1990-2000
CHINA
2000-2004
UNITED STATES

MIDDLE EAST

INDIA

ASIA & OCEANIA

CENTRAL & SOUTH AMERICA

INDONESIA

EUROPE

CANADA

REST OF WORLD

-1,000 -500 0 500 1,000 1,500


METRIC TONS
Source: EIA, International Energy Annual 2004.

Figure 1-43. Regional Increase in Carbon Dioxide Emissions

Figure 1-43. Regional Increase in Carbon Dioxide Emissions

30 electricity-savings potential for refrigerators, wash-


ers, dryers, televisions, and the multitude of other
MILLION BARRELS PER DAY OF OIL EQUIVALENT

electricity consuming appliances and equipment.


25
Technology advances make projecting energy-use
trends particularly difficult. If excessive technologi-
cal optimism causes an under estimation of future
20 energy demand requirements, society could be forced
U.S. U.S. to develop new energy sources hastily, at potentially
great financial and environmental costs. Likewise,
15 overly optimistic predictions that information technol-
ogy (or any other technology) will reduce our reliance
on fossil fuels might send the message that addressing
10 energy challenges will not require any hard choices.

There are few historical precedents for new tech-


nologies actually reducing energy use (as opposed
5 to just reducing energy intensity). New technologies
often create new service demands at the same time
CHINA that they improve the efficiency of existing service
CHINA
0 demands—the technology has the potential to reduce
2004 2030 energy use, but gets called on for other purposes or
Source: IEA, World Energy Outlook 2006. allows (and in some cases even encourages) increased
demand for new and additional energy services. For
Figure 1-44. Comparison of Oil Demand example, refrigerators are far more efficient (per
Per Capita — 2004 and 2030 Industry cubic foot) than they were two decades ago, but more

76 Facing the Hard Truths about Energy

Figure 1-44. Comparison of Oil Demand Per Capita — 2004 and 2030
households have more than one refrigerator, and ever, gains in efficiency have been offset by increases
refrigerators have become bigger. Likewise, homes in vehicle weight, size, power, and accessories. If these
are better insulated and air conditioning and heating factors had instead remained constant since 1987,
systems have become more efficient, but at the same average fuel economy would be 3-4 mpg higher for
time homes have grown in size. And cars, as dis- both cars and trucks than it is today (Figure 1‑45).
cussed below, have become far more energy efficient,
but that very efficiency has been offset by increased Consequently, vehicle fuel economies (miles per gal-
horsepower, size, and weight of vehicles. lon) in the United States have stagnated. Low fuel prices,
combined with no increase in Corporate Average Fuel
In summary, care should be exercised when evalu- Economy (CAFE) standards, have led to U.S. light duty
ating the future use of technology—information age vehicle fleet-wide fuel economy that is essentially flat
or other—as a means of reducing future energy use. since the mid 1980s. At the same time, the structure of
the CAFE standards allowed increased purchase of light
6. Large untapped potential for improved fuel econ-
trucks (SUVs, pick-ups, and minivans), which are sub-
omy in light duty vehicles.
ject to less-stringent fuel economy requirements. Cars
Driven by rising incomes, global light duty vehicle still make up more than 60 percent of total vehicle miles
(LDV) ownership rates are expected to increase from traveled, but light trucks now account for more than half
100 vehicles per 1000 persons today to 170 in 2030. of the light duty vehicle sales in the United States, up
As a result, LDVs in use worldwide are expected to from 20 percent in the 1976 to 53 percent in 2003. The
double, from 650 million in 2005 to 1.4 billion in 2030. period since the mid-1980s stands in stark contrast to the
Whereas U.S. and Japanese markets, for example, are previous decade (1975-85), in which the fuel economy
expected to increase along with population, vehicle of America’s light duty vehicles increased by two-thirds,
sales are expected to triple in non-OECD countries driven by CAFE standards that increased annually.
by 2030.
There is a lot of uncertainty about business-as-
Vehicle fuel-use efficiency has increased. One recent usual trends in fuel economy. AEO 2006 projects that
study found that fuel-use efficiency (energy recovered LDV fuel economy in the United States will increase
per unit of fuel consumed) has increased by about 17 percent, from 24.9 mpg in 2003 to 29.2 mpg in
1 percent per year since 1987. This could have resulted 2030, in spite of an increase in horsepower of 29 per-
in an increase of 0.2 miles per gallon per year. How- cent. WEO 2006, however, projects an increase of just

30

CAR
U.S. NEW VEHICLE MPG

25
COMBINED

LIGHT TRUCKS

20

15

0
1975 1985 1995 2005
MODEL YEAR
Source: U.S. EPA, Light-Duty Automotive Technology and Fuel Economy Trends: 1975-2003.

Figure 1-45. U.S. Car and Light-Truck Fuel Economy

Chapter 1 – Energy Demand 77


2.5 percent. Baseline expectations on improved fuel changes. However, demand is far more responsive to
economy make a big difference in terms of how much income than to price.
energy savings we could expect from changes in CAFE
standards or from other policies. Higher gasoline Past elasticities are not necessarily indicative of price
prices—if sustained—could result in the purchase responsiveness in the future. The magnitudes of all
of vehicles with better fuel economy, especially if elasticities are influenced by changes in technology,
fuel-economy improvements are available with little consumer preferences, beliefs, and habits. It is entirely
increase in price or reduced performance. conceivable that a sustained period of high energy
prices (for perhaps 5-10 years) could induce far greater
There are several technologies that could be used percentage changes in the quantity of energy demand.
without short-changing vehicle performance, includ-
ing continuously variable transmissions, engine Elasticities could also be changed by policies. But
supercharging and turbo charging, variable valve given the relative importance of income compared to
timing, cylinder deactivation, aerodynamic design, prices, if policies focus only on rising price signals with-
the integrated starter/generator, and low-resistance out providing alternatives to current transportation and
tires. In its 2002 report on fuel economy standards, lifestyle patterns, consumers and businesses may view
the National Research Council found that a combi- those policies as more punitive than productive.
nation of various technologies could boost LDV fuel
economy by one-third, and would be cost-effective 8. Fuel-switching capabilities are declining in indus-
for the consumer (would pay back over the life of the try and increasing in transportation.
vehicles). With much higher gasoline prices, as seen
The ability to substitute fuels in a given sector
in recent years, that savings potential is even greater.
affects how vulnerable that sector is to supply dis-
Note that all of these technological improvements
ruptions and associated price spikes. The ability to
could be used to improve other aspects of vehicle per-
substitute fuels during a disruption lessens demand
formance besides fuel economy.
for the disrupted fuel, thereby reducing the size of the
Realizing such a fuel economy potential will likely shortfall and the associated price spike. Lacking the
require a range of policies to encourage improved fuel ability to substitute fuels, prices need to rise to fairly
economy, including: increasing and/or reforming high levels in times of shortage in order to reduce the
vehicle fuel economy standards, fuel taxes, and vehi- activity that is generating the demand for fuel.
cle “feebates” (e.g., fee for low-fuel economy vehicles,
rebate for high fuel economy vehicles). In the United States, the buildings sectors have very
little ability (less than 5 percent) to switch fuel. Fuel-
7. Prices matter. switching capabilities are higher, but falling, in the
power and industrial sectors. Capability is low, but
Rising prices, along with growing concerns about increasing, in the transportation sector.
international energy security and global climate
change have put energy in the news. Policymakers The transportation sector is heavily reliant on
and business leaders want to know how much and petroleum and has little fuel substitution capabil-
when demand will respond to these high prices; and ity. About 5 million light duty vehicles in the United
whether new policies and measures might stimulate States have flexible fuel capability, representing about
the development of new energy resources and the 2 percent of the total light duty fleet. By 2030, roughly
more efficient use of existing energy resources. one in ten light duty vehicle sales will have E-85 flex
fuel (ethanol/gasoline) capability.
Conventional wisdom, for example, suggests that
there will be little quantity response to higher energy To make the widespread supply of E-85 economi-
prices, at least in the short run. However, decades of cal will require more flex-fuel vehicles, substantial
econometric work suggests that over time consumers investments in the distribution system, and devel-
and businesses do adjust. Based on a meta-analysis by opment of a second-generation feedstock that is not
Carol Dahl (2006), which reviewed findings from 190 used for food (e.g., cellulosic ethanol). Even then,
studies of elasticity conducted from 1990 through 2005, ethanol’s ability to reduce price volatility for motor
short-run price elasticity appears to range from around fuels will be limited unless there is spare ethanol pro-
-0.1 to -0.3. In the long run, demand for various types duction capacity. Meanwhile, increased reliance on
of energy is roughly three times as responsive to price ethanol could result in increased price volatility due

78 Facing the Hard Truths about Energy


to weather factors reducing crop size, transportation Residential/Commercial
bottlenecks, high rail costs, and other local supply
and demand factors.
Efficiency ✦
Buildings are major consumers of oil and natural
Electric power generation appears to engage in
gas both nationally and globally, both directly and
significant short-term fuel switching, especially
indirectly through the consumption of electricity gen-
during times of high natural gas prices. This capa-
erated from oil and natural gas. While most energy
bility has declined over the last decade, from one-
consumed in buildings is for traditional uses such
third of power generation gas boilers that were able
as heating, cooling, and lighting, a growing portion
to use residual fuel oil as a second fuel source in the
is going to new electric devices, many of which were
mid-1990s to about one-quarter now (Figure 1‑46).
rare or even nonexistent just a few years ago. And,
The reasons for the decline in fuel-switching capa-
bility include environmental restrictions, costs for while significant efficiency improvements have been
additional storage of secondary fuels, and siting and made in building shells, systems, and appliances, the
related permitting complications that arise with potential energy savings have been partially offset by
multi-fuel generation facilities. additional energy service demand requirements that
have occurred as a result of increased home sizes as
In the industrial sector, roughly one-fifth of the nat- well as new and larger electric devices.
ural gas consumed can be switched to another fuel.
Protection from highly volatile energy prices for resi- If all achievable, cost-effective energy-efficiency
dential and commercial consumers can be had indi- measures were deployed in residential and commer-
rectly via the other consuming sectors. To the extent cial buildings, anticipated energy use could be reduced
that fuel flexibility and switching in the transporta- by roughly 15-20 percent. The potential for cost-
tion, power, and industrial sectors mitigates price effective energy efficiency improvements depends
spikes and volatility, a spillover benefit accrues to the heavily on the price of energy, consumer awareness
residential and commercial sectors. and perceptions, and the relative efficiency of avail-
able products in the marketplace. These factors are
determined in part by government policies.

The major barriers to energy-efficiency investments


35%
are low energy prices relative to incomes, due in part
to externalities not being included in prices and gov-
ernment subsidies, split incentives (consumers of
26% energy different from those selecting energy consum-
ing facilities or paying for energy), and consumers’
20-25%
lack of information. To the extent that societal bene-
fits from improved efficiency are recognized, govern-
ment policies to promote energy efficiency are used.
To reduce energy consumption significantly below
10-15% levels associated with the current policy environment
will require additional policy related improvements
in energy efficiency. These policies should take into
account the potential to increase energy-service con-
sumption as a result of less energy consumption.

1995 2003 1995 2003 When energy losses in the generation and distribu-
NATURAL GAS NATURAL GAS tion of electricity are included, about 40 percent of
AND OIL-BASED AND OIL-BASED U.S. energy is consumed in the residential and com-
INDUSTRIAL POWER GENERATION mercial buildings sectors. Current projections indi-
CONSUMPTION CONSUMPTION
cate that building energy use will increase by more
Source: NPC Natural Gas Study, 2003. than one third by 2030. Commercial building energy
use is expected to increase by nearly half, due to con-
Figure 1-46. Fuel Substitution Capability tinued growth in the service economy. Residential

Chapter 1 – Energy Demand 79


Figure 1-46. Fuel Substitution Capability
energy use is expected to grow at half that rate. The for example, solid-state lighting, condensing gas fur-
combined energy use growth in residential and com- naces, and building envelope improvements such as
mercial buildings is expected to represent about high-efficiency windows and increased insulation.
45 percent of total primary energy growth.
Similarly, EIA (AEO 2007) estimates that commercial
According to AEO 2007, buildings currently repre- building energy consumption in 2030 would be 13 per-
sent only about 6 percent of economy-wide petro- cent less than projected in its Reference Case if “only
leum consumption, a share projected to decline to the most efficient technologies are chosen, regardless
about 4 percent by 2030. The natural gas story is quite of cost, and that building shells in 2030 are 50 percent
different. Buildings consume 55 percent of natural more efficient than projected in the Reference Case
gas and are expected to be responsible for about three [including] the adoption of improved heat exchangers
quarters of the growth in natural gas consumption for space heating and cooling equipment, solid-state
through 2030 (including gas used for electricity sup- lighting, and more efficient compressors for commercial
plied to buildings). Commercial and residential build- refrigeration.” Table 1‑14 lists efficiency improvements
ings represent 52 percent and 25 percent, respectively, that could be achieved in several categories by 2030.
of overall projected natural gas consumption growth
from 2005-2030. EIA efficiency-potential estimates are on the high
end of the residential studies we examined, and on
the low to mid range of the commercial estimates (see
United States Residential/ Figures 1‑47 and 1‑48). Note, however, that the EIA pro-
Commercial Energy Use jections assume that cost is no concern, so inasmuch
as the other efficiency potential studies include cost-
The AEO Reference Case is an attempt by analysts
effectiveness tests, we would expect the EIA estimates to
at the EIA to predict efficiency improvements given
be at the high end of the studies. Furthermore, the other
projected energy prices and other factors influencing
studies are for the most part examining the potential for
the penetration of various energy-saving technolo-
electricity savings, not energy savings overall.
gies. Energy efficiency savings potential including
additional policies, standards, behavioral changes, and According to the 2006 McKinsey Global Institute
technological breakthroughs far exceed the efficiency study of energy-efficiency potential, if all energy-
included in the AEO Reference Cases. Specific estimates efficiency measures with internal rates of return of
of the exact magnitude of this potential vary widely. 10 percent or better are implemented, U.S. residential
energy demand could be reduced by 36 percent below
Estimates of achievable, cost-effective reductions
its 2020 baseline and commercial energy use could
in building electricity use for commercial and resi-
be reduced by 19 percent. Using the same invest-
dential buildings in the United States range from 7
ment criteria, McKinsey estimates global residential
to 40 percent below the Reference Case projections.
building energy demand could be reduced by 15 per-
The midrange appears to be around 20 percent for
cent below baseline and global commercial building
commercial buildings, and slightly less in residential
energy demand could be reduced by 20 percent.
buildings.
As previously mentioned, most of the studies we
EIA (AEO 2007) estimates residential sector energy
examined estimated an efficiency potential of 10 to
consumption (not just electricity consumption) would
20 percent in commercial buildings and 10 to 15 per-
be 24 percent lower than in its Reference Case if “con-
cent in residential buildings beyond business as usual,
sumers purchase the most efficient products available
with the American Council for an Energy-Efficient
at normal replacement intervals regardless of cost,
Economy (ACEEE) studies estimating potentials as
and that new buildings are built to the most energy-
high as 35 percent for residential buildings in Florida
efficient specifications available, starting in 2007.”
and 40 percent for commercial buildings in Texas.
Energy-efficient building components would include,
At the other extreme, the Electric Power Research
 Energy Information Administration, Annual Energy Outlook Institute (EPRI) developed a supply curve for electric
2007 with Projections to 2030, Table 2, February 2007, http://
www.eia.doe.gov/oiaf/aeo/excel/aeotab_2.xls. demand-side measures in 2010—including residential
 Calculations based on data from Annual Energy Outlook 2007,  McKinsey Global Institute, Productivity of Growing Global-
Table 2. Energy Demand: A Microeconomic Perspective, November 2006.

80 Facing the Hard Truths about Energy


Efficiency
Category Appliance
Improvement

Appliance Refrigerators 22%


Freezers 8%
Space heating Electric heat pumps 10%
Natural gas heat pumps 14%
Geothermal heat pumps 5%
Natural gas furnaces 6%
Distillate furnaces 2%
Space cooling Electric heat pumps 20%
Natural gas heat pumps 10%
Geothermal heat pumps 6%
Central air conditioners 22%
Room air conditioners 7%
Water heaters Electric 3%
Natural gas 6%
Distillate fuel oil 0%
Liquefied petroleum gases 6%
Building shell efficiency Space heating – Pre 1998 homes 7%
Note: Index includes size of
Space cooling – Pre 1998 homes 2%
structure in the calculation
Space heating – New construction 2%
Space cooling – New construction 2%

Source: Energy Information Administration, Annual Energy Outlook 2007, table 21, http://www.eia.doe.gov/oiaf/aeo/supplement/sup_rci.xls.

Table 1-14. Residential Stock Efficiency Improvements, 2007-2030

and commercial buildings, and industry. According to mercial, and 5.7 cents per kilowatt-hour for industrial.
the EPRI analysis, by 2010 the United States could reduce At these prices, about 50 terawatt-hours (1.3 percent) of
electricity use by about 150 terawatt-hours (3.9 percent electric efficiency improvements could be achieved.
of total U.S. electricity consumption) with measures
costing less than 10 cents per kilowatt-hour and 210 Buildings typically last decades if not centuries. Many
terawatt-hours (5.5 percent) at 20 cents per kilowatt- of the features of buildings that affect their energy con-
hour or less. For reference, electricity consumption in sumption—e.g., solar orientation, windows, tightness,
2005 totaled about 3,800 terawatt-hours and the retail and wall thickness—largely will go unchanged through-
price of electricity in 2005 was 9.5 cents per kilowatt- out the life of the building. Technologies and practices
hour for residential, 8.7 cents per kilowatt-hour for com- affecting these long-lived systems will be slow to pen-
etrate the buildings stock and affect overall efficiency.

 Clark Gellings, Greg Wikler and Debyani Ghosh, “Assessment of Building-energy codes typically target only new
U.S. Electric End-Use Energy Efficiency Potential,” The Electricity buildings and major rehabilitations, which is important
Journal, November 2006, Vol. 19, Issue 9, Elsevier Inc, 2006, p.67.

 Energy Information Administration, Electric Power Annual with  Energy Information Administration, Electric Power Annual with
data for 2005, November 2006, http://www.eia.doe.gov/cneaf/ data for 2005, November 2006, http://www.eia.doe.gov/cneaf/
electricity/epa/epates2.html. electricity/epa/epat7p4.html.

Chapter 1 – Energy Demand 81


FL-(E)(07-23)
TX-(E)(08-23)
VT-(MAX) (03-12)
ACEEE-(M-A)(5-20 YEARS)
US-NAT.LAB.(H.EFF.)(01-10)
SW-(E)(03-10)
NWPPC-(00-25)
PUGET-(03-13)
CA-(03-13)
GA-(2004-10)
IA-(E)(01-20)
US-NAT.LABS. (EFF.) (01-10)

0 10 20 30 40
PERCENT OF PROJECTED SECTOR DEMAND
Source: Alliance to Save Energy, 2007.

