ISSUE 2 / 2017
ISSUE 2 / 2017
POWER SOURCE
Oil-powered Politics Won’t Deny Renewables
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EXXONMOBIL ............................................................................................ page 11 BP ENERGY .................................................................................................... page 11
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POWER
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ISSUE 2 / 2017
SOURCE Oil-powered Politics Won’t Deny Renewables
T
he new administration in Washington, D.C., has the global energy sector rethinking oil and gas, while much of the rest of the world worries about greenhouse gas emissions. Out of the tension, a new energy paradigm is emerging. The U.S. Energy Information Administration, or EIA, in its International Energy Outlook 2016 found liquid fuels, natural gas and coal will make up 78 percent of the world’s energy use in 2040. That puts the then incoming administration’s fossil fuel emphasis on target. But between now and 2040, EIA added, renewables will add a 2.6 percent-per-year share and be the world’s fastest-growing choice. Nuclear energy will be second, at 2.3 percent per year. Natural gas will be third, with 1.9 percent per year. Coal will grow slowest. That could, to some extent, address concerns about climate changeinducing emissions. The U.S. White House, Russia, and the Organization of Petroleum Exporting Countries, or OPEC, want to market oil and natural gas, while the nations committed to 2016’s Paris Agreement on Climate
Change are following China’s lead by working to match emissions cuts and economic growth. Though they seem to be pulling in opposite directions, they are moving the global energy sector to a new supply mix in which oil and natural gas will have a powerful but diminished role, renewables and nuclear emerge, and the power of coal fades.
TOTAL ENERGY MIX
The EIA and the ExxonMobil 2017 Outlook for Energy forecasts line up fairly closely. In 2040, oil is 30 percent to 32 percent of the total energy mix and natural gas is 25 percent to 26 percent. The EIA sees renewables moving up to 16 percent to 17 percent and nuclear falling off to only 6 percent, but ExxonMobil sees nuclear capturing a 12 percent share and renewables remaining at only 7 percent. Both see coal falling to 20 percent to 22 percent. Today’s 7.3 billion world population will be 9.1 billion in 2040, according to the World Bank. Two billion people will rise into the middle class as the global gross domestic product doubles over the next two decades, the BP Energy Outlook 2017 Edition adds. Emerging consumers’ demand for energy will grow 25
ENERGY IN
2040
if nations abide by Paris Agreement:
37% of power from renewables
150 million electric vehicles on the road
50% growth in demand for natural gas, overtaking coal in the global energy mix
103.5 million b/d oil consumption
0.5% avg. growth per year in energy sector carbon emissions Source: International Energy Agency, World Energy Outlook 2016
BY HERMAN TRABISH
percent to 30 percent, both oil giants agree. “The world will need to pursue all economic energy sources to keep up with this considerable demand growth,” ExxonMobil reported. About 70 percent of energy project investment since 2000 went to fossil fuels. This will drop to 60 percent of the US$44 trillion expected to be invested through 2040, with natural gas taking a growing share. Subsidies to fossil fuels dropped from near US$500 billion to US$325 billion in 2015, the most recent year documented by the International Energy Agency, or IEA. Renewables received subsidies of only US$150 billion. The Paris Agreement pledges to keep the rise of greenhouse gas emissions to 0.5 percent per year in 2040, down from the current 2.4 percent. But emissions cuts budgets will be expended by 2040 and significantly greater investment in clean energy and energy efficiency will be necessary, the IEA reported. Carbon pricing has “an important role to play” in getting more emissions reductions, BP argued, because it gives both energy producers and energy consumers incentives to change their behaviors.
