Now the world needs new energy systems

A very good summary of US shale gas industry future written by a worldwide specialist

Aleklett's Energy Mix

On December 9th, the day before the Nobel Prizes are handled out in Stockholm, there is a “Nobel Week Dialogue” in Gothenburg. This year’s theme is “Exploring the Future of Energy” and participating Nobel Laureates are presented by the organizers. My contribution to the dialogue is now published by Svenska Dagbladet on “Brännpunkt” under the heading “Now we need new energy systems” (Read the article in Swedish on Brännpunkt). An English translation of the debate article can be found below.

Eagle Ford night image

Now the world needs new energy systems

Kjell Aleklett, Professor
University of Texas at Austin and
Uppsala University, Global Energy Systems

NASA has just released a new image showing lights on the Earth’s surface at night. If one zooms in on Texas in the image it is easy to identify the cities of Austin, San Antonio and Houston. South of San Antonio one can see a banana-shaped formation…

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a perfect cocktail: 1 finger of sea rise, 2 ices cubes, a piece of carbon dioxide and a drop of Tabasco!

 

  • Sea level rise issue:

The sea is definitely rising: 2.3 mm/year and with an acceleration.

A very known African rice trader said last summer he is always checking both commodity and shipping price to make a deal. Any seaborne activity is concerned with shipping issues.

But a shipping as any other corporation is submitted to earth system: sea level, weather change, weather pattern and so on.

Population is growing exponentially (+ 60’000’000/year). This growth is generating huge demand and huge emission as well: 35 Gt of GHG in the atmosphere every year. What are the consequences?

GHG and global warming are activating more then 40 positive feedbacks, which are accelerating tremendously the rate of climate change and global warming. What are the consequences? If the oceans level is raising, of course the vessels will remain on the surface. But what about the shore line infrastructure? We are talking about 2.5 mm/year. Okay we have time to adjust.

What about Ice melt worldwide?

  • Arctic ice cap will be completely melted during the summer 2015 (+/- 3 years). This is short term great because it will allow 2% of China to Europe’ shipping to use the northern route. Norway and Island are building important infrastructure to compete with Russian one.
  • Greenland’s bedrock is elevating 10 mm/year because of… ice cap discharge! We think Greenland is discharging faster and faster ice, icebergs and water into the ocean.
  • Antarctic Ice cap is melting at unknown pace

What are the consequences for energy supply infrastructure?  What if the time horizon may be –let’s say 25 years- to see a sea rise of 1 meter?

In July 2013, The U.S. Department of Energy released a new report which assesses how America’s critical energy and electricity infrastructure is vulnerable to the impacts of climate change.  Historically high temperatures in recent years have been accompanied by droughts and extreme heat waves, more wildfires than usual, and several intense storms that caused power and fuel disruptions for millions of people. These trends are expected to continue, which could further impact energy systems critical to the nation’s economy

  • Energy security

The U.S. Energy Sector Vulnerabilities to Climate Change and Extreme Weather report, which builds on President Obama’s Climate Action Plan, notes that annual temperatures across the United States have increased by about 1.5°F over the last century. In fact, 2012 was both the warmest year on record in the contiguous United States and saw the hottest month since the country started keeping records in 1895.  The implications for America’s energy infrastructure include:

  • Increased risk of temporary partial or full shutdowns at thermoelectric (coal, natural gas, and nuclear) power plants because of decreased water availability for cooling and higher ambient and air water temperatures.  Thermoelectric power plants require water cooling in order to operate.  A study of coal plants, for example, found that roughly 60 percent of the current fleet is located in areas of water stress (what about shale gas industry?).
  • Reduced power generation from hydroelectric power plants in some regions and seasons due to drought and declining snowpack. For example, earlier spring snowmelts could decrease summer water availability leading to potential hydropower shortages when energy demand for cooling is greatest.
  • Risks to energy infrastructure located along the coast from sea level rise, increasing intensity of storms, and higher storm surge and flooding — potentially disrupting oil and gas production, refining, and distribution, as well as electricity generation and distribution.
  • Increasing risks of physical damage to power lines, transformers and electricity distribution systems from hurricanes, storms and wildfires that are growing more intense and more frequent.
  • Increased risks of disruption and delay to fuel transport by rail and barge during more frequent periods of drought and flooding that affect water levels in rivers and ports.
  • Higher air conditioning costs and risks of blackouts and brownouts in some regions if the capacity of existing power plants does not keep pace with the growth in peak electricity demand due to increasing temperatures and heat waves.  An Argonne National Laboratory study found that higher peak electricity demand as a result of climate change related temperature increases will require an additional 34 GW of new power generation capacity in the western United States alone by 2050, costing consumers $45 billion.  This is roughly equivalent to more than 100 new power plants, and doesn’t include new power plants that will be needed to accommodate growth in population or other factors.

