Global Resources and Energy Use

Our global resources and energy are what the industry, agriculture and service sectors need to operate and what we also need as human beings to continue our daily activities at work, at home, and in various institutions, organizations and groups we are engaged with. However, the resources and energy are not endless on our planet, or at least in the way we use them now, and their use should be in balance with nature’s possibilities and limits. But at the moment we are seriously overusing our critical natural resources and producing and consuming energy in a way that is severely polluting our living environment and atmosphere.

Measuring Economic Activities and the Use of Global Resources
Economic activity is traditionally measured by using the so-called national accounts system developed by Prof. Richard Stone who was awarded a Nobel Prize in Economics in 1984 for that work. The concept of Gross Domestic Product (GDP), used in measuring global and national economic growth, is derived from that accounting system but its problems are well known. For instance, traffic jams increase GDP by increased use of gasoline but evidently not quality of life and protection of our air from pollution and emissions of green house gases. But still nations and international organizations use GDP as the definite and only measure of solving major problems in society and the world – in fact as a measurement of progress in general – without addressing the negative consequences caused to our environment and global sustainability – in particular the misallocation of resources which is destroying our quality of life.

Other measurement systems than national accounts have been developed to take into account the sustainability or negative aspects of economic growth, but as yet are not widely used. One example is the GPI (Genuine Progress Indicator) which, as graph 16 demonstrates, suggests that human pro- gress plateaued in the early 1970s and has since gradually declined.

Another measurement system of human activity that is more accurate than national accounts in measuring human progress, its sustainability and the limits to that progress, is global ecological footprint accounting. It answers a very different question from national accounts which measure economic growth. The Global Ecological Footprint Network (GFN) makes an annual evaluation of world’s ecosystem sustainability. “Ecological footprint” is a resource accounting tool and its accounts are like bank statements documenting whether we are living within our ecological budget or consuming nature’s resources faster than the planet can renew them. In other words, is our global economic and financial system based on a kind of Ponzi scheme which will collapse at some point, and indeed are we are living dangerously beyond our means?

The Human Race is Living Way Beyond its Means
Recent GFN analysis shows that humanity is currently using resources 50 percent faster than nature can sustain. Thus at present it takes 18 months to produce the food, fiber, and timber used, and to absorb the carbon emitted in one year. In other words, we would need 1.5 planets to continue this lifestyle. Historically this has been due to the developed world’s massive consumption of the planet’s resources, but increasingly developing countries such as China and India are having an impact. The result is unprecedented pressure on our natural systems, but most countries are still increasing their biocapacity deficits. This is only possible by importing resources, depleting their own stocks or filling the atmosphere and ocean with their carbon emissions. This process has been worsening ever since humanity first exceeded the world’s biocapacity limit in the early 1970’s as shown in graph 17.

A Global Dilemma: How to Make Ecological Footprint More Equal?
Looking at the Global Ecological Footprint from a regional viewpoint, Graph 18 shows that if the world population all lived at North American standards, it would require 5 globes’ worth of resources, at West European standards 3 globes but Asia only 2/3 of the globe and Africa only 1/3. Africa and Asia are therefore within their ecological quotas in relation to their population but will be suffering from the gross over-consumption that has been and will be taking place elsewhere. The world consumption of our resources is therefore is very unequal and unfair. But how can China, India and other Asian and Latin American countries as well Africa increase their economic growth, get out from poverty, without increasing their ecological footprint over the upper limits of their quota. is kind of increase would be fair and just. But this is a big dilemma for mankind. The answer is: they clearly cannot unless the global North – North and South America and Europe – reduces its own ecological footprint, its gross overconsumption. If this does not happen there will be at some point global and regional collapses where all continents will suffer, and greatly so.

Availability of energy has been, and remains, crucial to maintenance our living standards and to global sustainability. Energy use is also essential to the alleviation of poverty, particularly in the global South. In the West and North our economic growth and increased prosperity have been based on cheap oil in the period of 1900-1970. The following chart shows this graphically.