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HUNGER FOR ELECTRICITY
Global electricity generation, the world’s fastest growing energy use, will jump 69 percent from 2012’s 21.6 trillion kilowatt-hours (kWh) to 25.8 trillion kWh in 2020 and 36.5 trillion kWh in 2040. It will be as much as 67 percent of global demand growth, but will be moderated by more deployment of energy efficiency. That will allow renewables and natural gas to meet more than 80 percent of the new demand through 2040. Natural gas will move ahead of coal in power generation because of the rapid growth in global access to liquefied natural gas, or LNG, according to BP. Renewables will be almost 60 percent of new power generation and most will be price-competitive without subsidies. Attention to grid integration that allows system operators the flexibility to manage renewables’ variability will increase their share. U.S. and developed European nations’ share of global electricity demand will fall from 2015’s 30 percent
to about 20 percent in 2040, ExxonMobil reported. As their populations and economies rise, China and India will account for 45 percent of the growth in global energy demand through 2040. Emerging middle classes will drive manufacturing and put more passenger and commercial vehicles on the world’s roadways. Transportation electrification will emerge, but oil will meet 95 percent of the sector’s needs in 2040, ExxonMobil added. But the pace of oil demand will slow, BP forecasted. Still, global passenger vehicles will grow 80 percent to 1.8 billion. Their share of energy consumption will grow 60 percent, but electric vehicles will take at least 10 percent of the market. Commercial transportation energy use will rise 50 percent. Though the market remains elastic, with pressure on leading providers coming from bargain hunters, BBC Chartering is confident that energy and power generation will remain “a demandproducing sector” going forward, said Raymond Fisch, senior vice president.
NUCLEAR RISK TOO HIGH? Many experts argue the world cannot meet its emissions reductions ambitions without expanding nuclear capacity. Others argue that what happened at Fukushima, Chernobyl and Three Mile Island demonstrate that nuclear power is too risky to expand. The significant cost contingencies and high absolute costs of new nuclear generation are among its many marketplace challenges.
Credit: Shutterstock
In November 2016, there were 447 nuclear reactors in the world with a combined generation capacity of 391,386 megawatts, which was 11 percent of global generation. There were 60 reactors representing 64,500 megawatts of capacity under construction and another 164 reactors with 170,844 megawatts of capacity in planning, according to the World Nuclear Association (WNA).
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REFOCUS ON OIL
This year’s oil story, the increasing role of the U.S. to help meet international demand, comes straight from the headlines. “U.S. crude oil production averaged an estimated 8.9 million barrels per day, or b/d, in 2016, and monthly U.S. crude oil production increased by 232,000 b/d in October and by 105,000 b/d in November,” the EIA reported on Feb. 27, 2017. “The current boom in U.S. oil production is even stronger now than the run from July 2011 to April 2015,” Bloomberg reported on Feb. 26. This was ahead of any action by President Trump to meet his pledge to ease restrictions on the oil and gas industry, Bloomberg noted. “Output growth could accelerate if prices rise, or costs fall further.” The bulk of global oil demand will be from emerging economies, led by Asia. The supply of oil and other liquid fuels will grow 20 percent through 2040 to meet demand, drawing on the estimated 150 years of current global reserves, ExxonMobil said. Leading OPEC nation production will come from the Middle East, but nations in Africa and Latin America will contribute. Leading non-OPEC nation production will come from Russia, Brazil, Canada, Kazakhstan and China. Russia is the world’s biggest producer of crude oil, according to the EIA; hydrocarbons provide 40 percent of its federal budget reserves. Russia is also the second-biggest producer of natural gas, led by the U.S. and followed by Iran, Qatar and Canada. Russia holds the world’s biggest natural gas reserves, followed by Iran, Qatar, the U.S. and Saudi Arabia. In 2016, the Sabine Pass natural gas liquefaction facility in Louisiana became the first operating U.S. LNG export facility outside Alaska. It will allow U.S. LNG exports to surpass natural gas pipeline exports by 2020. By 2021, four more facilities under construction are expected to be online.
ABUNDANT GAS RESERVES
Global natural gas reserves, 85 percent of which are untapped, are adequate to meet current demand for 200 years. Unconventional sources, including shale gas, make up more than 40 percent of the reserves, according to ExxonMobil. ISSUE 2 / 2017
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ALL CHANGE IN A DECADE
Reidl said. They are based on offtake agreements’ 20-year terms and facilities’ 40-year service lives. “The commitment from the oil majors like Shell, Exxon, Chevron and BP remains strong,” he added. “They are bullish and they are building their LNG portfolios and their long-term market strategies.” To meet demand the U.S. will need new LNG facilities, Reidl said. Though projects face a rigorous regulatory environment, many in the industry expect relief from Trump administration initiatives. Japan will be the biggest international market, and new demand will come from markets transitioning away from higherpriced generation sources like India, China and Indonesia, he added. EIA studies show that even with a demand increase of 20 billion cubic feet per day, today’s record low prices are unlikely to rise by more than US$0.02 per million British Thermal Units to US$0.03 per mmBTU through 2050, Reidl said. “We have 325 trillion cubic feet of proven natural gas reserves, so the supply being liquefied is surplus.”