In addition to identifying critical areas at risk from climate change and extreme weather, the report also identifies activities already underway to address these challenges, and discusses potential opportunities to make the energy sector more resilient.  Potential future opportunities for federal, state, and local governments could include innovative policies that broaden the suite of available climate-resilient energy technologies and encourage their deployment, improved data collection and models to better inform researchers and lawmakers of energy sector vulnerabilities and response opportunities, and enhanced stakeholder engagement. These activities will increase the resilience of our energy infrastructure by “hardening” existing facilities and structures to better withstand severe droughts, floods, storms or wildfires and by contributing to smarter development of new facilities.

According to the 3rd law of thermodynamic, any structure is dissipating energy as efficient as possible and as fast as possible and it is the altering its environment: the structure acquires faster information on its environment and adjusting itself faster. The structure is dissipating energy faster and with more efficiency the circle goes on…

Regarding energy supply, a company is interested to produce energy as efficient as possible and as cheap as possible. Therefore, we see in Germany, China, India, swaps from modern gas power plants decommissioned to more profitable coal power stations, emitting tremendous amount of CO2. Primary energy demand is increasing. This is not good for our carbon budget!

Last week, A key note raised in a well networked conference 1600 conventional oil fields are going into depletion by -6%/year in average. This means that Oil Industry is requested to explore, develop and put on stream 55 mbd conventional oil coming from new fields.

Of course, There is no Peak Oil “stricto sensu”, as we know there are huge reserves of oil, gas and coal around the globe. But is this oil accessible at affordable price?

In 2001, Oil and Gas US$ 100 billion was reached. in 2013, US$ 700 billion will be spent. For sure, very deep waters exploration is promising exciting discovery and eventually profitable recovery. But it is good to know that one -12’000 feet (under salt crust) deep exploration rig may cost between US$ 100-200 million. This means that capex expectations are promised to grow tremendously in the following year. Oil majors are also feeling pressure as global demand is likely approaching a tipping point, pinching their earnings and share prices.

Exporter prices must meet importer price compulsory. In other words, the consumer can only pay an affordable price.

This trend is not worrying the Oil and Gas industry only but also Investment community as well. Last November 2013, 70 investors, coordinated by Ceres and the Carbon Tracker, sent letters to 45 largest oil, coal and power companies to assess the financial risks that climate change and these other trends pose to their business plans and requesting detailed responses by early 2014: “we would like to understand [the company’s] reserve exposure to the risks associated with current and probable future policies for reducing greenhouse gas emissions by 80 percent by 2050,” the investors wrote in their letter to oil and gas companies. “We would also like to understand what options there are for [the company] to manage these risks by, for example, reducing the carbon intensity of its assets, divesting its most carbon intensive assets, diversifying its business by investing in low carbon energy sources or returning capital to shareholders.”

Some US corporations started to account internally and “virtually” a carbon charge between US$ 10-40 to see we they are landing. Shipping companies would be inspired to think about issues, as they are emitting CO2 as well.

Of course, Shale gas production is increasing tremendously and even looking for more production and new demand to sustain prices. Shale gas industry has brought great advantage to US Economy and Obama Administration: more jobs, competitive advantage due to energy low cost, energy security, better US independence with less MENA oil imports, and less CO2 Emission due to commissioning gas power plants instead of coal power plants.

Last but not least, Biofuels are an accessible source of energy supply at affordable price when blended with gasoline or diesel.

Geo-strategic said, China is swapping natural resources to African producers against labor at dumping cost for infrastructures urgent needs due to exponential population growth: a win-win solution. Regarding the African energy market, as the barrel is around US$ 115, domestic energy production is still too expensive for local market: electricity is 10x more expensive then in Europe and domestic wages are around US$ 1-10/day.

  • Water security

Of course, it has been assessed that using approx. 5 million gallons water to extract 1 million of energy units is not a problem, as approx. 60-80% of contaminated water is remaining into deep ground and only 20-40% water is transported to water waste management plants or treated on site with new silicon-carbide membrane technology.

Nevertheless, the agri-business industry assessed last November that global agricultural output must increase by 70% by 2050. Cereal production alone must increase by 45% by 2050. This is good for shipping companies! In this context, it is not rocket science to assess that mid-latitude weather patterns are vital for growing the crops and foods in Europe, Black sea belt, US Midwest and China.  We are nearly sure weather pattern will change in the coming decades on northern hemisphere.

  • Environmental, social and governance responsibility

Several respected voices are underlining that social, environmental behavior must be taken into account to allow a long term planning. This means that green washing or window dressing will not be enough to maintain profitable turnover: educating and training local staff, setting up energy supply and helping eradicating poverty will allow them to make less children.

We are inspiring our clients with the so-called “nordic model” including women as fully recognized players in the community, social safety requirements, family planning be part of corporate policy, raising of environment awareness, climate change awareness, low carbon behavior, renewable energy shift and transparency will help to secure long term business model.

  • Very easy to do?
  1. Waking up consciousness of executive and raise willingness to reconsider core values.
  2. Then develop a strategic plan to take into account the topics mentioned below.
  3. Finally to implement a transformation of corporate culture to take into account these requirements. This is the most difficult. Why? Because if you ask a monkey if he want a banana right now or several bananas later on, you know his choice

To summarize, are we ready to set up frame conditions for our children and for next generations?