Figure 1-47. Achievable Potential for Electricity Savings in the Residential Sector (Various Studies)
Figure 1-47. Achievable Potential for Electricity Savings in the Residential Sector (Various Studies)

TX-(E)(08-23)
SW-(E)(03-20)
VT-(C+I)(MAX)(03-12)
FL-(E)(07-23)
ACEEE-(M-A)(5-20YRS)
SW-(E)(03-10)
NW-(00-25)
5LAB-HEFF-(01-10)
PUGET-(03-13)
CA-(03-13)
GA-(05-10)
5LAB-EFF-(01-10)
IA-(01-20)

0 10 20 30 40
PERCENT OF PROJECTED SECTOR DEMAND
Source: Alliance to Save Energy, 2007.

Figure 1-48. Achievable Potential for Electricity Savings in the Commercial Sector (Various Studies)
Figure 1-48. Potential for Electricity Savings in the Commercial Sector (Various Studies)

82 Facing the Hard Truths about Energy


because today’s new buildings are tomorrow’s existing in energy demand. While the energy efficiency of
buildings. New building codes and appliance standards homes has increased, so have home sizes. The aver-
can be bolstered to improve overall building energy use, age American home’s floor area more than doubled
but to significantly impact building energy use policies between 1950 and 2000, as did floor area per capita;
that induce significant savings in existing buildings are both square footage per home and per capita have
necessary. Appliance standards, labels and other mea- increased by more than half just since the 1980s (see
sures target appliances and other equipment used in Figure 1‑49).10 Similarly, according to EIA’s Residen-
existing buildings. tial Energy Consumption Survey (RECS), refrigera-
tor energy use per household was roughly the same
Appliances, heating equipment, and air condition- in 1993 and 2001, even though energy use per unit
ing facilities are replaced as they wear out. Energy use virtually halved during that time period.11 While it
can be addressed by standards for these applications is possible that second refrigerators would be com-
as the equipment is replaced. monplace regardless of unit efficiencies, it can at least
be said that the demand for new energy services has
New buildings can be constructed to meet current
increased as fast as efficiencies.
“best practices” at the time of construction. Since
buildings are usually constructed and used by different The demand for new energy services, such as sec-
groups it is likely that standards would be needed to ond (and third) refrigerators and bigger homes, is
ensure construction that is economically thermally effi- driven by growing incomes, low energy prices, and to
cient for the areas in which construction takes place.
10 National Association of Home Builders (NAHB), “Housing Facts:
Translating Efficiency Into Figures and Trends 2003,” 2003, Washington, DC.

Reduced Energy Demand— 11 EIA, Residential Energy Consumption Survey 1993, 1993,
Table 5.27, http://eia.doe.gov/pub/consumption/residential/
“Consumption-Based Efficiency” rx93cet6.pdf, & Residential Energy Consumption Survey 2001,
2001, Table CE5-1c, http://www.eia.doe.gov/emeu/recs/
recs2001/ce_pdf/appliances/ce5-1c_climate2001.pdf; estimat-
It is not always clear to what extent efficiency ed average household site electricity consumption for refrigera-
improvements are translated into actual reductions tors was 5 million Btu in 2001 and 4.7 million Btu in 1993.

2,500

2,000
SINGLE-FAMILY (MEAN)
SINGLE-FAMILY (MEDIAN)
FLOOR AREA PER CAPITA
SQUARE FEET

1,500

1,000

500

0
1950 1960 1970 1980 1990 2000
YEAR
Source: Harris et al., Don’t Supersize Me! Toward a Policy of Consumption-Based Energy Efficiency, Environmental Energy Technology
Division, Lawrence Berkeley National Laboratory, 2006. Original data from National Association of Home Builders.

Figure 1-49. U.S. House Size (Floor Area)

Chapter 1 – Energy Demand 83

Figure 1-49. U.S. House Size (Floor Area)


some extent reduced operating costs due to improved 1. Enhance international energy security frame-
efficiency. Some reductions in demand from energy- work.
efficiency improvements are “taken back” in the form
China and India will account for a significant
of increased demand for less-costly energy services.
share of future growth in oil and gas demand. The
For example, efficiency improvements result in lower
United States should lead the enhancement of an
energy costs for refrigeration, which leads to increased
international energy security framework, such as
demand for refrigerators. This “snapback” or rebound
an expanded International Energy Agency, that
effect is estimated to be about 10 to 20 percent of the
includes China and India.
initial energy savings for most efficiency measures,
although it varies depending on several factors, 2. U.S. leadership on environmental concerns.
including end-use and elasticity of demand.12
If policy makers conclude that additional action
Some energy-efficiency programs may even be to reduce carbon dioxide emissions is warranted,
contributing to—or at least not dampening—the then the United States should take a leadership
increased demand for bigger appliances. The cat- role to develop an effective global framework that
egorization of energy-using products for purposes involves all major emitters of carbon dioxide. Ini-
of standards and labeling development may provide tiatives may be disjointed without U.S. leadership
some perverse incentives to purchase products that because some high growth developing countries
are bigger, more powerful, or have more amenities. are not likely to engage in such efforts unless
For example, ENERGY STAR label eligibility require- developed countries, and especially the United
ments for refrigerators vary by size—in some cases, States, take a clear leadership role.
the most efficient refrigerator in a larger class (which
3. Areas should be identified where market solu-
is therefore eligible for the ES label) may consume
tions to support energy efficiency may not be
more energy than the least efficient in the smaller class
fully effective.
(which is not eligible for the label). As a result, the
ENERGY STAR label may inadvertently steer consum- Policy makers should consider policies that encour-
ers toward “more efficient” refrigerators that are larger age energy-efficiency improvements, including
or have more amenities when the smaller refrigerator metrics to measure progress.
with fewer amenities and lower energy consumption
might otherwise have been the choice.13 4. Raise vehicle fuel efficiency at the maximum rate
consistent with available and economic technology.

Demand Study Potential Vehicle fuel efficiency standards should be


raised. The interests of all concerned parties
Policy Options should be considered when establishing new
From the work that was done by the Demand Task efficiency standards. Significant gains in effi-
Group, the following list of potential policy actions ciency have occurred in the past. The average
was developed. The fundamentals supporting the fuel efficiency of new cars doubled from 1974 to
list revolve around factors such as impact related to 1985. The Transportation Efficiency Subgroup
demand level, understanding of use, and effect on analysis said “technologies exist, or are expected
to be developed, that have the potential to
energy security. From this list, the overall study group
reduce fuel consumption by 50 percent relative
developed three policies as study recommendations
to 2005.”
(see Policy Recommendations section below).
5. The federal government should a) encourage states
to implement more aggressive energy efficient
building codes and b) update appliance standards.
12 Resources for the Future, “Retrospective Examinations of
Demand-Side Energy Efficiency Policies,” Discussion Paper, Building codes and appliance standards should be
2006.
updated to reflect currently available technology.
13 Jeffrey Harris, Rick Diamond, Maithili Iyer, Chris Payne New, up-to-date standards should be enforced.
and Carl Blumstein, Don’t Supersize Me! Toward a Policy of Options should be developed for enhancing cur-
Consumption-Based Energy Efficiency, Environmental Energy
Technologies Division, LBNL, 2006 ACEEE Summer Study on rent incentives to retrofit existing structures for
Energy Efficiency, p. 7-108. improved energy efficiency.

84 Facing the Hard Truths about Energy


6. Encourage greater efficiency in the industrial 10. Improve energy modeling.
sector.
Development and use of economic activity feed-
Foster research, development, demonstration, back projection techniques should be encouraged
and deployment of energy efficiency technologies to aid in evaluation of critical policies such as car-
and practices in the industrial sector. The U.S. bon constraint.
industrial sector consumes one-third of the energy
used in the United States. Technologies exist that
could save 15 percent of this energy, but only POLICY RECOMMENDATIONS
one-third of this is currently economic. Further
research and development is required to imple- Improve Vehicle Fuel Economy
ment the remaining potential gain in efficiency.
Nearly half of the 21 million barrels of oil products
Areas of opportunity include waste heat recovery
that the United States consumes each day is gasoline
and boiler/steam efficiency. Make permanent the
used for cars and light trucks. The Reference Case in
research and development tax credit is an option
AEO 2007 projects that gasoline consumption will
to increase industrial energy efficiency.
increase by an average of 1.3 percent per year, totaling
7. Visible and transparent carbon dioxide cost. an increase of 3 million barrels per day between 2005
and 2030.
If policy makers conclude that additional action to
limit carbon dioxide emissions is warranted, then The CAFE standards have been the primary pol-
a mechanism should be developed that establishes icy used to promote improved car and light-truck
a cost for emitting carbon dioxide. The mecha- fuel economy in the United States over the last three
nism should be economy-wide, visible, transpar- decades. The original standards created one econ-
ent, applicable to all fuels, and durable for the omy requirement for cars, and another less stringent
long-term. By establishing a cost (or price), com- one for light trucks to avoid penalizing users of work
panies will be better positioned to determine how trucks. At the time, light-truck sales were about one-
to restrain carbon dioxide emissions. A carbon quarter of car sales. Since then, sport utility vehicles
dioxide cap-and-trade system or a carbon dioxide and minivans classified as light trucks have increased
tax are two possibilities that could reduce emis- their share of the market. Now, these light-truck sales
sions and establish a carbon dioxide cost. exceed car sales, and the increase at the lower truck
fuel economy standard has limited overall fuel econ-
8. The U.S. manufacturing industry and national
omy improvement.
security will be enhanced through a diverse
range of fuels to generate power. Cars and trucks sold today are more technically
Fuel choice for power generation should be fos- efficient than those sold two decades ago. However,
tered to avoid increasing dependence on a single the fuel economy improvements that could have
fuel. Reference projections indicate that the United been gained from this technology over the last two
States will be increasingly reliant on LNG imports to decades have been used to increase vehicle weight,
satisfy domestic natural gas demand. There are sev- horsepower, and to add amenities. Consequently, car
eral potential drivers that could result in even higher and truck fuel economy levels have been about flat for
domestic natural gas demand—e.g., escalating con- two decades, as previously shown in Figure 1‑45.
struction costs and greenhouse gas considerations,
both of which favor natural gas over coal for new elec- Based on a detailed review of technological poten-
trical power generation. Relying too heavily on natu- tial, a doubling of fuel economy of new cars and light
ral gas for power generation could displace energy trucks by 2030 is possible through the use of exist-
intensive manufacturing from the United States. ing and anticipated technologies, assuming vehicle
performance and other attributes remain the same
9. Improve energy data collection. as today.14 This economy improvement will entail
Energy data collection efforts around the world should 14 See in this report, “Transportation Efficiency” section of Chap-
be expanded to provide data in a consistent and time- ter 3, Technology. The extent to which technologies trans-
late into reductions in fuel consumption depends on several
ly fashion. India and China should be encouraged to factors, including costs, consumer preferences, availability,
participate in world energy data collection. deployment, and timing.

Chapter 1 – Energy Demand 85


higher vehicle cost. The 4 percent annual gain in partly offset by increased building sizes and by use of
CAFE standards starting in 2010 that President larger and multiple appliances. Cost-effective energy
George W. Bush suggested in his 2007 State of the efficiency building technologies have outpaced cur-
Union speech is not inconsistent with a potential rent U.S. federal, state, and local policies. If applied,
doubling of fuel economy for new light duty vehicles currently available efficiency technology would
by 2030. Depending upon how quickly new vehicle reduce energy use an additional 15-20 percent.16
improvements are incorporated in the on-road light
duty vehicle fleet, U.S. oil demand would be reduced Buildings typically last for decades. Many of the fea-
by about 3-5 million barrels per day in 2030.15 Addi- tures of buildings that affect their energy consumption,
tional fuel economy improvements would be pos- such as wall thickness, insulation, structural tightness,
sible by reducing vehicle weight, horsepower, and and windows, will go largely unchanged throughout
amenities, or by developing more expensive, step- the life of the building. Technologies and practices
out technologies. affecting these long-lived systems will be slow to pen-
etrate the building stock and affect their overall effi-
ciency, making it important to implement policies
Recommendation early to achieve significant long-term savings.
The NPC makes the following recommenda-
Major barriers to energy efficiency investments
tions to increase vehicle fuel economy:
include initial costs, insufficient energy price signals,
ó Improve car and light-truck fuel economy split incentives (where the consumer is different from
standards at the maximum rate possible by the facility provider), and individual consumer’s lim-
applying economic, available technology. ited information. To reduce energy consumption sig-
nificantly below the projected baseline will require
− Update the standards on a regular basis.
policy-driven improvements in energy efficiency.
− Avoid further erosion of fuel economy
standards resulting from increased sales Building Energy Codes
of light trucks, or, alternatively, adjust
light-truck standards to reflect changes in Building energy codes have proved to be a signifi-
relative light-truck and car market shares. cant policy tool to encourage increased energy effi-
ciency in new buildings, and in buildings undergoing
Potential Effect: 3-5 million barrels of oil per
major renovations. Building codes are administered
day in the United States from the increased
by the 50 states and by thousands of local authorities.
base in 2030.
To help state and local governments, national model
energy codes are developed and updated every few
years. Under federal law, states are not obligated to
impose energy codes for buildings, although at least
Reduce Energy Consumption in the 41 states have adopted some form of building energy
Residential and Commercial Sectors code.

Forty percent of U.S. energy is consumed in the resi- Adopting a building code does not guarantee energy
dential and commercial sectors, including the energy lost savings. Code enforcement and compliance are also
while generating and distributing the electricity used. essential. Some jurisdictions have reported that one-
The EIA projects that U.S. residential and commercial third or more of new buildings do not comply with
energy use will increase almost one-third by 2030.
16 Baseline projections taken from Energy Information Adminis-
tration, Annual Energy Outlook 2007 with Projections to 2030,
Significant efficiency improvements have been Table 2, February 2007, http://www.eia.doe.gov/oiaf/aeo/
made in buildings over the last several decades. excel/aeotab_2.xls; savings estimates taken from several studies
including Building on Success, Policies to Reduce Energy Waste
Improvement areas include the building structure in Buildings, Joe Loper, Lowell Ungar, David Weitz and Harry
itself; heating, cooling, and lighting systems; and Misuriello – Alliance to Save Energy, July 2005. “Achievable”
used here means that the measures are currently available and
appliances. However, these improvements have been the savings can be realized with a reasonable level of effort and
with acceptable reductions, if any, in perceived amenity value.
15 The potential fuel savings of 3 to 5 million barrels per day in 2030 For additional discussion, see the National Action Plan for
is relative to a scenario where current fuel economy standards Energy Efficiency, which is available at: http://www.epa.gov/
remain unchanged through 2030. cleanrgy/actionplan/eeactionplan.htm

86 Facing the Hard Truths about Energy


critical energy code requirements for windows and air sizes not swelled. Similarly, household refrigerators
conditioning equipment, which are among the easi- have increased in number and size, consuming much
est energy saving features to verify.17 of the reduced energy use per refrigerator gained by
efficiency standards. Energy efficiency programs
Building energy codes typically target only new should consider steps to avoid increasing the demand
buildings and major renovations. Additional policies for energy services.
are needed to encourage incremental, significant sav-
ings in existing buildings.
Recommendation
Appliance and Equipment Standards
The NPC makes the following recommenda-
Standards for appliances and other equipment tions to improve efficiency in the residential
are major policy measures that reduce energy use and commercial sectors:
in existing buildings. These products may not con-
ó Encourage states to implement and enforce
sume much energy individually, but collectively they
more aggressive energy efficiency building
represent a significant portion of the nation’s energy
codes, updated on a regular basis.
use.18
ó Establish appliance standards for new
Energy efficiency standards currently do not apply products.
to many increasingly common products, includ-
ó Update federal appliance standards on a
ing those based on expanded digital technologies.
regular basis.
Product coverage must be continuously evaluated
and expanded when appropriate to assure inclu- Potential Effect: 7-9 quadrillion Btu per year
sion of all significant energy consuming devices. by 2030 in the United States, including 2-3 qua-
In addition, industry and other stakeholders have drillion Btu per year of natural gas (5-8 billion
negotiated standards for other products, such as cubic feet per day), 4-5 quadrillion Btu per
residential furnaces and boilers. Implementing and year of coal, and ~1 quadrillion Btu per year
enforcing expanded and strengthened standards (0.5 million barrels per day) of oil.
would reduce energy consumption below the levels
that will result from current Department of Energy
requirements.19

Residential and commercial efficiency gains are Increase Industrial Sector


partially consumed by increased use of the services
and products that become more efficient. For exam-
Efficiency
ple, U.S. house sizes have increased steadily over The industrial sector consumes about one-third
the years, offsetting much of the energy efficiency of U.S. energy, and contributes to a large share of
improvements that would have resulted had house the projected growth in both oil and natural gas use
globally and in the United States. Worldwide, indus-
17 From Building on Success, Policies to Reduce Energy Waste in trial demand for natural gas is expected to double by
Buildings, Joe Loper, Lowell Ungar, David Weitz and Harry
Misuriello – Alliance to Save Energy, July 2005, pp. 18-19. For 2030. Worldwide, industrial sector demand for oil
a compilation of compliance studies, see U.S. Department of is expected to increase by 5 million barrels per day,
Energy, Baseline Studies, on web site (http://www.energycodes.
or 15 percent of total oil demand growth through
gov/implement/baseline_studies.stm). Arkansas reports 36 of
100 homes in the study sample did not meet the HVAC require- 2030.
ments of the state energy code.

18 From Building on Success, Policies to Reduce Energy Waste in


The industrial sector is a price-responsive energy
Buildings, Joe Loper, Lowell Ungar, David Weitz and Harry consumer. U.S. energy-intensive industries and
Misuriello – Alliance to Save Energy, July 2005, p. 24 manufacturers rely on internationally competitive
19 For additional savings potential see Steven Nadel, Andrew energy supplies to remain globally competitive. In
deLaski, Maggie Eldridge, & Jim Kleisch, Leading the Way: Con- recent years, U.S. natural gas prices have risen faster
tinued Opportunities for New State Appliance and Equipment
Efficiency Standards, March 2006, http://www.standardsasap. than those in the rest of the world. As a result, U.S.
org/a062.pdf. energy-intensive manufacturers using natural gas as

Chapter 1 – Energy Demand 87


a fuel or feedstock have responded by increasing the
efficiency of their operations and/or by shifting more Recommendation
of their operations to lower energy cost regions out-
The NPC makes the following recommenda-
side the United States.
tions to improve efficiency in the industrial
Across the industrial sector, there are opportunities sector:
to increase energy efficiency by about 15 percent.20 ó The Department of Energy should conduct
Areas for energy savings include waste-heat recov- and promote research, development, demon-
ery, separation processes, and combined heat and stration, and deployment of industrial energy
power.21 While 40 percent of that opportunity could efficiency technologies and best practices.
be implemented now, further research, development,
demonstration, and deployment are required before ó The research and development tax credit
the remaining savings can be achieved. Providing should be permanently extended to spur pri-
programs that encourage deployment of energy effi- vate research and development investments.
ciency technologies and practices will hasten their Potential Effect: 4-7 quadrillion Btu per year
implementation. Making the federal research and by 2030 in the United States, about equal parts
development tax credit permanent is one way to coal, gas, and oil.
encourage private investment in these areas. How-
ever, a lack of technically trained workers can impede
the implementation of efficiency projects while the Generation of electricity uses a significant amount
uncertainty from price volatility can make justifying of energy. In the United States, about 30 percent of pri-
those projects difficult. mary energy is used by the electric power generating
sector. Only modest generation efficiency improve-
ments appear economically feasible in existing plants
(2 to 6 percent), as efficiency improvements are incor-
20 From the Chemical Bandwidth Study, DOE, 2004; Energy Band-
width for Petroleum Refining Processes, DOE, 2006; Pulp and porated during routine maintenance. The major
Paper Industry Energy Bandwidth Study, AIChE, 2006. potential for efficiency improvement comes when
See also Curbing Global Energy Demand Growth: The Energy existing generation plants are replaced with facilities
Productivity Opportunity, McKinsey Global Institute, May 2007. using updated technology and designs. Retirement of
21 “Combined heat and power” refers to using the excess heat existing facilities and selection of replacement tech-
from generating electricity to meet processing or building heat nology and design is driven by economics affected by
needs. This combination is frequently called “cogeneration”
and results in a substantial increase in efficiency versus gener- fuel cost, plant reliability, and electricity dispatching
ating electricity and heat separately. considerations.

