Hello. So in Energy 101, we're starting to reach the end of the energy sources section.

and today we're going to talk about energy prices. Now we talked about oil prices Before and how they're determined and the fact that it's a worldwide commodity and priced worldwide. Whereas other things, like natural gas are priced regionally because it can only be transported at a reasonable cost by pipeline. Today we're going to look at the cost of all types of energy sources. that we've been talking, been covering here we're looking at the, going back to our reference diagram here. We're talking about the natural energy sources in order to satisfy The energy needs of society, we have to go find forms of energy in, that, that occur naturally in the Earth. So, we're going to be talking about today the prices, of these, energy. Sources, and what are they? Just to group them a little bit differently, the Earth's energy supplies that we use in order to satisfy our energy needs are fossil fuels, categorizing them as coal. That is coal, oil, and natural gas. Coal, oil and natural gas are the fossil fuels. And we chemically react those, of course, with oxygen in the atmosphere and release the chemical energy as heat in a combustion process. So, but that, we get 82% of our. Energy from fossil fuels, 82%. 9% comes from uranium in the form of nuclear power plants. And then another equal 9% comes from renewable energy. The largest, component of that being biomass. as we'll see here in just a minute. and we know that. Wind is about 10 times what solar is. Hydro is significant and biomass is significant. but as we see on the next slide, you can see it graphically, the percent of energy sources that we use that, come from each of these. Components this being fossil fuels, nuclear fuels and renewable fuels. As I mentioned, 82%, 9% and 9%. And I just thought it was worthwhile to show that to show how we're so dominant. Dependent on fossil fuels that we burn

and combust and then convert to other forms of energy that we're going to cover next. and renewables are still a small category. We broke those out earlier and you can see what those are but it takes a lot of investment And, and converse and process plants in order to convert from fossil fuels to another form of fuel. But what I wanted to do today is look at the prices of these energies sources that we depend upon. the prices that you see quoted every day. Let's get rid of all the scratching there. the prices that you see quoted every day and talked about on the news. Might be confusing sometimes and I wanted to try to clear up some of the confusion that might occur. We hear about oil prices. and oil prices somewhere around 90 dollars, has fluctuated. Gosh when I got into the energies area in the 1970's it was as low as $2 a barrel, $2 a barrel. Of course, the cost of living has increased and, and price, escalation has gone up and that's, in today's dollars, that's about $8 or $10 a barrel. But today it's about $90 and when it's high is about $140 to $150 depending on whether you're looking at daily closing or monthly closing price. But it's fluctuated wildly as we'll see here in a minute. you see natural gas quoted as of right now at the end of 2012 when I'm Recording this at around $3.50 per 1000 cubic feet. Now, one question that I want to try to answer today is, how do we compare $3.50 per 1,000 cubic feet of natural gas, with $90 per barrel of oil. we'll get to that here in just a minute. coal you see quoted at about $50 per ton delivered to electric power plant. I focused on electric power because that's where most of our, our coal goes. We also use coal for making of iron and steel. Processes and other industrial processes, but the problem I wanted to try to clear out is, how do you compare these prices because they're obviously in different units? It's a lot like pricing one thing in, in, by the dozen and another thing, another item by the single item. what does it mean there and Going on down the list of our, these being the fossil

fuels, those top three that all cost us money. You get people to get 'em out of the ground and pay people who go in the ground, and transport 'em to us. nuclear, nuclear I don't want to get into the to the. Nuclear fuel cost, is a, relatively complicated topic. Right now, we're getting about half of our nuclear fuel from, the destruction of warheads from the Soviet Union, well the previous Soviet Union, Russia. this, we had a nuclear treaty that to which they would disassemble and we would use the uranium that comes out of the warheads. things get complicated so, but it's, it's inexpensive. Relative to fossil fuels, its inexpensive by any Measure you want to make. And of course, renewable energy's free. The sun's free, the wind's free the wood is grown naturally and just out in the woods and so the renewable energy is certainly nice but it's gotta look at the infrastructure and you have to build to utilize that renewable energy. so those are industry prices that you see quoted today. But what do they mean on apples to apples basis? well, in order to do that, we have to look at what, what are we using those fuels for. Well, we're using them to burn, as I mentioned before, for the heat back, how much heat that we get out of the combustive process, and we use that heat for building energy. the heat buildings to, cook with. For industrial drying, like carpet drying. when you make carpets, you dye them. And then you need to dry them. All kinds of manufacturing processes, we have to dry. We burn it in our automobile engines and our diesel engines. fossil fuel for the heat value, the more heat we can release in our cylinders and gas turbines and jet airplanes, the more power we get out so we're using the combustion heat and thermal energy, the heat energy and then we burn it in electric power plants and there again, we, the amount of electricity we get out is proportional to the amount of heat we get out of the combustion process. So, since we're using all of these for the same purpose. That is, to burn and produce heat.

