US petroleum consumption – update

Petroleum consumption in the US has recovered somewhat from a low point of 18.3 million barrels a day in October 2008 to levels similar to January averages in previous years. First chart below is an update of a chart I showed previously on total petroleum product demand (includes industrial, residential and freight transportation use of fuel oils as well as gasoline consumption). The second chart shows gasoline demand and average gasoline price. It’s harder to determine the trends in gasoline consumption because of the seasonal driving patterns.

Economic downtown

Here’s what the US Energy Information Administration said today in This Week In Petroleum about the impact of the economic downturn and oil prices on petroleum demand:

U.S. consumption of oil, which has fallen by about 1 million barrels per day (bbl/d) in 2008 relative to 2007, is expected to fall again by a smaller amount in 2009. In contrast to 2008, where skyrocketing prices drove consumption lower, the 2009 decline will be driven by reduced economic activity and will likely be mitigated by substantially lower average oil prices in 2009 compared to 2008.

They are revising their analysis of global oil consumption, production capacity, and exploration and production investment and revised forecasts will be issued in the next Short-Term Energy Outlook (STEO), to be released on November 12.

On October 30th, The US Bureau of Economic Analysis (BEA) said:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 0.3 percent in the third quarter of 2008, (that is, from the second quarter to the third quarter), according to advance estimates released by the Bureau of Economic Analysis.  In the second quarter, real GDP increased 2.8 percent.

Will US demand for petroleum recover?

I’ve been watching US demand for petroleum since July when I first posted on the subject. Demand continued to decline over the summer reaching a low of 18.3 at the beginning of October – well below the peak of 22 million barrels a day in February 2007. The last time petroleum consumption was this low was in 2001.

Now demand has turned the corner and is starting to pick up again. Lower prices for petroleum products are presumably driving this. The question is how much of demand will be recovered? A lot will depend on the state of the economy. But how many consumers may have permanently changed their driving behaviour, or purchased fuel-efficient vehicles? How many have developed an aversion to petroleum products after being stung by the high prices?

Related news article:

• U.S. oil demand down 2 million bpd: BP, Globe and Mail, November 3, 2008

New technology exposes leaks

Until recently so-called fugitive emissions from petroleum refineries, chemical plants and oil and gas production facilities have been under the radar as far as regulation is concerned. Fugitive emissions are small releases of greenhouse gases, air pollutants and volatile compounds from a large number of leak sources widely distributed over a facility, such as pipes, valves, pumps and storage tanks. As well as fugitive emissions some facilities also have process vents that release gases during normal operation but are not large enough to be monitored. Because there are so many of these small point sources total fugitive emissions can be significant and the costs of reducing fugitive emissions is generally low compared to other emission control technologies – some even argue profitable because the leaking products can be conserved and sold.

The stumbling block is the cost of detecting and quantifying fugitive emissions. Current measurement technology – hand-held “sniffers” – only work in close proximity to a leak and are not able to quantify the size of the leak. Inaccessible leaks, such as leaks from pipework suspended at height can go undetected for a long time. Fixing the leaks is usually a simple task, involving basic maintenance procedures that can be carried out without affecting production or scheduled for the next plant shutdown. Studies have shown that 75 percent of total fugitive emissions can be eliminated by fixing a small percentage of the biggest leaks.

Because of the measurement problem, estimates of fugitive emissions are calculated by counting the number of potential sources on a facility and using standard emission factors based on studies of leak rates at typical facilities.This method takes no account of actual leak rates at the facility in question, which could be higher or lower than average, and means that there is no incentive to reduce leaks because they will not be reflected in reported emission estimates. Because of the practical difficulties of actually measuring fugutive emissions it becomes impossible to regulate them – which is unfortunate because reducing fugitive emissions could result in a significant amount of low cost emission reductions. Leaks of unburnt gases such as methane are 21 times more damaging to the climate than when they are burned as a fuel.

Now a new technology is on the horizon that could change all this. The technology is called DIAL (differential absorption light detection and ranging) and uses lasers to sweep the sky downwind of a facility. The lazers detect all the gases in the air and quantify the amounts of each type of gas. According to the trials fugitive emissions measured by this technology could be over 9 times more than previously reported using the emission-factor approach. If true this could cause a complete re-think of fugitive emissions. At the moment the technology is way to expensive to deploy on a widespread basis. Because emissions vary from hour to hour and day to day, regular or constant measurement is required year round to reliably detect and quantify actual emissions. Maybe one day this will be possible. In the mean time this excellent opportunity to reduce emissions will probably remain under-utilized.

Natural gas transition

Here’s another article about the likely expansion in unconventional gas production in North America. This one mentions US shale gas deposits which are going to lead to a 16 percent increase in US gas production by 2015, they say. Apparently, the existence of North American shale gas deposits is helping to keep natural gas prices low even when the oil price sky-rockets.

