G. Warfield Hobbs
Ammonite Resources Co. New Canaan, Conn.
Surging international demand for energy, technology, and geopolitics has come together to create favorable long term market conditions for energy minerals. A "new age" for energy minerals, defined to include include coal, uranium, bitumen, methane from coal seams, and geothermal energy, is dawning. These natural resources are abundant, widely distributed in "politically" secure regions, and cost competitive alternatives to conventional petroleum at current oil prices.
Oil company strategic planners and private and institutional investors in the energy sector, who have heretofore focused their interest entirely on conventional petroleum resources, should take a new look at energy minerals. An increasingly important role will be played by the nonconventional hydrocarbon tar sands, coalbed methane, and even oil shale in meeting future world energy demand at today's prices. The implication for future conventional oil and gas prices is significant.
In this three part series, trends in worldwide supply and demand for primary conventional and nonconventional energy resources, new technologies, and costs will be examined and compared.
This article will address worldwide primary energy utilization, past and future trends, comparable costs, and the demographic and macro-economic factors that are dramatically affecting energy consumption. The second and third articles will address specific developments for each energy resource and its future direction.
Consumption trends, costs, demographics
The consumers
The world's population stands at 5.6 billion. Since 1950, in less than half our expected lifetimes, the number of inhabitants has doubled. Current population growth is 1.7%/year. Population trends since 1650 indicate that by 2020 there will be nearly 8 billion humans. World population will have more than tripled between 1950 and 2020.
Population growth, better communications, improved inter-regional transportation, together with new political and economic freedom in Asia, the Former Soviet Union, Africa, the Middle East, and Latin America have led to exponential growth of the world consumer society during the past decade. This consumer class is rapidly reaching a "critical mass" that is impacting traditional supply, demand, and distribution patterns for the world's natural resources.
Citizens of the lesser developed economies now have the ability to purchase energy intensive consumer items that heretofore they could only read about. Inexpensive and not so inexpensive motor vehicles, for example, are appearing everywhere. Beijing now has terrible traffic jams, whereas only 10 years ago bicycles were the norm. In the remotest mountain villages of Ecuador or the plains of Tatarstan in Central Russia, a television set and other electric appliances are not unusual.
Despite hyperinflation and political unrest in much of the former Communist countries and in Latin America, people are scrambling to purchase quality consumer items. The bustle of activity in the bazaars and flea markets of eastern Europe, Russia, Asia, and Latin America are evidence of a significant "mattress economy" that is probably not reflected in official economic statistics.
This unquantified consumerism will likely result in a rise in energy demand that is at the higher end of published forecasts.
As long as oil prices remain within a trading range of approximately $12-22/bbl, world demand for petroleum will continue to rise despite economic recession among the developed countries that comprise the Organisation for Economic Cooperation and Development (OECD). This appears to be the case since the collapse of oil prices in 1986 and may indicate a decoupling of historic petroleum demand cycles from the economic cycles of OECD.
Rising demand for oil in the developing nations is competing for the export crude that has historically been delivered to the industrialized countries, and thereby creates opportunities for energy minerals as alternates to crude oil.
As standards of living rise in the developing economies, coal, bitumen sands, uranium, coal seam methane, and geothermal energy will and must provide an ever increasing share of the world's primary energy resources on a cost competitive basis with crude oil and natural gas. When crude oil prices rise above $20/bbl, energy minerals become even more attractive alternatives to petroleum.
Energy use, growth
World annual primary energy consumption in 1992 (the latest year for which U.S. Energy Information Administration world resource data are available) was 343.9 quadrillion BTU (Fig. 1) (17831 bytes).
In 1983-92 world energy consumption rose 22%. The EIA base case projection for worldwide energy consumption in the year 2010, assuming a moderate growth scenario, is 476 quadrillion BTU. In 1980-2010, the equivalent of one human generation, world energy consumption is projected to increase by two thirds.
Oil and natural gas provided 61% of the total primary energy consumed in 1992 (Fig. 2) (29188 bytes). Coal provided 26%, uranium about 6%, and hydroelectric power nearly 7%.
Crude oil consumption is projected to increase 30% to 86.5 million bbl in 2010 from 66.7 million bbl in 1992 (Table 1) (14042 bytes). This represents an increase of about 45% during 1980-2010.
