An Overview of Global An Overview of Global Energy IssuesEnergy Issues

Presented by Robert RapierPresented by Robert Rapier

Merica International, LLCMerica International, LLC

ForFor

Orlando Energy ConferenceOrlando Energy Conference

November 16, 2009November 16, 2009

OutlineOutline My ParadigmMy Paradigm The Easy Oil is GoneThe Easy Oil is Gone The Global Oil PictureThe Global Oil Picture

• The Pressure on PricesThe Pressure on Prices• What will replace oil?What will replace oil?• Understanding energy intensity and scaleUnderstanding energy intensity and scale

Energy Policy in BrazilEnergy Policy in Brazil• A model for the world?A model for the world?• Brazil versus U.S. energy statisticsBrazil versus U.S. energy statistics

Energy Policy MistakesEnergy Policy Mistakes• Solutions that would make a differenceSolutions that would make a difference

Building a Sustainable PlatformBuilding a Sustainable Platform• StrategyStrategy

My ParadigmMy Paradigm The days of substantial excess oil production capacity are The days of substantial excess oil production capacity are

overover• Oil price volatility will continue, but long term price trends for oil are Oil price volatility will continue, but long term price trends for oil are

much highermuch higher Replacing fossil fuels with biomass will be a huge challengeReplacing fossil fuels with biomass will be a huge challenge

• Each year we burn >400 years of ancient biomass*Each year we burn >400 years of ancient biomass*• Energy density of oil is 3 times that of biomassEnergy density of oil is 3 times that of biomass

Biomass costs will rise due to competitionBiomass costs will rise due to competition Net BTU efficiency will become more importantNet BTU efficiency will become more important

• How many net BTUs can you extract? How many net BTUs can you extract?

*Burning Buried Sunshine: Human Consumption of Ancient Solar *Burning Buried Sunshine: Human Consumption of Ancient Solar EnergyEnergy

The Easy Oil is GoneThe Easy Oil is Gone

Graphic Source: Colin Campbell

Global Oil PictureGlobal Oil Picture Global oil production – 85.4 million bpd*Global oil production – 85.4 million bpd*

• On a plateau since 2005On a plateau since 2005• Some spare capacity, but…Some spare capacity, but…• Projects are being delayed – setting up price surgeProjects are being delayed – setting up price surge

Oil exporters building refineries to capture more Oil exporters building refineries to capture more of the value chainof the value chain• Saudi Arabia would like to ship finished productsSaudi Arabia would like to ship finished products

U.S. crude oil production – 5 million bpdU.S. crude oil production – 5 million bpd• Peak U.S. production was 9.6 million bpdPeak U.S. production was 9.6 million bpd• EIA predicts turnaround is just around the cornerEIA predicts turnaround is just around the corner

U.S. oil consumption – 19.5 million bpdU.S. oil consumption – 19.5 million bpd U.S. refining capacity – 17.7 million bpdU.S. refining capacity – 17.7 million bpd

*Source: Energy Information Administration

Global Oil PictureGlobal Oil Picture The good newsThe good news

• U.S. oil demand down by 1.2 million bpd from 2004-2008U.S. oil demand down by 1.2 million bpd from 2004-2008 The bad newsThe bad news

• Largely recession-inducedLargely recession-induced• Demand from China and India up by 1.9 million bpdDemand from China and India up by 1.9 million bpd• Oil at $80 the new normOil at $80 the new norm

How does the recession end if oil prices remain at How does the recession end if oil prices remain at recession-inducing levels?recession-inducing levels?

