Hedging Against Uncertainty:
US Strategy in an Interdependent World
Can the US Achieve Energy Security and Reduce its Dependency on Oil?
Constantine P. Tzanos, Ph.D.
The Oil Picture in Brief
U.S. oil production in the lower 48 states peaked in the early 1970s. Although predicting when world oil production might peak is difficult and uncertain, most forecasts suggest that the peak of oil production (production rate cannot increase) will be reached before 2020.
Today the world consumes about 86 million barrels of oil per day. In 2006, the U.S. consumed over 20.7 million barrels of petroleum products per day and imported 12.4 million barrels per day (60 percent of consumption).
Oil meets 40 percent of the total U.S. energy demands, while 23 percent are met by coal, 23 percent by natural gas, 8 percent by nuclear energy, and 6 percent by renewables and hydroelectric power. Most of the oil consumed in the U. S. -- about 69 percent -- is used in transportation, 24 percent is used by industry, while the rest is used for residential heating, commercial needs, and production of electricity. Automobiles use 25 percent of the total oil consumption, light trucks (SUVs, vans, and pick-ups) 18 percent, heavy trucks (including busses) 16 percent, and air carriers 6 percent.
According to the Oil and Gas Journal, there are 1.3 trillion barrels of "proven" oil reserves. These are reserves that can be exploited with currently available technology and can be developed "economically." Of these reserves, 56 percent are located in the Middle East; eleven OPEC countries account for 65 percent of these reserves. The top positions on the list of countries with significant proven oil reserves are held by Saudi Arabia (22.1 percent), Iran (11.1 percent), Iraq (9.7 percent), Kuwait (8.3 percent), United Arab Emirates (8.2 percent), Venezuela (6.5 percent), and the Russian Federation (6.1 percent). An additional 2 trillion barrels of "recoverable" oil is not classified as proven, but it may be classified as such in the future as technology improves. To the above estimates should be added the estimates of unconventional oil. This includes 1.2 trillion barrels of ultra heavy oil in Venezuela, 1.8 trillion barrels of tar sands in Canada, and about 3 trillion barrels of shale oil, with about 2 trillion barrels of it in the U.S.
At the current rate of consumption, the proven oil reserves would last for about 41 years. If the rate of consumption were to increase by 2.5 percent per year, the total reserves (proven plus recoverable plus unconventional) would last for about 85 years. The latter estimate discounts the fact that the energy content of unconventional oil is lower than that of conventional oil.
In the past, significant increases in the price of oil have brought inflation and economic malaise. Most notable is the stagflation of the 1970s. The current economic ills of the world are mainly the product of record oil prices. The problems of the dependency of our world on oil, and fossil fuels in general, are further accentuated by the effects of fossil fuel emissions on climate change. How can the U.S. achieve energy security and reduce its dependency on foreign oil? Even if we set aside the climate change problem, which does not recognize borders, because the U.S. economy is strongly coupled with the rest of the world, the solution of the energy problem in the U.S. is not independent of the world energy problem.
What Are the Alternatives to Oil?
Conservation and improvements in efficiency are the cheapest and fastest means to reduce oil demand and greenhouse gas emissions. The per capita consumption of oil in the U.S. is 26 barrels a year compared to 12 barrels a year in France and Germany, and 11 in the UK and Italy, which have a similar standard of living as the U.S. More than half of the 17 million cars sold in the U.S. between 2000 and 2004 were gas-guzzling SUVs. Clearly there is plenty of room for conservation without any sacrifice in quality of life. Over the past 30 years, the U.S. GDP has grown by 150 percent, while energy consumption has grown by only 25 percent. And though over this period the U.S. GDP has become less dependent on manufacturing and more on services, the contribution of efficiency on reduction of energy consumption is significant. However, the U.S. auto industry has focused its production on bigger and heavier cars than more fuel efficient cars, as this is again clearly demonstrated by the popularity of the gas-guzzling SUVs and the Hummer. Because about 60 percent of the oil is used by autos, light and heavy trucks, improvements in vehicle fuel efficiency can greatly reduce oil consumption, if better efficiency would not lead to driving more miles.
Renewable energy sources are based on natural resources that are naturally replenished and include sunlight, wind, geothermal heat, water (waves, rivers, tides), and biomass.
Sunlight
Sunlight is the largest energy source on the planet. The annual solar radiation received by our planet is about ten times more than the total energy content of all other energy sources (coal, oil, gas, uranium, hydropower, and wind). Solar energy is used for low temperature heat and generation of electricity (photovoltaic cells, solar thermal power). The cost of electricity generated from photovoltaic cells is about ten times that of conventional sources, and the cost from solar
thermal power about two to three times that from conventional sources. The power density (kilowatts per square meter) of solar energy is very low, and presently the efficiency of direct conversion of sunlight to electricity is low.
Wind
The use of wind energy has increased dramatically in recent years with Germany, Spain, and the United States leading in total installed capacity. The American Wind Energy Association claims that the total amount of electricity that could potentially be generated from wind in the U.S. is three times the electricity generated in the U.S. today.