It is interesting to note that annual consumption of crude oil is growing at a rate that is significantly less than the growth in total energy demand. Improvements in energy efficiency and availability of lower cost alternate energy resources are responsible for this lag.
Natural gas consumption is projected to increase 53% to 114 tcf in 2010 from 74.7 tcf in 1992. As pipeline infrastructure is developed, natural gas has become the fastest growing major energy resource. Consumption of 114 tcf in 2010 will represent a doubling of gas usage during 30 years.
Worldwide consumption of coal exceeds 5 billion tons/year and is expected to increase 32% to 6.6 billion tons in 2010. Coal consumption will have increased by about 50% between 1980 and 2010.
Nuclear energy consumption is presently about 2 trillion kw-hr/year. Projected consumption is not expected to increase significantly over the next two decades due to the retirement of existing plants and limited new construction due to regulatory delays and public concern about nuclear safety.
Hydroelectric power at 2.2 trillion kw-hr is nearly the same as world nuclear power generation. Future hydroelectric growth will occur in regions such as China, Turkey, and Brazil. However, major environmental and political concerns over land use and water rights will limit growth of hydroelectric resources.
An astounding measure of the rate of growth in worldwide energy demand is illustrated by the increase in electricity consumption (Table 1) (14042 bytes). During 1983-92, world net electricity consumption increased 35% from to 10.79 kw-hr from 7.99 trillion kw-hr.
The average rate of growth during this time was 3.4%/year. Electricity de- mand is increasing at twice the 1.7% rate of population growth. This is a direct result of rural electrification and industrialization in the developing economies.
U.S. power fuels
Coal is "king" in the mix of fuels used in the U.S. to generate electric power (Table 2) (12749 bytes).
Coal provides more than 55% of electric power fuel. This is not expected to change significantly over the next few decades despite strong environmental pressure.
Nuclear power currently provides 21% of U.S. electricity. After rising dramatically since the 1970s, nuclear power will decline over the next 25 years due to the retirement of existing reactors and absence of new plant construction.
Hydro power is significant at 9% of current electric supply but will decline in terms of total percent as there are no more rivers that can be dammed in the U.S.
Natural gas represents 9% of electric power fuel, and its utilization is growing rapidly. By 2010 natural gas use as an electric power fuel will grow nearly 33%, according to EIA projections. Nevertheless, even though natural gas is being touted as the clean fuel of choice, by 2010 it is expected to represent only 11.9% of total electric power fuel. Refined petroleum is the most expensive power fuel and is not expected to change much from the current 3.5%.
"Other fuels," namely renewable biomass, wind, solar, and geothermal, currently comprise less than 0.5% of the electric power market. They are expected to grow twelvefold during the next 15 years to 3.6% of total electric generation.
Comparable fuel costs
Here is how the costs of energy fuels compare (Table 3) (9990 bytes). Crude oil at $18/bbl weighs in at the top of the scale at $3.10/MMBTU. Natural gas at $1.80/MMBTU is the second most expensive fuel.
Coal, on the basis of $28/ton fob at the mine head for eastern bituminous coal, equates to $1.29/MMBTU. Uranium is incredibly cheap. At $9.69/lb of U308, uranium fuel costs 5/MMBTU. Water, wind, sunlight, and geothermal are free.
Capital investment for new power plant construction, bulk fuel transportation costs from source to end use, materials handling, operating and maintenance costs, emission and effluent control, and waste disposal, and local power market demand and competition are what determine the competitiveness of each fuel type more than the commodity price per unit volume. Otherwise, the world would run on uranium and solar power.
There is naturally a range in capital costs depending on the generating capacity of the facility and its operating capabilities (Table 4) (16351 bytes).
A medium size (600 mw) coal fired power plant with the latest environmental controls will cost slightly more and take longer to permit and build than a gas fired combined cycle power plant. However, a coal fired facility will be more economic over its 30-40 year life due to significantly lower unit production costs.
A new 600-1,000 mw nuclear plant, if not tied up in a costly permitting morass, can be built and operated on a cost competitive basis with other types of power plants. This is also true for a 55 mw geothermal plant.
The importance of the statistics in Table 4 (16351 bytes) is that they demonstrate strong economic incentive to use coal, uranium, and geothermal resources as primary fuels to meet rising world electric generating requirements.