88 Facing the Hard Truths about Energy


2
Chapter
ENERGY SUPPLY

Abstract
World energy resources are plentiful, but accumu- The outline of the Energy Supply chapter is as
lating risks threaten continued expansion of oil and follows:
natural gas production from conventional sources
ó Supply Summary
relied on historically. To mitigate these risks, expan-
sion of all economic energy sources will be required, ó Prospects for Energy Supply
including coal, nuclear, renewables, and unconven-
ó Analysis of Energy Outlooks
tional oil and natural gas. Each energy source faces
significant challenges, including technical, environ- − Oil and Other Liquids
mental, political, or economic hurdles, and each − Natural Gas
imposes infrastructure requirements for develop-
− Coal
ment and delivery.
− Biomass
This chapter examines endowment, resource, and
− Non-Bio Alternative Energy Sources
production dynamics; describes the historical and
projected energy mix; analyzes diverse public and − Energy Conversion and Delivery
aggregated proprietary data sources; and considers Infrastructure
options for energy infrastructure and delivery. ó Access to Resources.

A
set of detailed studies on specific supply-related version of the resource to usable form; and (3) delivery
topics supports the analysis in this chapter. These of products to consumers. The components function
topic papers are included on the CD distributed within a larger and changing economic, geopolitical,
with this report (a list of all the topic papers can be and technical context. The study takes a comprehen-
found in Appendix E). The data used for analyzing sive view that includes each of these elements for fossil
energy outlooks are included in the Data Warehouse hydrocarbons and other energy sources such as bio-
section of the CD. mass, nuclear, and non-bio renewables.

SUPPLY SUMMARY Data Sources


The question of future energy supplies is significant, The study considered a diverse set of data that repre-
controversial, and extends beyond oil and gas. Energy sents the range of opinion about energy supply. These
supply is a complex system that includes several basic data were collected in the NPC Survey of Global Energy
components: (1) the natural endowment or physical Supply/Demand Outlooks (“NPC Survey of Outlooks”).
store of a particular resource; (2) production or con- Figure 2‑1 shows the sources of supply forecasts and

Chapter 2 – Energy Supply 89


STUDY
SUPPLY TASK GROUP INTEGRATION
INTEGRATION

WIDE-NET AGGREGATED GEOLOGIC


(PUBLIC) PROPRIETARY DATA ENDOWMENT

PEAK OIL EIA/IEA INTERNATIONAL AAPG


OIL COMPANIES
UNIVERSITIES USGS
& RESEARCH LITERATURE
CONSULTANTS
OTHER OTHERS

TECHNOLOGY CROSS-CUTTING SUBGROUPS

Figure 2-1. Supply Data Sources

data about the underlying resource base. The com- Endowment refers to the earth’s physical store of poten-
prehensiveness of the data is unique to this study and tial energy sources: tons of coal, cubic feet of natural
established an objective basis for the findings. gas, barrels of oil, etc. The endowment of fossil hydro-
carbons is fixed: it can be depleted but not replenished.
The data were classified into categories that Recoverable resources are a subset of the hydrocarbon
included quantitative forecasts as well as reports and endowment—the portion that can be viably produced
opinion papers: and converted to fuel and power.
ó Public data are freely available from agencies such
as the U.S. Energy Information Administration The natural endowment is the foundation of all
Figure 2-1. Supply supply
Data Sources
projections. Although there are many esti-
(EIA) and the International Energy Agency (IEA);
academic and research institutions; interest groups; mates for future producible reserves and production,
open literature; and foreign governments. these are often based on the same resource estimates,
principally data compiled by the United States Geo-
ó Proprietary data were made available to the study, logical Survey (USGS). Other estimates are made by
anonymously and with strict safeguards, by private energy companies and non-U.S. governmental agen-
businesses such as energy companies and industry cies. However, public and proprietary assessments
consultancies. are not integrated with each other and may use dif-
ó Endowment data represent expert technical opin- ferent methodologies. The wide range of assessments
ion about the physical resource base for hydrocar- creates uncertainty for policy makers.
bons and other sources of energy.
Current endowment and resource assessments
Source data ranged from integrated supply-demand for oil, gas, and coal indicate very large in-place
projections through studies of specific elements of volumes and resource potential, several times the
the energy system such as biomass and transporta- cumulative produced volumes and current reserve
tion infrastructure. See the Methodology chapter of estimates. Renewable resources such as biomass,
this report for full details about the techniques used wind, and solar power add additional potential.
in data collection and analysis. However, physical, technical, commercial and other
constraints make only a fraction of any endowment
Resource Endowment available for extraction. The key consideration for
all energy sources is converting the resource endow-
Endowment and recoverable resources are funda- ment to economically and environmentally viable
mental concepts in any discussion of energy supply. production and delivery.

90 Facing the Hard Truths about Energy


Resources to Production 25

The United States is the world’s largest cumula-


tive oil producer and remains the third-largest daily
20
producer after Saudi Arabia and Russia. However,

MILLION BARRELS PER DAY


Figure 2‑2 shows that U.S. oil production has
declined steadily over the past 40 years. Demand for CONSUMPTION
oil (and natural gas) has grown at the same time, cre- 15
ating a gap with domestic production that is filled
by imports. Any continuing production decline for
domestic oil will widen the projected gap between
10
supply and consumption over the next 25 years and
beyond. Accumulating geological, geopolitical,
PRODUCTION
investment, and infrastructure risks to global oil and
natural gas supply may compound the gap. 5

Supply forecasts are wide ranging and reflect uncer-


tainty at least partly based on recent difficulty in
0
increasing oil production. Forecast worldwide liquids
1965 1975 1985 1995 2005
production in 2030 ranges from less than 80 million
YEAR
to 120 million barrels per day, compared with current
Source: BP Statistical Review of World Energy 2006.
daily production of approximately 84 million barrels.
The capacity of the oil resource base to sustain grow-
ing production rates is uncertain. Several outlooks Figure 2-2. U.S. Oil Production and Consumption
indicate that increasing oil production may become a
significant challenge as early as 2015. The uncertainty
is based on (1) the rate and timing at which significant
and IEA Reference Cases. The distribution of sup-
quantities of unconventional oil enter the supply mix;
ply outlooks
Figure ES-10. itself raises
U.S. Oil uncertainties
Production and reflects
and Consumption
(2) industry’s ability to overcome increasing risks to
different assessment of the risks involved in finding,
supply. Figure 2‑3 illustrates potential sources of total WAS Fig. ES-7a, ES-9
producing, and delivering energy.
liquids supply as depicted in the IEA World Energy
Outlook 2004 (WEO 2004). This figure is an illustrative The USGS mean assessment indicates that natural
example of the various components that make up total gas resources are at least adequate for the increased
liquids supply, although the timing and combination production anticipated over the study period. How-
of the components may vary. ever, the increased production will require replacing
approximately 50 percent of the existing global natu-
Public and proprietary supply projections are ral gas reserve base by 2030.
based on assumptions about underlying factors
such as economic growth, energy prices, and result- Coal is a unique energy resource for the United
ing demand; carbon constraints; technology; and States. Given its vast resource base—by many esti-
maximum production volumes and timing. The mates, the world’s largest—and major contribution
EIA’s low economic growth case, for example, fore- to electricity generation today, coal is likely to remain
casts 50 percent growth in total global energy sup- a fundamental, long-term component of U.S. energy
ply by 2030, while its high economic growth case supply. Many studies forecast growth in coal use for
forecasts 90 percent growth. The EIA, IEA, and con- power, plus additional growth through direct con-
sultant reference and high-demand cases result in version of coal to liquids to diversify the fuel supply.
the highest projected global oil production levels. However, coal combustion is also the largest source
In contrast, the production maximum (or peak oil) of carbon dioxide emissions from energy production.
and carbon-constrained cases project the lowest Adding coal-to-liquids production at scale, as with
estimates of global oil production. International conversion of most heavy unconventional hydrocar-
oil company (IOC) outlooks are considerably higher bons, would generate large additional volumes of
than the lowest supply cases, but lower than the EIA carbon dioxide. Addressing carbon capture at scale

Chapter 2 – Energy Supply 91


125

DEVELOPMENT OF
NEW DISCOVERIES
100
UNCONVENTIONAL
MILLION BARRELS PER DAY

ENHANCED
OIL RECOVERY
75

50 DEVELOPMENT OF
EXISTING RESERVES
EXISTING
CAPACITIES
25

0
1971 1980 1990 2000 2010 2020 2030
YEAR
Source: IEA, World Energy Outlook 2004.

Figure 2-3. Illustrative Total Liquids Supply

is therefore a prerequisite for retaining coal as a viable distribution of outcomes, along with evaluation of
and critical part of the energy supply system. assessments of the total resource base, indicates that
the key consideration for energy supplies is not endow-
Understanding the Range ment but “producibility.” Over the next 25 years, risks
above ground—geopolitical, technical, and infrastruc-
of Production Forecasts ture—are more likely to affect oil and natural gas pro-
duction rates than are limitations of the below-ground
This study examined a comprehensive range of
Figure 2-3. Illustrative
global oil production forecasts including integrated
Total Liquids
endowment. Supply
The range of outcomes emphasizes the
ALSO USED AS FIGURE
supply/demand studies from EIA and IEA (unless ES-5, 2-12
need for proactive strategies to manage the accumu-
lating risks to liquids delivery in 2030.
otherwise noted, all EIA data referred to in this chap-
ter are from International Energy Outlook 2006 and Explanations for the variance in projections for both
IEA data are from World Energy Outlook 2006); pub- conventional oil and natural gas production are widely
licly available projections from a diverse range of other discussed as part of the “peak oil” debate. As a result,
sources; and a unique set of aggregated proprietary this study sees the need for a new assessment of the
forecasts from IOCs and energy consulting groups. global oil and natural gas endowment and resources to
The diversity of this range of projections is shown in provide more current data for the continuing debate.
Figure 2‑4, which highlights the EIA reference, the
Association for the Study of Peak Oil (ASPO) – France, Diversification
and the average of the IOC forecasts for 2030. The
distribution of production forecasts highlights the Growing U.S. energy demand requires diversified
effect of assigning different levels of risk and uncer- energy sources that are economically and environ-
tainty to both resource and above-ground factors. This mentally sustainable at commercial scale. Coal and

92 Facing the Hard Truths about Energy


140

120
MILLION BARRELS PER DAY

EIA REFERENCE CASE


IOC –
100 AVERAGE*

ASSOCIATION FOR
THE STUDY OF PEAK OIL – FRANCE
80

60

0
2000 2010 2020 2030
YEAR
* Average of aggregated proprietary forecasts from international oil companies (IOC) responding to the NPC survey.
See Analysis of Energy Outlooks, Global Total Liquids Production, later in this chapter
for identification of other aggregations and outlooks shown here.
Source: EIA, International Energy Outlook 2006, and the NPC Survey of Outlooks.

Figure 2-4. Global Total Liquids Forecasts

nuclear power already play a significant role. Most technical, logistical, and market requirements will
forecasts expect them to at least retain their relative need to be met to achieve significant scale.
share of the supply mix. Many forecasts project sig-
nificant growth for unconventional hydrocarbons, Energy projections generally show a continuing role
for nuclear energy, notwithstanding unique concerns
including very heavy oil and bitumen expansion from
about safety, security, and waste disposal. In a carbon-
Canadian oil sands. At a more challenging technical
Figure 2-4. Global constrained environment, nuclear energy may become
and economic level, many forecasts also predict grow-Total Liquids Forecasts
a much larger part of the energy mix. However, the U.S.
ing contributions from large-scale conversion of coal
technical
ALSO USED AS Figure ES-9 and industrial capability needed to maintain
to liquids and the eventual development of vast U.S. oil
nuclear energy as an option is at risk.
shale resources. All unconventional hydrocarbons face
the critical issue of their significant carbon footprint at
large-scale implementation. Key Findings
Oil, gas, and coal—the fossil hydrocarbons—are by
Biomass and other renewables are playing a grow-
far the largest sources of energy in industrial econo-
ing role as options for transportation fuel or power
mies. While alternative energy sources, particularly
generation, with high year-to-year growth rates.
biomass and other renewables, are likely to increas-
Biomass includes wood, cultivated crops, or natu-
ingly contribute to total energy supply, hydrocarbons
rally growing vegetation that potentially can be con-
are projected to dominate through at least 2030.
verted to energy sources at commercial scale. First-
generation conversion of biomass to fuels is based The prospects for hydrocarbon supply are com-
on corn, sugarcane, soybeans, or other crops that plex. They involve a growing set of global uncertainties
are also food sources. Technically and economically ranging from production capabilities through environ-
successful, second-generation conversion of plant mental constraints, infrastructure requirements, and
waste or fuel crops would allow non-food vegetation geopolitical alignments. Concentration of remaining
to be used as feedstock. As with all energy sources, oil and gas resources in a few countries, for example,

Chapter 2 – Energy Supply 93


challenges whether business-as-usual cases represent PROSPECTS FOR ENERGY SUPPLY
the most likely course of events during the period to
2030. Energy Endowment
and Recoverable Resources
Economically disruptive supply shortfalls of
regional, if not global, scale are more likely to occur Endowment and recoverable resource are funda-
during the outlook period than in the past. Increased mental concepts in any complete discussion of energy
supplies. This section defines these and other con-
demand will amplify the effects of any short-term
cepts used in supply forecasts. For detailed review and
events, which are likely to result in stronger reactions
discussion of endowment and recoverable resources,
than in the past to protect national interests. The new
see the Endowment and Biomass Topic Papers on the
dynamics may indicate a transition from a demand- CD included with this report.
driven to a supply-constrained system.
The endowment of fossil energy sources refers to
While uncertainties have always typified the energy the earth’s physical store of non-renewable hydro-
business, the risks to supply are accumulating and carbons: tons of coal, cubic feet of natural gas, bar-
converging in novel ways: rels of oil, etc. The total endowment of fossil hydro-
carbons is fixed. Some fraction can be developed
ó Resource nationalism, bilateral trade agreements,
and depleted, but the endowment cannot be replen-
or protectionist policies may remove resources
ished in less than geologic time frames. Renewable
from the market and make them unavailable for resources, such as biomass, represent an additional
general world supply. potential energy endowment, which, in principle, is
ó Hydrocarbon resources are becoming more diffi- continuously replenished. Recoverable resources are
cult to access and challenging to produce. the subset of the total endowment that can be ulti-
mately produced and converted into fuel and power.
ó Technology requirements are increasingly complex
and demanding. Why We Do Endowment Assessments
ó Costs of developing and delivering energy are esca- Hydrocarbon resource assessments fill a variety of
lating. needs for consumers, policy makers, land and resource
ó Demands on current and anticipated infrastructure managers, investors, regulators, industry planners, and
are heavy and growing. others involved in energy policy and decision making.

ó Human resources may not be adequate to meet Individual governments use resource assessments
projected growth requirements. to exercise stewardship, estimate future revenues, and
establish energy, fiscal, and national security policy.
ó Environmental constraints on energy supply are Energy industries and the investment community use
evolving and indeterminate. resource estimates to establish corporate strategy and
make investment decisions. Other interested parties
These risks and uncertainties are the basis for use the estimates in developing their positions and
understanding supply prospects over the next several recommendations on energy issues.
decades.
Types of Hydrocarbons
The energy supply system has taken more than a
century to build, requiring huge sustained investment Fossil Fuel is a collective term for hydrocarbons in
in technology, infrastructure, and other elements of the gaseous, liquid, or solid phase. The global fossil
the system. Given the global scale of energy supply, fuel endowment includes the following: coal, crude oil
its significance, and the time required for substantive (including condensate), natural gas liquids, and natu-
changes, inaction is not an option. Isolated actions ral gas.
are not a solution. The study’s recommendations ó Coal is the altered remains of prehistoric plants that
address the supply issue as a whole and contribute to originally accumulated in swamps and peat bogs.
building a secure, sustainable energy portfolio. It is organic sedimentary rock that has undergone

94 Facing the Hard Truths about Energy


various degrees of coalification, which determines While these volumes can only be estimated within
its current physical properties. wide ranges, they indicate the fossil hydrocarbon
endowment is large compared to past produced vol-
ó Crude Oil is defined as a mixture of hydrocarbons
umes and current reserve estimates. However, only a
that exists in a liquid phase in natural underground
fraction of the total hydrocarbon endowment can ever
reservoirs and remains liquid at atmospheric pres-
be technically converted into recoverable resources
sure after passing through surface production
and producible reserves. While continuing technical
facilities.
advances are likely to increase this fraction as they
ó Natural Gas Liquids (NGLs) are those portions of the have in the past, economic, political, and environ-
hydrocarbon resource that exist in gaseous phase mental factors will be important in determining the
when in natural underground reservoir conditions, likely size of the recoverable resource base.
but are in a liquid phase at surface conditions (that
is, standard temperature and pressure conditions: Resources and Reserves
60ºF/15ºC and 1 atmosphere).
Resources and reserves are the strategically impor-
ó Natural Gas is a mixture of hydrocarbon com- tant elements of the hydrocarbon endowment
pounds existing in the gaseous phase or in solu- remaining to be produced. Figure 2‑5 shows various
tion with oil in natural underground reservoirs at classifications of reserves and resources.
reservoir temperature and pressure conditions and
ó Resources are those quantities of the endowment
produced as a gas under atmospheric temperature
estimated, as of a given date, to be potentially
and pressure conditions. Natural gas is principally
recoverable from known or undiscovered accumu-
methane, but may contain heavier hydrocarbons
lations. Resources are not considered commercial
(such as ethane, propane, and butane) and inert
at the time of estimation.
compounds.
ó Reserves are those estimated quantities of the
Hydrocarbon Assessment Terminology endowment anticipated to be commercially recov-
erable from known accumulations from a given
Hydrocarbons In Place date forward. Reserves must satisfy four criteria:
they must be discovered, recoverable, commercial,
The endowment, or hydrocarbons in place in an and remaining based on the development technol-
accumulation or in all accumulations in the world, ogies currently applied.
is significant because some fraction of the in-place
endowment is always the goal for extraction and con- Reserves and Total Resource Growth
version to resources. In-place estimates have relatively
high uncertainty and require assumptions and con- Growth in estimated reserves or resources occurs in
straints in the analysis. As an illustration, the follow- almost all hydrocarbon systems in the world. Many
ing global in-place estimates are based on analyses by analysts consider it to be the most important source
Rogner, Schollnberger, and others: for potential additional reserves in mature petroleum
regions such as the United States. Many factors can
ó Coal: 14,000 billion short tons (Rogner: grades A-E, increase the estimated ultimate recovery from known
several geographical areas not assessed) accumulations, including improved: (1) data as a field
ó Oil: 15,000 billion barrels (Schollnberger: mid- matures, (2) recovery techniques, (3) imaging for well
case—included conventional, heavy, very heavy, placement, and (4) completion efficiency. Additions
and NGLs; not including oil shales) to reserves from growth are volumetrically significant,
as most additions to world reserves in recent years
ó Gas: 50,000 trillion cubic feet (Schollnberger: mid-
are from growth of reserves in known accumulations
case—includes conventional, tight gas, and coal-
rather than new discoveries.
bed methane; not including gas hydrates)
 Rogner, H-H., Annual Review – Energy Environment 22:217–62: In-
The importance of reserves growth to estimat-
stitute for Integrated Energy Systems, University of Victoria, 1997. ing available future oil is the subject of considerable
debate. One challenge stems from the fact that not
 Schollnberger, W.E., 1998b, Projections of the world’s hydrocar-
bon resources and reserve depletion in the 21st century: Hous- all countries report reserves in the same way. For
ton Geological Society Bulletin, November, p. 31-37. example, the percentage and rate of conversion of

Chapter 2 – Energy Supply 95


INCREASING ECONOMIC VIABILITY DISCOVERED (IDENTIFIED) RESOURCES

PROVED PROBABLE POSSIBLE


RESERVES RESERVES RESERVES

UNDISCOVERED
RESOURCES

SUB-ECONOMIC
RESOURCES

INCREASING GEOLOGIC UNCERTAINTY


Source: McKelvey, V.E., “Mineral Resource Estimates and Public Policy,” American Scientist, 1972.

