|
|
|
|
Recent energy news
Two major energy-related news stories are (1) the U.S. Environmental Protection Agency’s (EPA) proposed rules on regulating greenhouse gas emissions from existing and future power plants and (2) the continued increases in U.S. oil and gas production from tight formations and shales due to horizontal drilling and hydraulic fracturing. Opinions abound describing different long-term economic implications of both of these topics. Click here to see a short discussion with links to relevant articles.
My take on current energy and macroeconomic coupling:
The world resides at a balance of supply and demand for energy, particularly crude oil – where crude oil is defined as petroleum of sufficient density to be transformed into liquid transportation fuels (e.g. natural gas liquids do not qualify). Here in the U.S. if the West Texas Intermediate (WTI: North American benchmark) oil price drops below $90/BBL, it puts North American oil and gas production at risk of becoming economically insolvent. If the price stays much above $110/BBL, consumers have a hard time affording more consumption without increasing debt. Consumers need solutions that don’t cause them to accumulate debt (e.g., a car loan for any type of car) or pay more than $4/gallon of gasoline equivalent. Natural gas and plug-in hybrid cars can work for some (industry is starting to shift to natural gas for trucking, shipping, and mobile power), but might not work for most general consumers due to the car loan aspect.
However, debt-laden consumers are not waiting for government or car industry solutions. Small companies and young consumers are embracing the sharing economy as a response to the suite of macroeconomic headwinds that are long-term and fundamental: aging and slower-growing populations, debt at historically high levels (public and private), and “food + energy” expenditures having passed their lowest point in history 5-10 years ago. Consider that all of driving age can’t afford a car, and car owners don’t use their cars 100% of the time. Thus our “app” friends have created ways to use our cars as taxis (Ridejoy, Lyft, Carma Carpooling, Uber, and SideCar) as well as temporarily borrow cars (Car2Go, Zipcar) for town errands of hours, not days. These are all responses of efficiency to constraints on energy resources and will be as significant a solution to our mobility challenges as will new car fuel efficiency and improvements in fuel production technologies (both petroleum extraction and alternative fuels).
|
|
|
Thank you
I hope the rest of the summer is joyful.
If you agree with me that we need high quality research that critically assesses our future energy options and you want to support students looking at multidisciplinary issues that affect our energy future, then send me an e-mail or give me a call to discuss how you can get involved.
Thank you very much for your time.
Sincerely,
Carey W. King, Ph.D.
careyking@mail.utexas.edu, 512.471.5468, careyking.com
My research seeks a systems approach to describe the role of energy and energy technologies in our past and future. This approach provides the best way to both address questions about our future economy and environment as well as understand how individual technologies can and cannot affect the macro-scale and long-run trends that will frame our future options. I seek understanding of the relationships among:
- energy resources and technologies,
- population demographics,
- water and food,
- macroeconomic factors, and
- implications of internalizing environmental externalities.
|
|
To learn more about Carey's research, visit his website or contact him using this information:
e: careyking@mail.utexas.edu | web: careyking.com | ph: +1 512-471-5468
The University of Texas at Austin, 2304 Whitis Ave, C2400, Austin, TX 78712-1718
unsubscribe from this list update subscription preferences
Copyright © 2014 Carey W. King.
You are receiving this email because you are a friend or colleague with whom I have exchanged business cards, or you have requested to be added to this newsletter.
|
|
|
Recent publications:
In this new journal article I discuss some of the mathematical concepts behind (net) energy analysis. These concepts developed in the 1970s and 1980s can tell us a lot about how to think about shifting form a 100% fossil electric grid to a 100% renewable electric grid. My example in the paper shows one way to model the energy life cycle of the electric grid as a "system of fossil and renewable" that both utilize (i) materials and (ii) transmission.
Since energy return ratios (like EROI = energy return on energy invested) are inversely related to energy cost (see here), modeling net energy also helps us think about energy costs. In short, shifting from a high EROI resource to a low EROI resource lowers the EROI for each individual technology AND the system overall, and vice versa.
Citation:
King, C. W. 2014. Matrix method for comparing system and individual energy return ratios when considering an energy transition. Energy, 72, 254-265.
Did you ever wonder if there were unintended WATER consequences in acting to mitigate greenhouse gas emissions? If the answer is yes, then this paper is for you!
My Australian colleagues were worried that climate mitigation actions meant to reduce net CO2 emissions by growing biomass might significantly hurt ecosystems in Australia (e.g., the Murray-Darling Basin). This paper explores many options for climate mitigation and assesses the degree to which each is good or bad for water conservation. There is no such thing as a free lunch (in this case if you are a beaver or woodchuck!).
Citation:
Wallis, P., Ward, M., Pittock, J., Hussey, K., Bamsey, H., Denis, A., Kenway, S., King, C., Mushtaq, S., Retamal, M. & Spies, B. 2014. The water impacts of climate change mitigation measures. Climatic Change, 125, 209-220.
I am pleased to be a part of this paper by Dr. Kelly Sanders (now professor at USC) that was part of her dissertation research at University of Texas at Austin. This is a good example of four co-authors coming together on a paper with multiple perspectives on the energy-water nexus.
Here we applied different fees (e.g., $100/ac-ft) of either water consumption or water withdrawal to see how the added cost of operation would affect the overall dispatch of electricity in Texas (specifically the Electric Reliability Council of Texas, ERCOT). The answer is that by the time you charge power plants enough money per unit of water consumption in Texas, this water fee is larger than the estimated cost of supply and conservation options that are listed in the Texas State Water Plan.