But the era of cheap oil and energy has ended as the graph shows. This problem has three main causes:

• increasing cost/benet ratio for the oil industry
• the concept of peak oil and
• the high cost/benet ratio of alternatives for crude oil such as renewable sources of energy.

Energy Return on Energy Invested (EROEI): A Major Challenge for Global Economy
The implications of the problems facing the mankind in the near future can be understood by using the concept of “Energy Return on Energy Investment” (EROEI). The concept indicates how many energy units are produced for the energy invested in producing it. For instance, to get oil from the ground also needs some oil or other energy source for drilling, transportation and other necessary activities to keep the oil industry going. Therefore, if one energy unit (e.g. one gallon of oil) invested to produce energy for our collective use brings us 10 units (e.g equivalent of 10 gallons of oil) the ratio is 10:1.

EROEI is rarely discussed in mainstream economic literature, yet it is arguably the most important issue the world will face in the next few decades. Historically, from an energy production perspective, this ratio was 100:1 or more, for example for large onshore oilfields in the hey-day of the Middle East pre World War II. As the easily accessible oil and other fossil fuels have been used up, that ratio has declined to a global average of around 20:1 today as exploration and production has moved into more difficult territory such as deep offshore waters. For many of the new sources such as tar sands, the ratio is below 5:1 and may fall below 1:1 when the true environmental impact is internalized. In comparison, shale gas in Pennsylvania is around 20:1. EROEIs are very source specific. There is little point in continuing operations – from the view of environmental impact and economic profitability – when EROEI ratios fall much below 3:1.^{32 33 34}

The red area in the graph represents the energy invested in producing energy, for example in building drilling rigs, pipelines and tankers to access the oil and move it to market. e blue area is the surplus available to run our society, for example transport systems, urban services power generation etc. As the ratio has reduced, moving from left to right across the graph, over time the blue proportion has been dropping and the red proportion increasing. Overall, to maintain an industrial society as we know it requires an EROEI of around 10:1, as indicated in the graph.

But what about alternatives to fossil fuels? Could they offer better solutions in terms of better EROEI? Not really.

The alternatives to fossil fuels encompass:

• demand reduction via efficiency & conservation
• hydro
• wind
• solar PV
• concentrating solar thermal
• passive solar
• geothermal
• wave
• tidal
• new generation nuclear
• biomass
• biofuels (albeit these may be excluded on low
EROEI grounds)
• the unknown unknowns ?

Each alternative currently contributes a minor amount to global supply relative to fossil fuels, albeit some are growing rapidly. With the exception of nuclear, they also have far greater spatial requirements than fossil fuels, raising issues of potentially conflicting land use. They have relatively low EROEIs which will improve as their efficiencies and related technologies improve, but they will never have the power density of coal, oil or gas. To become more effective, these intermittent sources also require major innovations in, storage and transmission, which is that they do not emit carbon.

At present, EROEIs of alternative energy sources are around or lower than 10:1, so until these ratios improve, there will not be sufficient energy to sustain conventional economic growth unless we make fundamental changes to our lifestyles by consuming less via increased energy efficiency and conservation.

This was already evident when high energy prices from the 2008 Global Financial Crisis right until 2014 dampened economic activity in developed economies.

Whether other forms of cheap energy will emerge, or energy will remain expensive, is unclear, but there is little doubt that energy prices in the medium term will be volatile as the new order unfolds.

We return in the next chapter to the crucial issue how global economic growth is dependent on energy use and its availability as well on climate change and available technology.

History has demonstrated that major innovations in the energy arena can take at least 30 years to reach “materiality”, based on conventional commercialization processes³⁵. This only serves to underline the enormity of the transition ahead, and the fact that we cannot rely on historic transformation processes if we are serious about avoiding dangerous climate change.

Further, it is rarely acknowledged is that decisions made today about energy systems, urban design, housing and infrastructure generally, lock in patterns of consumption and emissions which last for decades to come, which is why those decisions must be taken with a clear understanding of their long term implications, and not based on short-term political expediency.