Then we want our prices on a per unit of heat basis. And since we're U.S. centric in this course, we'll price it on a million BTU basis. And that's a number usage quoted in a lot of places. Now what is a BTU? A million BTU's is, of course, a million of whatever a BTU is. Well, just for clarification, one BTU is defined as the amount of heat it takes to heat one pound of water up to 1 degree fahrenheit. Up 1 degree Farenheit. So if you want to heat 1 pound of water up 10 degrees Farenheit, then it takes 10 BTU's. So, or a million BTU's will heat a million pounds of water up 1 degree Farenheit. So that's what a BTU is and we'll. Later I'll get into the conversions of BTU's to kilowatt hours, and, various things that you see quoted. But, these numbers that you see in articles and news, and hear on the television, that they quote, are meaningless unless you know how that number compares with something else. Or there's a whole and put it, and could it be able to put it in context. And, that is one thing I hope we can accomplish in this course, is try to put all this information that you see and read of it, read on the news and in the public media, put it in context. So that you'll have some kind of, you'll distract some kind of meaning out of it. well here are the prices of the fossil fuels per million BTU's, per million BTU's. I've converted everything to a million BTU basis. I've got it for natural gas, I've got it for oil, and I've got it for coal, which supplies 82% of our energy that we use in the U.S. I got it plotted here from 1998 to the end of 1998 to the end of not quite, it's actually about the middle of 2012 but I show it for demonstration purposes. This is, it starts off that the, in 1998 the red is oil. Oil was about $2.60 a million BTU's, Natural gas was about $2 a million BTU's right here. And coal was around a $1 a million BTU's. Well, coal has been gradually increasing and these are actual dollars that you would have paid in 1998 or 2003 and

without any escalation factors for cost of living. and you can see it's been pretty steady over the years. natural gas has been rather erratic. The blue line, which is natural gas Here is just a couple years. It shot up from about $3 to about $5. That's almost double. It went back down to about 2.50. And then it went up, all the way to $10 a million BTU's. And since then, it has dropped back down. And now, is, is around $3.50 at the end of 2012. Well, what about oil? Well, if you look, oil and natural gas track pretty much, together. between 1998 and 2005. But in 2005, a lot of it due to China's tremendous increase in the use of energy and oil, in particular, the world oil price shot up. And everybody was pumping as much oil as they could pump and it went to that's when oil went to $140 a barrel and which corresponds to about $16 a million BTUs and that was in early 2008 went up to $16 of, There's actually a little higher than that, if you look at it on a daily basis. and then the recession came. Many people will, will argue that the recession, in the U.S. in particular, was due to the high price of, of energy, because it extracted so many dollars out of the economy. And that, then, put people in a tough, bad way in order to try to . . . Decide to pay their home mortgages that they were, they were leveraged out on and everything started to collapse. But certainly price of energy was one thing that had something to do with the recession. the best way to kill oil price and oil demand and energy demand in general, is have a recession. And that's what happened here, it went all the way down to about $8 a million BTUs, it was cut in half. And this is, again, these are prices I don't fill for the scatter that occurs on a daily basis but this is just on a yearly basis. And since 2008 it's escalated back up and and it, it went to about $110 a barrel which is back up to $16 close to $16 a

million Btu's and then today is down around $15 a million Btu's. Well the reason I show this chart is because to look at what's the situation when we have, when we compare prices. If you got a choice of burning natural gas or burning. Oil, the choice is obvious. If you're interested in money which will be in a free enterprise system and at US, in particular, we are and most of the countries don't want to spend anymore of their money on energy than they need to, you would switch everything to natural gas and because it's about four to five times cheaper Natural gas is about four or five times cheaper compared to oil and coal is a little cheaper than natural gas. But natural, when you start looking at all the ramifications, coal puts the floor on natural gas because when natural gas gets that close to the price of coal, The, the power plants can turn on their natural gas plants that are not running at that particular time, at night and other times when the load is low and cut down on their coal. And so coal forms, forms a pretty much a floor for natural gas. Oil would be the ceiling on natural gas, and it fluctuates in between. But to give you an example of why don't we fuel switch and why don't we using more of the natural gas in lieu of the oil that we have. Well, then you get into the subject of fuel switching. Fuel switching is switching, when you switch fuels because one fuel is cheaper than another fuel. And for instance, when, if you've got a fuel that's 4 or 5 times cheaper be nice to be able to burn it for it's heating heat than burning the one that costs 4 to 5 times more. But what's required when that does not occur is the infrastructure investment is too much to justify the reduced operating cost because, due to the cheaper fuel. And an example, and we can talk about many examples, but right now people talk about why aren't we converting gasoline cars to natural gas cars? and you can certainly burn natural gas in cars. I was faculty advisor on a, on a student team that, competed in a, university competition that converted, A 1970's. This is a 1970's converted a car to run on natural gas and drove it from MIT in

Boston, to Cal Tech in Pasadena, California all the way across the country on natural gas. it can certainly be done. But it requires conversion of the fuel system to to or from gasoline or in addition to gasoline to natural gas. That require high pressure tanks and requires somewhere on the order of 5 to 10 thousand dollars per car. 5 to $10,000 per car, the DOE estimates it at about $10,000, when you include the refueling stations. The refueling investment cause now you've got to have filling stations all around the country to refuel. So, fuel switching makes sense. But if, you don't have to make too much of an investment to make the switch to switch from a more expensive fuel to a cheaper fuel. But I wanted to cover that before we left energy sources to look at the relationship between natural gas, oil and coal prices on per unit Energy basis which is what any user looks at when they are trying to determine what type of fuel to use if they're capable of using a different fuel in what they're doing. House heating is another one. You can heat it by, heat your house by oil, you can heat your house by natural gas but, today, anybody that has natural gas pipelines running down the, close to their home has a hopefully switched over to natural gas because it's it's for so much cheaper. It's just another example. Few cases where natural gas pipelines are not available to the home and they had no choice but to stay on, on oil up in the northeast in particular. Okay. so that, that covers the the pricing of energy and the relative value. Take care. Bye.