3150 - SP22 - Unit 4 - Global Impact of Hydrocarbons

9/16/21
The Global Impact of Hydrocarbons
UNIT 4 1
Unit 4 Outline
1. Where do our current energy needs come from, and where do oil, gas,
and coal fit in?
2. Oil, Gas, and Coal:
• Where is it? Who has it?
• How do we use it?
• External Factors and Predictions
3. Markets and Market Forces
• Nationalized vs. International
• Economics of Hydrocarbons
• OECD and OPEC
• What’s next?
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Hydrocarbons
– HIGH ENERGY CONTENT, Portable, Global system infrastructure
– Non-renewable
– Create high impacts at production and
consumption ends
– Global climate change
– Political issues
– Environmental concerns (Pollution,
water usage)
– Geopolitical instability
– Nature of some of
our future supplies
Present and Future

• Total global oil reserves in 2019
estimated at 1,734 billion
barrels
• 47 years at current
consumption levels
• Total global gas reserves in
2019 estimated at 7,020 Tcf
• 52 years at current
consumption levels
(sources: BP 2020 Statistical Review of World Energy; EIA.org)
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Graphite
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Some Energy Perspectives

• Upon combustion, a barrel of oil delivers about 6 gigajoules energy.
• 1 joule/sec = 1 Watt.
• We use about 30 billion barrels of oil per year for energy use at a rate
of 6 terawatts.
• Earth puts out about 30 terawatts (= 30,000 gigajoules) per second
from geothermal energy.
• The Sun delivers approximately 1300 W/m2 compared to Earth’s
geothermal output of ~60 milliwatts per meter square.
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https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2020-full-report.pdf.%2013.
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Units are Quadrillion BTU
The BIG picture
https://flowcharts.llnl.gov/content/assets/images/energy/us/Energy_US_2019.png
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Energy Production Future:
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https://www.eia.gov/todayinenergy/images/2020.01.14/chart2.svg
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Energy Production Past:
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https://www.eia.gov/todayinenergy/images/2020.01.14/chart2.svg
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Unit 4 Outline
and coal fit in?
• OECD and OPEC
• What’s next?
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Oil
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Who Has It? Map of oil reserves, scaled by amount

Published: 25 March 2019
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https://www.visualcapitalist.com/wp-content/uploads/2019/03/worlds-biggest-crude-oil-reserves-by-country-1.jpg
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Largest oil and gas companies by daily

production as of 2017
in 1,000 barrels per day
https://www.statista.com/statistics/280705/leading-oil-companies-worldwide-based-on-daily-oil-production-2012/
(Iran)
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Proven Oil Reserves by State
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https://www.eia.gov/naturalgas/crudeoilreserves/
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How Do We Use Oil?

68%
Transportation
2% Commercial
3% Residential
<1% Electric Power
26%
Industrial
U.S. petroleum consumption by end-use sectors’

share of total, 2019
Source: EIA.gov
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External Factors Impacting Oil:

Shale Revolution and 2015 Lift of U.S. Export Ban
• Actually, maybe this all started back in 1980
– Crude Oil Windfall Tax Credit Act: tax credits to ‘qualified
unconventional wells’
• Or 1981
– George Mitchell of Devon Energy pioneered horizontal drilling and
hydraulic fracturing in the Barnett Shale of Texas
• 2009-2015 tight oil development in Bakken, Niobrara, Eagle
Ford, and Barnett fields led to boom in production
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Petroleum Liquids Consumption Dropped 9% in

2020
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What is the Future of Oil, Post COVID19?

• Pre-COVID19: Oil seen as
stable investment
• Post-COVID19: Oil is now
competing for financing;
will need to prove itself
against other
commodities
• Drivers:
– Decreased demand
– Price war + COVID19
– Climate change reckoning
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Natural Gas
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https://www.ucsusa.org/sites/default/files/styles/original/public/images/energy-natural-gas-flaring-dark-sky-background.jpg?itok=riNhSo50
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Natural Gas Reserves (tcf) in 2019

tcf = trillion cubic
meters
Source: BP
Statistical Review
of World Energy,
2020
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https://www.statista.com/statistics/265329/countries-with-the-largest-natural-gas-reserves/#:~:text=Natural%20gas%20%2D%20countries%20with%20the%20largest%20reserves%202009%2D2019&text=Russia%20has%20the%20largest%20proved,more%20than%20ten%20years%20prior.
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Top 20 natural gas producers and consumers in 2016 (source: BP)
https://www.bp.com/en/global/corporate/news-and-insights/reimagining-energy/global-view-of-gas-infographic.html
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https://www.eia.gov/energyexplained/natural-gas/how-much-gas-is-left.php
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How Do We Use Natural Gas?

