337. OIL-FIRED POWER GENERATION

Henry Groppe is a very well-respected oil analyst, and on a couple of occasions he has described a common sense mitigation process for the early phase of peak oil:

[Henry Groppe] believes that something like 20mbpd of the current 84mbpd of oil demand is going for heat and power generation primarily in developing countries. He thinks that with oil in the $50-$60 range, all of this will get converted to coal or natural gas, and that, along with vehicle fuel efficiency, will be the main initial responses to peaking, and will keep us out of serious economic pain for a decade or so.Source

Groppe gives more detail in a Dec. 11, 2007 podcast interview with David Strahan which I've transcribed below (excerpt begins 24:54):

David Strahan: If you expect peak oil in 2008, what do you think will happen to the oil price in 2008 and beyond?

Henry Groppe: We think that, for perhaps the next 6 or 7 years, the oil price will range, without extraneous disruption, in the $65-$85 range. At that price, there can continue to be growing transportation fuel use and home heating oil use and raw material use, but, of the order of 25% of all the oil that is used is used solely to provide heat to generate steam for industrial operations, or to generate electric power, and for that use, there are much cheaper alternatives than the equivalent of $65-$85 oil, in the form of coal and natural gas and nuclear. And that fuel oil being burned for that low-value use will be converted in refinery expansions, which are being made now, to convert that fuel oil to transportation fuel. After that has all been substituted, and most of the oil is being used for the high-value special quality uses -- transportation, raw material and home heating -- it will require a higher price level to restrain consumption. We haven't done that work yet, but that's over this $65-$85 a barrel range, and during the next several years, it'll become clearer what that level will have to be, probably $85 to $100 plus.

David Strahan: Those numbers seem to me extraordinarily low. Most people, when they think of peak oil, think of extremely high oil prices. We've already had oil go up to $90 a barrel, even almost up through $100 a barrel. Is it really credible that we can have peak oil, that the oil supply will start to shrink, and oil prices will be lower than they are today, really in this $65-$85 a barrel range?

Henry Groppe: We think so, because, as we observe the responses among all of the consumers, we have found that, instead of growing at a historical rate of 2.5% a year, consumption has actually been essentially flat for 3 years, because we've had prices in the $60 to $70 a barrel range. So we've eliminated all growth in consumption at the $60-$70 range. If prices are above that, consumption -- based on all the results we're seeing -- will continuously decline.

David Strahan: How is it that consumption has stayed flat then? What has happened in the last three years to make that happen?

Henry Groppe: All of the users of this fuel oil that I described have suddenly found that the cost of that energy has risen to something like of the order of $10/MMbtu and there are other energy supplies like coal that are available for $2/MMbtu are hard at work to improve their efficiency of usage and convert to these cheaper fuels as rapidly as they can. The biggest conversion is taking place in China. Almost two-thirds of China's oil is used for these fuel uses, rather than transportation fuel, and they are halfway through the world's largest expansion of coal mining and coal-fired power generation in the history of the world, and they're releasing that consumption of fuel oil.

If this process is indeed occuring, and involves 25% of world oil consumption as Groppe says, then it can definitely absorb a lot of the initial post-peak shock. So it's worth exploring in detail. However, to keep things brief I will save the topic of oil-fired process heat for later, and focus here on the broad view of world oil-fired power generation.

I've known for a while that islands are particularly dependent on oil for electricity, but to get the global picture, let's turn to the World Bank's World Development Indicators (WDI) 2007.