Figure 2-5. Example of a McKelvey Diagram, Used to Illustrate the Technical Distinction 
Between Resources and Reserves

Figure 2-5. Example of a McKelvey Diagram, Used to Illustrate the Technical Distinction
Between Resources and Reserves
reserves, and, therefore, the predicted amount of field of known accumulations, together with an analysis of
growth, depends significantly on the reference point. how many have already been discovered in a hydro-
In some cases, the reference point is proved reserves carbon province, are used to project numbers and
(often referred to as P1). In other cases, the basis is sizes of those which may remain to be discovered.
proved plus probable reserves (P1 + P2). The differ- The larger and more obvious potential accumulations
ent reference points yield different results for reserves are generally drilled first, and usually the largest dis-
growth. coveries are made early in the life of a basin.

Oil fields today are also generally smaller and devel- Table 2‑1 shows the USGS 2000 reserve and resource
oped more quickly, completely, and with better tech- assessment for conventional oil and gas. Between the
nology than in the past. This situation raises the pos- reference date of that study (1/1/96) and the end of
sibility that the growth patterns of older fields may 2005, approximately 275 billion barrels of conven-
no longer be reliable predictors for new development tional oil have been produced. Uncertainty around
and estimates of future oil. future additions from growth and undiscovered vol-
umes provides a range of about 2 trillion barrels
Undiscovered Resources between low and high estimates.

Undiscovered resources consist of potential recov- Conventional and Unconventional


ery from accumulations that are postulated to exist on Reserves and Resources
the basis of geologic knowledge and theory. There are
many aspects of resource endowment that must be Until the 1990s, virtually all estimates of the global
present for hydrocarbons to form and be preserved. In oil and gas endowment focused on conventional
a comprehensive resource assessment, each of these reserves and resources, defined as oils, NGLs, and gas
aspects is examined and measured, but a great deal expected to be economically produced using conven-
about these aspects remain uncertain. Examination tional technology and distributed in nature as discrete

96 Facing the Hard Truths about Energy


(if at all) and require processing or dilution to be
P95 Mean P5
produced through a well bore.

Oil & Natural Gas ó Continuous Resources: The USGS uses the term
Liquids (Billion continuous resources to define those resources that
Barrels) may be economically produced but are not found
in conventional reservoirs. Continuous accumu-
Undiscovered and
776 1,669 2,767 lations are petroleum accumulations (oil or gas)
Reserves Growth
that have large spatial dimensions and indistinctly
Cumulative and defined boundaries, and which exist more or less
1,676
Remaining Reserves
independently of the water column. Because they
2,452 3,345 4,443 may cover hundreds, or even thousands, of square
Natural Gas (Trillion
miles, continuous accumulations may occur across
Cubic Feet) a wide range of stratigraphic environments, each of
which may have widely varying reservoir proper-
Undiscovered and
4,096 8,856 14,770 ties. Or they may exist in their source rock, never
Reserves Growth
having migrated into a carrier bed or reservoir.
Cumulative and
6,545
Remaining Reserves Table 2‑2 provides global resource estimates for
10,641 15,401 21,315 various types of unconventional oil and gas.

Previous Estimates—Results, Methodology,


Note: P95 refers to a 95 percent probability that the resource size
will exceed the estimate, while P5 indicates a 5 percent probability Differences, and Challenges
that the resource size exceeds the estimate—thus P95 represents
the low end of an assessment and P5 the high end. USGS provides Many organizations conduct endowment and
a range of outcomes for reserves growth and undiscovered
resources. No range is provided for cumulative production and
resource estimates, for a variety of purposes and with
proved reserves. varying methodologies. Figures 2‑6 and 2‑7 show
Source: United States Geological Survey, 2000. various global conventional oil and gas endowment
estimates plotted against the date of the assess-
Table 2-1. Global Resource Estimates for ment. Most estimates before 1958 were relatively low,
Conventional Oil and Natural Gas smaller than 2 trillion barrels of oil. Since 1958, both
the number and range of estimates have grown.

accumulations. More recent estimates of the endow-


ment include significant additional potential from Heavy Tar
Coalbed Tight
unconventional resources. Crude Sands
Methane Gas
Oil (Bitumen)
In most contemporary definitions, the primary dif-
ferences between conventional and unconventional Oil (Billion
761 794
petroleum liquids are API gravity and viscosity, i.e., Barrels)
the density of the liquid and how easily it flows. For
Natural Gas
natural gas, the primary delimiter is the reservoir in
(Trillion 8,225 4,024
which the accumulation is located. Viscosity is the
Cubic Feet)
basis of the following definitions:
ó Conventional Oil: Petroleum found in liquid form Sources: Oil – BGR (Bundesanstalt für Geowissenschaften
(with gravity of greater than 20oAPI) flowing natu- und Rohstoffe [Federal Institute for Geosciences and Natural
rally or capable of being pumped at reservoir con- Resources]) Reserven, Ressourcen und Verfügbarkeit von
Energierohstoffen [Availability of Energy Reserves and Resources
ditions without further processing or dilution. 1998], Germany, 1998. Natural Gas – Rogner, H-H., “World Energy
Assessment – Energy and the Challenge of Sustainability,” United
ó Unconventional Oil: Heavy oil, very heavy oil, oil Nations Development Programme, 2000.
sands, and tar sands (bitumen) are all currently
considered unconventional oil resources. These Table 2-2. Global Resource Estimates for
compounds have a high viscosity, flow very slowly Unconventional Oil and Natural Gas

Chapter 2 – Energy Supply 97


18 CONVENTIONAL

98
OIL
CONVENTIONAL +
9 UNCONVENTIONAL
16 OIL

14

12

49

10

95
50
6 91
43 47 39 55 60
25 40 42 51

ALL ESTIMATES IN TRILLIONS OF BARRELS


31 29 27 35 44 45 54 58 98
94
24 23 30 41 48 2 26 38 46 53 61 98 = 4.44
5 28 56 62 63 100
4 12 17 90 101 USGS
59 57 92 103
3 4 9 WPA
6 97 = 3.34
8 18 79 86 8 97 2000

14
22 64 5 8 8 102
13
6 6 74 96
11 70 0 93 96 = 2.45
73 8 99
2 4
89
5 7 10 15 36 67 71 72
1 20 75 78 82 85 83
19 3332 66 77
3 6 16 76 81 84 87
2 21 37
0
1940 1950 1960 1970 1980 1990 2000 2010
YEAR
Source: Ahlbrandt, Thomas S., and Klett, T.R., “Comparison of methods used to estimate conventional
undiscovered petroleum resources: World examples,” Natural Resources Research, 2005.

Facing the Hard Truths about Energy


Figure 2-6. World Oil Resource Estimates, 1940 – Present

Figure 2-6. World Oil Resource Estimates, 1940 – Present


35

46

30

CONVENTIONAL GAS 53

Chapter 2 – Energy Supply


CONVENTIONAL 20
+ UNCONVENTIONAL GAS

25
45

49 0
5 49 = 21.32
20

51 54
42 USGS
WPA
39 48 48 = 15.40
15 2000
44 52
24 28
9 7 11 14 7
1
2 3 5 2 35 43
2 2 4
3 2 41 47 47 = 10.64
10 3 38
8 15 40
19 33
37

ALL ESTIMATES IN QUADRILLIONS OF CUBIC FEET


12 36
5 13 17
26 29
2 4 6 18
10 30
16
5 31
3 22
1

0
1950 1960 1970 1980 1990 2000 2010
YEAR
Source: Ahlbrandt, Thomas S., and Klett, T.R., “Comparison of methods used to estimate conventional
undiscovered petroleum resources: World examples,” Natural Resources Research, 2005.

99
Figure 2-7. World Natural Gas Resource Estimates, 1950 – Present
Figure 2-7. World Natural Gas Resource Estimates, 1950 – Present
Legend for Figure 2-6 Legend for Figure 2-7

Conventional Oil/Conventional + Convential Gas/Conventional +


Unconventional Oil References Unconventional Gas References


1 Duce 54 Moody 1 MacKinney
2 Pogue 55 Nehring (H) 2 Weeks (H)
3 Weeks 56 Nehring (L) 3 Weeks (L)
4 Levorsen (and up) 57 Halbouty 4 Weeks
5 Weeks 58 Halbouty 5 MacKinney
6 Pratt 59 Halbouty 6 Weeks
7 Hubbert 60 Meyerhoff 7 Ryman
8 Weeks 61 Nehring (H) 8 SHELL
9 Weeks 62 Nehring (L) 9 MacKinney
10 Weeks 63 De Bruyne 10 Weeks
11 Ryman 64 World Energy 11 Hubbert (H)
12 Weeks (H) Conference 12 Hubbert (L)
13 Weeks (L) 65 Halbouty 13 Weeks
14 Hubbert (H) 66 Masters 14 Hubbert
15 Hubbert (L) 67 Masters 15 Parent, Linden (and up)
16 Moody 68 Masters 16 Adams and Kirkby (H)
17 Weeks (H) 69 Odell and Rosing 17 Moody, Geiger
18 Weeks (L) 70 Masters (H) 18 National Academy
19 Bauquis 71 Masters (L) of Science
20 Warman 72 Martin 19 Barthel, BGR (and up)
21 Warman 73 Masters 20 Grossling (H)
22 Hubbert 74 Bookout 21 Grossling (L)
23 Odell 75 Campbell 22 International Gas Union
24 Schweinfurth 76 Campbell 23 Parent, Linden (H) (and up)
25 Hubbert (H) 77 Masters 24 Parent, Linden (L)
26 Hubbert (L) 78 Masters 25 Desprairies (H)
27 Kirkby, Adams (H) 79 Masters 26 Desprairies (L)
28 Kirkby, Adams (L) 80 Campbell 27 McCormick, AGA
29 Parent, Linden 81 Campbell 28 Bois
30 Parent, Linden (H) 82 Laherrere 29 Meyerhoff
31 Parent, Linden (L) 83 Campbell 30 Nehring (H)
32 MacKay, North (H) 84 Masters 31 Nehring (L)
33 MacKay, North (L) 85 Masters 32 Parent, Linden (H) (and up)
34 Moody, Esser (H) 86 Masters 33 Parent, Linden (L)
35 Moody, Esser 87 Campbell 34 Schubert
36 Moody, Esser (L) 88 MacKenzie 35 World Energy Conference
37 Moody, Geiger 89 Campbell 36 Masters
38 Moody, Geiger 90 BP 37 Masters
39 Moody, Geiger 91 Odell (H) 38 Masters
40 National Academy 92 Odell L) 39 Masters
of Science 93 Schollnberger 40 Masters
41 Odell and Rosing 94 Schollnberger 41 Masters
42 Barthel, BGR 95 Schollnberger 42 Masters
43 Grossling (H) 96 USGS 43 Riva
44 Grossling (L) 97 USGS 44 Schollnberger
45 Folinsbee 98 USGS 45 Schollnberger
46 Klemme 99 Deffeyes 46 Schollnberger
47 Seidl, IIASA (H) 100 SHELL 47 USGS
48 Seidl, IIASA (L) 101 SHELL (H) 48 USGS
49 Styrikovich 102 SHELL (L) 49 USGS
50 Styrikovich 103 Edwards 50 CEDIGAZ (H)
51 World Energy 51 CEDIGAZ (L)
Conference 52 SHELL
52 IFP 53 SHELL
(4 estimates >4 TBO) 54 BGR
53 Klemme

100 Facing the Hard Truths about Energy


Resource estimates as seen in Figures 2‑6 and 2‑7 are energy consumption. Reference Cases generally use
snapshots in time. They represent only what has been business-as-usual assumptions that do not consider
assessed: particular parts of the world (basins, plays, (1) potential global supply disruptions resulting from
regions, or countries); specific commodities (oil, natural geopolitical events, (2) technology breakthroughs
gas, conventional, unconventional); and data available that could substantially enhance supply or reduce
at the time. Assessing additional types of resources or demand, and (3) significant shifts in energy policies.
additional parts of the world can greatly change the esti- In addition, most outlooks make separate forecasts for
mates. Resource estimates are one basis of forecasting. various scenarios that would materially change out-
Other important factors and risks can also significantly comes, such as carbon constraints or significant price
shape forecasted production profiles over time. changes. The Energy Demand chapter of this report
provides an extensive discussion of demand outlooks
Finally, comprehensive assessments built from global, that supplements the summary in this section.
detailed geological studies are very limited. While the
USGS survey of resources in 2000 is the most compre- Fossil fuels are projected to dominate the total
hensive U.S. agency assessment and the basis of many global energy mix, contributing approximately 75 per-
forecasts, the strategic importance of endowment and cent of global energy supplies in 2030 compared with
resource estimates emphasize the ongoing need for com- some 85 percent today (Figure 2‑10). Most business-
prehensive, up-to-date data. For a detailed discussion of as-usual outlooks show that total energy demand in
the hydrocarbon resource endowment, see the Endow- 2030 will be 40 to 70 percent higher than the 2005
ment Topic Paper on the CD included with the report. level of 425 quadrillion Btu. These forecasts assume
the global fossil energy system will provide supply
and infrastructure required to meet the increased
Primary Energy Mix demand.
Energy forecasts generally show that fossil fuels will
Outlooks that assume no further restrictions on
dominate the total energy mix, although their share may
carbon dioxide emissions generally do not include
decline from today’s 85 percent to slightly more than 75
significant carbon capture and sequestration (CCS).
percent in 2030. In several forecasts, gas and coal are
These forecasts show a significant increase in global
expected to increase their share. Oil’s share of the total
carbon dioxide emissions by 2030. In the case of car-
primary energy mix is generally forecast to decrease,
bon-constrained energy use, projected reduction in
even as absolute oil volumes grow, principally for trans-
carbon dioxide emissions is achieved through reduced
portation use. While renewable energy, gas-to-liquids,
energy consumption, fuel switching, and carbon cap-
coal-to-liquids, and coal-to-gas grow rapidly from a low
ture and sequestration.
base, they remain a smaller share of the energy mix in
2030. In any case, the enormous scale of global energy Gas and coal are generally expected to increase
means that a prospective 10 percent decline in fossil fuel their share of the total primary energy mix, while the
share will require a major reallocation of investment, oil share continues to decrease even as oil volumes in
infrastructure, and technical effort. most cases continue to grow. Figure 2‑11 projects four
EIA and IEA cases for global energy consumption to
Historical Energy Consumption 2030. Crude oil continues its trend towards becoming
primarily a source of transportation fuels. Renewable
Figure 2‑8 shows that global primary energy con- energy, as well as gas-to-liquids, coal-to-liquids, and
sumption has grown just over 2 percent per year since coal-to-gas grow rapidly from a low base, but their
1980. U.S. primary energy consumption has grown shares of the total mix remain relatively small.
just over 1 percent per year since 1980, as shown in
Figure 2-9. Most demand forecasts include historical Carbon constraints without nuclear energy and
energy mix and consumption patterns as inputs to CCS increase the demand for natural gas. However,
their projections. in some carbon-constrained cases, nuclear power
increases substantially as a share of total energy,
Projected Energy Consumption although it remains flat in reference forecasts. The
biomass share of total energy expands dramatically
Energy forecasts are typically based on macro-eco- in several constrained cases, with the biggest impacts
nomic inputs and historical factors that drive global occurring after 2030.

Chapter 2 – Energy Supply 101


500

400
HYDROELECTRICITY
NUCLEAR
QUADRILLION BTU

300

COAL

200
NATURAL GAS

100
OIL

0
1980 1985 1990 1995 2000 2005
YEAR
Source: BP Statistical Review of World Energy 2007.

Figure 2-8. Global Primary Energy Consumption, 1980-2006

100
HYDROELECTRICITY
Figure 2-8. Global Primary Energy Consumption 1980-2006
NUCLEAR
80 WAS Figure S.1A, then Figure S2-3
QUADRILLION BTU

60 COAL

40 NATURAL GAS

20
OIL

0
1980 1985 1990 1995 2000 2005
YEAR
Source: BP Statistical Review of World Energy 2007.

Figure 2-9. U.S. Primary Energy Consumption, 1980-2006

Figure 2-9. U.S. Energy Mix in 2006


102 Facing the Hard Truths about Energy
WAS Figure S.1B, then Figure S2-4
Oil and Natural Gas Supply
Oil
GAS Total energy supply forecasts are wide-ranging,
23%
based largely on variations in oil demand outlooks
and differing views on the deliverability of oil. Some
views of future oil production consider lower limits
OIL on the available recoverable oil resource while oth-
38% ers extrapolate historical successes in expanding the
recoverable resource base. Current endowment and
COAL resource assessments for both oil and gas indicate
23%
large in-place volumes and development potential.
The gas resource base is more than adequate to meet
the increased gas production typically anticipated
by energy outlooks over the study period. However,
this will require replacing 50 percent of existing gas
reserves by 2030.
RENEWABLES 9% NUCLEAR 7% There is more uncertainty about the capacity of the
Source: International Energy Agency, oil resource base to sustain growing production rates.
World Energy Outlook 2006.
The uncertainty is based on (1) the rate and timing
at which significant quantities of unconventional oil
Figure 2-10. Global Energy Consumption Shares enter the supply mix, and (2) the ability of the oil indus-
in 2005 try to overcome growing supply-development risks.

Figure 2-10. Global Energy Consumption Shares in 2005

800
HISTORICAL PROJECTED

600
QUADRILLION BTU

400

IEA REFERENCE
200
EIA REFERENCE
EIA LOW ECON. GROWTH
& IEA REFERENCE
EIA HIGH ECON. GROWTH
0
1980 1990 2000 2010 2020 2030
YEAR
Sources: International Energy Agency (IEA) World Energy Outlook 2006;
and Energy Information Administration (EIA) International Energy Outlook 2006.

