Sunday, February 11, 2018

Burn Out: The Endgame for Fossil Fuels. Dieter Helm.

Published in the journal, Science Progress  Volume 100 Number 4 2017

Book review
Burn Out: The Endgame for Fossil Fuels.
Yale University Press 2017
ISBN 9780300225624; xx + 281 pp; £16.59

Ironically, given its theme, as published early in 2017, “Burn Out: The Endgame for Fossil Fuels” shortly preceded the announcement made by President Trump of the withdrawal by the United States from the Paris Agreement on climate change, driven primarily by an aim to support the US coal industry, which he maintains has been hampered by environmental policies, and disadvantaged in comparison with other countries, such as China. The book’s title offers  a punchy proclamation, that the age of fossil fuels is coming to an end:  this is not as a result of any imminent shortage of them - far from it - but an expectation that natural gas will be employed as a cheap and plentiful bridging fuel,  en route to a dominant electrification of the energy sector, most likely powered by advanced solar technologies, and that such innovations as the Internet of Things (IoT), 3D printing, and robotics will confer a more efficient overall use of energy, hence reducing demand on oil, gas and ultimately renewables.

The author, Dieter Helm, is professor of energy policy at Oxford University, and an outspoken commentator and critic on global energy strategies, including those intended to ameliorate climate change. Thus, this book is in part a consolidation of some views, framed from the viewpoint of an economist, espoused in his various writings on the subject, and an extension of some of the themes covered in his previous books. Helm remains thoroughly censorious of the peak oil concept, and bangs the drum that “peak-oilers” have got it wrong. He stresses that there is no shortage of “oil” (or indeed of the other fossil fuels), and in terms of the large quantities of carbon-rich fossil materials that lie in the ground he is quite correct. However, peak oil was never a reference to “running out of oil”, but to an ultimate maximum in the rate of production and flow of this unique source of energy into global civilization. This depends on geological factors,  changes in technology and the oil price, and indeed, the “hole” in supply that would have arisen following the peaking in global production of conventional oil that  occurred about a decade ago, has since been filled by production from expensive and more energy intensive “unconventional” sources, mainly from hydraulically fracturing (“fracking”) shale and processing bitumen from oil sands, neither of which would have been entertained had the oil price not approached and then exceeded $100 a barrel.

As Helm has stressed, it was surging demand from China for oil that initially forced the price up; however, the resulting escalation in unconventional production, combined with a maintained strong output by OPEC (30% of this from Saudi Arabia), led to an oversupply against demand and a price crash. Helm asserts that the oil price will stay low (perhaps in the range $40-$60) from now on, but the question remains of, how low can the price go and oil production still remain  a viable activity? There are varying estimates of the breakeven price for oil from different plays, depending on exactly what is being measured, and it is claimed that due to improved technology, oil might be viable even at $30 a barrel. However, some analysts in the oil industry have concluded that the relatively low apparent breakeven prices currently being quoted for shale are partly an artefact of not including all costs, and that service providers, e.g. fracking crews, are running on the margins, accepting whatever cash flow they can get in order to remain in business. Indeed, many small oil and gas companies have gone bankrupt in their efforts to continue shale gas and oil production, while oil and gas prices plummeted.

Whatever may be quibbled over the cost/price of oil in $, an important measure of production viability is Energy Returned on Energy Invested (EROEI) – sometimes the equivalent term, Energy Returned on Investment (EROI) is used - since it takes energy to produce energy, and ultimately it is primary input energy that is the determining factor in the production rate of a resource (i.e. physics trumps economics). In the limit, for an EROEI of 1, it takes as much energy to produce the resource as will be delivered by burning it: clearly a pointless exercise. Before 1930, the figure was around 100, as it still is in some plays in Saudi Arabia, while the global average has fallen to below 20.  An increasing reliance on unconventional oil - i.e. “tight oil” produced by fracking shale, extra-heavy oil/bitumen from oil sands, (ultra)deepwater drilling, etc. - means falling EROEI (perhaps 5 for some shale and oil sands deposits), higher production costs, greater  carbon emissions, and less available energy for society from the total primary energy that is accessible, if more of that energy is consumed overall by the various energy production processes. As noted, it was only the very high oil price that prevailed prior to its crash in 2014, which rendered alternative, unconventional sources economically viable. In the present period of low oil prices, the high costs of producing oil from these sources continue to push companies to the verge of bankruptcy, and investment in new projects  is stalling. On this basis, it is not obvious how cheap oil prices will be maintained into the future.

