Economic Facts of Life about Global Energy

Guest author: Elliott Morss, cross-post from Global Economic Intersection.

Introduction

Oil spills, coal mining disasters, concerns over Middle East revolutions and now nuclear meltdowns. What do all these events have in common? As I have written earlier, they are energy-related. They all have to do with desperate efforts to find energy fuels to supply the world’s ever-growing demands. Where is the concern over the horrific civil war now commencing in the Ivory Coast? After all, its population is more than three times larger than Libya’s. Forget it, no oil.

Energy Sources

Table 1 provides data on energy consumption by source. Forget about renewables, forget about global warming: the world is dependent on the combustion of oil, coal, and natural gas for the foreseeable future. Oil countries and companies control most natural gas, and they hope to keep oil and gas prices low enough to keep renewables from becoming profitable.

Table 1. – Energy Production by Source, 2008

* The conversion statistic, million tons oil equivalent (MTOE) is used.

Source: International Energy Agency

The Oil Problem

From a global perspective, the primary energy problem is the rapidly growing demand for oil. Why is this? Globally, there is plenty of coal and natural gas. Why can’t these and other energy sources replace oil as the primary energy source? The problem is generating energy while moving: it is relatively easy to find substitutes for oil where energy is produced in a fixed setting such as in an electrical plant: coal, natural gas, hydro and nuclear power come to mind. However, it becomes more difficult to find reasonably inexpensive substitutes when the objects needing energy, move, like planes and cars.

As indicated in Table 1, 33% of the world’s energy comes from oil. And of that total, 63% is used in the transport sector. 59% of energy traded internationally is oil. And here is where the problems are likely to occur as the demands of China, India, and Indonesia increase. What will China and the US do to secure oil supplies?

Table 2 provides data on the ten leading oil producers. Note that the US is the third largest producer. Proven reserves continue to grow, but the US, Mexico and China are producing at a very high rate relative to their reserves.

Table 2. – Oil Production and Reserves, 2009

Source: British Petroleum: Statistical Review of World Energy, 2010

Moving ahead, where will new oil be found? A recent OPEC study notes:

“there is also significant future potential for deepwater production, as has been most recently witnessed in the large finds off Brazil and West Africa (since 2000, 40% of discovered reserves have been in deepwater)”.

Rest assured, there will be more oil spills.

Energy Consumption

Heating, lighting and cooling buildings consumes 39% of global energy. Transportation is the next largest consumption category with 29% of global energy. Table 3 lists the largest consumers of energy in total and per capita. The US leads, but China, with its growing middle class and demand for autos, will probably surpass the US this year. Canada consumes the equivalent of 9 tons of oil annually per capita, followed by the US at 7.

Table 3. – Energy Consumption, 2009

Source: British Petroleum: Statistical Review of World Energy, 2010

Japan and the US: Case Studies of Energy Dependent Nations

While Japan only uses half as much energy as the US per capita, both US are very dependent on overseas nations to provide them with energy. To compensate for this dependency, both are users of nuclear energy. Table 4 provides data on their dependencies: Japan imports 83% of its energy; the US imports 27% of its energy (for both, it is mostly oil).

Table 4. Japan and the US: Energy Dependencies and Nuclear Use

Source: British Petroleum: Statistical Review of World Energy, 2010

One way to reduce energy dependency is to build nuclear plants. The US is the largest nuclear fuel producer in the world. France generates about half as much energy as the US via nuclear, with Japan third. But for both Japan and the US, nuclear energy is small relative to oil, coal, and natural gas.

Ethanol – Part of a US Energy Policy?

I quote from a recent Economist special report on food:

“Ethanol currently accounts for just 8% of America’s fuel for vehicles, but it consumes almost 40% of America’s enormous maize crop….American ethanol produces only 1.5 units of energy output per unit of input, but its inefficiency is underwritten by government subsidies and high tariff walls…..one of the simplest steps to help ensure that the world has enough to eat in 2050 would be to scrap every biofuel target. If all the American maize that goes into ethanol were instead used as food, global edible maize supplies would increase by 14%.”

Conclusion

Look out! The global demand for energy is growing. Greater risks will be taken and greater disasters await us. The cost of energy is growing, but just how large the costs get will depend on how much success there is with efficient disaster containment.

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