print this page Get Used To It! The Price of Gas That Is. On Thursday, March 10th, 2005, The University of Western Ontario Fyfe Chair in Natural Resource David Hughes is a geologist who has spent more than 30 years analyzing the energy resources of Canada. He graduated from the University of Alberta with an Honours Bachelor of Science in 1972 and again, in 1975, with a Master's Degree. Currently, he is the Leader of the National Coal Inventory at the Geological Survey of Canada and he also participates in the Canadian Gas Potential Committee as the Team Leader for Non-conventional Gas. The presentation opened by pointing out that in 2003, hydrocarbons made up 87% of the primary energy produced, and that this is unlikely to change through 2025. Although North American energy consumption is growing more slowly than in the past, world demand, fuelled largely by the emerging economies of China and India, is forecast to increase substantially over the next twenty years. The problem with this trend is that while economists see continuous growth as essential for a healthy economy, geologists see finite resources. From there, the discussion proceeded to supply and demand of oil, gas, and coal, as well as nuclear and some non-conventional energy sources. All statements were illustrated with well-documented graphs and charts created from the latest sources of historical and current energy statistics together with future forecasts, presented in a uniform-style for purposes of this talk. These documents, as well as a list of links, may be accessed at www.ontpet.com. The immediate picture is grim, but Mr. Hughes is hopeful for long-term innovations. Crude Oil is the largest source of energy in the world and the most transportable. OPEC and Russia control 83% of the world's remaining supply. But there may be a problem with OPEC's reported reserves. During the 1980's OPEC decided to allocate quotas to each country based upon reported reserves. Suddenly the reserves reported by each country were magically inflated without the benefit of new discoveries. Therefore, OPEC reserves are probably overstated and about one-third of the world's reported oil may be 'political oil'. Officially, total reserves, based upon OPEC's potentially inflated figures, were expected to last for 40 years, but 25 years may be a more realistic forecast. This brings up the issue of 'peak oil'; when world oil production can no longer grow to meet growing demand, and depletion eventually results in an irreversible production decline. To illustrate the relative speed of the growth side of the curve, as of year-end 2003, human beings had consumed one trillion barrels of oil, which is roughly half of many estimates of the world’s ultimate recoverable oil potential. It took us from 1860 until 1921 to use the first 1% of this oil. By 1945 we had consumed 5%. Ninety percent of all the oil ever used by human beings has been consumed since 1956 and 50% has been consumed since 1982. World oil discoveries peaked in 1965 and since 1983, the world has found less oil in each year than it has consumed. We are depleting the 'oil bank account' and the only question surrounding the peak is when. Several recent studies put peak world production at 84-90 million barrels per day in the 2005 to 2008 timeframe. To put this into perspective, in 2004 we were producing 82.4 million barrels per day and will average 84.5 million barrels per day in 2005. Seventy-five percent of the world's oil production comes from countries that have already peaked - for example, the United States in 1970 (as was predicted by M. King Hubbert), Kuwait in 1972, Iran in 1974, Saudi Arabia in 1980 and eighteen others since 1993. Canada, which has not yet peaked in oil production, still has the oil sands, however, long lead times are needed to grow deliverability in the oil sands, and huge inputs of energy, water and capital are required. The oil sands may have more potential oil than Saudi Arabia and the supply will be significant for Canada but due to these obstacles, cannot hope to raise deliverability enough to significantly offset world wide declines in conventional oil production. Even with extremely aggressive growth forecasts for non-conventional oil in Canada and Venezuela, the two largest deposits of bitumen and heavy oil in the world, both of these areas combined will produce less than 5% of 2025 forecast world oil demand. Natural gas is the third largest energy source in the world. The good news is that there is lots of natural gas in the world; the bad news is that only 4% of discovered reserves are in North America. The Middle East and Former Soviet Union alone contain 73% of the world’s natural gas. The world has a remaining reserve-to-production ratio of about 60 years. In North America, however, the reserve-to-production ratio is only 10 years. In Canada, natural gas deliverability peaked in 2002. We have consumed 63% of all the gas discovered in Canada – 78% of Canada’s estimated remaining potential has not yet been discovered – we certainly hope it is there. Drilling activity nearly quadrupled between 1996 and 2004 but proven reserves declined in every year except 2001, when reserve additions barely compensated for production. The Western Canadian Basin experienced growth until 2001, plateaued in 2002, and started to decline in 2003. Results for 2004, when there was another all time record amount of drilling, indicate production remained flat. Even when you add in new conventional gas developments - Off-shore Atlantic, the MacKenzie Valley pipeline, Liquified Natural Gas shipped to New Brunswick and Nova Scotia from other countries - the Canadian peak still remains at the year 2002 -these sources only serve to extend the plateau in supply by a few years. The wildcard is coal bed methane, which the National