Peak Oil – Diminishing Resources of Oil Supply
A related problem to the declining rate of EROEI is the depletion of global oil reserves, so-called peak oil. Oil is still the most important energy resource for our societies and will remain so for some time even if the alternatives forms of energy like renewables rapidly take a larger market share. The two charts (21-22) explain the basic nature of this problem.
Peak oil is in essence a geophysical problem, determined by the structure of oil reservoirs. Graph 21 shows the production profile of a typical oil field. After exploration and development, production initially increases as drilling is carried out to reach a maximum level, or initial peak. Beyond this, various secondary and tertiary recovery processes can be used to extend the production life, but the peak production is rarely exceeded. Production then declines as the natural pressure in the reservoir declines.

Broadly, the production profile follows a bell-shaped curve. At the peak we have not run out of oil, as roughly 50% of all the recoverable oil in the reservoir remains to be produced. e critical point is that the production level cannot be increased, not because of any economic or price considerations, but because of the physical attributes of the reservoir.

If this approach is applied to all oil fields worldwide, at some point we would expect to reach a global peak of oil supply, unless decline in existing reservoirs is more than onset by new discoveries.

Graph 22 shows how this is now playing out globally as more and more countries pass their individual peaks. New discoveries have not been keeping up with existing reservoir decline. Graph 23 shows the growing gap between global oil discoveries and conventional oil production. It raises the question how this growing gap might be filled in the future, as there are many problems in trying to do this:

• Not discovering new oil fields quickly enough.
• Data on existing oil reserves is suspect.
• Many established oil provinces are in decline.
• Unconventional resources are proving difficult to develop.
• Oil producing nations are using more oil domestically and exporting less.

Peak oil becomes very important as the new emerging markets, particularly the BRICS countries (Brazil, Russia, India, China and South Africa), endeavour to rid themselves of poverty, seeking high rates of economic growth, surpassing the growth rates of the global North and West. But where would the energy come from to make these kind of economic growth rates possible for BRICS countries?

The International Energy Agency (IEA) has the following view of energy supply under their “New Policies scenario”, which is more or less “business- as-usual” with some adjustment for policies which governments have committed to but not yet implemented.

Within this overall energy picture, conventional oil supply peaked in 2005. Demand has since been met by expansion of unconventional oil supply, such as shale oil or gas (see next section), but by 2035 substantial additional supply has to be found out equivalent to around 4 new Saudi Arabias, currently the world’s largest oil producer. It is highly unlikely that this gap can be filled from unconventional sources, so a supply/demand imbalance is likely to develop, with major negative implications for global economic growth.

This intensifying major imbalance between oil supply and demand poses a major dilemma for global energy supply. However matters are further complicated by the climate change implications of the “New Policies” scenario above. The IEA does not “forecast” that energy supply will expand as outlined in the “New Policies” picture above, as many fossil- fuel producers regularly claim. Scenarios are not forecasts – rather they indicate what would happen if, in this case, “business-as-usual “ with some minor variation was to be maintained. In fact the IEA argue strongly that if this were to happen, the outcome in climate change terms would be disastrous. As Fatih Birol, the IEA Chief Economist put it in 2012:

“The world is currently following a trajectory which will increase temperature by 6°C relative to today, for which the energy sector is largely responsible. If that is allowed to happen, we are all in trouble”

The IEA also have a scenario, the 450 scenario, aimed at containing temperature increase below the official 2°C temperature increase. This requires far more extensive emission reductions than the New Policies scenario above.

“By 2035 substantial additional supply of oil has to be found out equivalent to around 4 new Saudi Arabias.”

Renewables Are Rapidly Becoming Competitive, But From a Very Low Base
The renewable energy alternatives outlined on the left have seen remarkable reductions in cost over recent years, and strong take-up in countries such as Germany, and now China, who have been prepared to provide appropriate incentives to companies to hasten their market penetration. Rapid technological development is greatly improving renewables competitive position relative to fossil-fuels, albeit the playing field is still not level as the price of fossil-fuels excludes so-called externalities such as the cost of carbon pollution and health impacts, in other words it does not reflect their true cost to society. Recent analysis by the International Monetary Fund suggests that the price of coal, for example, should be raised by 60% or more to reflect these externalities.⁴¹ This means that the fossil-fuel industries continue to enjoy the enormous subsidy they have benefited from since the Industrial Revolution. The subsidies given to the renewable industries are small in comparison. We return to the highly important question of subsidies in the chapter 4. The challenge for the world is that renewables, despite great strides in recent years, still only represent a very small proportion of total global energy consumption, as shown below:

Around 7% of global energy consumption in 2013 came from hydropower, with a further 2% from new renewables such as solar, wind, geothermal, biomass and waste. Allowing a further 6% for traditional biomass (wood) gives a total 15% of global consumption from renewables – a very low figure.