Citation:
Sanders, K. T., Blackhurst, M. F., King, C. W. and Webber, M. E. 2014. The Impact of Water Use Fees on Dispatching and Water Requirements for Water-Cooled Power Plants in Texas. Environmental Science & Technology.
For this poster, Alyssa Donovan uses data from the IEA to calculate country-specific, and then a world average, "energy return on energy invested" (EROI) while considering direct energy input only. Surprisingly, this 'direct energy input' EROI for the world seems to have stayed near 20 for the last 20 years. Can this be the case as energy production technology has changed and become more capital intensive? We need to learn more about the underlying data quality. Alyssa presented the poster at the 37th International Association for Energy Economics conference (June 2014 in New York).
|
|
EPA rulings on CO2 regulation
As would be expected, analyses differ on how dramatic will be the economic implications of regulating emissions from coal-fired power plants and other CO2 sources. The U.S. Chamber of Commerce press release of their recent funded report claims the EPA’s proposed rules will be economically devastating and job-killing. Others claim the EPA proposed rules are beneficial to the world overall and that the costs are less than the long term benefits. While China talks of implementing measures for CO2 reductions and the EPA is moving toward regulation, Australia's government just voted to get rid of their previously-established CO2 tax (see Australian government and DailyCaller). While economic models continue to predict that the cost of future climate change impacts are higher than the benefits of starting mitigation measures today, politicians and voters seem to be making decisions based on the size of their pocket books today. Because the discretionary income in those pocketbooks is less than the past, voters don't seem to want to pay for CO2.
Shale Oil
Oil is booming in North America, but is there an oil price drop looming? This is a big question. “Cheap oil” is over. Today it takes over $80 per BBL for an oil and gas company to be economically viable in drilling for oil from U.S. shales. Some single projects might cost less (even with profits), but it is important to consider the entire cost of running the business and paying interest on debt. Many of the oil companies have been spending more on capital than they are making in revenues. However, as the years progress, companies are becoming more efficient and their initial land lease costs are becoming less of a factor over time.
Will drilling and operational efficiency increase so quickly as to overcome costs of debt payments and the challenges of continuous movement to lower quality reservoirs? This is another major question of our present era. But it is important to remember the high rate of drilling into shales using hydraulic fracturing is a U.S. phenomenon (some in Canada, and perhaps in 5-10 years in Mexico). Because the U.S. is unique in private ownership of mineral rights and drilling rig count and expertise, most areas of the world might never replicate the ‘shale revolution’. Thus, the state of conventional oil reservoirs outside of North America is still a driving concern.
Overall macroeconomic outlook and implications
Christine Lagarde warns against stockmarket optimism: This short article is indicative of typical statements regarding the world economy (two quotes):
"There is a danger of a vicious cycle - persistently high unemployment and high debt-to-GDP ratios jeopardize investment and lower future growth," - Christine Lagarde.
[The Bank for International Settlements] “The Basel-based organisation - usually dubbed the "central banks' central bank" - talked of a "puzzling disconnect between the markets' buoyancy and underlying economic developments globally".
My take on current energy and macroeconomic coupling:
I believe the quotes above miss long-term cause and effect. “… persistently high unemployment and high debt-to-GDP ratios …” are not jeopardizing future growth. It is lower capacity for future economic growth, due to feedbacks from increasingly costly and constrained basic resources (food, energy, and water), that is causing the high unemployment, high debt-to-GDP ratios, and reduced population growth. All of these factors, in combination with most western central bank interest rates near < 1%/yr, are unprecedented in history. The “…disconnect between the markets' buoyancy and underlying economic developments globally …” is not “puzzling” when you consider that those in the bottom of the income distribution can afford to buy less and less of what those in the top are selling because the bottom are spending more and more of their income on food, energy, shelter, and debt.
The world resides at a balance of supply and demand for energy, particularly crude oil – where crude oil is defined as petroleum of sufficient density to be transformed into liquid transportation fuels (e.g. natural gas liquids do not qualify). Here in the U.S. if the West Texas Intermediate (WTI: North American benchmark) oil price drops below $90/BBL, it puts North American oil and gas production at risk of becoming economically insolvent. If the price stays much above $110/BBL, consumers can’t afford more consumption without increasing debt. I highly recommend watching and downloading Steven Kopits’ presentation (here) and his discussion of oil “carrying capacity” as that maximum fraction of gross world product that can be spent on oil before demand shrinks. Consumers need solutions that don’t cause them to accumulate debt (e.g., a car loan for any type of car) or pay more than $4/gallon equivalent. Natural gas and plug-in hybrid cars can work for some, but don’t work for most due to the car loan aspect.
However, debt-laden consumers are not waiting for government or car industry solutions. Small companies and young consumers are embracing the sharing economy as a response to the suite of macroeconomic headwinds that are long-term and fundamental: aging and slower-growing populations, debt at historically high levels (public and private), and “food + energy” expenditures having passed their lowest point in history 5-10 years ago. Consider that all of driving age can’t afford a car, and car owners don’t use their cars 100% of the time. Thus our “app” friends have created ways to use our cars as taxis (Ridejoy, Lyft, Carma Carpooling, Uber, and SideCar) as well as temporarily borrow cars (Car2Go, Zipcar) for town errands of hours, not days. These are all responses of efficiency to constraints on energy resources and will be as significant a solution to our mobility challenges as will new car fuel efficiency and improvements fuel production technologies (both petroleum extraction and alternative fuels).
|
|
|
|
|
|
|
|
