ISSUE 3 / 2018
THE PUBLICATION FOR THE INDUSTRIAL PROJECT SUPPLY CHAIN INDUSTRY
ISSUE 3 / 2018
PEAK INTO THE FUTURE Serving the Changing Global Energy Mix
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MJM ENERGY ............................................................................................ page 22 ASSALA ENERGY INC. .................................................................. page 24
COVER STORY
PEAK INTO THE FUTURE Serving the Changing Global Energy Mix BY NICHOLAS NEWMAN
T
he transition from the fossil fuel age to a low-carbon environment is well underway and gathering speed under the combined forces of increasingly stringent environmental regulations and technological innovations. In response, oil majors and countries are diversifying into gas as a bridging fuel and renewable energy. As early as the late 2020s industry experts led by Dieter Helm, professor at New College Oxford, expect the onset of peak demand for oil and gas. In parallel, the pattern of global energy demand is in transition, as increasing demand comes from developing countries, especially India, China, Africa and Southeast Asia.
GLOBAL ENERGY MIX TRANSITION
Yet, despite the rapid growth in renewable energy in recent years, fossil fuels continue to dominate. Today’s global primary energy mix is made up of oil at 33 percent, coal at 28 percent, natural gas at 24 percent and nuclear power at 5 percent. Wind, solar, geothermal and biomass account for slightly more than 3 percent, but the addition of hydropower boosts renewables’ share to 10 percent, according to the BP Statistical Review 2017. The BP Energy Outlook 2018 forecasts a rise in global energy consumption of one-third by 2040, with industrial demand accounting for half of the increase. In contrast, transport demand is expected to slow as electric cars become mass-market products. Renewable energy could satisfy as much as 40 percent of the increase in primary energy demand by 2040. However, according to current global forecasts, natural gas will be the fastest-growing fossil fuel at 1.3 percent a year, while demand for coal will continue to flatline due to tougher environmental regulations. In 2040, the world would have the most diversified fuel mix ever, with oil, gas, coal and non-fossil fuels each projected to supply a quarter of the world’s energy. Nearly 70 percent of the increase in primary energy will be used in power generation. Current U.S. Energy Information Agency, or EIA, forecasts suggest that electricity generation capacity will increase from 25 trillion kilowatt-hours, or kWh, in 2016 to 34 trillion kWh in 2040, in response to rising population, urbanization and increased prosperity. Africa, Latin America and Asia will be the main beneficiaries. In the developed world, the trend is for an increasing connection of power grids to each other in order to create national and even international markets like the North American and European power grids. The power sector will be a major beneficiary of the transition towards wind, solar, hydro and biomass energy. Renewables’ share of total power generation is expected to rise at the expense of coal, from 7 percent today to about 25 percent by 2040. But while coal’s
CREDIT: SHUTTERSTOCK
www.breakbulk.com BREAKBULK MAGAZINE 21
Load-in of 66-meter rotor blades at Germany’s Mukran Port in 2017. The blades were bound for the Wikinger II offshore wind park. CREDIT: BREMER LLOYD LOGISTICS GMBH & CO. KG
depending upon when electric cars become mass market products. Certainly, the governments of Britain, France and Norway have mandated an end to petroleum and diesel driven vehicles by the 2040s. Nevertheless, there will still be a demand for fossil fuels from the aviation sector, the petrochemical industry making products such as fertilizers, chemicals and plastics, and the power sector. Total world oil output has increased from about 90.13 million barrels a day in 2013 to about 98.93 million barrels a day in early 2018, and could rise to around 102.51 million barrels a day by the end of 2019, according to this year’s EIA forecast. But oil major Exxon predicts that world oil consumption will drop to just 78 million barrels per day by 2040 or 25 percent below current world oil output largely due to electric car adoption.
US SUCCESS STORY
share could decline from 40 percent to 30 percent at the same time, it will continue to dominate global power generation due to its widespread availability and price. The share of gas will stay at about 20 percent, according to BP, and oil will contribute some 24 percent. In sum, fossil fuels will continue to dominate the power sector.