Figure 2-11. Projected Global Energy Consumption

Figure 2-11. Projected Global Energy Consumption


Chapter 2 – Energy Supply 103

WAS Figure S-4, S2-6


The finite nature of the oil endowment and the half of today’s estimated ultimately recoverable
prospect that production will reach a peak and even- resources (URR) has already been produced.
tually decline contribute to the debate about oil sup-
ó The increased cost of producing oil (both conven-
ply. The timing of the decline is subject to interpreta-
tional and unconventional including alternative
tion because:
liquids) raises concerns about the timing and scale
ó The underlying decline rate in currently producing of major energy development.
fields is not universally well-reported. Many observ-
ó Timing of development for alternative liquid sup-
ers think that 80 percent of existing oil production
will need to be replaced by 2030—in addition to plies at scale is uncertain.
the volumes required to meet growing demand.
Supply outlooks reflect uncertainty about oil sup-
Figure 2‑12 is an illustrative example showing vari-
plies, at least partly based on recent difficulties in
ous components of total liquids supply as depicted
increasing production. Forecast global liquids pro-
in the IEA World Energy Outlook 2004. Resource
duction in 2030 ranges from less than 80 million to
components such as existing production capacity,
120 million barrels per day, compared with current
booked reserves, enhanced oil recovery, etc., con-
daily production of approximately 84 million barrels.
tribute to virtually all projections of liquids supply,
although the combination and timing of compo- Conventional oil is forecast to contribute the larg-
nents may differ. est share of global liquid supply, principally through
ó Opinions differ about the world’s estimated ulti- increased production in Saudi Arabia, Russia, Venezu-
mately recoverable oil resource and whether fields ela, Iran, and Iraq. Unconventional oil such as Cana-
can continue to increase production if more than dian and Venezuelan heavy oil and U.S. oil shale is also

125

DEVELOPMENT OF
NEW DISCOVERIES
100
UNCONVENTIONAL
MILLION BARRELS PER DAY

ENHANCED
OIL RECOVERY
75

50 DEVELOPMENT OF
EXISTING RESERVES
EXISTING
CAPACITIES
25

0
1971 1980 1990 2000 2010 2020 2030
YEAR
Source: IEA, World Energy Outlook 2004.

Figure 2-12. Illustrative Total Liquids Supply

104 Facing the Hard Truths about Energy

Figure 2-12. Projected Global Liquids Production


likely to play a growing role in liquids supply. How- ers and markets—similar to the trading system that has
ever, most forecasts project that unconventional oil, been developed over decades for oil. In North Amer-
together with coal-to-liquids (CTL) and gas-to-liquids ica, major new additions to gas resources are possible,
(GTL), is unlikely to exceed 10 million barrels per day given expansion of unconventional U.S. gas production
globally by 2030. and development of infrastructure to transport Arctic
gas. Generally, production growth in resource-owning
Natural Gas countries, creation of a global gas supply chain, and
very large infrastructure investments are all elements
Most outlooks project that natural gas production of risk in matching projected gas supply to demand.
to 2030 will grow faster than it has historically, rang-
ing from 400 billion to 500 billion cubic feet per day.
Coal
The EIA high-production cases, for example, are at
the upper end of the range, with a projected doubling The global coal endowment is considerably larger
of production from today’s 250+ billion cubic feet per than either the oil or gas endowment, with only a small
day. Figure 2‑13 shows the EIA and IEA projections portion of the resource base having been produced to
for natural gas production. date. The United States, Russia, China, India, and Aus-
tralia hold over three quarters of the world’s proved
While there is some concern about the gas resource
coal reserves. As other fossil fuels become relatively
base relative to projected demand growth, most out-
more costly or difficult to secure, these large resource
looks consider it more than adequate to meet demand.
owners may increase domestic coal production and
However, nearly two-thirds of natural gas resources
use. However, the same constraints that apply to
are concentrated in four countries, Russia, Qatar, Iran,
other resources may also apply to coal development
and Saudi Arabia, which are projected to show the big-
globally and in the United States:
gest growth in production. Since these countries are
relatively distant from likely consuming regions, global ó Environmental constraints including carbon man-
gas supply chains will be needed to connect produc- agement, water use, land use, and waste disposal.

500
HISTORICAL PROJECTED

400
BILLION CUBIC FEET PER DAY

300

200
EIA REFERENCE CASE
IEA REFERENCE CASE
HISTORICAL – BP STATISTICAL REVIEW
PROJECTION BASED ON HISTORICAL TREND
100

0
1980 1990 2000 2010 2020 2030
YEAR
Sources: Energy Information Administration (EIA), International Energy Outlook 2006; International Energy Agency (IEA),
World Energy Outlook 2006; and BP Statistical Review of World Energy 2006.

Figure 2-13. Projected Global Natural Gas Production


Figure 2-13. Projected Global Natural Gas Production
Chapter 2 – Energy Supply 105
Was Figure S-7, then Figure S2-9
ó Limits on transport and delivery infrastructure technical, environmental, and economic barriers
development within local markets. to increasing coal use. The delivery infrastructure
needed for expanding coal use appears to receive
These environmental and infrastructure limitations less attention.
are potentially more severe for coal than for other
conventional fossil fuels.
Biomass
Business-as-usual energy outlooks, without signifi-
Biomass refers to wood, cultivated crops, or natural
cant environmental constraints, generally show a 50 to
vegetation that potentially can be converted to energy.
60 percent increase in global coal production between
As with coal, biomass is an abundant, indigenous
2005 and 2030. Most coal production growth will occur
resource for the United States and some other major
in rapidly expanding Asian economies, with China and
centers of energy demand. Accordingly, biomass
India accounting for nearly 80 percent of the annual
increment. Figure 2‑14 shows projected growth in coal could be seen as an important option to reduce risks
production in business-as-usual cases without carbon related to supply security. First-generation biomass
constraints. conversion to fuels has been based on crops such as
sugarcane, corn, and soybeans, which are also food
In alternative policy/carbon constrained cases that sources, giving rise to concerns about crop competi-
do not consider carbon CCS, coal production is gen- tion among food, animal feed, and fuel use. Second-
erally flat-to-declining from today’s levels, as energy generation conversion technologies such as cellulosic
demand is met by fuels with a lower carbon impact. ethanol seek to address these concerns by using plant
Where CCS is considered, the balance between growth waste as a feedstock. See the Biomass section later
in natural gas demand, biomass energy sources, and in this chapter for a discussion of potential sources of
coal provides for growth in coal production and use. biomass energy.

Most technology development for new uses of Numerous studies have assessed the potential of
coal, such as coal-to-liquids and CCS, addresses the agriculture to produce both energy and food for the

10

8
BILLION SHORT TONS

OTHER

CHINA

INDIA
2
UNITED STATES
AUSTRALIA
RUSSIA
OECD EUROPE
0
2010 2030 2010 2030 2010 2030
EC WETO REFERENCE IEA REFERENCE IEA ALTERNATIVE POLICY
Sources: European Commission, World Energy Technology Outlook 2050 (EC WETO), 2006;
and International Energy Agency (IEA), World Energy Outlook 2006.

Figure 2-14. Projected Growth in Global Coal Production without Carbon Constraints, 2010 to 2030

106 Facing the Hard Truths about Energy


world. While conclusions vary, most estimate that 250 required in many cases to move technology from con-
to 500 exajoules (approximately 238 to 476 quadril- cept to full-scale application may make such sources
lion Btu) of biomass energy could be produced while available only later in the outlook period. For a detailed
still feeding a growing global population. These esti- discussion of biomass, see the Biomass Topic Paper on
mates represent a potentially substantial contribution the CD included with the report.
to a 2030 global energy demand projected at about
740 exajoules, or 702 quadrillion Btu, in the EIA Inter-
Nuclear
national Energy Outlook 2007 (IEO 2007) Reference
Case. Meeting both food and large-scale fuel demand Nuclear power faces unique controversy based on
would require successfully developing and deploying concerns about safety, security, and management of
second-generation crop production and conversion the nuclear fuel and waste cycle. In addition, the capi-
technology. Most business-as-usual forecasts (EIA, tal intensity of nuclear generation increases the risk
IEA, European Commission, and aggregated propri-
profile for investors. Accordingly, nuclear power’s cur-
etary outlooks) suggest that biomass will meet 5 to 10
rent 5 to 6 percent of the total energy mix is not pro-
percent of total energy demand in 2030, comprising
jected to increase over the study timeframe, unless
less than 5 million barrels per day of total global liquids
nuclear generation is promoted for policy objectives
production. Other forecasts that are not business as
such as limiting carbon dioxide emissions or enhanc-
usual show substantially higher biofuels production.
ing energy security. Figure 2‑15 shows projected global
As with any large-scale energy source, technical, growth in the installed nuclear power base.
logistical, and market requirements will need to be
met for biofuels to achieve their potential. Milestones Non-Bio Renewables
along this development path will include: investments
in rail, waterway, and pipeline transportation; scale-up Hydroelectric generation has historically been the
of ethanol distribution; and technology deployment dominant non-bio source of renewable energy, pro-
for cellulosic ethanol conversion. The time frames viding vast amounts of electricity at very low marginal

600

500

400
GIGAWATTS

300

200

100

0
2005 2030 IEA 2030 IEA 2030 EIA
ACTUAL REFERENCE ALTERNATIVE REFERENCE
POLICY
Sources: Energy Information Administration (EIA), International Energy Outlook 2006;
and International Energy Agency (IEA), World Energy Outlook 2006.

Figure 2-15. Projected Global Installed Nuclear Power Base

Chapter 2 – Energy Supply Figure 2-15. Projected Installed Nuclear Power Base 107
cost of production. Most hydroelectric resources have the total requirements for new infrastructure to 2030
been tapped in industrialized nations, while there are difficult to assess with any certainty, since energy
may be limited additional opportunities in industrial- outlooks generally do not directly account for infra-
izing and economically developing nations. Wind and structure development.
solar energy, which have shown significant growth in
recent decades, are forecasted to grow several times Energy outlooks typically assume supply infra-
faster than overall energy demand, starting at their structure for any energy source will be built if it is
current base of less than 2 percent of global energy economically viable, without regard to potential
supply. Geothermal presents more limited opportu- constraints on financing, permitting, and building.
nities for new supplies and is not expected to outpace In addition to these potential constraints, the United
global energy supply growth. States faces the issue of maintaining its refining and
manufacturing capability, a contentious problem
Non-bio alternative and renewable energy sources familiar in other industrial sectors. New energy
require unique technologies that tap natural energy sources will add their own infrastructure demands.
flows in different ways. Collectively, however, they have Finally, much of the projected increase in global oil
several common characteristics, in addition to mainly and gas trade is likely to move through narrow sea
producing power rather than fuels: (1) high initial capi- lanes, raising a security challenge for this part of the
tal costs of construction or fabrication and installation; transportation system. Taken together, infrastruc-
(2) low operating costs and minimal fuel or feedstock ture issues add additional, often unrecognized, risks
expenses; and (3) possible economies of scale that have to prospective energy supply.
not been fully developed. Some of these technologies
require energy storage solutions to offset highly variable
power production rates. As costs have risen for devel-
ANALYSIS OF ENERGY OUTLOOKS
oping and converting fossil resources to power and fuel,
non-fossil options have become more economically
Oil and Other Liquids
competitive and attractive for their potential renew-
Key Observations—Oil and Other Liquids
able and environmental benefits. However, large-scale
development of these energy options raises concerns ó While crude oil will remain a primary energy source
about their potential ecological impacts. throughout the study time frame and beyond, the
capacity of the production and delivery system to
Most forecasts of future energy supplies suggest increase supply is subject to multiple, increasing risks.
that the total contribution from new renewable and
ó The global in-place oil endowment is very large, but
alternative energy sources will remain small for the
next two decades since they start from a relatively the recoverable resource and the rate at which it can
small base. Although the potential contribution of be produced are subject to considerable uncertainty.
solar and wind power, waves, tides, and geothermal Forecasted oil production rates vary widely: some
energy is vast, the economic cost of harnessing most rely heavily on OPEC to meet rising demand; oth-
of these sources at scale has been high, relative to ers on contributions from unconventional oil and
other sources such as fossil fuels, hydro, and nuclear. alternative liquids; a third set of forecasts project a
However, the cost differential continues to decline. As production plateau or peak.
with any energy source, resolution of ecological, tech- ó As production from existing oil fields declines, future
nical, and commercial issues will favor some technol- oil supply is likely to rely increasingly on:
ogies rather than others.
− Growth from existing accumulations through use
of new technology, better knowledge of reservoir
Energy Conversion and characteristics, or enhanced oil recovery
Delivery Infrastructure − Production of unconventional resources such as
oil sands or oil shale
Finding and developing resources are two steps in
the energy supply chain. Converting the resources to − Exploration discoveries, many from new frontiers
usable products and delivering them to consumers are such as the Arctic and ultra-deepwater
equally essential steps that rely heavily on conversion, − Conventional oil from hydrocarbon provinces
storage, and transportation infrastructure. However, where access is currently restricted.

108 Facing the Hard Truths about Energy


Alternative liquids such as biofuels, gas-to-liquids, generated and retained in geologic formations over
and coal-to-liquids will also contribute materially time. Since oil generates very slowly, the current
to fuel supply. endowment is relatively fixed and is considered a non-
ó U.S. oil production is generally projected to rise renewable resource.
modestly, at best, or decline somewhat during the
Recoverable resources are the portion of the estimated
study time frame. With limited growth from con-
in-place endowment thought to be technically recover-
ventional oil sources, the ability to meet expected
able from their geologic setting. Recoverable resource
demand growth will rely increasingly on heavier and
assessments have generally grown as new technology,
unconventional domestic supplies, ultra-deepwater
or political and economic factors, made more of the in-
basins, and alternative fuels.
place endowment recoverable. Based on geological and
ó Few projections of domestic supply assume changes geophysical data, these assessments require judgments
in access to U.S. onshore and offshore basins cur- about finding and development costs, extraction effi-
rently under drilling moratoria or subject to signifi- ciencies, oil prices, and other factors. Generally, about
cant development restrictions. The time required to one-third of the oil in place is currently assumed to be
explore and develop newly released areas means that ultimately recoverable. This assumption yields an esti-
production from these areas would appear only later mated 4.5 trillion barrels or more of conventional and
in the study time frame. unconventional ultimately recoverable oil.
ó Oil production growth after 2015 appears subject to
increasing risks as both subsurface and above ground Unconventional Oil Endowment
issues become more challenging. The risks include: and Resource Development
− Production declines of many of the world’s matur- The global endowment of unconventional oil in
ing fields
place is large, as much as 7 trillion barrels (Figure 2‑16).
− Increasingly restricted access to resources Recovery factors vary widely but are expected to be
− Unprecedented investment requirements under lower than for conventional oil due to technical chal-
uncertain fiscal regimes. lenges and huge capital requirements associated with
extraction. Current public and proprietary assess-
The risk of not meeting forecasted demand over the
ments of URR are similar: 1.5 trillion barrels estimated
study time frame also increases dramatically with-
by Bundesanstalt für Geowissenschaften und Rohst-
out sustained technology development and the pur-
offe (BGR) and an average 1.7 trillion barrels estimated
suit of all economically viable fossil and alternative
by IOCs. The estimates are uncertain, but likely to grow
liquid fuel sources.
as new technologies emerge. Development of heavy
oil and oil shale has lagged that of conventional oil
Crude Oil Endowment
because it is more expensive and technically difficult to
Ancient biomass was converted to oil over millions bring liquids on-line from these sources. Nonetheless,
of years as it was exposed to high temperature and high unconventional oil will likely play an increasing role in
pressure deep in sedimentary layers. Migration of the meeting future energy needs.
oil from source rocks into porous formations at acces-
Unconventional oil has a much different global dis-
sible depths in the earth’s crust creates the opportunity
to locate and produce oil from this endowment. tribution than conventional oil. Very heavy oil in Ven-
ezuela, oil sands in Canada, and oil shale in the United
The global conventional and unconventional oil States account for more than 80 percent of unconven-
in place endowment has been variously estimated at tional resources, while conventional oil resources are
13 trillion to 15 trillion barrels. These barrels represent mainly in the Middle East, West Africa, and Russia.
the estimated total volume of liquid hydrocarbons Factors that particularly affect unconventional sup-
plies include technology development, environmen-
 The U.S. Energy Information Administration defines convention-
al production to include crude oil (including lease condensates), tal impact, geopolitical climate, capital and operating
natural gas plant liquids, other hydrogen and hydrocarbons costs, and material and human resource availability.
for refinery feedstocks, alcohol and other sources, and refinery
gains. Unconventional production includes liquids produced Uncertainty about each of these factors is a major
from energy crops, natural gas, coal, oil sands, and shale. consideration in projecting future energy supply.

Chapter 2 – Energy Supply 109


TRILLIONS OF BARRELS IOC AVERAGE:
(NOT TO SCALE) IN PLACE = ~ 7
INCREASING TECHNICAL DIFFICULTY

IOC AVERAGE:
ULTIMATELY
RECOVERABLE
RESOURCES = 1.7

IOC AVERAGE:
DISCOVERED
REMAINING
RESERVES = 0.3

INCREASING GEOLOGIC UNCERTAINTY


Source: NPC Survey of Outlooks.

Figure 2-16. Global Unconventional Oil Endowment

Conventional Oil Endowment to a 95 percent probability that the resource size will
and Resource Development exceed the estimate, P5 indicates a 5 percent prob-
ability that the resource size exceeds the estimate. By
Conventional oil and natural gas liquids have his- comparison, IOCs responding to the NPC data survey
Figure 2-16.atten-
torically received the greatest development Global Unconventional Oil Endowment
provided an average projection of 3.5 trillion barrels.
tion. The IEA estimates between 6 and 7 trillion bar- The IOC most-likely estimates for ultimately recover-
rels of conventional oil and NGL in place, while other able global conventional oil range from 2.8 to 4.0 tril-
estimates are somewhat higher (Figure 2‑17). About lion barrels. While the USGS and proprietary ranges
1 trillion barrels of the conventional oil endowment are statistically different, Figure 2‑18 allows approxi-
have been produced since the late 19th century. mate comparison.
The USGS assessment published in 2000 is one of After taking into account the approximately 1.0
the few comprehensive, publicly available resource
trillion barrels that have been produced to date,
assessments for conventional oil. Many outlooks
the estimated USGS range of remaining, ultimately
provided to this study include USGS estimates in
recoverable global conventional oil and NGL is 1.5
their projections after adjusting to reflect newer
to 3.4 trillion barrels. A higher URR for conven-
or proprietary information. For example, EIA will
tional oil and NGL would sustain oil production
routinely adjust estimated recoverable resources to
growth for a longer time or faster rate, assuming
reflect cumulative production or evolving knowledge
adequate investment and access to the resources.
that has not been included in USGS assessments.
However, the opposite is true if the actual URR is at
The USGS mean estimate of ultimately recoverable the lower end of the range. This uncertainty, com-
global conventional oil plus NGL is 3.345 trillion bar- bined with above-ground risks that could hinder
rels at the beginning of 1996. The estimates range production, fuels the debate about supply outlooks
from 2.5 to 4.4 trillion barrels, expressed in statistical and has a material impact on policy and investment
terms as P95 and P5 estimates, respectively. P95 refers decisions.