U.S., world energy use
In order to appreciate future world demand for energy minerals, it is instructive to first examine what portion of the world's energy resources are consumed by the U.S. and to compare U.S. consumption with that of other countries (Table 5) (12322 bytes).
The 260 million energy guzzling inhabitants of the U.S. represent only 4.8% of the earth's population, yet they consume on an annual basis nearly 25% of the world's total energy production, 25% of the entire world output of oil and natural gas, 18% of the world's coal, and 31% of all nuclear power.
The average American consumes 315 MMBTU/year, twice what the energy intensive Japanese utilize, 13 times greater than the average Chinese uses, and an incredible 34 times the energy consumed per capita in India (Table 6) (13839 bytes).
Mr. "Joe Average" in the U.S. consumes nearly 24 bbl/year of oil (Table 7) (13400 bytes). This is in part a function of the 144 million automobiles in the U.S., where there is one automobile for every two citizens. Consumption per capita is 15.9 bbl/year in Japan, 10.6 bbl/year in Russia, 3.3 bbl/year in rapidly growing Brazil, and less than 1 bbl/year per capita in both China and India.
Only 3% of Chinese households own an automobile, according to a recent Gallup Organization survey. If the average Indian and Chinese family were to own an automobile, the earth's ability to yield the natural resources required to build and fuel these vehicles could indeed be sorely strained. That day will surely come in the next century.
Socio-economics
The U.S. is a mature economy with less than 1%/year increase in population, annual economic growth of about 2.4%, a GNP per capita of $20,800, and an appetite for energy at the annual rate of 315 million BTU per person (Table 8) (15708 bytes).
China, India, and Indonesia possess 42% of the earth's inhabitants. Population growth in these countries is 1.1-1.9%/year. Annual economic growth ranges from 4% in India to an astonishing 12.8% in China in 1992. GNP per capita ranges from $680 in Indonesia to $270 in India. Energy consumption per capita is as low as 9.3 MMBTU/year in India, and only 24.5 MMBTU/year in China, compared with 315 MMBTU in the U.S.
Economic growth for 42% of the earth's population is increasing at three to 10 times the rate of population increase. The developing world is being electrified. People everywhere are using aluminum and plastic utensils instead of wood and clay. Motorized vehicles are displacing the bicycle, foot power, and the ox plow. The rapidly evolving critical mass of consumers is beginning to put strong pressure on the demand side of the energy and natural resource supply and demand formula.
Significant real price increases in natural resource commodities can be expected if resource extraction and processing capacity fails to grow in parallel with rising demand. Energy supply has been able to keep pace with demand through new discoveries, improved extraction and processing efficiencies, and technological developments which are reducing production costs and increasing economic reserves. Accordingly, the cost for energy resources has actually decreased in real terms over the past decade and is not expected to increase any faster than the rate of inflation.
If the average per capita consumption of petroleum in China and India was to rise from the current 0.7 bbl/year to only 5 bbl/year -- slightly less than one-fourth of what is presently used in the U.S., one-third of Japanese consumption, and one-half of current Russian consumption -- then an additional 9 billion bbl of annual production, or an increase of about 41% over current annual world production of about 22 billion bbl, would be required. Bitumen sands and oil shale will supply a steadily increasing share of the incremental demand for petroleum products as Asia enters the automobile age.
World population during 1980-2010 is projected to increase by 76%. EIA base case projections published in July 1994 for primary energy consumption (Fig. 1) (17831 bytes) indicate that energy consumption will increase 66% between 1980 and 2010, to 476 quadrillion Btu from 287 quadrillion Btu. EIA's upper range sensitivity case projects an increase in energy consumption of 86% for a total of 533.9 quadrillion Btu in 2010.
In view of the rapid increase in world electricity demand over the past decade and the consumer "critical mass" factor, it is likely that the "high case" sensitivity will prove to be closer to actual consumption than the base case projections of the EIA, which are used for the most part in this series.
When one considers that the U.S. with only 4.8% of the earth's population consumes 25% of the world's energy, a serious question arises as to how the world will be able to find and produce the resources necessary to allow the average Asian, African, or Latin American to enjoy even a quarter of the standard of living most North Americans and Europeans take for granted. This task will be a daunting challenge for the next generation of geologists and engineers and the financiers who fund them. Sufficient energy resources will be available to meet future demand as is described in the next two parts of this article.