16%
Residential
33% 11%
Industrial Commercial
3% Transportation
36%
Electric Power Natural gas use by U.S. consuming sectors by
amount and share of total natural gas consumption
in 2019
Source: EIA.gov 37
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Energy Costs Associated with Natural Gas

• Shipping, storing, and transporting natural gas over large
distances requires a change in state = LNG: liquified natural
gas.
• LNG facilities cool natural gas to -260° F, which reduces volume
by about 600x.
– Process requires 700-850 kWh for liquefaction of 1kg LNG (2.5-3
MJ/kg)
– Regassification takes place at terminals; also requires energy (heat)
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How Has Our Natural Gas Usage Changed?
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External Factors Impacting Natural Gas:

2008 Financial Crisis and Flood of Wall Street Capital
• To preface, natural gas production boom made possible by Crude
Oil Windfall Tax Credit Act and horizontal drilling and hydraulic
fracturing innovations
• Post-2008, Federal Reserve lowered interest rates to boost
economic recovery
• Wall Street took note of fossil fuel market growth and poured in
money, ongoing low interest rates make debt cheap
• BUT, from 2006-2014, companies spent $80 million more than they
received from fossil fuel sales
• Shale gas has never turned a profit, and the fear is that an increase
in interest rates could cause the shale bubble to burst
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How Long Can The Shale Revolution Last?

• U.S. oil and gas growth depends
upon unconventional shale plays
• Rapidly declining wells require
continuous drilling
• For shale to expand and stabilize:
– Avoid gas flaring
– Reduce water usage in fracking
– Control induced seismicity
– Control fugitive methane
– Improve recovery
– Expand CCS/U (carbon capture,
sequestration, use) 41
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Coal
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How Do We Use Coal?

Natural gas use by U.S. consuming
sectors by amount and share of total
natural gas consumption in 2019
>90% Source: Brookings Institution
Electric Power
<10%
Industry, Heating, Steel
Manufacturing, etc.
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1 megawatt hour (MWh) = 3.60 gigajoules (GJ)
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https://ourworldindata.org/grapher/exports/coal-consumption-per-capita.png?v=7
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Coal Mining in Utah

• 6 Active Mines
• 5 Operators
• 2019 production: 14.4 million
tons
• 2020 production: 13.2 million
tons
Source: Utah Geological Survey
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Slide from Michael Vanden Berg, Utah Geological Survey
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Annual Change in Coal Demand 1971-2020

(source: IEA Global Energy Review, 2020)
https://www.iea.org/data-and-statistics/charts/annual-change-in-coal-demand-1971-2020 50
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External Factors Impacting Coal:

What are the Causes of Market Decline?
1. Cheap, plentiful natural gas (shale revolution)
2. Stagnant U.S. electricity demand
3. Renewable energy growth
4. Expense of building new coal power plants (it’s cheaper to build
natural gas and renewable energy power plants)
5. Risk of future emissions regulation: coal accounted for 23% of U.S. CO2
emissions in 2018
Coal is no longer competitive due to market forces

Sources: https://www.brookings.edu/research/the-u-s-coal-sector/;
https://www.brookings.edu/blog/planetpolicy/2019/01/16/why-theres-no-bringing-coal-back/
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Unit 4 Outline
and coal fit in?
• OECD and OPEC
• What’s next?
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Natural Gas Trade Movements: 2019
Russia (Rosneft)
leads the world in
natural gas exports.
Six countries in
eastern Europe and
the Baltic depend
upon Russia for
natural gas; Germany
depends upon Russia
for 40% of its natural
gas. The U.S. exports
natural gas to 32
countries
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Oil Trade Movements: 2019