110 Facing the Hard Truths about Energy


TRILLIONS OF BARRELS IOC AVERAGE:
(NOT TO SCALE) IN PLACE = 6-8
INCREASING TECHNICAL DIFFICULTY

IOC AVERAGE:
IOC AVERAGE: ULTIMATELY
DISCOVERED RECOVERABLE
REMAINING RESOURCES = 3.5
RESERVES = 1.0

PRODUCED
=1.0

INCREASING GEOLOGIC UNCERTAINTY


Source: NPC Survey of Outlooks.

Figure 2-17. Global Conventional Oil and NGL Endowment


Figure 2-17. Global Conventional Oil and NGL Endowment

WAS Figure S3A-1

4
UNDISCOVERED
TRILLION BARRELS

+ RESERVE GROWTH

2
ALREADY PRODUCED
+ DISCOVERED
REMAINING RESERVES
1

0
P95 MEAN P5 LOW AVG HIGH
USGS 2000 PROPRIETARY
Note: P95 refers to a 95 percent probability that the resource size will exceed the estimate, while P5 indicates a 5 percent probability
that the resource size exceeds the estimate – thus P95 represents the low end of an assessment and P5 the high end.
Source: NPC Survey of Outlooks.

Figure 2-18. Conventional Global Oil and NGL Ultimately Recoverable Resource Estimates

Chapter 2 – Energy Supply 111


Reserve Growth and Undiscovered Resources are two of restricted access to promising hydrocarbon prov-
categories of the USGS 2000 assessment with greatest inces. Significant technology advances, access to
uncertainty. Reserve Growth refers to the increase in unexplored basins, or discovery of very significant
reserves in oilfields. Reserve Growth typically occurs fields will be necessary to replace produced resources
through improved knowledge about the field’s pro- over the study time frame.
ductive potential and application of new technology.
Reserve Growth accounted for 0.7 trillion barrels of the Discovered Remaining Reserves is the portion of URR
USGS mean estimated URR at the beginning of 1996. that is technically and economically producible in the
Growth in fields discovered before 1995 added about future under current technical and economic condi-
65 percent of this volume to proved reserves from tions. The BP Statistical Review 2006 estimates that
1995 to 2004. Reserve Growth often requires signifi- Remaining Reserves grew from 0.9 to 1.2 trillion barrels
cant additional capital and energy input, especially from 1996-2005, primarily through reserve additions to
as recovery factors are increased through enhanced fields discovered before 1995. The current estimate of
recovery processes. reserves is one indicator of how much oil production
capacity could be developed in the near to medium
Undiscovered Resources accounted for an addi- term. The quality of reserve additions and undis-
tional 0.9 trillion barrels in the USGS mean case at the closed estimating methods for countries that hold
beginning of 1996. Only 18 percent of this estimated most remaining reserves are significant uncertainties
volume, or about 17 billion barrels per year, has been in making supply forecasts.
discovered through exploration in the decade follow-
ing. Exploration discoveries have shown a declining Globally, conventional oil reserves are concentrated
trend over the past several decades, partly as a result in the Middle East (Figure 2‑19). The seven countries
with the largest conventional oil reserves account for
 K. Chew and P.H. Stark, “Perspectives on Oil Resource Estimates,” more than 70 percent of the world total. Saudi Ara-
IHS Energy – 2006.
bia holds approximately 20 percent of conventional
 Ibid. reserves, equal to 75 years of production at 2005 rates.

300

250

200
BILLION BARRELS

150

100

50
Estimated life of YEARS:
remaining reserves at
75 87 168 105 70 20 52 16
2005 production levels
0
SAUDI IRAN IRAQ KUWAIT UNITED RUSSIA VENEZUELA U.S.
ARABIA ARAB
EMIRATES
Source: NPC Survey of Outlooks.

Figure 2-19. Large Holders of Discovered Remaining Reserves

112 Facing the Hard Truths about Energy

Figure 2-19. Large Holders of Discovered Remaining Reserves


The United States has 31 billion barrels of reserves, ratios to remain stable over many years even as annual
16 years of production at 2005 rates. The estimated production rates remain unchanged or increase.
life of remaining reserves was calculated by dividing
reserves numbers provided to the NPC study by the Estimates of remaining reserves are not adequate
2005 production volumes reported in EIA IEO 2007. indicators of how much oil remains to be produced
under future conditions or potential long-term pro-
The reserves-to-production (R/P) ratio is often used duction capacity. The additional components of URR
to describe how effectively a country or region has should be considered for these purposes. Resource size
developed oil resources that are currently economi- will determine how much oil is likely to be produced in
cally and technically recoverable. High ratios may the long term, while the distribution and nature of the
indicate opportunities for further development and oil will determine the likely production rate.
additional rate capacity. Low ratios may indicate that
a country has fully developed its available accumula- Global Total Liquids Production
tions and production is in decline. Alternately, low R/P
ratios may mean that known accumulations have not Conventional oil will remain the largest source for
been fully delineated in order to add them to more cer- liquid fuel supply in the near to intermediate term,
tain reserve classifications. The R/P ratio does not by with forecasts almost unanimously predicting at least
itself indicate remaining production capacity in a field modest growth in conventional oil supply for the next
or region. Investment and technology often allow R/P 5 to 10 years.  However, there are great uncertainties

120

110

100
MILLION BARRELS PER DAY

90
TOTAL LIQUIDS PRODUCTION PROFILE
80

70

60

50

40

30
OPEC LIQUIDS PRODUCTION PROFILE
0
2000 2005 2010 2015 2020 2025 2030
YEAR

OPEC'S PROTRACTED MARKET TIGHTNESS OPEC'S PROLONGED SOFT MARKET


OPEC'S DYNAMICS AS USUAL ENERGY FILE
EIA REFERENCE IEO 2006 ASSOCIATION FOR THE STUDY
EIA REFERENCE IEO 2007 (EX. ANGOLA) OF PEAK OIL (ASPO) – FRANCE
IEA REFERENCE WEO 2006 PEAK OIL NETHERLANDS FOUNDATION

Source: NPC Survey of Outlooks.

Figure 2-20. Projected Global and OPEC Total Liquids Production

Chapter 2 – Energy Supply 113


about long-term forecasts of oil and total liquid pro- Conventional Oil Production
duction rates, ranging from business-as-usual cases
that show few constraints, to alternative scenarios All forecasts project that a few countries, where
constrained by the resource base, environmental resources are concentrated, will supply most conven-
concerns, or geopolitical issues. tional oil, although specific contributions vary. Geo-
graphic concentration generally creates more uncer-
The EIA IEO 2007 Reference Case projects total liq- tainty in supply availability or deliverability due to
uids production of 118 million barrels per day (MB/D) infrastructure, resource, and geopolitical risks; increases
in 2030, with similar estimates in the IEA Reference the market power of resource holders; and enhances the
Case (116 MB/D), the IOC Average (107 MB/D), and global role of national oil companies (NOCs).
Consultant Average (115 MB/D). Higher and lower
forecasts include: The EIA and IEA have somewhat different views
on the balance of conventional oil supply between
ó EIA IEO 2007 Low Price: 134 MB/D OPEC and non-OPEC countries (Figure 2‑23). The
ó EIA IEO 2007 High Price: 103 MB/D IEA expects non-OPEC conventional oil production to
decline after 2015, with OPEC increasing its share of
ó Peak Oil Netherlands and Association for the Study
conventional oil production from 42 percent in 2005 to
of Peak Oil (ASPO) – France: 78-88 MB/D.
52 percent in 2030. The EIA projects that non-OPEC
The lower production figures in specific cases are conventional oil production (including Angola) will
driven by carbon constraints, investment constraints, increase through 2030. In the EIA IEO 2007 Reference
higher oil prices, geological challenges, or other issues. Case, OPEC is expected to increase production to meet
The highest demand projections for 2030 assume favor- growing demand, but its share of conventional oil pro-
duction will only rise to 47 percent.
able development policies in resource-holding coun-
tries, technology advances, investment, infrastructure,
Non-OPEC Production
project completion, and personnel.
Estimates for non-OPEC total liquids production
Several projections in Figure 2‑20 show that total liq-
vary significantly. Some forecasts indicate that produc-
uids production may not increase after 2015. The low-
tion of non-OPEC conventional oil will decline in the
est total liquids forecasts in 2030 are consistent with a
next decade. Other forecasts show production growth
URR at the low end of the USGS range and constraints
through 2030 (Figures 2‑24 and 2‑25). In the EIA IEO
to developing the conventional oil resource base or
2007 Reference Case, non-OPEC output rises through
alternatives. This set of forecasts projects that liquids
2030. Russia and other Caspian region producers
production will reach a maximum within the study
provide about half the increase. Angola is included
time frame, although the precise date is uncertain.
in non-OPEC production, since most forecasts were
Forecasts for declining production are based on completed before it joined OPEC.
various above- and below-ground factors, including:
By comparison, the IOC Average and all peak oil
declines in volumes discovered; conventional oil pro-
cases show that non-OPEC production peaks within
duction peaks and subsequent declines in countries
the outlook period. The IEA WEO 2006 Reference Case
such as the United States and the United Kingdom; and
shows that non-OPEC production may not grow after
anticipated oil production plateaus in countries such as 2010 due to high decline rates of currently producing
Russia and China. The discussion of peak oil forecasts fields and rising costs. The IEA Reference Case also
later in this chapter considers these views more fully. shows that only Russia, Central Asia, and Latin Amer-
ica achieve significant increases in conventional oil
The production rate for unconventional oil is an
production through 2030.
additional uncertainty in projected total liquids sup-
ply. In the EIA IEO 2007 Reference Case, for example, U.S. Production
Canadian oil sands and Venezuelan heavy oils supply
5.2 MB/D in 2030, assuming sustained investment in The United States is the third-largest oil producing
development. Forecasts that include constraints on country in the world, after Saudi Arabia and Russia.
development project lower supplies from unconven- The United States produced 5.2 MB/D of conventional
tional sources (Figures 2‑21 and 2‑22). crude oil in 2005, but its production is at best rising

114 Facing the Hard Truths about Energy


MUST BE LAID OUT STACKED ON THE SAME PAGE WITH 2-22

130
HISTORICAL PROJECTED
120

110
MILLION BARRELS PER DAY

100

90

80

70
EIA REFERENCE IEO 2007
60 EIA REFERENCE IEO 2006
IEA REFERENCE WEO 2006
50 EIA HIGH PRICE IEO 2006
EIA LOW PRICE IEO 2006

0
1985 2000 2015 2030
YEAR
Source: NPC Survey of Outlooks.
MUST BE LAID OUT STACKED ON THE SAME PAGE WITH 2-21
Figure 2-21. Projected Global Total Liquids Production

CONSULTANTS 125
Figure 2-21. Projected Global Total Liquids Production
HIGH
PROPRIETARY WAS Figure S3A-5, S3A-8
HIGH 115
INTERNATIONAL
MILLION BARRELS PER DAY

OIL COMPANIES
HIGH
105
CONSULTANTS
AVERAGE
PROPRIETARY 95
LOW
CONSULTANTS
LOW
85
INTERNATIONAL
OIL COMPANIES
AVERAGE
INTERNATIONAL 75
OIL COMPANIES
LOW
0
2000 2015 2030
Source: NPC Survey of Outlooks. YEAR

Figure 2-22. Projected Global Total Liquids Production — Proprietary Aggregated Cases
Figure 2-22. Projected Global Total Liquids Production – Proprietary Aggregated Cases

Chapter 2 – Energy Supply Years Line Up with Figure 2-21 above 115
140
NON-OPEC
UNCONVENTIONAL
120
OPEC
UNCONVENTIONAL
MILLION BARRELS PER DAY

100 11%
17% 54% NON-OPEC
56% CONVENTIONAL & NGL
80 45% 49%
54%

50%
60 56%
53%

40
47% 41% OPEC
43% 39% CONVENTIONAL & NGL
20 36%
41% 36%
26%

0
ACTUAL IEA EIA EIA EIA EIA EIA EIA
2005 WEO IEO IEO IEO IEO IEO IEO
2006 2007 2006 2007 2006 2007 2006
REFERENCE 2030 HIGH PRICE 2030 LOW PRICE 2030
Source: NPC Survey of Outlooks.

Figure 2-23. OPEC and Non-OPEC Total Liquids Production Shares, 2005-2030

Figure 2-23. OPEC and Non-OPEC Total Liquids Production Shares (2005-2030)
slightly in absolute terms while declining as a share of and exploration potential and a significant contribu-
domestic demand. This production volume is a subset tionS3A-10
WAS Figure from unconventional oil. Access issues are dis-
of the conventional production shown in Figure 2‑26. cussed later in this report. Figure 2‑26 shows how
Total conventional production is comprised of crude oil, substantial production from unconventional sources
including lease condensates, natural gas plant liquids, would affect North American oil imports. Unconven-
other hydrogen and hydrocarbons for refinery feed- tional production is greatest in the EIA High Oil Price
stocks, alcohol and other sources, and refinery gains. case, where imports in all years are below the 2005
level.
Existing fields, which are maturing onshore and
offshore, in Alaska and the lower-48 states, are gener- Production from Other Large Non-OPEC Countries
ally not seen as having the potential to reverse exist-
Of the other large non-OPEC producers, Russia will be
ing declines. The EIA Annual Energy Outlook 2007 a critical supply source. All forecasts show Russian pro-
(AEO 2007) includes cases showing U.S. conventional duction rates increasing from just under 10 MB/D cur-
crude oil production ranging between 5.25 MB/D and rently to a range of 11 to 13 MB/D by 2030 (Figure 2‑27).
6.04 MB/D in 2030. An AEO 2007 case that simulated
access to the Arctic National Wildlife Refuge (ANWR) Production from two primary sources of U.S. sup-
sees U.S. crude oil production rising to 6.03 MB/D in ply, Mexico and Canada, could be headed in opposite
2030, which is about 0.8 MB/D higher than the 2005 directions. Future Mexican production (Figure 2‑28)
rate. By comparison, the IEA Reference Case forecasts is uncertain. Some forecasts see modest increases,
U.S. production dropping about 1 MB/D by 2030. despite recent production declines at a major field.
Other forecasts, including the EIA IEO 2007, indicate
Increasing domestic total liquids production more lower Mexican production in 2015 and 2030 than in
than marginally would depend on access to basins that 2005. Conventional oil production from Canada is not
have both substantial undeveloped liquid resources expected to be material, but expanded development

116 Facing the Hard Truths about Energy


80 EIA REFERENCE
HISTORICAL PROJECTED
IEO 2007
WITH ANGOLA
EIA REFERENCE
70 IEO 2006
MILLION BARRELS PER DAY

IEA REFERENCE
WEO 2006
EIA HIGH OIL PRICE
60 IEO 2007
WITH ANGOLA
EIA HIGH OIL PRICE
IEO 2006
EIA LOW OIL PRICE
50 IEO 2007
WITH ANGOLA
EIA LOW OIL PRICE
IEO 2006
40

0
1985 2000 2015 2030
YEAR
Source: NPC Survey of Outlooks.

Figure
MUST BE LAID OUT2-24. Projected
STACKED ONNon-OPEC
THE SAMETotal
PAGE Liquids
WITHProduction
2-24
Figure 2-24. Projected Non-OPEC Total Liquids Production

Align w/ Fig. 2-25

70 EIA REFERENCE
IEO 2007
WITH ANGOLA
CONSULTANTS
HIGH
60
PROPRIETARY
MILLION BARRELS PER DAY

HIGH
INTERNATIONAL
OIL COMPANIES
50 (IOC) HIGH
PROPRIETARY
LOW
IEA REFERENCE
40 WEO 2006
CONSULTANTS
AVERAGE
IOC AVERAGE
30 CONSULTANTS
LOW
0 IOC LOW
1985 2000 2015 2030
YEAR
Source: NPC Survey of Outlooks.

Figure 2-25. Non-OPEC Total Liquids Production — Proprietary Aggregated Cases

Chapter 2 – Energy Supply 117

Figure 2-25. Non-OPEC Total Liquids Production – Proprietary Aggregated Cases


40

118
NORTH AMERICAN
30 IMPORTS

17.1
13.0
7.9

11.5
10.3 8.2
9.4 10.6
9.0
20 9.9
NON-U.S. NORTH AMERICAN
UNCONVENTIONAL PRODUCTION
U.S. UNCONVENTIONAL
PRODUCTION

MILLION BARRELS PER DAY


4.0 4.2 4.4 4.1 4.5 5.8 MEXICAN CONVENTIONAL
5.0 3.9 PRODUCTION
3.8 4.2
10 CANADIAN CONVENTIONAL
PRODUCTION

9.4 9.6 9.3 9.6 9.5 9.8


8.9 8.8 8.8
8.0
U.S. CONVENTIONAL
PRODUCTION

0
2005 2010 2015 2030 2010 2015 2030 2010 2015 2030
ACTUAL EIA REF CASE EIA HIGH OIL PRICE CASE EIA LOW OIL PRICE CASE
PRODUCTION PRODUCTION & PRODUCTION &
& CONSUMPTION LOW ECON GROWTH HIGH ECON GROWTH
CONSUMPTION CONSUMPTION
Source: NPC Survey of Outlooks.

Figure 2-26. North American Production and Imports

Facing the Hard Truths about Energy


Figure 2-26. North American Production and Imports
14

12
2015 2030
MILLLION BARRELS PER DAY

10

0
ACTUAL EIA REF. EIA REF. IEA REF. IOC CONS. PROP. PROP.
(2005) IEO 2007 IEO 2006 WEO 2006 AVG. AVG. HIGH LOW

Note: IOC = International Oil Companies; CONS. = Consultants; and PROP. = Proprietary.
Source: NPC Survey of Outlooks.

Figure 2-27. Russian Total Liquids Production Outlooks

Figure 2-27. Russian Total Liquids Production Outlook


5
WAS Figure S3A-11
2015 2030

4
MILLION BARRELS PER DAY

0
ACTUAL EIA REF. EIA REF. IEA REF. IOC CONS. PROP. PROP.
(2005) IEO 2007 IEO 2006 WEO 2006 AVG. AVG. HIGH LOW
Note: IOC = International Oil Companies; CONS. = Consultants; and PROP. = Proprietary.
Source: NPC Survey of Outlooks.

Figure 2-28. Mexican Total Liquids Production Outlooks

Chapter 2 – Energy Supply 119


of Canadian oil sands is forecast to bring considerable of future supply trends. Saudi Arabian production in
unconventional production into North American sup- the IEA case rises from 10.6 MB/D of conventional oil
ply (Figure 2‑29). and NGL to 17.3 MB/D by 2030. As Figure 2‑33 shows,
the IEA has the highest forecast for Saudi Arabia’s total
OPEC Oil Production (Excluding Angola) liquids production in 2030.