Here are the top 30 countries/regions in terms of percentage of electricity generated from oil in 2004:

Rank , Country, Percent
1 Malta 100
2 Netherlands Antilles 100
3 Yemen, Rep. 100
4 Benin 98.77
5 Iraq 98.47
6 Jamaica 96.54
7 Cuba 95.34
8 Cyprus 89.12
9 Lebanon 89.01
10 Libya 80.66
11 Kuwait 79.47
12 Nicaragua 75.23
13 Senegal 75.03
14 Sudan 72.78
15 Dominican Republic 72.62
16 Sri Lanka 63.15
17 Haiti 52.47
18 Honduras 51.52
19 Saudi Arabia 50.84
20 Cambodia 49.33
21 Jordan 49.21
22 El Salvador 45.62
23 Syrian Arab Republic 45.58
24 Togo 38.93
25 Guatemala 35.74
26 Panama 33.99
27 Angola 33.53
28 Ecuador 32.58
29 Singapore 31.2
30 Mexico 31.06

The following are the top 30 countries in terms of amount of power generated (and barrels consumed per day, assuming efficiency of about 35%, or 620kwh/barrel)

Rank, Country, kwh generated from oil, Barrels per day burned in oil-fired generation
1 Japan 9.83E+10 434480.7777
2 Saudi Arabia 8.13E+10 359164.8255
3 China 7.17E+10 316942.1122
4 Mexico 6.96E+10 307534.2466
5 Italy 4.59E+10 203026.9554
6 Indonesia 3.63E+10 160397.7022
7 India 3.60E+10 158961.5555
8 Kuwait 3.28E+10 144882.8988
9 Iraq 3.18E+10 140530.2696
10 Iran, Islamic Rep. 2.85E+10 125766.6814
11 Korea, Rep. 2.77E+10 122315.5104
12 Russian Federation 2.51E+10 111113.5661
13 Spain 2.38E+10 105342.4658
14 Canada 2.18E+10 96243.92399
15 Egypt, Arab Rep. 1.64E+10 72527.61821
16 Libya 1.63E+10 72006.18648
17 Cuba 1.49E+10 65943.43791
18 Syrian Arab Republic 1.46E+10 64613.34512
19 Pakistan 1.36E+10 60035.3513
20 Brazil 1.23E+10 54520.54795
21 Venezuela, RB 1.19E+10 52567.38842
22 Singapore 1.15E+10 50751.2152
23 Germany 1.01E+10 44807.77729
24 Dominican Republic 9.99E+09 44153.77375
25 Lebanon 9.07E+09 40088.37826
26 Philippines 8.50E+09 37578.4357
27 Greece 8.39E+09 37052.58506
28 Thailand 7.74E+09 34206.80513
29 Israel 7.74E+09 34193.54839
30 Turkey 7.67E+09 33893.06231

The WID data shows that many countries were already following the Groppe model before oil prices started rising in 2004.

Country, % of power from oil 1990, % of power from oil 2004
Albania 10.9 1.7 (Substitution achieved by increasing hydro)
Algeria 5.4 2.2 (Substitution achieved by increasing gas)
Azerbaijan 91.1 28.4 (Substitution achieved by increasing hydro/gas)
China 7.9 3.3 (Substitution achieved by increasing coal)
Japan 18.4 9.2 (Substitution achieved by increasing coal and gas)
Mexico 56.7 31.3 (Substitution achieved by increasing gas and coal)
Saudi Arabia 56.5 50.8 (Substitution achieved by increasing gas)
etc.

On the other hand, there are also about 20 countries (mostly from Latin America for some reason) which didn't follow the Groppe model in the 1990-2004 timeframe (although some of this may be a distortion from the pre-2004 period of cheap oil in the late 90s, early 00s):

Country, % of power from oil 1990, % of power from oil 2004
Angola 13.8 33.5
El Salvador 6.9 45.6
Guatemala 9.0 35.7
Kenya 7.6 24.1
Kuwait 54.3 79.5
etc.

According to the WID stats, and using the conversion factor specified above, the world consumed approx. 5mbd of oil in oil-fired power generation in 2004. So if Groppe's theory that 25% of world oil consumption is used for process heat and electric power is correct, then it would seem that the process heat component accounts for approx. 15mbd, and will be much more important than the oil-fired power component.

by JD