Mexico and
Canada are the
largest markets
for U.S.
petroleum
exports. The U.S.
exports
petroleum to 180
countries,
compared to 189
countries served
by Saudi Arabia
exports
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International vs. National Oil Companies

Source:’Post-Corona Oil Industry: Emerging Divides and Place of Geoscience’ Dr. Rasoul Sorkhabi, University of Utah
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International Companies: Atlantic Divide
Source:’Post-Corona Oil Industry: Emerging Divides and Place of Geoscience’ Dr. Rasoul Sorkhabi, University of Utah 56
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Business as Usual for U.S. Fossil Fuel Industry

• Energy independence: shale oil revolution allows U.S. to supply
(most) energy needs
• Shifting Political Climate
– Trump: Left Paris Agreement, increased leasing, subsidies, decreased
regulations on drilling BUT also attempted to boost coal (at the expense of
natural gas)
– Biden: Re-entered Paris Agreement, cessation of domestic leases,
infrastructure spending to transition power sector
• Many U.S. companies do want to decrease carbon footprint
• Environmental movement in U.S.
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…But Europeans do it Differently. Why?

• Scarcity of oil and gas resources
• Dependence on energy imports,
willingness to decrease dependence
• Commitment to Paris Agreement
• Desire for social appeal and acceptance
(social license to operate; SLO)
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The Economics of Hydrocarbons: Market Share

‘With oil there is a price that kills supply and a price that kills
demand’
• Total revenues for oil and gas in 2019: $3.3 trillion

• 2019 global GDP: $86 trillion
– Oil and gas share of global economy in 2019 = 3.8% (source: IBISWorld)
• Other factors: service company costs, transport, refining, and

storage, geopolitics, social climate
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The Economics of Hydrocarbons: Subsidies

Originally designed to lower cost of fossil fuel production, incentivize new domestic
energy sources
2017 Oil and Gas Subsidies by ranking (source: Coady et al., 2019; IMF report)
• China: $1.4 trillion
• U.S.: $649 billion
• Russia: $551 billion
• European Union: $289 billion
• India: $209 billion
• International Monetary Fund (IMF) estimates fossil fuel subsidies account for
6.5% of global GDP ($5.2 trillion) in 2017
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Energy on a Global Scale: OECD vs. OPEC

• OECD: Organization for Economic Co-operation and Development
– 38 member countries in the global north (note: this is not the same as geographic
north)
– Founded in 1961 to stimulate economic progress and world trade (key foci: democracy
and market economy)
– International Energy Agency (IEA), an organization with the initial aim of responding to
oil supply disruptions, now covers global energy system yearly via World Energy Outlook
• OPEC = Organization of the Petroleum Exporting Countries

– 13 nations as of 2020, account for 44% of global oil production and 81.5% of proven
reserves
– Cartel-esque organization that regulates market competition under sovereign immunity
umbrella
– $2 Million (U.S.) annual membership fee, OPEC members must fulfill (and not exceed)
production quotas
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OPEC and the 1973-1974 Embargo

• OAPEC = Organization of Arab Petroleum Exporting Countries
• Oil embargo declared against the U.S. and other OECD nations supporting
Israel in the Yom Kippur War
• Increase from US$3/bbl to US$12/bbl
EFFECTS:
• Establishment of IEA
• Emergency stockpiles
• Lower speed limits on highways
• Fuel efficient cars and appliances
• Daylight savings time
https://upload.wikimedia.org/wikipedia/commons/0/01/GASOLINE_SHORTAGE_HIT_THE_STATE_OF_OREGON_IN_THE_F
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ALL_OF_1973_BY_MIDDAY_GASOLINE_WAS_BECOMING_UNAVAILABLE_ALONG..._-_NARA_-_555405.jpg
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OPEC and U.S. Natural Gas (2014)