Almost all long-term forecasts expect production to In addition to projected Saudi Arabian production,
increase rapidly in OPEC countries. This is especially significant conventional oil production increases from
true of the Middle East, where resources are much Iraq, Iran, Venezuela, and Nigeria will be needed to
larger and production costs generally lower than in meet projected global demand in 2030. Among these
other regions. Several forecasts suggest that OPEC is producers, the near-term prospects for oil produc-
capable of raising total liquids production by 20 MB/D tion in Iraq remain very uncertain. Nonetheless, the
above present levels. The IOC Average case forecasts projected production increases for 2015 differ by a
OPEC production at about 44 MB/D by 2030. The EIA relatively small 0.5 MB/D, from 0.9 to 1.4 MB/D more
IEO 2007 Reference Case, excluding Angola, projects than in 2005. By 2030, the difference between forecasts
53 MB/D. The IEA Reference and Consultant Average expands to 2.3 MB/D. IEA projects Iraqi production as
cases indicate OPEC production above 50 to 55 MB/D growing to 6 MB/D in 2030, double its current share of
(Figures 2‑30 and 2‑31). The range of projected OPEC OPEC conventional oil production. (Figure 2‑34)
total liquids production, relative to projected global
production is shown in Figure 2-32. Forecasts show a wide range for total Iranian liquids
production. The difference between production fore-
Saudi Arabia continues to be the largest OPEC pro- casts for 2015 is 1.5 MB/D, with some showing a drop
ducer in every forecast. The IEA assigns the kingdom in production and others showing flat production, or
a vital role in supplying the global oil market. The IEA growth of almost 1 MB/D. By 2030, the differences
WEO 2004 considers timely Saudi Arabian investment broaden to 1.6 MB/D, with the highest production
in oil-production capacity to be a major determinant forecast at more than 6 MB/D. (Figure 2‑35)

6
2015 2030
MILLION BARRELS PER DAY

0
ACTUAL EIA REF. EIA REF. IEA REF. IOC CONS. PROP. PROP.
(2005) IEO 2007 IEO 2006 WEO 2006 AVG. AVG. HIGH LOW
Note: IOC = International Oil Companies; CONS. = Consultants; and PROP. = Proprietary.
Source: NPC Survey of Outlooks.

Figure 2-29. Canadian Total Liquids Production Outlook

120 Facing the Hard Truths about Energy

Figure 2-29. Canadian Total Liquids Production Outlook


MUST BE LAID OUT STACKED ON THE SAME PAGE WITH 2-31

60 EIA REFERENCE
HISTORICAL PROJECTED
IEO 2007
EXCEPT ANGOLA
EIA REFERENCE
IEO 2006
50
MILLION BARRELS PER DAY

IEA REFERENCE
WEO 2006
EIA HIGH OIL PRICE
IEO 2007
EXCEPT ANGOLA
40 EIA HIGH OIL PRICE
IEO 2006
EIA LOW OIL PRICE
IEO 2007
EXCEPT ANGOLA
30 EIA LOW OIL PRICE
IEO 2006

0
1970 1985 2000 2015 2030
YEAR
Source: NPC Survey of Outlooks.

MUST BE LAIDFigure 2-30. Projected


OUT STACKED ON THEOPEC Total
SAME PAGELiquids
WITHProduction
2-30

Figure 2-30. Projected OPEC Total Liquids Production


60 CONSULTANTS
HISTORICAL PROJECTED
WAS Figure S3A-17 HIGH
PROPRIETARY
HIGH
PROPRIETARY
50
MILLION BARRELS PER DAY

LOW
CONSULTANTS
AVERAGE
INTERNATIONAL
40 OIL COMPANIES
AVERAGE
CONSULTANTS
LOW
INTERNATIONAL
30 OIL COMPANIES
LOW

0
1970 1985 2000 2015 2030
YEAR
Source: NPC Survey of Outlooks.

Figure 2-31. Projected OPEC Total Liquids Production — Proprietary Aggregated Cases

Chapter 2 – Energy Supply 121


Figure 2-31. Projected OPEC Total Liquids Production – Proprietary Aggregated Cases
120

110

100
MILLION BARRELS PER DAY

90
TOTAL LIQUIDS PRODUCTION PROFILE
80

70

60

50

40

30
OPEC LIQUIDS PRODUCTION PROFILE
0
2000 2005 2010 2015 2020 2025 2030
YEAR

OPEC'S PROTRACTED MARKET TIGHTNESS OPEC'S PROLONGED SOFT MARKET


OPEC'S DYNAMICS AS USUAL ENERGY FILE
EIA REFERENCE IEO 2006 ASSOCIATION FOR THE STUDY
EIA REFERENCE IEO 2007 EX. ANGOLA OF PEAK OIL (ASPO) – FRANCE
IEA REFERENCE WEO 2006 PEAK OIL NETHERLANDS FOUNDATION

Source: NPC Survey of Outlooks.

Figure 2-32. Projected Global and OPEC Total Liquids Production

Figure 2-32.
Unconventional Liquids Projected Global and OPEC
Production Total
highest Liquids
growth, Production
expecting to more than double its total
liquids production capacity to 5.8 MB/D by 2012. The
Unconventional liquids are projected to grow to IEA forecast, which is lower than PDVSA’s, expects new
about 10 percent of total liquids production by 2030 production from both extra-heavy oil projects in the
(Figure 2‑36). The EIA IEO 2007 Reference Case Orinoco area and conventional oil fields. Forecasted
shows total unconventional liquids production above production in 2015 compared to 2005 ranges from flat
10 MB/D, with Canadian oil sands and Venezuelan WAS Figure S3A-6
to an increase of 0.6 MB/D. Production in 2030 ranges
heavy oil comprising the major part of the increase. 0.5 to 2.3 MB/D more than in 2005. (Figure 2‑37)
from2-20
ALSO USED AS FIG
Commercial considerations and the relative immaturity
of production technologies for unconventional liquids The EIA Reference Case expects the remaining
lead to much uncertainty about the availability and tim- increase in unconventional liquids production to come
ing of these fuels. Oil sands projects in Alberta will be piv- mainly from: biofuels derived from agricultural products
otal to forecasted growth in Canadian total liquids pro- (16 percent); gas-to-liquids (11 percent); and coal-to-
duction, if they overcome infrastructure, environmental, liquids (23 percent). Indicative of this trend, the United
and cost challenges. While all forecasts expect growth, States has announced a production goal for ethanol and
the range between them widens to 2 MB/D by 2030. other unconventional fuels of 2.3 MB/D by 2017, up
from about 0.4 MB/D in 2006 and 0.5 MB/D in 2012.
Most forecasts project that Venezuelan production
will increase from 2005 levels. Venezuela’s national oil  http://www.pdvsa.com/index.php?tpl=interface.en/design/
company, Petroleos de Venezuela (PDVSA), projects the home.tpl.html

122 Facing the Hard Truths about Energy


MILLION BARRELS PER DAY 20

15

2015 2030

10

0
ACTUAL EIA REF. IEA REF. IOC CONS. PROP. PROP.
(2005) IEO 2007 WEO 2006 AVG. AVG. HIGH LOW
Note: IOC = International Oil Companies; CONS. = Consultants; and PROP. = Proprietary.
Source: NPC Survey of Outlooks.

Figure 2-33. Projected Saudi Arabian Total Liquids Production

6
2015 2030
MILLION BARRELS PER DAY

Figure 2-33. Projected Saudi Arabian Total Liquids Production


3
WAS Figure S3A-17
2

0
ACTUAL EIA REF. IEA REF. IOC CONS. PROP. PROP.
(2005) IEO 2007 WEO 2006 AVG. AVG. HIGH LOW

Note: IOC = International Oil Companies; CONS. = Consultants; and PROP. = Proprietary.
Source: NPC Survey of Outlooks.

Figure 2-34. Projected Iraqi Total Liquids Production

Chapter 2 – Energy Supply 123

Figure 2-34. Projected Iraqi Total Liquids Production


7

6
2015 2030
MILLION BARRELS PER DAY

0
ACTUAL EIA REF. IEA REF. IOC CONS. PROP. PROP.
(2005) IEO 2007 WEO 2006 AVG. AVG. HIGH LOW
Note: IOC = International Oil Companies; CONS. = Consultants; and PROP. = Proprietary.
Source: NPC Survey of Outlooks.

Figure 2-35. Projected Iranian Total Liquids Production

100
Figure 2-35. Projected Iranian Total Liquids Production

80 WAS Figure S3A-19

60 80.8
PERCENT

89.1 107.2 89.1 89.1


66.0 70.7 128.3 120.6

40

20
21.1
11.5 14.3
1.1 1.6 9.1 10.5 5.4 7.1
0
2000 IEA IEA REF EIA REF EIA REF EIA HIGH EIA HIGH EIA LOW EIA LOW
2005 WEO 2006 IEO 2007 IEO 2006 PRICE PRICE PRICE PRICE
2030 2030 2030 IEO 2007 IEO 2006 IEO 2007 IEO 2006
UNCONVENTIONAL 2030 2030 2030 2030
CONVENTIONAL OIL+NGLS+PROCESS GAINS
Note: Units shown in million barrels per day.
Source: NPC Survey of Outlooks.

Figure 2-36. Projected Global Conventional and Unconventional Total Liquids Production
Figure 2-36. Projected Global Conventional and Unconventional Total Liquids Production

124 WAS Figure S3A-24 Facing the Hard Truths about Energy
6

5
MILLION BARRELS PER DAY

2015 2030

0
ACTUAL EIA REF. IEA REF. IOC CONS. PROP. PROP.
(2005) IEO 2007 WEO 2006 AVG. AVG. HIGH LOW
Note: IOC = International Oil Companies; CONS. = Consultants; and PROP. = Proprietary.
Source: NPC Survey of Outlooks.

Figure 2-37. Projected Venezuelan Total Liquids Production

600
Figure 2-37. Projected Venezuelan Total Liquids Production

WAS Figure S3A-21


THOUSAND BARRELS PER DAY

UNSPECIFIED
PROJECTS
400

TINHERT, ALGERIA

PEARL GTL, QATAR

200
ESCRAVOS, NIGERIA

ORYX, QATAR
MOSSGAS, SA
SHELL BINTULU
0
2005 2010 2015 2020 2025 2030
YEAR
Source: NPC Survey of Outlooks.

Figure 2-38. Projected Gas-to-Liquids Plant Capacity Based on Current Projects

Chapter 2 – Energy Supply 125


Figure 2-38. Gas-to-Liquids Plant Capacity Outlook Based on Current Projects
Infra­ People and Environ­
Access Invest­ment Geo­politics
structure Equipment ment

Current
Production Forecasts
2005-2030
Production (Million Barrels
Source per Day)
Conventional 35-75 X X X
Non-OPEC
Russia 10+ X X X X
Conventional 30-55 X X X X X
OPEC
Saudi Arabia 10-17+
Unconventional 1-10 X X X X
Crude
Heavy 1-10
Shale Oil <1
Alternatives 1-5
Biofuels 1-3 X X X
Gas-to-Liquids ~1 X
Coal-to-Liquids ~1 X X

2005-2030
Expected Growth
Production (Million Barrels
Growth per Day)
Saudi Arabia +5-7 X X
Iraq +4 X X X X
Canada +2 X X
Venezuela +2 X X X X X
Nigeria +2 X X
Iran 1-2 X X X X X
Kuwait 1-2 X X
UAE 1-2 X X
Libya 1-2 X X

Note: An X in any column means that the matter is problematic or open to question for that resource type or country.

Table 2-3. Oil Production Challenges

GTL and CTL plants typically convert natural gas and 2007. All forecasts received for the study project
and coal to liquid fuels. The product is usually about that GTL will grow quickly from a very low base, but
70 percent ultra-clean diesel fuel and 25 percent not enough to significantly affect oil product or natu-
naphtha for chemical feedstock. ral gas markets. Several estimates for GTL capacity
growth show only 0.5 MB/D of GTL fuels being pro-
In the past ten years, several world-scale GTL duced worldwide through 2030, mainly clean diesel
plants have been developed or announced. However, and naphtha (Figure 2‑38). In this event, GTL would
given recent cost increases, several large projects (e.g., provide only about 1 percent of global middle distil-
in Qatar) have been cancelled or postponed in 2006 late fuel requirements. By comparison, EIA IEO 2007

126 Facing the Hard Truths about Energy


shows stronger GTL production growth to 1.2 MB/D warnings about future oil supplies and the deliverability
in 2030, with Qatar as the primary source. For further of oil. The concerns are compounded by the challenges
discussion, see the Gas-to-Liquids Topic Paper. some companies face in adding new reserves to replace
those already produced. The warnings are strongly
For a further discussion of coal-to-liquids, see the expressed in a set of forecasts known collectively as peak
Coal section of this chapter and the Coal-to-Liquids oil. The term derives from the Hubbert’s Peak analysis of
Topic Paper on the CD that accompanies this report. U.S. oil production written by M. King Hubbert.

Oil Supply Challenges Peak oil forecasts project that oil supply will not
grow significantly beyond current production lev-
The forecasts and data received for this study lead els and therefore may not keep pace with projected
to the conclusion that oil supply increasingly faces global demand; a peak and decline in oil production
above-ground challenges in addition to geological is inevitable and may be near-at-hand. The conclu-
and technical hurdles. The challenges include access, sions lead to calls to develop additional resources to
geopolitics, investment requirements, commercial increase supply, accelerate the use of unconventional
and trade regimes, infrastructure, and workforce resources as substitutes for oil, and moderate demand
availability. Table 2‑3 is a snapshot of above-ground in order to bridge the forecast supply shortfalls. Such
challenges that affect the resource types and sources actions generally converge with the recommenda-
of projected oil supplies to 2030. The prospects are tions of this study.
likely to be further complicated since the challenges
change with place, resource, and time. The forecasts reviewed for this study that do not con-
sider new policies such as carbon constraint show con-
Peak Oil ✦ siderable agreement until 2015 (Figure 2‑39). After 2015,
views about supply trends diverge, with peak oil fore-
Concerns about the reliability of production forecasts casts providing the lower bound. The divergent views
and estimates of recoverable oil resources are the basis of of oil supply after 2015 fuel growing concern about the

120
HISTORICAL PROJECTED

100
GLOBAL LIQUIDS PRODUCTION
(MILLIONS OF BARRELS)

80

60

ASPO – FRANCE
40 IEA WEO 2006 REFERENCE CASE
OIL DEPLETION ANALYSIS CENTRE (ODAC)
EIA IEO 2006 REFERENCE CASE
ENERGY FILES – CONVENTIONAL ONLY
20
PEAK OIL NETHERLANDS FOUNDATION
GLOBAL SUPPLY HISTORICAL DATA EUROPEAN COMMISSION –
– BP STATISTICAL REVIEW 2006 WETO REFERENCE CASE
0
1980 1990 2000 2010 2020 2030
YEAR
Source: NPC Survey of Outlooks.

Figure 2-39. Global Total Liquids Production — Reference Forecasts 2000-2030

Chapter 2 – Energy Supply 127


deliverability of the resource base and the uncertainty large reservoirs is usually considered conventional oil
regarding timing and volume of future supplies. that did not require technology to stimulate oil flow
during the early stages of production.
Peak oil forecasts emphasize various physical limi-
tations to raising production rates, including: reserve Views of an impending peak in liquids production
estimates that are lower than reference cases; limited are usually countered by expectations for new discov-
future development opportunities; and insufficient eries, additions to the resource base, new technologies,
volumes from unconventional production over the and greater operating experience that change the pro-
study time frame. These forecasts generally consider duction profile of new and existing producing fields.
oil supply independently of demand and point to sup- Production rates are not fixed and can be influenced
ply shortfalls. Such views contrast with forecasts and by these and other factors such as costs and price.
economic models that expect market forces to provide
incentives for developing global hydrocarbon and other Peak oil forecasts are concerned about the ability to
resources to meet fuel needs through at least 2030. extend and apply experience from mature areas to less
produced areas. As a hydrocarbon province matures,
Peak oil forecasts use several indicators to support production transitions from large reservoirs to smaller,
the case for an imminent peak in global production. less prolific, and possibly higher-cost reservoirs. In the
One leading indicator is the difficulty of adding new United States, for example, production from smaller
reserves to make up for produced volumes, especially and mature reservoirs dominates supplies. Peak oil
through exploration. However, companies and coun- forecasts assume that remaining smaller reservoirs will
tries use different methods to estimate recoverable not compensate for declines in the larger reservoirs,
resources and what they term reserves. The lack of resulting in declining conventional oil production in
transparency and consistency in this reporting con- the near future. However, the North Sea has seen the
fuses the situation and is a concern in all forecasts. evolution away from larger, depleted fields to smaller
fields that can be brought online using existing infra-
A second indicator is the growing number of coun- structure. North Sea production has actually been
tries that show a historical peak in their oil produc- sustained for many years at significantly higher levels
tion. Many forecasts rely on the shape of production than was generally thought likely in the 1980s and early
curves in countries that have displayed a peak to 1990s. Production growth from 1990 to 2000 shows
extrapolate future production rates for that country how production in mature basins can revive as a result
and to develop forecasts for countries whose produc- of new technology, price, or market dynamics.
tion has not peaked.  The extrapolations are based on
the observed physical behavior of most oilfields. This As conventional oil development moves to smaller
method raises considerable debate, since many fac- reservoirs in regions where access remains feasible, the
tors affect production from a field, basin or country. industry is increasingly turning to frontier resources,
deep and ultra-deepwater fields, and unconventional
In the absence of production restrictions, oil produc- very heavy and sour fields. New developments include
tion from a well usually declines from its initial levels. the Alaskan Arctic, deepwater Gulf of Mexico, offshore
As other wells are incorporated in a field, oil production West Africa and Brazil, and Alberta oil sands. Frontier
rises to a given rate at the field level and then declines. and unconventional resources in North America have
Production costs generally increase throughout the compensated for declines in United States oil produc-
development of the field as the productivity of wells tion, keeping total liquids production nearly flat over
decreases. This well and field production profile is often the last 15 years (Figure 2‑40). This view of sustained
extrapolated to represent producing basins, countries North American production is challenged by expected
and the world. If a fixed or slowly growing resource base and announced decreases in production from the Can-
is also assumed, forecasted global production would tarrell field in Mexico, the fourth largest producer in
inevitably follow a similar pattern of decline. the world and source of most of Mexico’s production in
recent decades. Peak oil forecasts argue that develop-
Peak oil forecasts point to the importance and dom- ment of smaller reservoirs will not be able to reverse
inance of large fields, since they have produced most Mexico’s decline.
of the world’s oil. In general, large fields are among
the first to be found, and have economically attractive Although production growth from frontier and
scales and production costs. Production from such unconventional resources will require long lead times

128 Facing the Hard Truths about Energy


16

14
TOTAL NORTH AMERICA LIQUIDS
MILLION BARRELS PER DAY

12

10

U.S.
8

MEXICO
4

2
CANADA

0
1965 1970 1975 1980 1985 1990 1995 2000 2005
YEAR
Source: BP Statistical Review 2006.

Figure 2-40. North American Liquids Production

Figure 2-40. North American Liquids Production


and very large investments, there is considerable
agreement about continued growth in the supply of A
unconventional oil and alternative liquids. However,
peak oil forecasts do not see these resources as offset-
PRODUCTION

ting declines in existing conventional oil production.