In regard to the potential for producing the large quantities of natural gas that have been estimated to exist  in shale plays across the world,   echoing the notable  success  achieved  in the United States, the experience of Poland1  might urge some caution.  Originally reckoned in a US Department of Energy study to be the European giant, with holdings of around 5,295 billion cubic metres (bcm) of technically recoverable shale gas, the figure was revised down initially to 346–768 bcm by the Polish Geological Institute, which nose-dived further to perhaps 38 bcm, according to a study made by the US Geological Survey, i.e. around one hundredth or so of the original estimate, and with a huge range of uncertainty: anywhere between zero and 116 bcm. Of the 72 test wells that had been drilled in Poland by the end of 2015, 25 were successfully fracked, but none of them yielded a sufficient gas production rate to be commercially profitable. It may well prove that technical advances, such as using supercritical CO2 as the fracking fluid, will improve the circumstances  in Poland and elsewhere with  complex geologies, e.g. China (where, reportedly, shale gas accounted for around 5% of total domestic natural gas production in 2016), but unless the selling price of gas increases, or somehow production costs can be substantially reduced, the prospects for a global shale gas bonanza are open to question. In any case, while gas is clearly the better option to coal, since it produces perhaps half of the latter’s carbon emissions per unit of energy generated, unless the “bridge” that it is intended to build is a relatively short one, it may not fulfil the carbon reductions outlined in the Paris Agreement, and it is debatable that even these are sufficient to keep the mean global temperature from rising in excess of the 2 oC limit, beyond which catastrophic climate change is predicted to ensue.

Clearly, we need low-carbon energy sources as soon as possible, and Helm is sceptical about the prospects for both wind and nuclear energy, concluding that the primary energy source in a largely electrified system will be “probably solar, but not as we know it”, which implies a reliance on new and untried technology whose date and scale of installation is as yet unknown. Indeed, to change to a nearly “all electric” energy system would entail the installation of an entirely new distribution network, of much greater capacity than we have presently, and most likely of the smart grid kind, with the potential for energy savings, both in terms of primary (input) and end-use energy, although questions remain about how base-load power would be provided, which would require storage (battery technology) if solar is to be a key driver in the scheme.

Helm concludes that sustained low oil prices will severely damage the economies of oil exporting nations. For example, although Saudi Arabia can produce oil for $5-$10 a barrel, it needs a selling price of nearer $100 to cover its national expenditure (fiscal breakeven price). He opines that the strife in the Middle East will worsen, as nations who earn most of their GDP from selling oil find themselves lacking the funds to pay for social programmes which help to preserve societal order. Helm predicts that the future for Russia, which previously benefitted from high oil and gas prices, “looks bleak, since it has few competitive industries beyond fossil fuels, other than its military complex”. While China is lambasted for having attained prominence as the world’s worst “emitter”, its firm stance on decarbonising its use of energy is applauded. Helm concludes that the US is “The lucky country” in terms of its energy prospects, while in Europe, the situation is “Not as bad as it seems”.

In summary, this is a well written and thought provoking book, and is impressive in its wide ranging coverage of those technical, economic and geopolitical factors which are woven together in the Gordian knot of providing a sustainable energy supply, while dealing with climate change. In truth, we are in uncharted territory regarding our use of energy and other resources, but Burn Out offers considerable insight into the complexity of the challenges that may lie ahead of us, and outlines some courses of action that we might take in dealing with them. In Helm’s view, “step one is to acknowledge the possibility of radical change and of discontinuity.” The existing patterns of supply and demand for energy, upon which the world’s geopolitics is based, may change profoundly, and it is a mistake to assume that tomorrow will be “roughly like today”.

(1) Inman, M. (2016) Nature, 531, 22-24.

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