Editorial comment

	Vol. 229 No.5
PERRY A. FISCHER, EDITOR

Remarkable numbers

I stumbled across some presentations from the March 2008 Annual Energy Outlook (AEO2008) by the US Energy Information Administration (EIA). Some of the data differs markedly from anything that I had seen before and contradicts many recent predictions, even from the EIA itself. All forecasts are to 2030.

Many of the forecasts are related to the Energy Independence and Security Act of 2007, but the role that very high prices play is included, such as enabling more production through unconventional resource development and increasing recovery factors, all while dampening demand. For example, US natural gas consumption is expected to remain more or less the same throughout the forecast period, as unconventional gas production increases to 50% of supply, up from today’s 40%, helping to replace a falloff in conventional production. Meanwhile, imports from Canada are nearly wiped out, but LNG imports replace it all, surging to about 2.8 Tcf a year, from less than 1 Tcf today. And the Alaska gas pipeline finally begins contributing 2 Tcf around 2020.

Even more surprising is the prediction that US dependency on foreign oil will decrease, from the current 60% of supply, down to only 50% by 2020 before rising slightly to 54% by 2030. There are many reasons for this. First is the remarkable projection that US domestic oil (all liquids) production will stop its relentless decline (which appears to have occurred last year), and begin an eventual 30% increase in domestic “liquids” production, from the current 8 million bpd to nearly 10.5 million bpd. This is achieved in several ways.

Second, the new US fuel standards law will hold up over time, and average fuel economy of new light-duty vehicles will reach 36.6 miles per gallon, which is achievable (and a recent report from MIT says as much). Unconventional vehicles will become conventional. Hybrids become the most common unconventional vehicle, with 3.3 million sold, followed by flex fuel (2.7 million) and turbo direct-injection diesel (2.4 million). Farther down the list are the categories gaseous, electric and fuel cell. The sum of these unconventional vehicles becomes almost half of all light-duty vehicles sold in the US.

Third, the forecast says that the biofuels “mandate” of the US Congress will be largely achieved, more than quadrupling today’s biofuel production. That mandate says the US will use 2.35 million bpd of biofuels annually by 2022, with, at most, 1 million bpd derived from corn-based ethanol. The rest will ostensibly come from cellulose, primarily, but also oil seeds and other feedstocks. EIA head Guy Caruso thinks that up to 90% of the mandated volume is achievable by 2022.

While cellulosic ethanol is still a long way from being economic, with capital costs up to five times as great as a conventional ethanol plant, tremendous progress has been made. I know that I’ve been rather negative about food-based ethanol production for years (e.g., this column, Sept. 2006, and I had no idea that it would be so prescient in less than two years!), and moderately positive about cellulose-based ethanol, because it has better inputs than its starchy cousin. But costs still make cellulosic ethanol a leap of faith, at least as to timing. Subsidies will be paramount. A hefty $1.25 per gallon new tax credit has been proposed to subsidize cellulosic ethanol production, but it’s in legislative limbo for now. Ironically, increasing US fascination with biofuels comes as the EU is acknowledging biofuels’ shortcomings, including CO₂ mitigation, water, energy, food and land use problems.

In a related development, the often-cited Jatropha curcas plant is undergoing several large-scale trials. It sounds like the holy grail of biofuel plants that I had hoped would be found “growing on the edge of the Serengeti” (World Oil, Dec. 2001, p. 27). Pesticides and fungicides are not necessary. Yield is about 5 bbl/acre (12 bbl/ha). And best, it grows on marginal land; exactly how marginal is being determined. Also, the geneticists haven’t weighed in with their potentially considerable benefits. It’s early in the Jatropha biofuels business, but there’s reason for optimism.

Another reason for the projected increase in US domestic liquids production and falling dependence on foreign oil is a robust increase in efficiency. The forecast says that energy intensity-that is, energy consumption per unit of economic output will improve a whopping 1.7% annually, while per capita energy use also improves, but only slightly. Liquid fuels consumption grows by an anemic annual rate of just 0.4%.

I don’t usually care much for long-term predictions (they’re generally not worth much). For example, in the “reference” oil price (in 2006 dollars) case, oil falls to an average of $60 by 2015, before rebounding to $70 by 2030. Oil is $117 a barrel as I’m writing this. But I understand that often, policymakers have nothing else to go on and, in any case, it’s EIA’s job to make these long-term forecasts-frequently. World Oil only forecasts drilling activity one year ahead-and we correct it six months later! In fact, the AEO2008 is itself a revision. So, I doubt that this forecast to 2030 will hold true. Forecasts are projections based, in large part, on recent trends. That’s what this is about.

As a sign of the times, two grocery stores that I shop at are encouraging patrons to buy canvas shopping bags, and then reuse them each time they return-an American first! (Although you can still get paper or plastic bags for free, of course.) Most folks in Europe have been bringing their own shopping bags to the grocery store for years.

The office complex that I work in began a public awareness campaign called “lights out Houston.” It’s designed to encourage people to turn out the lights when they leave their offices at night and on weekends. (Imagine that, asking Americans not to waste energy. What’s next? - public service announcements trying to get folks to turn off the water while they brush their teeth?)

Neither these trivial examples nor the EIA’s forecast energy numbers are meant to imply that the US will catch up to Europe’s lower per capita energy use. But by a combination of market forces (via high prices), political action and national effort, the US is clearly heading in that direction. Maybe Europe could give the US another statue, something that symbolizes better, more efficient energy use, perhaps something with a sign like, “Welcome to the Club,” in blazing 0.1-watt LED lights.