REALITY CHECK NEEDED
Credit: Shutterstock
Ten years ago, the U.S. was preparing facilities to import natural gas, recalled Charlie Reidl, executive director of the Center for Liquefied Natural Gas, or CLNG. New horizontal drilling and hydraulic fracking technologies that allow development of its shale gas reserves mean that the U.S. industry is now converting those facilities to liquefication and export. “The LNG market is currently oversupplied and will remain that way through this year and into early 2018,” Reidl said. “There are shiploads sitting afloat, almost like storage vessels.” Reidl sees investor decisions beginning to rebalance the market in late 2018 or early 2019, and demand rising internationally between 2020 and 2022. “International demand for LNG will likely outpace supply by about 2025,” he said. Investor decisions are not made because of the market’s five-year period of oversupply,
Demand for electricity generation in emerging economies will be the basis for 76 percent of natural gas consumption through 2040. The biggest production increases will be in China, Iran, the U.S. and Russia. This will make for a global marketplace, driving LNG trade to grow 200 percent to 250 percent between 2015 and 2040. European and Asia-Pacific region demand will account for an estimated 90 percent of natural gas imports; twothirds of LNG demand growth will come from the Asia-Pacific region. In 2015, liquefaction facilities came online in Australia and Indonesia, supplemented by the U.S. Sabine facility in 2016. Despite flattening near-term demand, projects under construction are expected to remain on track. Further development is expected globally despite an oversupplied market. New deliveries will supply underserved markets, put downward price pressure in emerging markets and in markets that lack competition, and will add short-term supply flexibility where it is needed.
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Some reports warn that oil company and agency projections are misguided. Business-as-usual projections in studies from BP, ExxonMobil, and others may be seriously underestimating the potential for price drops in solar photovoltaic, or PV, and electric vehicle batteries to take market share away from fossil fuels. Solar PV with battery storage could supply 23 percent of global power generation in 2040, phasing out coal and leaving natural gas with a 1 percent market share, concluded a report by Imperial College London. “ExxonMobil sees all renewables supplying just 11 percent of global power generation by 2040.” But electric vehicles could be 35 percent of the road transport market by 2035, displacing two million barrels of oil per day, it added. “BP put this figure at just 6 percent.” ExxonMobil predicted coal would be the big loser as wind and solar generation grow 360 percent to 15 percent of the 2040 global market. Three-fourths of the growth will be in developed countries and China. Nuclear generation will grow 75 percent through 2040, with more than half of the growth in China. ISSUE 2 / 2017
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Coal use will grow in the Asia-Pacific region and India’s coal use will double, but most of the rest of the world is likely to turn to natural gas for power generation, ExxonMobil concluded. American shale gas is “rewriting the narrative of scarcity and limits that has prevailed since the 1970s,” ExxonMobil added, predicting a new “age of abundance” in energy supplies.
BLOWING UP WIND CAPACITY The global wind industry added more new capacity in 2015 than any other generation technology, according to the Global Wind Energy Council, or GWEC. A record 63 gigawatts of new wind power brought global cumulative capacity to 433 gigawatts, a year-on-year growth of 17 percent. China’s cumulative 145 gigawatts of wind capacity at the end of 2015 led the 80 countries across a broad global
SKIDDING
RIGGING
AMERICAN SHALE GAS IS “REWRITING THE NARRATIVE OF SCARCITY AND LIMITS THAT HAS PREVAILED SINCE THE 1970S,” EXXONMOBIL SAID, PREDICTING A NEW “AGE OF ABUNDANCE” IN ENERGY SUPPLIES.
marketplace that have built wind. There are 28 countries with more than 1 gigawatt of operational wind capacity, and new markets are emerging across Africa, Asia and Latin America, according to the GWEC. The global offshore wind industry added more than 3.4 gigawatts in 2015 across five markets, bringing its cumulative capacity to more than 12 gigawatts. Over 90 percent was off the coast of 11 European countries, but China, Japan, and South Korea were active. The U.S. brought its first offshore installation online in 2016. For BBC Chartering, wind power remains a major cargo volume-driving segment, and while oil and gas related activity remains comparably low, there are signs of “revitalization,” according to the carrier’s Fisch. Various GWEC scenarios project annual capacity growth fluctuating from 6 percent to 15 percent through the
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2020s but ending at about 7 percent, or 43 gigawatts, in 2030. Cumulative 2030 capacity is forecast to be between 1,260 and 2,110 gigawatts. After providing a record-setting 19.2 percent of global final energy consumption in 2014, the world added an estimated 147 gigawatts of renewables capacity in 2015, the biggest single year growth to date, according to United Nations Environment Program partner REN21. “For the sixth consecutive year, renewables outpaced fossil fuels for net investment in power capacity additions,” REN21 reported. The world also added more renewables capacity than fossil fuel capacity in 2015. Wind and solar PV were about 77 percent of all new renewables and each set capacity growth records. By the end of 2015, renewable capacity was an estimated 23.7 percent of global electricity.