HOW DEMAND IS CHANGING
In Europe and North America, demand for electricity peaked in 2007 as a result of the widespread adoption of energy efficiency measures in buildings, more efficient appliances and adoption of smart technologies including Internet of Things, blockchain and cloud computing. In contrast, rapid economic development, urbanization and growing prosperity in developing countries will drive demand for power for many years to come. For instance, China’s power generation capacity is projected to rise from 1,625 gigawatts in 2016 to 3,188 gigawatts by 2040, according to the IEA’s World Energy Outlook 2017, while India’s electricity demand is forecast to double over the coming decade from 1,423 terawatt hours, according to Australia’s Institute of Energy Finance Studies’ forecasts. Until very recently, energy companies feared the prospect of peak oil – a time when the oil would run out or become prohibitively expensive. Now market sentiment favors peak demand, a time when demand for oil and gas will slow or perhaps even decline due to strong competition from renewables in the power sector and energy efficiency measures by industry, in buildings and electric vehicles. Forecasts of the arrival of peak demand center on the mid- to late-2020s, the mid-2030s or a decade later, 22 BREAKBULK MAGAZINE www.breakbulk.com
The big story of the past few years has been the rise of the U.S. to become the world’s third-largest producer of oil and an exporter of liquefied natural gas, or LNG. U.S. production has reached 10.3 million barrels a day compared with Russia’s 11 million barrels a day and Saudi Arabia’s 10.6 million barrels a day, to honor Organization of Petroleum Exporting Countries’ agreements. Increasing efficiency of hydraulic fracturing, a halving of costs and an abundance of shale reservoirs will enable America’s oil production to reach 12 million barrels a day in 2019, according to the EIA. As Mark Madden, CEO of MJM Energy, points out, “cost is king.” By 2022 America will be a net oil exporter as well as exporting natural gas and coal. In short, it will have become an energy superpower. On the gas front, several recent discoveries including the 850 billion-cubic meter, or bcm, Zohr field off Egypt’s Nile Delta, which came online in January 2018; the 750bcm Ixachi 1 field in Mexico’s Veracruz basin; and the Rovuma basin off Mozambique, in which the Coral field alone has as much as 3681 bcm, have increased the world’s reserves.
TOP GLOBAL ENERGY PRODUCERS China
6,015 TWh
U.S. India
4,327 TWh 1,423 TWh
Russia
1,088 TWh
Japan
1,013 TWh
Germany
653 TWh
Canada
643 TWh
TWh = Terawatt hours Source: India Brand Equity Foundation, www.theatlas.com/charts
ISSUE 3 / 2018
COVER STORY
135 Eurasia -200 Europe U.S. -30
CHANGE IN PRIMARY ENERGY DEMAND, 2016-2040
480
Africa 485
Middle East
India 1005
China 790
-50 Japan
420
Southeast Asia
270
(IN MILLION TONS OF OIL EQUIVALENT)
Central and South America
Source: IEA, World Energy Outlook 2017, www.iea.org
Also, in the last decade the number of LNG export facilities coming online has increased in Australia, Angola, Papua New Guinea and the U.S. The recent collapse in LNG prices has also opened new markets around the world and new destinations for LNG tankers. In consequence, global gas demand is expected to increase about 1.6 percent per year from 3,630 bcm in 2016 to 4,000 bcm by 2022. Demand for gas by industry, for heating and cooking, by power and transportation – particularly by trucks and marine transport – will be met by increasing availability of natural gas and LNG which is expected to more than double by 2040.
RENEWABLES’ BIGGER BITE
Subsidies and price competitiveness alongside increasingly stringent environmental regulations have boosted renewable energy production. The project cargo industry has already borne witness to the rapid expansion of the offshore wind industry. Already, there are claimed to be days when countries like Germany, the UK, and Denmark rely on renewables for their needs. In 2015, renewables provided some 19.3 percent of the world’s power according to Renewables 2017 Global Status Report. By mid-century global electricity production could be as much as 100 percent sustainable according to Finland’s Lappeenranta University of Technology, or perhaps more realistically between 25 percent and 30 percent by 2040 according to BP. Greater scale and rising productivity from technological innovations have contributed to the rising cost competitiveness of renewables. According to the Renewable Power Generation Costs in 2017 report by International Renewable Energy Agency, or IRENA, fossil fuel power generation costs ranged from around 6 cents to 17 cents per kilowatt hour across G20 countries. 24 BREAKBULK MAGAZINE www.breakbulk.com
By 2020, IRENA predicts that renewables will undercut fossil fuel with costs ranging between 3 cents and 10 cents per kilowatt hour. Indeed, the best onshore wind and solar photovoltaic projects are expected to deliver electricity costing just 3 cents or less by next year. “The recent power auctions in Mexico saw some bidders offering less than 3 cents per kilowatt hour for new solar projects” observed Mark Allen, subsurface director, Assala Energy Inc. And Saudi Arabia has said it plans to invest US$50 billion to gain 10 gigawatts of renewable solar power. Ultimately, the market will determine how far and fast renewables will make inroads into the world’s energy mix. To cope with growth in demand, ports and project cargo logistics providers are adapting to the needs of the renewables sector, investing in new cranes and quays to cope with long wind turbine blades, nacelles (casings), and tower components. In February 2018, the Global Wind Energy Council, or GWEC, reported that total wind power installations in 2017 were 52.57 gigawatts, bringing the global total to 539.58 gigawatts. The GWEC expects an increase in annual new wind installations from 60 gigawatts today to 75 gigawatts by 2021. More than 90 countries are now home to wind energy – 29 have installed above 1 gigawatt and nine have exceeded the 10-gigawatt mark. The proportions of power coming from wind generally continued to increase, led by Denmark at 40 percent. The big markets of China, the U.S. and Canada source 4 percent, 5.5 percent, and 6 percent, respectively, of their power from wind. In the U.S. and Europe, rail companies such as Union Pacific, BNSF, and DB have set up specialist logistic divisions to move wind equipment long distances. ISSUE 3 / 2018
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240-megawatt Rance Tidal Power Station in France. CREDIT: SHUTTERSTOCK
OTHER RENEWABLES
Other forms of renewable energy are bound by geology or availability of water. Geothermal is a case in point, since it is restricted to volcanic regions such as Italy, Indonesia, Mexico, New Zealand and Iceland. Similarly, hydropower depends upon access to sufficient water flow, while biofuels are related to easy access to the agri-
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cultural or urban waste for processing. In recent years, biofuels and green gases have proved useful in producing electricity for battery storage being increasing used for transportation. According to a B2B researcher MarketsandMarkets report from January 2017, the bio-diesel market was worth $32.87 billion in 2015 and it is expected to expand to $41.18 billion by 2021.