Clearly if carbon emissions have to be reduced rapidly to meet climate change targets, there is an enormous task ahead, which is not going to be solved by conventional change processes. Hence the need for emergency action.

Are Unconventional Fossil-Fuels A Solution?
Unconventional fossil-fuels have attracted much attention in recent years. Unconventionals includes the following:

OIL:

• Oil Shale, also known as Kerogen Shale, refers to any sedimentary rock which contains kerogen from which oil may be produced by heating the kerogen.
• Oil Sands contain a dense and viscous form of petroleum, virtually bitumen.
• Light Tight Oil refers to light crude oil trapped in low permeability, low porosity shale, limestone or sandstone formations.
• CTL and GTL refer to Coal-to-Liquids and Gas-to-Liquids technologies where oil is produced from coal or gas respectively.

GAS:

• Tight Gas is natural gas trapped in extremely low permeability and low porosity rock, sandstone or limestone formations.
• Shale Gas is natural gas contained in organic-rich strata dominated by shale – in effect a sub-category of tight gas.
• Coal Bed Methane (CBM) or Coal Seam Gas (CSG) is methane adsorbed on to the surface of coal in coal seams.
• Methane Hydrates are methane molecules trapped in a solid lattice of water molecules, kept in solid state by low temperature and high pressure (e.g. in deep water or in the Arctic seas).

Global oil resources for example are significantly increased by unconventionals, as indicated below:

In Graph 27, the horizontal axis is oil resources technically recoverable, but at increasing cost going from left to right. The negative segment means the amount already produced. In short, we have a great amount of resources in theory, but little of it is environmentally and economically viable.

But resources are not the real concern. What matters is the ability to extract those resources and to create a flow to the market in an economically and environmentally acceptable manner. As the graph shows, there are difficulties on both counts. Production costs rise rapidly for unconventionals and they are also worse in terms of their environmental impact than conventional fossil-fuels. Overall, these factors reflect the declining EROEI for fossil-fuel supply.

Much attention has been focused recently on “fracking”, or more accurately hydraulic fracturing. This is the process of opening up fractures in tight subterranean geological formations by the use of high-pressure fluid injection, to improve the flow of fluids residing in those formations to the surface. It particularly applies to extracting tight oil and tight gas.

Fracking was initially developed by the oil and gas industry in the late 1940s to improve the flow of hydrocarbons from conventional reservoirs, and has since been widely applied.⁴⁴ Today over 50% of conventional oil and gas wells around the world are fracked as part of standard oilfield practice. Most of these reservoirs are at considerable depth below the surface, and relatively localized, where fracking does not interfere with other critical activities, such as agriculture or water acquifers. Conventional oilfield fracking practice has not generally been a concern.

However, more recently fracking has gained notoriety as it has been applied increasingly to the production of oil and gas from unconventional resources in shale beds and coal seams. These are closer to the surface and have the potential to fundamentally interfere with agricultural activity and water availability, create geological disturbance such as minor earthquakes, with substantial pollution and health risks.