Several Causes:
• OPEC members exceeded production ceiling
• China economic slow-down, U.S. oil and gas production doubled
due to shale revolution
• OPEC refused to cut production:
‘Is it reasonable for a highly efficient producer to reduce output, while the
producer of poor efficiency continues to produce? That is crooked logic. If I
reduce, what happens to my market share? The price will go up and the
Russians, the Brazilians, U.S. shale oil producers will take my share.’ Ali Al-Naimi,
Saudi Arabia’s oil minister, 2014
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OPEC+….to OPEC-
• September 2016: Russia and Saudi Arabia agreed cooperate to manage oil prices
by cutting production
• March 5th, 2020: In response to emergence of COVID19 and dire economic
forecasts, OPEC agrees to cut oil production, requests Russia and non-OPEC
nations follow suit
• Russia says ‘nyet’ (possibly in retaliation for U.S. sanctions against Rosneft?)
Jazeera, 15 M arch 2020)
(source: Al-
• March 8th-10th, 2020: Saudi Arabia cut prices and increased production, resulting
in 65% quarterly drop in oil price
• Early April 2020: Russia and Saudi Arabia agree to cut oil production
• April 20th, 2020: Price of oil goes negative due to greater supply than demand, oil
future holders paid to offload contracts (source: Time, 20 April 2020)
• OPEC forecasts 2022 global bump in demand: 100.8 million barrels a day,
exceeding pre-pandemic levels
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Future of OPEC?
‘OPEC has never been more divided’ Fadel Gheit, Oppenheimer oil analyst, December 2015
‘When prices move by $40 a barrel, stuff in the world starts breaking.’ anonymous and acerbic
commentators, Zero Hedge, January 7th, 2016
• With decreasing oil and natural gas demand, what will happen to oil-producing
countries?
• Example: Saudi Arabia
– Oil accounts for 90% of the country's exports, 80% of revenue, 40% of GDP
– Saudi can produce oil more cheaply than anyone else and therefore can steal market share
– Saudi Arabia has been operating with a budget deficit since 2014 and needs oil prices of
~$83/barrel to balance state budget
– Geopolitical risks—conflicts with Iran, increased defense spending, end of social welfare
programs could destabilize country
– ‘Vision 2030’ reinvest fossil fuel wealth in sustainable industries
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So What’s Next?
• According to research firm IHS Markit, there are three scenarios that
predict the future:
1. Rivalry: Evolutionary social and technology change drives intense competition
among energy resources = diverse types of power generation
2. Autonomy: Rapid and revolutionary changes in market, technology, and social
forces decentralize global energy supply and demand = abrupt shift away from
fossil fuels
3. Vertigo: Volatility and boom-bust cycles = economic and geopolitical
uncertainty, slow transition to a low-carbon economy.
• So far, the U.S. is the only country in the world to have switched to
unconventional oil and gas. Why? It has exhausted its supply of
conventional oil and gas resources.
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9/16/21

The Global Impact of Hydrocarbons

Present and Future

Some Energy Perspectives

Units are Quadrillion BTU

The BIG picture

Energy Production Future:

Energy Production Past:

Who Has It? Map of oil reserves, scaled by amount

Largest oil and gas companies by daily

Proven Oil Reserves by State

How Do We Use Oil?

U.S. petroleum consumption by end-use sectors’

External Factors Impacting Oil:

Petroleum Liquids Consumption Dropped 9% in

What is the Future of Oil, Post COVID19?

Natural Gas Reserves (tcf) in 2019

Top 20 natural gas producers and consumers in 2016 (source: BP)

How Do We Use Natural Gas?

Energy Costs Associated with Natural Gas

How Has Our Natural Gas Usage Changed?

External Factors Impacting Natural Gas:

How Long Can The Shale Revolution Last?

How Do We Use Coal?

1 megawatt hour (MWh) = 3.60 gigajoules (GJ)

Coal Mining in Utah

Source: Utah Geological Survey

Annual Change in Coal Demand 1971-2020

External Factors Impacting Coal:

Coal is no longer competitive due to market forces

Natural Gas Trade Movements: 2019

Oil Trade Movements: 2019

International vs. National Oil Companies

International Companies: Atlantic Divide

Business as Usual for U.S. Fossil Fuel Industry

…But Europeans do it Differently. Why?

The Economics of Hydrocarbons: Market Share

• Total revenues for oil and gas in 2019: $3.3 trillion

• Other factors: service company costs, transport, refining, and

The Economics of Hydrocarbons: Subsidies

Energy on a Global Scale: OECD vs. OPEC

• OPEC = Organization of the Petroleum Exporting Countries

OPEC and the 1973-1974 Embargo

OPEC and U.S. Natural Gas (2014)

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