Forecasting energy needs and sources

By Robert Hickson 23/09/2013

Peak oil is less a topic of discussion now that shale oil in North America has been fracked open.

peak oil

(Click to view larger image)

A range of organisations are predicting increased use of oil, as well as natural gas and coal, over the coming decades. The US Energy Information Agency (part of the Department of Energy) in its latest forecast, for instance, predicts a 30% increase in the use of liquid fuels (mainly oil), and a 56% increase in global energy consumption overall by 2040. A consequence is continued carbon intensity and increasing greenhouse gas emissions.

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[Btu stands for British Thermal Units, the amount of energy needed to heat one pound of water by one degree Fahrenheit (ie, 1055 joules; or 0.454 Kg water by 0.56 degrees Celsius)]

These forecasts are based on  assuming the continued growth of large emerging economies, such as China, India and Brazil, as well as the continued (or increasing) availability of oil, natural gas and coal. The model doesn’t factor in significant changes to policy or regulatory settings. Consumption forecasts for OECD countries are flat or declining, while demand for fossil fuels continues to grow in non-OECD countries.


[The EIA Reference case assumes 3.6% annual economic growth and the price of Brent crude oil reaching US$163/barrel by 2040 (It’s currently $109)]

Some question the validity of such forecasting. They note that they are often produced by those with an interest in continued use of fossil fuel exploration and exploitation, simply extrapolate from the here and now, and that the forecasts are usually wrong.  Furthermore, forecasts suggesting cheap and plentiful fossil fuels are, in their view, dangerous, leading companies and governments to be complacent about the need to shift to other sources of energy.

EIA acknowledges the limitations of its forecasting, and has reviewed the accuracy of previous predictions [Pdf].  It admits that their model (or rather suite of models) are not great at predicting future oil prices or economic growth. They don’t take account of technological breakthroughs, economic changes, future extraction costs, or regulatory changes. EIA provide some alternative forecasts based on different oil price and macroeconomic growth assumptions.

For example, EIA looked at higher (4%) and lower (3.1%) level annual economic growth:



They also forecast that renewable sources of energy make steady progress, but predict that they will fall well below other sources of energy, except nuclear, even if oil prices increase to US$237/barrel by 2040.



However, there’s no way to judge whether these assumptions are particularly reasonable or likely.

Others note that even though the forecasts are unlikely to be right they can be useful in exploring the future and clarifying assumptions. The EIA and International Energy Agency both do this to an extent. IEA’s 2012 World Energy Outlook developed several scenarios to highlight what could happen under different policy settings, and encourage policy makers to consider the options.

None-the-less, the lure of quick easy money from fossil fuel exploitation tempts many, and impedes longer term strategic energy thinking.

The lure of clean green energy sources are also not without their problems. Poorly designed renewable energy policy can also be bad for the environment and the economy, as both the energy vs food biofuels problem several years ago highlighted, as well as current renewable energy policies in the EU.

The 2012 World Energy Outlook notes that improving energy efficiency provides plenty of scope for the west to reduce energy consumption (Their 2013 Outlook comes out in November). They also note that energy production is becoming thirstier:

… water use could become increasingly challenging for unconventional gas development and power generation in parts of China and the United States, India’s fleet of water‐intensive coal‐fired plants, Canadian oil sands production and maintaining reservoir pressures to support oil output in Iraq.
Water use for fracking is being scrutinised, and may become a factor limiting its expansion. (See also discussions of this issue in the Carbon Brief). Biofuel production can also be water intensive, but IEA note that are means to reduce this.
A report by Deloitte’s [Pdf] also cautions against being too optimistic about fracking liberating vast pools of oil and gas outside of North America in the short to medium term.
Increasing attention is being paid to the “Food-water-energy nexus“, which will complicate energy (and other) policy, and make forecasting and management of energy needs and supplies that much more difficult.
The danger is that we get a variety of forecasting models, each with their own assumptions, and then different groups pick which assumptions they like best and use them to support their favoured position.
What we need is smarter forecasting models and data sets that can test a range of assumptions (Model to human: “based on historical records $270/barrel isn’t well supported given your other parameters“) and allow greater flexibility in economic and policy settings to encourage use of forecasting as exploratory rather than predictive.
In the meantime, you need to look beyond the executive summary of  forecasts and consider their assumptions carefully and critically.

0 Responses to “Forecasting energy needs and sources”

  • First, let me recommend the BP Statistical Review of World Energy, issued annually and freely available from the BP site.

    This is one of the most useful resources for easy access to past data that could help guess the future. When Peak Oil appeared, a many proponents claimed that some major national data used to predict oil reserves was optimistic, but the use of enhanced oil and gas recovery techniques has created new reserves.

    The annual Reserves/Production ratio has been around 25 – 45 years since the 1920s. As proved reserves increase with the price of oil, exploration tends to decrease – unless national interests promote exploration, hence “run out of oil” deadlines based on the R/P ratio keep moving. As the oil price increases, difficult and small oil fields can also become proved reserves.

    There are several issues that make prediction difficult, including…
    – enhanced recovery and utilization of less desirable oil and gas resources and reserves.
    – national use of coal for energy production.
    – improved internal combustion engines ( driven by both high fuel prices and stringent emissions targets ). Typically we use around 20 – 30% of the energy available in HC fuels, very likely to get to 40 – 50% over next couple of decades.
    – move to smaller, lighter vehicles. Over past 50 years, the average weight of cars in France has increased from 750 kg to 1250 kg. That’s similar to many other countries, eg the 1959 Mini = 630 kg, and 2013 Mini = 1450 kg. Much of the increase is for safety and improved NVH ( Noise, Vibration, Harshness ). As the price of fuel increases, some price-affected consumers will downsize, but the safety conscious may upsize. Governments are likely to penalise vehicle weight, and the current use of a 1000 kg car to transport a 100 kg person can be changed – eg Japaese Kei cars, specified by length and engine size, are around 600 kg. We should have a popular 500 kg vehicle ( car – not glorified motorbike) in next decade.
    – less private transport use – provided public transport can be competitive in performance and cost.
    – Alternative fuels and motive power for home, work, and transport. Most likely to be electricity, as biofuels may be OK for larger stationary localised use, but they always struggle to overcome their bulk and water problems ( biomass feedstocks are bulky and high in water ).
    – Improved energy use, eg better home design and insulation, more efficient lighting, use of solar power and heating. Solar panels really need a safe, cheap, and efficient battery to take off, as it’s unlikely partially-privatised power companies will purchase excess electricity at near-market rates. Most smaller and larger companies will focus more on reduced energy costs to improve financial performance.
    – population distribution and numbers will change, and travel may reduce with improved Internet connectivity.

    I’m sure there are many others, but the above are enough to ensure most forecasts should be considered educated guesses.

    • Thanks for the reminder about BP’s Stat Review Bruce. They do have a great set of resources.