Energy Board estimates could allow Canada to increase gas production until the 2010-2015 timeframe. Coal represents two-thirds of the world's remaining fossil-fuel energy. It is fairly evenly distributed around the world and it is easily transported. The problem is that with old technology utilized in much of the existing coal-fired infrastructure, there is a higher carbon footprint than with natural gas. The solution to expanded use of coal is the utilization of much better technologies, with higher efficiencies and minimal emissions. Some of these “clean coal” technologies are available now but will require refitting or new Greenfield construction. Renewable sources of energy such as wind and solar must be encouraged, but realistically are only a small incremental part of the solution. Hydrogen has been considered by some to be the silver bullet, but it is an energy carrier, not an energy source, and there are energy losses during conversion from natural gas or electricity. Because of these conversion losses, it probably makes more sense to utilize the natural gas or electricity directly, unless the electricity comes from renewable sources. Utilizing non-renewable fossil fuels to make hydrogen could actually make the greenhouse gas emission problem even worse than without a so-called “Hydrogen Economy”. Some in the financial community have recognized these problems and are not investing heavily any more. The audience was reminded of the principle of the “Energy Sink” or “Energy Return on Energy Invested”. It is not just the cost of production in hard currency that is at issue, but the amount of energy in that is required to produce the energy supply out. Many of the alternatives are energy-intensive methods in themselves, and even if apparently financially viable, will actually result in a net loss of energy, dubbed the 'energy sink'. Electricity , which defines modern civilization, is one of the largest utilizers of energy sources. It can be fuelled by nuclear, coal, natural gas, oil, hydro dams, or renewable sources of energy. Recent years have seen an increase in electricity demand accompanied by increased generation largely from natural gas. Given the natural gas deliverability problem discussed above, the rapid expansion of the gas-fired electricity generation infrastructure in North America may jeopardize both cheap electricity, which is essential for our competitiveness, or even a reliable supply. The Ontario government's plan to shut down coal-fired plants in 2007 would require between a 400% and 700% increase in gas consumption, depending on the pace of growth in nuclear energy. It appears that gas, because of the deliverability problems, will be a very expensive alternative to coal for electricity generation going forward. Gas is a very high value fuel, which is an essential feedstock in the petrochemical and fertilizer industries as well as for residential heating – uses to which coal is more difficult to put. A senior executive in the energy industry has suggested that utilizing gas to extract and refine oil sands is akin “… to turning gold into lead…” To quote the president of Dow Canada, utilizing gas to generate electricity rather than in higher value petrochemical applications “… is like lighting candles with hundred dollar bills…” Another U.S. Dow executive’s top two priorities, as a signatory with others in a letter to the Bush Administration on the energy security issue, was “energy efficiency and conservation” and “energy diversity – clean coal, coal gasification, renewables, nuclear”. In summary, the way forward is NOT that of 'business as usual'. We are running out of cheap oil and gas, the basis upon which all our past business has been conducted, not to mention global population growth. We must first of all recognize the problem; second, practice energy conservation, which is the most cost effective way of dealing with it; and finally, develop a vision that extends beyond the mandate of any given elected government. It is interesting that solutions to the energy sustainability problem have much in common with solutions to global warming and accompanying environmental issues. Although Mr. Hughes believes that the sustainability issue will hit first in terms of socio-economic impact - the solutions for the energy sustainability issue will also go a long way to solving the global warming/environmental degradation issue. A sustainable energy future is not out-of-reach, but it will require firm resolve, cooperation and investment on a global scale, and a ten-to-twenty-year timeframe to develop alternatives. A good start would be the cooling down of the economy and a concomitant reduction in consumption. |
For more information on APGO, please contact info@apgo.net |
s and Sustainable Development collaborated with the Ontario Petroleum Institute to bring a public speaker to London, Ontario. This was one of a series of joint ventures between academia and industry for the educational benefit of all. Mr. Hughes delivered his talk to The Department of Earth Sciences, University of Western Ontario in the Biology- Geology Building and to The Ontario Petroleum Institute at the Stoneridge Inn in London, Ontario. The purpose of this presentation was to discuss the issues surrounding trends and forecasts in energy supply and demand and the resulting implications for a sustainable energy future in Canada and the world. 
In the process of researching these subjects, Mr. Hughes has developed an incisive understanding of the overall state of energy supply in Canada and the world. He is increasingly quoted by the print and broadcast media. His message is that overall, we may not actually run out of energy resources; but we are encountering a huge deliverability and cost problem - the last barrel of oil will be very costly indeed.