Solar and wind energy, although abundant, are intermittent sources. There is no sunlight during the night and on cloudy days, and wind does not always blow. Until effective energy storage technologies are developed, the generation of electricity from solar energy and wind needs extensive backup capacity by other sources, and this limits their contribution, possibly up to 25 percent of the capacity of an electric grid.
Hydro-electric Power
Hydro-electric power is a clean and economic source of electricity generation. It is an ideal complement of intermittent energy sources like solar and wind, but most major sites in developed countries have already been harnessed.
Geothermal energy
Geothermal energy is used for the generation of electricity and heating. Sites for generation of electricity from geothermal energy are limited. The U.S. generates more electricity from geothermal energy than any other country, but this is less than 1 percent of its total electricity generation. The U.S. Environmental Protection Agency (EPA) considers the geothermal heat pumps to be among the most energy-efficient and environmentally-clean technologies for heating and cooling.
Biomass
Biomass is organic material from plants and animals including sugar crops, starch crops, cellulosic biomass, algae, plant oils, and animal fat. Ethanol is the most well known biofuel. The U.S. is the number one ethanol producer from corn (6.5 billion gallons were produced in 2007), Brazil is the number two producer (4.4 billion gallons of sugarcane ethanol were produced in 2006), and China is the number three producer (440 million gallons of corn ethanol were produced in 2006). Sugar cane ethanol provides 18 percent of Brazil’s automotive fuel. The 2007 Energy Independence and Security Act established aggressive biofuel production targets. Today, in the U.S. ethanol is produced from corn, and although production of corn ethanol is politically very popular, the ratio of energy output over energy input is low (about 1.3 to 1.35), reductions in greenhouse gas emissions are moderate (estimates vary from 15 to 28 percent), and the future impact of corn ethanol on greenhouse gas emissions is unclear. The economics of mass production of corn ethanol are questionable. Corn is the primary feed for livestock, and the use of land for corn to produce ethanol displaces its use for other food crops. The International Organization for Economic Cooperation and Development (OECD) has warned that the rapid growth of the biofuel industry could "even cause food shortages." The production of ethanol or other liquid fuels from cellulosic biomass (prairie grass, wood chips, and agricultural waste) is far more promising in both net energy output and reduction of greenhouse gas emissions. Although several technologies exist for the production of fuels from cellulosic biomass, all these processes are still far too expensive and there is no commercial facility that makes any fuel from cellulosic biomass.
Coal
It is estimated that the U.S. has 19 billion tons of recoverable coal reserves at active mines, 267 billion tons of recoverable reserves (equivalent to about 1.2 trillion barrels of oil), and a demonstrated reserve base of 494 billion tons. The recoverable world coal reserves are estimated at 998 billion tons with 67 percent of these reserves located in the United States (27 percent), Russia (17 percent), China (13 percent), and India (10 percent). In the U.S., 93 percent of coal is used for generation of electricity. Coal can be converted into liquid fuels like gasoline and diesel by a number of processes. Such conversion was used in Nazi Germany and is used today by Sasol in South Africa.
Carbon Capture and Storage
Carbon capture and storage (CCS) could reduce carbon dioxide emissions from a coal burning plant by 80 to 90 percent. The Intergovernmental Panel on Climate Change (IPCC) estimates that CCS would increase the cost of energy from a plant with CCS by 30 to 60 percent. Norway’s Sleipner gas field is the oldest carbon dioxide storage site on an industrial scale.
Nuclear Energy
Today nuclear energy is the only mature and cost competitive energy option that does not generate greenhouse gases and has the potential for energy production on a large scale. Although the capital cost of a nuclear power plant is higher than that of a coal-fired plant, the fuel cost for nuclear power plants is a minor fraction of the total energy generation cost. According to the International Atomic Energy Agency (IAEA), the total identified reserves of conventional uranium, which can be mined for less than USD 130 per kg, is estimated to be about 4.7 million tons. Based on the 2004 rate of uranium demand for nuclear electricity generation, these reserves are sufficient for about 100 years. The efficient use of uranium with the introduction of the fast breeder reactor can extend this period to over 2900 years. Based on geological evidence, IAEA estimates that more than 35 million tons of uranium are available for exploitation. Today only uranium is used as a reactor fuel, but thorium is also a nuclear fuel, and thorium is about three times as abundant in the earth’s crust than uranium. It is also estimated that there are 4 billion tons of uranium dissolved in sea water. Although the public is concerned with the safety of nuclear power and the disposal of nuclear waste, the safety record of nuclear power plants in the West is excellent, and technologies have been developed for the safe disposal of nuclear waste. Today nuclear energy is primarily used for the generation of electricity. It can be used to produce process heat for industrial applications, including process heat for the chemical industry, the production of hydrogen, water desalination, and the production of liquid fuels from coal, tar sands, and shale oil.
What Can be Done?