Fracking technology has progressed enormously in recent time, driven by higher oil and gas prices. Techniques such as sophisticated directional drilling now enable extensive areas of shale beds and coal seams to be accessed in ways never previously possible. In the USA, this has led to a significant increase in unconventional oil and gas production, to the point where proponents argue the country could become “energy independent” in a matter of years.⁴⁵

Whilst this jump in US production has had short- term benefits, the downside effects of fracking are now starting to emerge, with questions raised over the viability of unconventional production from both the economic and environmental perspectives.^46 47 48

This shale oil and gas revolution has in addition a major downside as environmental and climate impact of fracking is a real concern. In particular, shale gas has damaging implications for climate change as methane leakage to atmosphere during its production may result in a higher warming potential than using coal. Also the removal of aerosols in the atmosphere when gas replaces coal may accelerate warming. As Nobuo Tanaka, former Executive Director of the IEA put it in 2011: “Whilst natural gas is the cleanest fossil fuel, it is still a fossil fuel. An expansion of gas alone is no panacea for climate change”.⁴⁹

The recent fall in global crude oil prices, from above $100 per barrel to around $60 per barrel in January 2015, reflects the convergence of the factors outlined here. The consistently high oil price since the Global Financial Crisis in 2008 has been a significant factor in stalling economic growth, despite strenuous government efforts to counteract this by increasing money supply via so-called “quantitative easing”. The result has been a drop in global demand just at the time the US has substantially expanded high-priced oil supply from shale fracking investments, many of which will be uneconomic at current prices. Demand is also being negatively affected by the beginnings of the transition to the low-carbon economy. Conventional oil producers in OPEC have decided not to reduce supply, hence putting further pressure on the high-cost newcomers. As the transition to the low-carbon economy gathers pace, continuing volatility in energy prices in general is inevitable as the old fossil fuel sources struggle to maintain their position in the face of the new disruptive technologies and pressure to curb carbon emissions. We need to move away from fossil-fuels in toto – a global rush into fracking will certainly not meet this objective, and will waste substantial funds which would be far better spent on low-carbon alternatives.

The Climate and Energy Dilemma
Climate and energy are inextricably linked, and integrated solutions are essential if we are serious about sustaining our society whilst avoiding catastrophic climatic outcomes. They cannot be isolated in separate silos as in most current policy-making.

Climate science indicates that if the world is to have a reasonable, say two in three, chance of constraining temperature below the “official” 2°C increase, albeit 2°C is too high, from now on only about 20 per cent of current proven fossil-fuel reserves, as opposed to resources, can be burnt. The remaining 80 per cent must be left in the ground.

This raises fundamental questions: why then continue to explore for fossil-fuels and what value should be placed on resource companies whose future depends on being able to exploit those reserves?

However, the dilemma is even greater. Graph 28 assumes a 50-66% chance of keeping temperatures below 2°C – not very good odds for the survival of much of humanity. A more realistic chance of not exceeding the 2°C limit, whilst still not ideal, would be, say 90%.

The blue line in Graph 29 is the carbon budget probability distribution for varying chances of staying below a 2oC temperature increase. The grey box indicates total global carbon emissions from the Industrial Revolution to date. For a 33% chance of success in staying below 20C, the orange arrow indicates the world could emit, in future, an amount roughly equal to the amount already emitted to date. For 50% and 66%, as the chance of success increases the budget reduces. However, at 90%, there is no remaining budget.

The “official” solutions to this dilemma encompass a range of technologies, particularly carbon capture and storage (CCS) which aims to capture CO2 at the point of
emission, compress it and sequester it underground in geological traps such as depleted oil and gas reservoirs or other secure structures such as acquifers or salt domes. This is well-established technology in conventional oil and gas operations, but extending it to sequester the enormous volumes now being generated from fossil-fuel combustion far exceeds the capacity of depleted oil and gas reservoirs. CCS may be a partial solution in due course, but it cannot be relied upon to be the “silver bullet” as it is so often portrayed.

Other clean-coal technologies, whilst partially reducing emissions from coal burning, similarly are unlikely to provide the extent of emissions reduction now required.

Our refusal to confront these facts has triggered serious discussion in scientific circles on geo- engineering; altering the atmospheric system to prevent warming occurring by, for example, putting sulphates into the atmosphere, thereby replicating emissions from volcanoes.

This is a dangerous development given that the implications are poorly understood. Geo-engineering is a last resort which should not be used while other options are available. However the inaction of current leaders means that those options are rapidly being cut off.

In short, the world should move as fast as possible to low-carbon energy supply. Obviously that is not going to happen overnight, but it emphasizes the need to transform current policy negotiations from a focus on incremental change to an emergency response.