*Source: Energy Information Administration

Pressure on Oil PricesPressure on Oil Prices

If excess capacity remains constant and If excess capacity remains constant and substantial, prices are relatively stable and substantial, prices are relatively stable and related to the cost of productionrelated to the cost of production

Pressure on Oil PricesPressure on Oil Prices

However, eroding capacity means higher prices, However, eroding capacity means higher prices, higher volatility, and sometimes much higher higher volatility, and sometimes much higher profits for oil producersprofits for oil producers

My View in July 2007My View in July 2007

When spare capacity is gone, prices will When spare capacity is gone, prices will ultimately go much higherultimately go much higher

How high? In Europe, consumers pay the How high? In Europe, consumers pay the equivalent of $250/bbl* - 3x U.S. pricesequivalent of $250/bbl* - 3x U.S. prices

*Based on Dutch gasoline price in Q1 2009

The Biomass ContributionThe Biomass Contribution The “Billion Ton Study”The “Billion Ton Study”

• Over 1.3 billion dry tons/year of biomass potentialOver 1.3 billion dry tons/year of biomass potential• Enough to produce “biofuels to meet more than one-third of the Enough to produce “biofuels to meet more than one-third of the

current demand for transportation fuels”current demand for transportation fuels” Converting to ethanol at 90 gallons/ton* yields Converting to ethanol at 90 gallons/ton* yields

• 117 billion gallons117 billion gallons Correcting for lower energy content yields Correcting for lower energy content yields

• 77 billion gallons of gasoline equivalent77 billion gallons of gasoline equivalent• This is <45% of the BTUs of the starting biomassThis is <45% of the BTUs of the starting biomass• This is This is not netnot net of energy to harvest and transport biomass of energy to harvest and transport biomass

Net energy unknown as no large commercial cellulosic ethanol Net energy unknown as no large commercial cellulosic ethanol facilitiesfacilities

U.S. gasoline usage is around 140 billion gal/yrU.S. gasoline usage is around 140 billion gal/yr Is that cup half full?Is that cup half full?

*Source: Private communication from POET.

Key Questions for AlternativesKey Questions for Alternatives

Is the process enabled by fossil fuels?Is the process enabled by fossil fuels? Does the process impact food supplies?Does the process impact food supplies? Can the process operate without straining water Can the process operate without straining water

supplies?supplies? Does the process lower the soil quality?Does the process lower the soil quality? Does the process impact local biodiversity?Does the process impact local biodiversity? What are the emissions from the process?What are the emissions from the process?

Sustainable Alternatives?Sustainable Alternatives? Renewable electricityRenewable electricity

• Biomass, solar, geothermal, wind paired up with plug-in hybrid Biomass, solar, geothermal, wind paired up with plug-in hybrid electric vehicles (but some technical issues need solutions)electric vehicles (but some technical issues need solutions)

• Micro-CHPMicro-CHP BiogasBiogas

• Simple systems; lower energy inputsSimple systems; lower energy inputs Pyrolysis oilPyrolysis oil

• Fast and simpleFast and simple• Used for stationary power or upgraded to transportation fuelUsed for stationary power or upgraded to transportation fuel

Green dieselGreen diesel• Biomass gasification or hydrocracked lipidsBiomass gasification or hydrocracked lipids

Ethanol in some casesEthanol in some cases• Byproduct of sugar processingByproduct of sugar processing• Corn ethanol in Iowa for Iowans?Corn ethanol in Iowa for Iowans?

Renewable petroleum Renewable petroleum • Microbial or catalytic approachesMicrobial or catalytic approaches

The Unsustainable AlternativeThe Unsustainable Alternative

Graphic Source: Energy Information Administration

A Word on Energy IntensityA Word on Energy Intensity The energy balance mattersThe energy balance matters

• How many BTUs of fossil fuel to produce a BTU of How many BTUs of fossil fuel to produce a BTU of renewable energy?renewable energy?