A country’s oil production profiles are the sum of


the production profiles of the fields in that country,
just as fields are the sum of profiles of individual wells.
The overall decline rate of a field is a combination of
the decline from existing wells and the production
TIME
volumes from new wells. In addition, changes in pro-
duction technology and the use of enhanced recovery
techniques can reduce expected declines. B

Figure 2‑41 shows typical production profiles as they


PRODUCTION

evolve over time. The curves can apply at different scales


from individual oil wells to fields, countries, or larger
regions. Wells and fields vary in their stage of develop-
ment: some may be declining, some at a production pla-
teau, while others may be ramping up production. The
global production profile is the aggregate of the profiles
from all individual fields with diverse profiles.
TIME
While most fields have production profiles shaped
like Part A of Figure 2‑41, many have other more Figure 2-41. Typical Oil Production Profiles

Chapter 2 – Energy Supply 129


Figure 2-41. Typical Oil Production Profiles
general profiles. For example, where downstream bot- demand. Most of the projected investment will be
tlenecks constrain production, the profile may plateau in the upstream sector, largely devoted to maintain-
as in Part B. Historically, technology advances have ing existing production capacity. The IEA invest-
increased the recovery factors, or percent of resources, ment figure is substantially higher than prior years,
recovered from a reservoir. Technical advances, such as partly based on sharp increases in unit capital costs.
enhanced oil recovery (EOR), will continue to improve Other causes for the higher projection include the
recovery factors and thus modify production profiles for cost of developing remote, technically challenging,
individual wells and fields. For a complete discussion of or deeper reservoirs, or oil in smaller accumulations.
production profiles and potential technology effects, see Additional capital will be needed to minimize pro-
the Conventional Oil section in the Technology chapter duction declines at the world’s largest, aging fields.
of this report. A recent OPEC study showing strong correlation
between exploration and production (E&P) invest-
Figure 2‑41 is illustrative. It demonstrates that ment and oil production rates suggests that pro-
managing the shape and duration of the produc- jected capital requirements are likely to increase.
tion profile is a central issue not only in the peak oil
debate but in all prospects for oil supply. Much of the world’s existing oil production will
need to be replaced by 2030. Figure 2‑42 is an illustra-
Investment tive example of the various resource components that
contribute to total liquids supply. These components
The IEA WEO 2006 Reference Case estimates contribute to virtually all liquids supply projections,
that the global oil industry will need a total invest- although the combination and timing of the compo-
ment of about $4.3 trillion between 2005 and 2030, nents may differ. Maintaining current oil supply lev-
or about $164 billion annually, to meet projected els will require slightly more than half the $4.3 trillion

125

DEVELOPMENT OF
NEW DISCOVERIES
100
UNCONVENTIONAL
MILLION BARRELS PER DAY

ENHANCED
OIL RECOVERY
75

50 DEVELOPMENT OF
EXISTING RESERVES
EXISTING
CAPACITIES
25

0
1971 1980 1990 2000 2010 2020 2030

Source: IEA, World Energy Outlook 2004.

Figure 2-42. Illustrative Total Liquids Supply

130 Facing the Hard Truths about Energy


investment. The remaining investment will be needed ó Growth in global natural gas trade is expected
to expand supply to meet projected demand and build to occur at a faster pace than historically, with the
or replace infrastructure. Financing this investment largest new supply volumes originating in Russia
is likely to be a major undertaking, with enormous and the Middle East.
requirements in individual countries and regions. For
ó Additions to LNG supply capacity are capital inten-
example, projected investment in China alone is about
sive, complex, and face development uncertainty.
$350 billion, or half the total for Middle Eastern coun-
Growing risks in the investment climate for LNG
tries. Of the total global investment, more than half is
and for long-distance natural gas pipelines may
expected to be in developing countries.
delay or reduce supply availability.

Geopolitics ó North American and U.S. natural gas production


is likely to lag projected demand growth over the
Oil is currently a fungible commodity traded in study time frame, requiring significant growth in
global markets. Changes in oil trading patterns LNG imports. The wide range of projected U.S.
are expected during the study’s time frame, based LNG import requirements raises uncertainty about
on evolving relationships between importing and whether these requirements will be met, particu-
exporting countries and regions. Global redistribu- larly at the higher estimates.
tion of infrastructure and manufacturing capability
ó Unconventional natural gas is expected to make up an
will also change commodity and product trade flows. increasingly important share of U.S. gas production
These changes are likely to have important and
uncertain geopolitical dimensions. For example, ó Development of Arctic natural gas resources, both
the IEA reports that OECD countries imported 17.9 in the United States and Canada, could contribute
million MB/D from OPEC producers in 2003, or 57 significantly to North American gas supply if major
percent of OPEC’s petroleum exports. The IEA Refer- infrastructure is developed
ence Case shows these exports rising by 3.2 MB/D at ó Increased access to restricted and moratoria areas
the end of the study time frame, with slightly more on U.S. offshore and onshore public lands could
than 40 percent of the increase supplied from the increase natural gas supplies available to the
Persian Gulf. The projection assumes that the exist- United States.
ing OECD–OPEC trading relationship can be reli-
ably extrapolated. If this is not case, the availability ó Natural gas demand in a carbon-constrained world
of supply becomes a more uncertain and pressing is likely to be significantly higher than in a busi-
issue. Such geopolitical factors apply to all energy ness-as-usual future, increasing the importance of
forecasts and are fully addressed in the Geopolitics timely supply and infrastructure development.
chapter of this report.
Global Natural Gas Endowment and
Natural Gas Technically Recoverable Resources
In 2000, the USGS estimated that remaining recover-
Key Observations—Natural Gas
able conventional gas resources totaled about 12,000
ó Most forecasts project that global natural gas trillion cubic feet (TCF). This is the mean estimate
production will grow rapidly to meet increasing in a range from 8,000 to 19,000 TCF. This gas volume
demand. is equivalent to about 2 trillion barrels of oil, or dou-
ble the total amount of oil produced globally to date.
ó Current estimates of recoverable natural gas
Many gas supply forecasts base their projections on
resources are sufficient to sustain the large, antici-
the USGS estimate, which is somewhat higher than
pated increase in production over the study time
proprietary estimates aggregated for this study. For
frame, providing above-ground issues and chal-
example, the IOC aggregated mean for total recover-
lenges do not become major constraints.
able resources is 12,000 TCF, with a range of 11,300 to
ó As gas production in OECD countries lags demand 13,900 TCF. The IOC range for remaining recoverable
growth, these demand centers will require major resources is 8,000 to 12,000 TCF, with a mean of 10,300
additional infrastructure to ensure delivery by TCF. The USGS recoverable resource assessments do
pipeline and liquefied natural gas (LNG). not include unconventional gas, which may represent

Chapter 2 – Energy Supply 131


a significant addition to gas supplies over the next 25 Asia/Oceania, and Africa (Figure 2‑44). The overall dis-
years. Similarly, the assessments do not include natu- tribution of resources is becoming more remote from
ral gas hydrates, a potentially significant resource that major natural gas markets, with the exception of Russia,
is not currently considered technically recoverable and a major gas consumer as well as resource holder.
is unlikely to be developed over the study time frame.
Current proved reserves of natural gas are concen-
About 3,000 TCF of natural gas has already been pro- trated in a few countries, with Russia, Iran, Qatar, and
duced (Figure 2‑43). The projected supply of natural Saudi Arabia comprising more than two-thirds of the
gas to 2030 ranges from 3,100 to 3,650 TCF. Thus, cur- global total (Figure 2‑45). Of the 12 largest resource
rent mid-range estimates of conventional, global, tech- owners, 11 are outside the OECD, comprising more
nically recoverable resources are considerably greater than 75 percent of global gas reserves. Such concen-
than combined historical and projected production. tration raises issues about risks and the costs of devel-
Indeed, mid-range projections expect less than 50 per- oping and producing the reserves to meet growing gas
cent of USGS-estimated conventional gas reserves to be demand.
produced by 2030. If IOC mean or low-range estimates
prove more accurate, global gas production will exceed U.S. Technically Recoverable Gas Resource
50 percent of the technically recoverable resource by
2030. Whether or not global natural gas production The 2003 NPC study, Balancing Natural Gas Policy,
reaches a plateau during the study time frame, the pos- estimated that about 1,450 TCF of technically recov-
sibility becomes greater within the next 50 years, unless erable resource remain in the United States. Techni-
a major technical breakthrough allows economic pro- cal advances may add an additional 400 to 500 TCF by
duction of significant volumes of unconventional gas 2030 (Table 2‑4).
and gas hydrates.
The technically recoverable domestic gas resource
Nearly 83 percent of technically recoverable natural is subject to numerous restrictions. About 162 TCF
gas resources are in the Middle East, Non-OECD Europe, of the U.S. onshore recoverable natural gas resources

TRILLION CUBIC FEET IN-PLACE


(NOT TO SCALE) ~ 50,000
(LARGELY UNCONVENTIONAL,
INCREASING TECHNICAL DIFFICULTY

NOT INCLUDING HYDRATES)

RESOURCES
~ 15,000
(LARGELY CONVENTIONAL)

PROVED RESERVES
~ 7,000
PRODUCED
~ 3,000

INCREASING GEOLOGIC UNCERTAINTY

Sources: U.S. Geological Survey, 2000; and Rogner, H-H., “An Assessment of World Hydrocarbon Resources,”
Institute for Integrated Energy Systems, University of Victoria, 1997.

Figure 2-43. Global Natural Gas Endowment

132 Facing the Hard Truths about Energy


Figure 2-43. Global Gas Endowment
lie beneath federal lands that are restricted beyond
standard lease terms or are entirely off limits. This
estimate was developed by government studies con-
ducted in accordance with the U.S. Energy Policy and
NON-OECD
EUROPE Conservation Act of 2000 and the Energy Policy Act of
& EURASIA 2005. The restricted areas range from Alaska to the
18% Rockies, the Gulf Coast, and Appalachia. Approxi-
MIDDLE EAST mately 92 TCF of U.S. offshore technically recoverable
44% natural gas resources are also currently off limits for
ASIA & OCEANIA leasing and development. Of these, almost 86 TCF of
11% natural gas are in the federal U.S. Outer Continental
Shelf (OCS) moratoria areas (Table 2‑5). Resource
estimates for all restricted areas are very uncertain,
AFRICA
since the last seismic data acquisition or drilling in
10%
some cases occurred 25 to 40 years ago.

In aggregate, access is restricted to 76 percent of


NORTH
U.S. technically recoverable natural gas resources.
AMERICA 4% CENTRAL AND
About 66 percent of domestic resources (882 TCF) are
OECD EUROPE 5% SOUTH AMERICA
8% on state, tribal, and private lands, predominantly in
Source: U.S. Geological Survey, 2000. onshore tight gas and shale formations. The technical
challenges to developing domestic gas resources are
Figure 2-44. USGS Estimated compounded by urban growth, competing land use,
Natural Gas and changing public values that increasingly con-
Resource Shares, 2000 strain existing and new natural gas development.

RUSSIA
IRAN
QATAR
Figure 2-44. USGS Estimated Natural Gas Resource Shares, 2000
SAUDI ARABIA
UAE WAS Figure S3C-2
UNITED STATES
NIGERIA
ALGERIA
VENEZUELA
IRAQ
KAZAKHSTAN
TURKMENISTAN

0 600 1,200 1,800


TRILLION CUBIC FEET
Source: BP Statistical Review of World Energy 2006.

Figure 2-45. Largest Natural Gas Reserve Holders, 2005

Chapter 2 – Energy Supply 133


recovered due to economics, lease termination, and
Current 2015 2030 related issues—thus widening the gap between pro-
Tech- Tech- Tech- jected gas demand and domestic supply.
nology nology nology
Global Natural Gas Production
Lower-48
764 839 1,006
Onshore Global gas production to 2030 is forecast to grow
Lower-48 faster than the historical rate since 1980 of about
384 415 486 50 billion cubic feet per day per decade. The EIA
Offshore
Alaska 303 331 395 and IEA 2006 Reference Cases project growth rates of
2.4 percent and 2.0 percent, respectively. Both rates
Total U.S. 1,451 1,585 1,887
are higher than the growth rates for coal and oil over
the study time frame (Figure 2‑46).
Source: National Petroleum Council, Balancing Natural Gas
Policy, 2003. The proprietary forecasts aggregated for the study
show average gas production of about 450 billion cubic
Table 2-4. U.S. Natural Gas Resource Base feet per day in 2030, a value very similar to the IEA Refer-
(Trillion Cubic Feet) ence Case. The upper and lower limits are approximately
425 and 500 billion cubic feet per day (Figure 2‑47).

Moratoria Areas Resources The highest projected natural gas production


in 2030 is 530 billion cubic feet per day. This fore-
Gulf of Mexico 22 cast requires a high supply of gas to balance energy
demand, since it also projects that oil production in
Alaska 9
2030 will be below today’s level (Figure 2‑48). Most
Atlantic 37 Alternative Policy cases in Figure 2‑48 also project gas
Pacific 18 production above 400 billion cubic feet per day, as the
energy mix increasingly favors lower carbon fuels that
U.S. Federal OCS 86
reduce carbon dioxide emission levels.
Great Lakes 5
State Waters 1 Regional Supply Patterns
Regional supply patterns for natural gas are shift-
Sources: Department of the Interior (MMS and USGS) and ing. Forecasts show that production and exports from
Interstate Oil and Gas Compact Commission.
the Middle East, Non-OECD Europe (Russia), and Asia
(Australia) will increase substantially over the next 25
Table 2-5. U.S. Offshore Natural Gas Resources
years, although in total Asia will probably remain a
in Moratoria Areas (Trillion Cubic Feet)
net importer of natural gas (Figure 2‑49). The United
States and OECD Europe are likely to increase their
The United States has almost 290,000 marginal gas
dependence on gas imports, since most projections
wells. In 2005, marginal wells accounted for 1.7 TCF
show continued growth in demand but flat or declin-
of natural gas per day, or more than 9 percent of
ing production in these regions.
domestic onshore production. Increasing operational
and regulatory costs and diminishing pipeline access Most growth in natural gas production is expected
to markets may contribute to premature abandon- to occur in exporting countries. Transporting the
ment of these wells and loss of gas production. When gas to consuming regions will require substantially
marginal wells and fields are prematurely abandoned, increased investment in production and transporta-
the associated oil and gas resources may never be tion infrastructure, particularly:
 Interstate Oil and Gas Compact Commission (IOGCC), Mar- ó Liquefaction plants in producing countries and re-
ginal Wells: Fuel for Economic Growth (2006). The IOGCC de-
fines marginal wells as those producing 60 thousand cubic feet gasification terminals in consuming countries for
or less of natural gas per day. The Internal Revenue Service LNG.
defines marginal wells as producing 75 thousand cubic feet or
less of natural gas per day. ó Long-distance, high-capacity natural gas pipelines.

134 Facing the Hard Truths about Energy


500
HISTORICAL PROJECTED

400
BILLION CUBIC FEET PER DAY

300

200
EIA REFERENCE CASE
IEA REFERENCE CASE
HISTORICAL – BP STATISTICAL REVIEW
PROJECTION BASED ON HISTORICAL TREND
100

0
1980 1990 2000 2010 2020 2030
YEAR
Sources: Energy Information Administration (EIA), International Energy Outlook 2006; International Energy Agency (IEA),
World Energy Outlook 2006; and BP Statistical Review of World Energy 2006.

Figure 2-46. Projected Global Natural Gas Production


Figure 2-46. Projected Global Natural Gas Production

Lift, Figure 2-13 - different caption


550

500
CONSULTANTS AVG.
BILLION CUBIC FEET PER DAY

450 CONSULTANTS HIGH


CONSULTANTS LOW
IOC AVG.
400 IOC HIGH
IOC LOW
350

300

250

200

0
2000 2005 2010 2015 2020 2025 2030
YEAR
Note: IOC = International Oil Companies.
Source: NPC Survey of Outlooks.

Figure 2-47. Projected Global Natural Gas Production ­— Proprietary Aggregated Data
Figure 2-47. Projected Global Natural Gas Production – Proprietary Aggregated Data

Chapter 2 – Energy Supply 135


550

500
BILLION CUBIC FEET PER DAY

450

400

350

300

250

200

0
2000 2005 2010 2015 2020 2025 2030
YEAR
ASSOCIATION FOR THE STUDY OF PEAK OIL (ASPO) – FRANCE
ENERGY FILES
EUROPEAN COMMISSION – WORLD ENERGY TECHNOLOGY OUTLOOK 2050 (WETO-H2) – BUSINESS AS USUAL ENERGY POLICY
EUROPEAN COMMISSION – WORLD ENERGY TECHNOLOGY OUTLOOK 2050 (WETO-H2) – LOW CARBON DIOXIDE EMISSIONS
U.S. CLIMATE CHANGE SCIENCE PROGRAM – LOW ENERGY SUPPLY & DEMAND
U.S. CLIMATE CHANGE SCIENCE PROGRAM – REFERENCE
IEA WEO 2006 ALTERNATIVE ENERGY POLICY

Source: NPC Survey of Outlooks.

Figure 2-48. Projected Global Natural Gas Production — Public Data

Figure 2-48. Projected Global Natural Gas Production – Public Data


Figures 2‑50, 2‑51, and 2‑52 show the increasing and more significant role in meeting Europe’s gas
importance of imports in the main OECD demand requirements.
regions that were traditionally supplied from indig-
enous sources. Domestic supply in North America Unlike other major consuming areas, Asia Pacific
is expected to decline and then, possibly, to reach a is expected to see a significant increase in domes-
plateau as unconventional resources (e.g., tight tic production of natural gas. Much of this growth
gas, coalbed methane, and shale gas) supplement will be traded between producing countries such as
domestic conventional gas production. Most fore- Indonesia and Australia and consuming countries
casts assume that pipeline supplies from Alaska such as Japan and China. The region will also need
and the Mackenzie Delta will reach North American greater supplies of LNG to meet about 30 percent of
markets in the study time frame. However, projected projected regional demand. Long-distance gas pipe-
demand growth will ultimately be met by increasing lines to Russian, Caspian, and Middle East supplies
LNG imports. are also a potential option.

Domestic production in Europe is expected to be North American Gas Production


flat or declining, with pipeline imports increasing
dramatically, primarily from Russia and the Cas- Natural gas production in the United States has
pian region. LNG imports will also play a growing been relatively flat over the past 35 years, while

136 Facing the Hard Truths about Energy


160

CENTRAL & SOUTH AMERICA 140


140 MIDDLE EAST
OECD EUROPE
BILLION CUBIC FEET PER DAY

120 ASIA & OCEANIA


NORTH AMERICA 106
100 NON-OECD EUROPE & EURASIA
88
84 81 83
80 77
73 72
69
60

40 36 36
32 33
29 28 28
20 14

0
IEA 2005 IEA 2030 EIA 2030

Sources: International Energy Agency (IEA), World Energy Outlook 2006; and Energy Information Administration (EIA),
International Energy Outlook 2006.

Figure 2-49. Projected Regional Natural Gas Production (Regional Data)

demand has been growing over most of that period America and completion of two major pipelines to
(Figure 2‑53). Since the mid-1980s, most of the bring Arctic gas to market centers from Alaska and
growing gap between domestic production and con- the Mackenzie Delta. The risks and challenges asso-
sumption has been filled by increased gas pipeline ciated with these potential supply sources are dis-
imports from Canada. Since 2003, LNG imports cussed below.
from several other countries have also grown, mak-
ing a small but increasingly important contribution Over the next 25 years, it will be an increasing
to U.S. gas supply. Figure 2-49. Projected Regional Natural Gas Production
challenge to avoid(Regional
decliningData)
conventional gas pro-
duction rates in the United States. The 2003 NPC
For North America as a whole, natural gas produc- natural gas study identif