Because nuclear energy is the only mature and cost competitive energy option today that does not generate greenhouse gases, and can be used to produce energy on a large scale and in a sustainable mode, it can become the backbone of the effort to achieve energy security, reduce dependency on oil and other fossil fuels, and arrest the anthropogenic component of climate change. Nuclear energy and renewable energy resources (to the maximum that is economically feasible by renewables) can be used to produce 100 percent of the energy used as electricity. In the U.S., 49 percent of electricity is generated by burning coal and 20 percent by burning natural gas. A number of automakers are planning to produce plug-in hybrids that can be driven up to 100 miles without a battery recharge. This is well above the average number of miles driven per day per passenger car in the U.S. (about 36 miles). Although most hybrid cars today are passenger cars, there are also hybrid versions of commercial passenger vans, utility trucks, and school buses. Electricity produced from nuclear energy and renewables can provide the additional electricity needed to power the plug-in hybrids. Because 69 percent of the oil is used in transportation, the maximum use of electricity in transportation can drastically reduce oil consumption. For example, if 80 percent of the miles driven by autos and light trucks (SUVs, vans, and pick-ups) are taken by plug-in hybrids, and 50 percent of the miles driven by heavy trucks are taken by transport using electric locomotives (powered by rail or overhead lines), the oil consumption in the U.S. would be reduced to about 48 percent of its level today.
Additional reductions can be achieved by conservation and improved efficiency. In the U.S., 24 percent of the oil consumption is used by industry, and the U.S. chemical industry is the country’s largest energy consumer in the industrial sector. Recently the president and CEO of the American Chemistry Council stated that nuclear power should be a key component of the country’s energy supplies. Nuclear energy and coal (with or without carbon dioxide capture and storage) can be used to produce hydrocarbons for those uses that cannot be replaced. When production of hydrocarbons would become commercially viable from cellulosic biomass, most or all of the hydrocarbon consumption that cannot be replaced could be produced from biomass, and oil consumption from fossil fuel sources could be eliminated or nearly eliminated. Nuclear energy and solar energy can be used to produce hydrogen, which can be used as transportation fuel when it becomes economically feasible.
The technology for energy production from thermal nuclear reactors is mature and cost competitive. However, further development is needed to improve and demonstrate the economics of the fast breeder reactor and significantly improve the economics of electricity generation from sunlight. Effective technologies need to be developed for storage on large scale of energy produced from intermittent energy sources (like sunlight and wind). It needs to be demonstrated that hydrogen can be economically generated from nuclear power, and liquid fuels can be economically produced from coal and nuclear energy, or shale and nuclear energy. It has to be demonstrated that carbon capture and storage can be applied on a large scale, and commercially viable technologies have to be developed for production of ethanol or hydrocarbons from cellulosic biomass.
Since the oil embargo of 1973, each oil crisis brings to the forefront of the national debate the issues of energy security and energy independence; energy is the life blood of the modern mode of living; the likely catastrophic effects of unchecked climate change from fossil fuel emissions have been widely publicized since 1990. Yet U.S. investment in energy R&D is
appallingly low.
The 2008 budget for energy of the U.S. Department of Energy is about $3.8 billion. For the war in Iraq, which is not unrelated to the supply of oil, Congress has provided an estimated $600 billion and mounting. To this should be added the "cost" of lives lost, the cost of war injuries, and all other economic costs stemming from the war. A study by Oak Ridge National Laboratory has estimated a $7 trillion cost to the U.S. economy from the whims of the oil market since the seventies, not including the current oil crisis. Work at the University of California - Berkeley (2005) shows that: between 1991 and 2003 the investment in energy research and development by U.S. companies declined by 50 percent; this investment is below the average R&D investment of U.S. industry by more than a factor of ten (in the pharmaceutical industry, for example, is more than 10 times larger than in the energy industry). Over the previous (previous to 1999) 20 years, worldwide energy research and development spending has declined by 39 percent. The International Energy Agency stated recently that to keep the rise in global temperature below 2.4 degrees Celsius, the world would require an extra investment in the energy sector of $17 trillion, or about $400 billion per year.
For the effort to achieve energy security and reduce dependency on oil to succeed, investment in energy R&D and in deployment of new energy technologies and related infrastructure is critical. It is equally critical to stick to the effort regardless of possible temporary retreats in the price of oil.
This effort requires time even for the deployment of mature technologies. Availability of human resources, the creation of the required infrastructure, and the retirement of the existing stock of vehicles and industrial facilities that depend on oil impose limitations on the rate of deployment of such technologies. For example, today, after the U.S. capability was left to atrophy, reactor vessels, steam generators, and other large nuclear power plant components can be manufactured only in France, Japan, and Korea. As the price of oil goes up, the cost to replace it also goes up. Until oil and natural gas consumption is significantly replaced by energy produced by other sources, the cost to build nuclear power plants as well as facilities for the production of energy and fuels from renewables will be dependent on the price of oil and natural gas. The longer the transition to the meta-oil (and natural gas) economy is delayed, the more it will cost us. •
Constantine P. Tzanos, Ph.D. is a nuclear engineer working for over 30 years in nuclear reactor R&D.