Updated and modified by the author from a talk to the AAPG Energy Minerals Division, Mar. 8, 1995, in Houston.
Table 1
WORLD PRIMARY ENERGY CONSUMPTION
Resource 983 1992 2000 2005 2010
============================================================
Petroleum,
million b/d 8.7 66.7 77.4 82.4 86.5
Natural gas, tcf 54.4 74.7 87.3 100.6 114
Coal, billion
short tons 4.4 5.0 5.7 6.1 6.6
Nuclear, trillion
kw-hr 1.0 2.0 2.2 2.3 2.3
Hydro, trillion
kw-hr 1.9 2.2 NA NA NA
Source: Energy Information Administration, Base Case Projections
Table 2
U.S. NET ELECTRIC POWER GENERATION BY FUEL SOURCE
1984 1993 2010
Fuel ---- --------------%------
Coal 55.5 56.9 56.31
Nuclear 13.5 21.2 18.39
Hydro 13.3 9.2 6.06
Natural gas 12.4 9.0 11.94
Petroleum 5.0 3.5 3.64
Other 0.4 0.3 3.66
Source: Energy Information Administration 1995 Base Case Projections
Table 3
COMPARABLE COST OF ENERGY FUELS
$/MMBTU
Resource equivalent
============================ Oil @ $18/bbl 3.10
Natural gas @
$1.80/Mcf 1.80
Coal @ $28/ton 1.29
Uranium @
$9.60/lb 0.05
Hydro 0
Geothermal 0
Table 4
ELECTRIC POWER COSTS IN U.S.
Average Fuel cost
Average fuel production share of
Capital cost, expense, expense, prod.
Fuel Million $/mw-hr $/mw-hr $/mw-hr cost, %
=============================================================================
Coal 1.2-2.1 15.31 19.67 78
Natural gas 0.5-1.0 28.31 34.02 83
Oil NA 26.08 34.08 76
Nuclear 1.5-3.0 6.02 21.52 30
Hydro 1.8-3.9 0 3.41 0
Geothermal 1.5-3.6 0 27.61 0
Source: Energy Information Administration, Utility Data Institute, Geo- thermal Energy Institute
Table 5
ENERGY CONSUMPTION IN 1992
Total energy, Coal, Oil, Gas, Nuclear,
Quadrillion BTU million tons million b/d tcf billion kw-hr
World 347.5 5,001 66.7 74.7 2,017
U.S. 85.8 892 17 19.7 619
U.S. share 24.7% 17.8% 25.5% 26.4% 30.7%
Source: Energy Information Administration
Table 6
ENERGY CONSUMPTION PER CAPITA IN 1992
Quadrillion BTU/ Population, MMBTU/
year millions capita
========================================================= U.S. 82.19 260.8 315.1
Russia 32.72 147.8 221.4
Japan 19.01 124.4 153.3
China 29.22 1,192 24.5
India 8.51 911.6 9.3
Brazil 6.07 155.3 39.1
World 349.9 5,420 64.56
Source: Energy Information Administration 1995, U.S. Census
Table 7
CONSUMPTION OF PETROLEUM IN 1992
Consumption, Population, Bbl/year/
million b/d millions capita
================================================== U.S. 17.03 260.8 23.8
Japan 5.45 123 15.9
Russia 4.3 147.8 10.6
China 2.63 1,192 0.8
India 1.25 911.6 0.5
Brazil 1.41 155.3 3.3
World 66.7 5,420 4.5
Source: Energy Information Administration 1995, U.S. Census
Table 8
ECONOMIC COMPARISONS IN 1992
Energy
Population, Population GNP, GNP growth, consumption,
millions growth, % $/capita % MMBTU/capita
================================================================================= World 5,420 1.7 3,409 1.4 64.5
U.S. 260.8 0.7 20,800 2.4 315.1
China 1,192 1.1 370 12.8 24.5
Japan 124.4 0.4 19,000 4.5 153.3
India 911.6 1.9 270 4 9.3
Indonesia 199.7 1.6 680 6 12.8
Brazil 155.3 1.7 2,350 -0.2 39.1
Source: Energy Information Administration, U.S. Census