If production costs are high because energy inputs If production costs are high because energy inputs are high, you have a receding horizon problem are high, you have a receding horizon problem • Cost position may worsen as oil prices increaseCost position may worsen as oil prices increase

The problem of receding horizonsThe problem of receding horizons• "Oil Shale Development Imminent” – headline circa 1900"Oil Shale Development Imminent” – headline circa 1900• When oil was $20/bbl, oil shale needed $40/bblWhen oil was $20/bbl, oil shale needed $40/bbl• At $80/bbl, oil shale still not economicalAt $80/bbl, oil shale still not economical

Two high-profile examples of energy intensive Two high-profile examples of energy intensive processes in the renewable energy worldprocesses in the renewable energy world• Cellulosic ethanolCellulosic ethanol• Algal biofuelAlgal biofuel

Understanding ScaleUnderstanding Scale

While we have been successful at rapidly ramping While we have been successful at rapidly ramping up corn ethanol, it barely registers on the scale of up corn ethanol, it barely registers on the scale of our petroleum demandour petroleum demand

Energy Policy in BrazilEnergy Policy in Brazil Sugarcane ethanol has long been a cornerstone of Sugarcane ethanol has long been a cornerstone of

Brazil’s energy policyBrazil’s energy policy Can be produced from byproduct molasses – food Can be produced from byproduct molasses – food

and fueland fuel The key to the process is bagasseThe key to the process is bagasse

• A readily available energy source for fueling boilersA readily available energy source for fueling boilers• Minimal fossil fuel inputs relative to corn ethanolMinimal fossil fuel inputs relative to corn ethanol

Can the World Emulate Brazil?Can the World Emulate Brazil? ““As a result [of ethanol], Brazil has virtually stopped As a result [of ethanol], Brazil has virtually stopped

importing expensive foreign oil.”importing expensive foreign oil.” – Dan Rather in – Dan Rather in The Ethanol The Ethanol SolutionSolution

““If Brazil can do it, so can we.”If Brazil can do it, so can we.” – Bill Clinton, promoting – Bill Clinton, promoting California’s Prop 87California’s Prop 87

““As Brazil's ‘energy independence miracle’ proves, an As Brazil's ‘energy independence miracle’ proves, an aggressive strategy of investing in petroleum substitutes like aggressive strategy of investing in petroleum substitutes like ethanol can end dependence on imported oil.”ethanol can end dependence on imported oil.” – Vinod Khosla – Vinod Khosla and Tom Daschle in and Tom Daschle in Miles per CobMiles per Cob (a New York Times (a New York Times editorial)editorial)

““I'm driving a Chevrolet in the middle of Brazil on ethanol, I'm driving a Chevrolet in the middle of Brazil on ethanol, pure ethanol, not a drop of oil, imported oil in this tank. And pure ethanol, not a drop of oil, imported oil in this tank. And here is the stuff grown all around us that is the fuel. So I'm here is the stuff grown all around us that is the fuel. So I'm thinking, why can't I do this in America? Why aren't we doing thinking, why can't I do this in America? Why aren't we doing it?”it?” – Frank Sesno in CNN’s – Frank Sesno in CNN’s We Were WarnedWe Were Warned

Reality CheckReality Check

Annual ethanol usage in Brazil: 0.33 barrels* per Annual ethanol usage in Brazil: 0.33 barrels* per personperson

Annual oil usage in Brazil: 4.4 barrels per personAnnual oil usage in Brazil: 4.4 barrels per person Oil still supplies more than 90% of Brazil’s Oil still supplies more than 90% of Brazil’s

transportation needstransportation needs

* Barrels of oil equivalent (BOE)

Brazil celebrated energy Brazil celebrated energy independence in 2006independence in 2006• Brazilian President Luiz da Silva Brazilian President Luiz da Silva

made the announcement on the made the announcement on the P-50 oil rig in the Albacora Leste P-50 oil rig in the Albacora Leste field in the Atlantic Oceanfield in the Atlantic Ocean

Reality Check – It Gets WorseReality Check – It Gets Worse Annual oil usage in US: Annual oil usage in US: 23.4 bbl/person** Annual oil usage in Brazil: Annual oil usage in Brazil: 4.4 bbl/person Annual oil production in US: Annual oil production in US: 8.1 bbl/person Annual oil production in Brazil: Annual oil production in Brazil: 3.5 bbl/person U.S. supply imbalance: U.S. supply imbalance: 15.3 bbl/person Brazil’s supply imbalance: Brazil’s supply imbalance: 0.9 bbl/person Consumption and production are: Consumption and production are:

