Energy economics 101

Oil company engineer Ed Bullerdieck takes aim at CONTROL columnist Béla Lipták's recent column on the country's Global Energy Policy and makes the case for dealing with the issue much differently.

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  By Ed Bullerdiek, Marathon Ashland Petroleum


 global strategy begins with control," says Béla Lipták in his “Lessons Learned” column from the September issue of CONTROL magazine. Not so fast, Béla. It begins by accurately defining the problem to be solved, which, in this case, is multifaceted and cannot be adequately described by such a simple statement. Nor will the solution to our nation’s energy issues have a single dimension. It will be multidimensional and as diverse as our current energy industry.

Control has a role
As industry and society grapple with the many facets of the problem, it will remain true that the role of control is to make sure the many parts of the solution operate safely and efficiently. And for the control engineers behind this effort, it is certainly a noble calling. As an educated part of the public, control engineers will also participate in the public debate and likely be notable agents of change speeding the evolution of the energy industry to whatever form it may take.

Perceiving the problem
"We all know that oil will run out by the end of this century." The problem is not really one of supply, or in other words, a scarcity of recourses. The problem is how to supply and distribute energy we have.

There are multiple sources of energy and energy, like money, is fungible. Substitution between sources can, does and will occur based on price and production costs. According to the Energy Information Administration (EIA) oil represents only 39% of U.S. energy consumption (Annual Energy Outlook 2004, 2002 actual consumption). If oil becomes disproportionately more expensive than other sources its contribution to the overall energy mix will decline.

Initial steps in this economic process would include direct substitution, where oil does not have a technical advantage. Presumably, this would include fixed power generation where coal, gas, nuclear, or fixed-position renewables (hydroelectric, wind, tidal, solar cells, etc.) could substitute without generating costs higher than the oil such alternatives would replace. But a factor that may sustain oil’s key role in the energy mix is its inherent transportability because it is a liquid. Transportation is a major cost issue and liquid fuels have a distinct cost advantage because of their ease of handling and high energy density. Energy source substitutions will occur here also, but for a price. The most viable substitutes to oil will most likely continue to be liquid fuels.

Nonetheless, there is a report by the EIA that postulates rapid declines in conventional oil reserves starting anywhere from ~2025–2075 and eventual production decline to below 1 billion bbls/year by 2075–2125. The problem with the projection is the fact that the report ignores non-conventional reserves (tar sands, oil shales, etc.) which exist in large quantities around the globe. It also makes no reference to outer continental shelf production potential. Here’s what the World Energy Council has to say about that: “Today, the potential represented by deep offshore resources has not yet been clearly determined. Sedimentary areas lying in over 200 m of water represent nearly 55 million km² of sedimentary basins, or four times the conventional offshore surface area.”

An unfinished oil portrait
One needs to consider all energy sources and how energy is, and will be used when postulating the character our energy future. To focus on one source (oil, coal, etc.), especially without considering where, how, and how much energy will be used, or how existing infrastructure might be reused or adapted, will only paint a very incomplete picture. Any conclusions drawn from that will be erroneous.

The oil picture is still very incomplete. It would seem that we have a good picture of probable conventional oil reserves based on current technology, but have a very incomplete image when one considers non-conventional sources, the ultimate recovery from conventional sources via technical advances, and our ability to take advantage of potential reserves in deep water out on the continental shelf.

The probable final outcome will be determined by relative cost between the sources. Depending on how much one wants to spend most of the oil out there is probably recoverable. Whether we eventually recover 30% or 70% depends on relative costs. If renewable energy costs drop oil may eventually cease to be important not because it is scarce but because it isn't cost effective.

When will we run out of non-renewable energy sources like oil? Still unknown. We will run out of fossil resources (by definition), but “when” is still largely conjectural and is probably much farther out than the end of this century.

Big idea, questionable economics
Lipták proposes renewables on a grand scale might provide for our future energy needs: “Start by building gigantic, floating islands covered with solar collectors and positioning them around the equator,” he offers. But before we judge the merits of such a proposal, consider the following:

Worldwide energy demand: Assuming a world population of 15 billion in 2100 with per-capita consumption at the current U.S. level (97.72 Quad/yr (EIA) for 300 million (U.S. Census Bureau) world energy demand would be about 4,900 Quads/year.

Surface area required to support solar cells: Assuming 100% energy supply from solar cells (a very poor assumption, but necessary to put a scope on the problem) we can calculate the required area that must be dedicated to energy collection. Solar energy density (per “Lessons Learned,” sidebar) is 500,000 BTU's/ft2/year at the equator, less as we move away from the equator (13% reduction at 30° latitude, 50% at 60° latitude). Solar cells are around 15% efficient. Taking additional discounts for bad weather, maintenance, stranded sources, etc. we could arrive at 2% (or less). Assuming 2% efficiency we need to cover about 17,500 square miles of the earth's surface with solar cells to meet 100% of our energy needs. This is a miniscule percentage of the Earth's 197 million square- mile surface area, so the proposition is not unreasonable.

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