OGPSS - The EXXonMobil future - a review

It is the time of year when the major oil companies issue their predictions for the future, and h/t Art Berman, ExxonMobil just released their view of the world, looking forward to 2040. And this is downloadable. If I remember correctly, I first viewed their future projections back in 2011, and with a 2-year step it might be more interesting to see how differences in their world view have evolved in that period.

By 2040 EM anticipates that the global population will be approaching 9 billion, up by around 25% from current numbers. Of that nearly 2 billion additional folk most are expected to be born in the developing countries such as India and in Africa, with the former gaining 300 million and the latter 800 million. Because the majority of the growth occurs in these countries, and the improvement in living standards and working conditions are more energy intensive, (whether air conditioning or iPhones) from a lower base and demand growth is concentrated more in electrical energy demand than that of transportation fuels.

EM continues to believe that, while the economies of the OECD nations will contribute significantly to global growth, with economic output increasing by 80% over the 27-year period, energy demand will remain stable. Growth in demand for power will come from the rest of the world, powering an average 2.8% growth in the global economy over that interval.

Perhaps the greatest change has been in the amount of energy that the company anticipates will not now be needed in that future, as improving energy efficiency cuts back the amount that must be supplied. If we look at the energy projections through 2030 that were made by BP and EM back in 2011, the total growth was expected to continue in an almost linear mode through 2030.



Figure 1. Projections of growth from BP and EM in 2011, looking to 2030.

If one now looks at the shape (the units differ) of the new EM curve there is a dramatic emphasis on a continued improvement in energy efficiency particularly as we get further into the out years. (Note the remaining illustrations all come from the EM document “The Outlook for Energy: A View to 2040”).


Figure 2. Current EM projections for global energy demand in the years to 2040.

The report breaks down the growth in demand into several sectors. And this, at first, is a little irritating. The reason is that, in describing, for example, the growth in residential/commercial energy demand, the track-back on the power sources stops at the point where electric current comes out of the wall. Given that it is the growth in electricity consumption, projected to grow overall by 85%, that is the greatest contributor over the period this is a little disingenuous. Now it is true that there is a whole section devoted to electricity generation, but the lack of the source fuel portrays a little bit of sleight of hand.


Figure 3. Projected residential/commercial energy growth through 2040, by power source.

There is a similar restriction in source categories for the suppliers of industrial power:


Figure 4. Projected residential/commercial energy growth through 2040, by power source.

However, as recognized, the document does have a chapter that deals with the generation of electrical power. EM anticipate that coal will continue to gain market until 2025, but from that point forward, its share will decline as the main competitors, renewables, nuclear and natural gas take an increasing part of the supply.


Figure 5. Change in the source of electrical power and its growth.


Figure 6. The breakdown of electric power fuel sources between OECD and non-OECD countries

One of the reasons for the change, particularly the change to natural gas from coal, comes with the increasing burden of carbon costs, as EM projects.


Figure 7. Anticipated fuel source costs for electricity in 2030.

The low price that is anticipated to continue for natural gas makes it therefore the growth fuel, as figure 5 suggests. When this is combined with the anticipated changes in liquid fuels for transportation, which will see a 40% growth overall, with heavy duty transportation showing the greatest growth, investors in oil and natural gas should be reassured. Cars are expected to achieve an average performance of 47 mpg, which is achieved with the anticipated mix being:


Figure 8. The anticipated growth in automobile performance through the years

Nevertheless the increasing growth of personal transportation in the developing countries is expected to continue to increase demand for oil. With the growth in power generation from natural gas, the two combine to paint a glowing picture of the future of the hydrocarbon industry.

EM project that overall the demand for liquid fuels will rise to 113 million barrels of oil equivalent (mboe) per day by 2040, a 30% growth over 2010 with most of the demand remaining with the transportation needs. The company seems comfortable with industry being able to achieve that level of supply, although the mix will change considerably from that which currently prevails.


Figure 9. Change in the liquid fuel sources that are anticipated over the coming years.

