free html hit counter Peak Oil Debunked: 337. OIL-FIRED POWER GENERATION

Tuesday, March 04, 2008


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)

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

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


At Tuesday, March 4, 2008 at 5:17:00 AM PST, Anonymous Anonymous said...

So in other words, the market mitigates the impact by means of textbook classical economics: substitution.

At Tuesday, March 4, 2008 at 8:38:00 AM PST, Anonymous Starvid said...

Extremely important post.

The podcast interview with Groppe is well worth listening to as he has other fascinating things to say.

At Tuesday, March 4, 2008 at 3:56:00 PM PST, Blogger FR said...

That surprises me, and it'll be relatively easy to replace that 25% of oil consumption.

However, burning every bit of coal in the ground will turn earth into an easy-bake oven. People should go to renewables or nuclear.

At Wednesday, March 5, 2008 at 1:37:00 PM PST, Anonymous Anonymous said...

Groppe has alot to say, but to me he is just another T boon pickens. He has been talking about peaking for 10 years now. He has called a peak every year since 1999

At Wednesday, March 5, 2008 at 2:21:00 PM PST, Anonymous Starvid said...

Any sources or quotes om Groppe saying that?

At Wednesday, March 5, 2008 at 8:01:00 PM PST, Anonymous Anonymous said...

K. Deffeyes own words, and I saw a nice powerpoint slide with it but I cant find it on the web right now, this will have to do..

"Obviously, I'm not the only person actively watching world oil production. The first analyst that I heard point out the year 2000 peak was Henry Groppe of the Houston consulting firm of Groppe, Long, and Littel."

At Wednesday, March 5, 2008 at 8:35:00 PM PST, Blogger JD said...

Nice catch, anon. Just now, I accidentally ran across another cite showing the same thing. From an article dated Oct. 10, 2002:

"Henry Groppe, founder and partner of a respected Houston petroleum consulting firm, agrees with the impending oil decline, concluding that world oil production reached an all-time peak as early as 2001, but certainly by 2003. While predicting the same decline as Deffeyes, Groppe differed by stating that the result will be "a very manageable crisis," because the decline will be slow. "

At Friday, March 7, 2008 at 2:43:00 AM PST, Anonymous Anonymous said...

I have a somewhat Elementary thought to just kinda put out there, it is off topic, and my own hope and intention is only to spark thought or at the very least to be pointed toward more information, that is, if my supposition is correct.

The most plentiful sources of energy are the most difficult to recover....?

Is that true and if so is it a reality which is static, or is it arbitrary as defined by present day perception?

At Friday, March 7, 2008 at 7:09:00 AM PST, Anonymous Anonymous said...

"The most plentiful sources of energy are the most difficult to recover....?"

What you're describing more or less alludes to entropy.
There is a large and larger volume of lower and lower grade energy the closer you get to zero energy content.

That's one (roundabout) way of describing entropy which isn't too too far away from your supposition.

It's also related to the EROI concept.

At Friday, March 7, 2008 at 7:26:00 PM PST, Blogger bc said...

It would not be surprising to find that EROEI follows a power law, because many natural properties do
i.e. the highest EROEI sources are the least common.

At Sunday, March 9, 2008 at 1:19:00 PM PDT, Anonymous Anonymous said...

There is one big mistake. Home heating with oil is not a quality use.

You can do that more efficiently with GSHP and electricity. Complemented with a thermal solar collector.


At Monday, March 10, 2008 at 6:32:00 PM PDT, Anonymous Anonymous said...

Your blog is really about Doomer-ism. Not Peak Oil.

To title a blog "Peak Oil Debunked" but then to disclaim that you accept that oil is finite it frankly silly and juvenille (and also not very smart). The reason is that you are just engaging in the same old false dilemma argument.

Which frankly puts you in the same boat as Yergin. It's just a silly place to be. You essentially corner yourself, such that your only position is that "we are not peaking right now."

Nobody cares about that position. Except for the Doomers.

At Tuesday, March 11, 2008 at 12:58:00 AM PDT, Anonymous Anonymous said...

JD did not create the strong association between the resource phenomena and the social and economic impact of said concept.

The name of his blog is as relevant to debunking peak oil as is to the often mentioned societal collapse scenarios written up over there.

As long as readers believe that "peak oil" and dystopia are one in the same then debunking it is logical.

If there was a prevalent psychological seperation between cause and effect regarding the term (peak oil) then your criticism might have some merit. As it stands you are arguing semantics which by your position is hypocritical.

At Tuesday, March 11, 2008 at 1:04:00 AM PDT, Anonymous Anonymous said...

But in all fairness maybe a more appropriate title for the blog might have been "Debunking Sensational Apocolyptic Fear Mongering as it pertains to the Geological theory of peak production of light sweet crude oil as originally postulated by M. Hubbert King, and expanded on by Kenneth Deffeyes"?

but that is a bit Wordy, and after all the die is cast.

At Tuesday, March 11, 2008 at 1:23:00 AM PDT, Blogger JD said...

Your blog is really about Doomer-ism. Not Peak Oil.

My blog is much more closely focused on peak oil than shotgun doom sites like, which are about global warming, toxic debt, bird flu, 9-11 conspiracy theories, guns, soil crisis, biodiversity, fish depletion and about 90 other topics totally irrelevant to peak oil.

I selected the title "Peak Oil Debunked" for marketing purposes, but it's an accurate title for what we do here. As I wrote in 38. IS PEAK OIL SCIENTIFIC?:

ANSWER: It depends on what you mean by "peak oil". If by "peak oil" you mean the inevitable peak and decline in natural/conventional oil, then yes: it's a settled scientific fact which no one disagrees with. That much cannot be refuted. But I think it's a little disingenuous to claim that "peak oil" means nothing but that. In fact, "peak oil" is a huge mountain of doomsday religion, survivalism, luddism, anti-capitalism, conspiracy theory, democratic politics, radical environmentalism, fascism, nationalism, eugenics, authoritarian depopulation programs, goldbugs, oil speculators, shit-talking market bears and every other agenda under the sun, all trying to advance themselves under the cover of that tiny pinpoint of scientific fact.

At Tuesday, March 11, 2008 at 1:26:00 PM PDT, Blogger bc said...

The more far out theorists seem to pick innocuous titles for their theories such as Peak Oil, Unidentified Flying Object, Searl-Effect Generator, presumably to improve the marketability, but it creates an enormous range of fudge. It is quite reasonable to believe in UFOs in the literal sense (I see many!), it's quite another to believe in alien visitors.

Whatever the reason, the way bullshit is wrapped up and presented with credible titles is not the fault of skeptics.

If these people used a more accurate title like "Outlandish Doom Theory #28" then we would happily use that.

At Wednesday, March 12, 2008 at 2:49:00 PM PDT, Anonymous himbim said...

We don't have any oil fired power generation in Germany. Maybe your numbers also count oil equivalents such as natural gas?

Our power generation is:
50% coal
26% nuclear
14% all kinds of renewables
10% natural gas

At Monday, March 17, 2008 at 5:15:00 PM PDT, Blogger Peakhawk said...

Based on your first sentence, should one assume you are saying we are now in the early phase of peak oil?

At Sunday, October 26, 2008 at 1:17:00 PM PDT, Anonymous Nick G said...

JD, the tables are missing the US.

IIRC, the US generates 3% of it's power from oil. That would be about 130 Twhrs, or in the same range as Japan, but it's not in the table.


Post a Comment

<< Home