• Grossly unbalanced in the USGrossly unbalanced in the US• Fairly balanced in BrazilFairly balanced in Brazil

So, how can the US emulate Brazil?So, how can the US emulate Brazil?• By cutting oil consumption by 2/3By cutting oil consumption by 2/3rdsrds

• Or by tripling oil productionOr by tripling oil production

* Consumption and production figures are from 2008

Energy Policy MistakesEnergy Policy Mistakes

Leaders mislead the publicLeaders mislead the public• ““We can be just like Brazil”We can be just like Brazil”• Can create demand for a pseudo-sustainable solutionCan create demand for a pseudo-sustainable solution

Leaders change energy policy every yearLeaders change energy policy every year• Uncertainty of tax policies inhibits investmentUncertainty of tax policies inhibits investment• Lack of long-term planning is detrimentalLack of long-term planning is detrimental

Leaders attempt to choose technology winnersLeaders attempt to choose technology winners• Which is influenced by: Which is influenced by:

Misleading arguments from various ‘experts’ Misleading arguments from various ‘experts’ Vested interests Vested interests Desire to please constituentsDesire to please constituents

Suggested SolutionsSuggested Solutions Cease the delusions of ‘cheap gas for everyone’Cease the delusions of ‘cheap gas for everyone’

• Cheap gas encourages fossil fuel consumptionCheap gas encourages fossil fuel consumption Trade off fossil fuel taxes for income taxesTrade off fossil fuel taxes for income taxes

• Rebate income taxes to make it revenue neutralRebate income taxes to make it revenue neutral• Encourages energy conservationEncourages energy conservation• Encourages alternativesEncourages alternatives• Encourages mass transitEncourages mass transit

Encourage behaviors that reduce energy Encourage behaviors that reduce energy consumptionconsumption• Rebates for solar water heaters, fuel efficient carsRebates for solar water heaters, fuel efficient cars

Vision of a Sustainable PlatformVision of a Sustainable Platform The Forestry LegThe Forestry Leg

• Managed forest plantationsManaged forest plantations• Utilize trees that can improve soil qualityUtilize trees that can improve soil quality• By managing the biomass, we By managing the biomass, we

Manage the sustainability Manage the sustainability Ensure our suppliesEnsure our supplies

The Logistical/Trading LegThe Logistical/Trading Leg• Moves biomass from forestry leg to conversion legMoves biomass from forestry leg to conversion leg• Potentially sources 3Potentially sources 3rdrd party biomass as appropriate party biomass as appropriate

The Conversion LegThe Conversion Leg• Utilizes appropriate conversion technologies that fit the Utilizes appropriate conversion technologies that fit the

local biomass resource and local energy need (e.g., local biomass resource and local energy need (e.g., torrefaction to displace coal)torrefaction to displace coal)

The Distribution LegThe Distribution Leg• Gets fuel into the marketplaceGets fuel into the marketplace

StrategyStrategy Assess the energy profile of a locationAssess the energy profile of a location

• Liquid fuels – gas, diesel, jet fuelLiquid fuels – gas, diesel, jet fuel• Electricity – coal-fired, liquid fueled, natural gasElectricity – coal-fired, liquid fueled, natural gas• Heating Heating

Assess the potential renewable resourcesAssess the potential renewable resources• Biomass, solar, wind, geothermal, hydropower, etc.Biomass, solar, wind, geothermal, hydropower, etc.

Evaluate the conversion technologiesEvaluate the conversion technologies• Is there a match between the biomass, the conversion Is there a match between the biomass, the conversion

technology, and the demand?technology, and the demand? Conduct the life cycle assessmentConduct the life cycle assessment Engage the communityEngage the community

• Will local jobs be created?Will local jobs be created?• What are the land use impacts?What are the land use impacts?

ExecuteExecute• Lots of “good ideas” are executed poorlyLots of “good ideas” are executed poorly

Thank YouThank You