ESTIMATED RENEWABLE ENERGY SHARE, END-2015 Renewables account for 23.7% of energy production.
Non-renewables
76.3%
Wind
3.7% Hydro
16.6% Renewables
23.7%
Bio-power
2.0%
Solar PV
1.2%
Geothermal, CSP and ocean
0.4% Based on renewable generating capacity at year-end 2015. Percentages do not add up internally due to rounding. / Source: Renewables 2016: Global Status Report, REN21
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HYDRO AND GEO
GLOBAL RENEWABLES INVESTMENT, 2015 The heaviest investment is in solar power.
US$81B
Solar Power
US$80B US$42B
Wind Power Biomass and Waste-to-Energy Small Hydro Biofuels Geothermal Power Ocean
US$3.9B
US$2.1B US$0.1B
US$3.8B
US$2.1B US$1B US$0.7B US$1.3B US$0.2B US$0.03B
US$67B
+4%
-42% -29% -35% developed countries
-23% -42%
developing countries *change relative to 2014
Source: Renewables 2016: Global Status Report, REN21
+12%*
REN21 noted that hydropower, geothermal and some biomass generation has been price-competitive with fossil fuel generation. In 2015, onshore wind and solar PV began to be competitive in resource-rich locations supported by strong policy. Utility-scale wind and solar still dominate but distributed generation is growing. “Bangladesh is the world’s largest market for solar home systems, and other developing countries (for example, Kenya, Uganda, and Tanzania in Africa; China, India, and Nepal in Asia; Brazil and Guyana in Latin America) are seeing rapid expansion,” REN21 said. Renewables were an estimated 4 percent of global transportation fuels in 2015, with liquid biofuels leading. Bioenergy production grew 8 percent in 2015 but remains challenged by low oil
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prices and policy uncertainty. Advanced biofuels are moving toward commercialization. Global geothermal capacity grew by about 315 megawatts in 2015 to a cumulative capacity of 13.2 gigawatts, but it remains challenged by high project development risks and costs. Led by China’s 16 gigawatts, the world hydropower industry added 28 gigawatts to reach an estimated cumulative capacity of 1,064 gigawatts, but droughts in the Americas and Southeast Asia limited output. Constrained by financing, the global ocean energy capacity of 530 megawatts did not increase in 2015; ocean energy remains largely in the project demonstration stage. Solar PV added a record 50 gigawatts in 2015, a 25 percent year-on-year growth rate that raised cumulative
global installed capacity to 227 gigawatts. China, Japan and the U.S. led, and 22 countries reached the 1 percent of total generation mark. Italy reached 7.8 percent, Greece got to 6.5 percent, Germany was at 6.4 percent and there were emerging markets on all continents. Concentrating solar thermal power installation moved to developing regions with limited grid access where thermal storage capability is of greater value. New projects went online in Morocco, South Africa, Israel, Chile, Saudi Arabia, China and India. Global investment in renewables grew 5 percent year over year, to reach a record US$285.9 billion in 2015, while investment in new renewables for electricity generation reached US$265.8 billion, more than twice the US$130 billion invested in new coal and natural gas generation capacity.
Investment in solar grew 12 percent year-on-year to US$161 billion, which was over 56 percent of total new renewables investment. Investment in wind grew 4 percent to US$109.6 billion, over 38 percent of the total. China, India, Brazil and other emerging economies invested US$156 billion in renewables. China’s US$102.9 billion was 17 percent of that 19 percent year-on-year growth and was 36 percent of the total global investment. India, South Africa, Mexico and Chile upped their investment in 2015 and Morocco, Uruguay, the Philippines, Pakistan and Honduras each invested more than US$500 million. BB Herman K. Trabish is a veteran reporter and regular contributor on energy generation, transmission and policy.
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