ISSUE 3 / 2018
With an installed capacity of 1,064 gigawatts, hydropower is the original industrial-scale form of renewable energy, and supplies 16.4 percent of the world’s total electricity generation, according to the World Energy Council, or WEC, World Energy Resources 2016 report. In Europe, capacity is being added to existing hydropower stations. Elsewhere, hydropower is expanding with giant dams under construction along the Mekong River, the Nile in Ethiopia and in Latin America, the U.S. and central West Africa. Of global hydro capacity, China accounts for 26 percent followed by the U.S. (8.4 percent), Brazil (7.6 percent) and Canada (6.5 percent). Existing capacity and new construction could almost double hydropower by 2050 to some 2,000 gigawatts. Conversely, offshore marine tidal or wave schemes are in their infancy. Tidal schemes include the 240-megawatt Rance Tidal Power Station in France, the 250-megawatt Sihwa Lake Tidal Power Station in South Korea and the soon-to-be-completed 398-megawatt MeyGen tidal stream project in Scotland. Grand Review Research valued the global wave and tidal market at US$212.7 million in 2016, rising to US$15.29 billion by 2023. The main growth markets are in the Asia-Pacific region, specifically in Japan, the Philippines and India. Geothermal energy contributes a tiny proportion of
SKIDDING
RIGGING
the world’s primary energy consumption, producing less than 1 percent of the world’s electricity. Nevertheless, geothermal power is dominant in Iceland and has attracted energy intensive industries such as aluminum smelters and cryptocurrency mining. According to the WEC in 2016, China, Turkey, Iceland, Japan, Hungary, the U.S., and New Zealand accounted for roughly 70 percent of direct geothermal capacity in 2015. IRENA put current geothermal power capacity at 12.6 gigawatts in 2016 and Global Market Insights June 2017 forecast capacity to reach 23 gigawatts by 2024. On the nuclear front, global capacity is just under 400 gigawatts according to the International Atomic Energy Agency, or IAEA, and is projected to more than double to 874 gigawatts by 2050. However, unlike other energy projects, nuclear raises a mix of financial, political, operational, construction and decommissioning challenges as demonstrated by projects in France, Finland, Germany and South Africa. That said, nuclear’s contribution in eastern Asia in future decades is likely to increase significantly, forecasts the IAEA. Nicholas Newman is an energy journalist, editor, and copywriter based in England, with a focus on energy issues, but also covering transport and technology issues.
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COVER STORY
There are about 900 multipurpose bulk carriers, specializing in transporting products that are extra-large, very heavy or awkward shapes. For this industry the energy sector is a valuable market segment and should provide even greater opportunities in future years. First, continued growth in oil and gas, combined with rising importance of new centers of demand for fuel and power especially in China, Asia, India, Africa and Latin America, favor more long-distance carriage of out-of-gauge cargoes to support extraction and production. Second, the power sector, whether fueled by coal, oil, gas or increasingly by renewables, is set for rapid growth in India, China, Southeast Asia, the Middle East and Africa. This creates opportunities for the carriage of heavy, large and expensive turbines. Third, costly offshore oil and gas fields are coming to the end of their useful life at a rapidly accelerating pace. In the area of the UK Continental Shelf alone, decommissioning costs are estimated at nearly GBP£60 billion, and in the case of the Gulf of Mexico about US$26 billion. The breakbulk and project cargo industry stands to gain as the rigs decline. Finally, the growth in offshore wind to satisfy demand for greater power has resulted in bigger and more powerful wind turbines and blades. Today, 8-megawatt wind turbines with
28 BREAKBULK MAGAZINE www.breakbulk.com
CREDIT: HANSA HEAVY LIFT
GAINS FOR PROJECT CARGO MOVERS
81-meter blades are not unusual and need specialist handling to be transferred to project sites. As Kristian Lundqvist, special cargo trade manager of Maersk, explains, the growth and spread of wind power has encouraged traditional container carriers to set up divisions to specialize in transporting wind power equipment and “proactively participate in supply chain optimization and cost reductions.” Lundqvist predicts that over the next decade, “the continuing growth in wind power and a shift in demand for higher power output will spill-over into larger dimensions and higher weights of wind power equipment.” BB
ISSUE 3 / 2018
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