Natural gas could play a big role in the energy system of the future and this can only be good news when it comes to reducing greenhouse gas emissions. Production technologies such as gas-to-liquids mean that it could become a viable substitute to petroleum. Carbon capture and storage technology and the possibility of electricity being used widely in plug-in electric vehicles could mean a near-zero emission transportation system. All this depends on the extent of the unconventional resource deposits and the rate of technological progress in their extraction and conversion. US House Speaker Nancy Pelosi said recently “…you can have a transition with natural gas that is cheap, abundant and clean compared to fossil fuels”. See also my previous post about unconventional gas in Northern BC.

Can we trust governments to manage resources?

This job posting at the provincial government of British Columbia contains quite frank language about the goals of the position:

As the Resource Development Analyst, you’ll anticipate and resolve a broad range of stakeholder concerns and maximize resource development and provincial revenues from petroleum and natural gas, underground storage and geothermal resource tenures. … make recommendations which attempt to address stakeholder concerns and minimize impacts on provincial revenues.

Anyone reading this might get the impression that the role of the Ministry of Energy, Mines and Petroleum Resources is to maximise development and revenues.

What is its goal? I would have expected the job description to at least mention natural resources, the environment, the public interest and the interests of future generations; and not to imply that land planning boils down to “us” the government and “them” the stakeholders. That assumes that all interests other than the private development interests are adequately represented by the stakeholders and that government can take sides with development and try to maximize revenue.

How to manage new technology?

This article in the NY Times discusses the ethics of geo-engineering, genetics and robotics. If we avoid new technology because of uncertain risks, or even fear of unknown risks, we might not be able to avoid known problems such as climate change. Yet if we use new untried technology to solve problems, we risk causing other, perhaps bigger or irreversible problems later. Is it possible to develop technologies that are inherently risk free? How would you be able to determine that? Who should be involved in the decision making?

Some things don’t change

This new book about driving by Tom Vanderbuilt sounds interesting. See the review in the New York Times. According to the review, the author analyzed traffic congestion, safety and driving behaviour since the days of horses and carts and found that most of the problems we associate with today’s automobile-based society have been around a lot longer than that. Apparently horses used to kill slightly more pedestrians per week in New York than cars do today. I’d like to know what he found out about the pollution and energy efficiency of horses and carts. I’ve heard that cars are a big improvement in both areas.

However interesting, and perhaps for most people surprising, I don’t think any of this justifies our current dependence on automobiles, their pollution, inefficiency and fatality rates. We should be expecting major improvements over horses and carts and not comparing our current system with the transportation of more than a century ago.

Relevant today though are the observations about human nature. For example this quote from the book about traffic congestion:

The most effective, least popular solution — aside from the currently effective, unpopular solution of $5-a-gallon gasoline — is congestion pricing: charging extra to use roads during rush hours. For unknown reasons, Americans will accept a surcharge for peak-travel-time hotel rooms and airfares but not for roads.

Preferences and behaviour, it seems to me, are the main things in the way of progress. Has anyone read the book? I’d like to hear more.

Oil at the “Break Point”

I just read the report about the current oil crisis that Daniel Yergin gave to US Congress in June. It summarises all the issues very well, and I think it’s a much more informed and less-biased analysis than many I have seen. He says the current high prices are caused by a confluence of factors including “traditional fundamentals” such as supply problems, and “new fundamentals” such as increased investment costs due to shortages of skilled labour and materials, slowing down supply expansion.

He then gives his views on the issue that everyone seems to be talking about – the role of financial markets or “speculators”. I don’t think he agrees with the view that speculators are to blame for distorting the market but he does talk about a “shortage mentality” that is probably responsible for driving up oil prices higher than they need to be. Here’s an excerpt.

the general expectation of very tight supplies is based upon the assumption that the global market cannot generate the responses that are warranted—in terms of demand and efficiency; in terms of new supplies and timely investment; and in terms of renewables, new technologies, and alternatives. Delays and postponements are read as predictions of shortages. Meanwhile, developments of great importance—such as the very large discoveries in offshore Brazil—get relatively little attention. Downward shifts in future demand from what would have been anticipated two years ago are discounted.

This sounds more plausible to me than all that talk about speculators deliberately manipulating the market for personal gains, or indulging in irresponsible gambling. It’s more of a herd-mentality argument where market information and expectations are self re-enforcing and begin to ignore contrary evidence. Demand in the US is dropping fast and OPEC and non-OPEC supply is slowly coming online now. What happens if prices do drop sharply? Will the speculators be left with worthless futures contracts that they can’t sell?

Over to the dark side…

The next few months are going to be an interesting and testing time for me. My academic research is complete and I’m off to work in the oil sands of northern Alberta (Canada). This means giving up a life of leisure and intellectual pursuit to take on a demanding role in this fast-growing and controversial industry. I plan to keep you posted on my thoughts, experiences and emotions as I make this transition and begin to experience, and hopefully understand, the people, the technology, the politics, and the impact this industry is having on all of us.

To change anything you have to understand it, and you need the ear of the people on the ground. The industry is booming now, but at the same time it faces huge challenges, retaining talent, learning to adopt and improve new technology, improving safety and environmental performance, and overcoming huge cost hurdles. Even bigger challenges are looming – climate regulations, public opinion, and in the long run, I believe, decreasing demand for polluting fuels and the need to transition to low or zero emission energy supply.