And it is here that I fear that the report becomes overly optimistic. By looking at the relative size of the remaining resource, relative to the production achieved to date, EM foresee no problem in providing the supply targets that are shown in the above figure. EM expect that technical innovation will continue to dramatically improve production from the United States and North America in total. Supply growth is anticipated from tight oil in places such as the Bakken, Deepwater from the Gulf and the tar sands. They project that these will combine to lift North American total liquids production by another 40%. When the production from the offshore Brazilian fields and the heavy oil sands of Venezuela are added, then this reinforces the view that they hold of an achievable target.


Figure 10. Growth in supply of liquid fuels in North America

Yet it is in the Middle East, a region they hardly discuss, that they see the largest growth.


Figure 11. Sources of future growth in liquid fuel supply.

EM don’t actually say where that great growth is likely to come from, but it is very likely heavily weighted towards the most optimistic of estimates for the future production of Iraq, with the ongoing turmoil of the “Arab Spring” being totally discounted.

Well it makes a nice pipe dream, as, I’m afraid, is their anticipation that industry will be able to produce and distribute the target volumes of natural gas that they anticipate will come to save us all from the increasingly higher costs of power. Dare one gently cough and mutter "decline rates"?

If I can put it another way. At the beginning of the report, after projecting a reasonable estimate of global growth over the next 25 years, EM put in a very optimistic level of improvement in energy efficiency in order to significantly lower energy demand. Then, to balance supply to that lower level of demand, they seem to have picked the most optimistic of assumptions about potential growths in that supply. I rather suspect that they are seeing the writing on the wall, but obfuscating it with optimism beyond the bounds of realistic expectation.

P36. Pick Points

So today was Power day at CERAweek, and the President of the Environmental Defense Fund was pressing for increased research and development for carbon capture and storage. But he recognized that there would no industrial participation until there is more guidance from the Administration. They have already given Congress a blueprint on how to enact a carbon cap and trade legislation, and urged action. He was opposed by the Marathon CEO speaking instead for a carbon tax as being more simple, since cap and trade is a market set up by the government., and would provoke more volatility (and price rises) in that market.


The CEO of Energy Future Holdings bragged on Texas’ position as a leader in wind technology, and its willingness to adapt the grid to input from renewables. Given the need for a heavy investment in new plant (sometimes just to replace old capacity not to increase it) the demands for the great amounts of capital this will require was predicted to lead to consolidation in the industry, according to the CEO of PPL Corp of Pennsylvania. There are currently some 200 companies invested in the power production business, and with the demand for new plants (which are planned to be about half coal and half natural gas) the money will have to come from somewhere (including the general public.)

Looking at the scene from Michigan the CMS Energy President noted that his coal plant fleet was an average of 50-years old, and while demand would not rise, plant needed to be replaced because of age. Trying to permit a new coal-fired power plant was like “swimming upstream.” They had a plant replacement planned for Bay City but this has been postponed two years to 2017, even though the new plant was over rock which would be suitable for CCS. Collectively the industry is beginning to accept cap and trade, and just hopes that the money goes into research and development, instead of social programs.

Nissan is anticipating rolling out an electric car next year, that will be generally available by 2012. The plant will go into Tennessee, and they hope to see 10% of the fleet sold to be electric by 2020., though this depends on an agreement for a charging network, and that hasn’t been resolved yet. That may put up pollution, since the power must come from somewhere Pacific Gas & Electric said that either drivers learned to plug in and charge in off-peak hours or the country would need a lot of new electricity generating plants. There may be meters that would control activation and thus help to solve the “plug-in time” problem.

The next topic was biofuels, BP felt that these would comprise 10 – 20% of liquid fuels by 2030. It will take a billion hectares growing sugarcane to produce the ethanol to replace gasoline totally around the world, In a recent report (Sandia and General Motors said that the country could produce 90 billion gallons of ethanol, by 2030 this would replace a third of the 140 billion gallons of gasoline being used – but five sixths of the total must come from cellulosic ethanol (which we don’t have ready even in the lab yet). “P.S.” they added, “send money.”

The economists on the panel felt that the recession though severe should turn around within the year. But the blame game on that has started.

With the Shtokman field now being scheduled for development, Total is committing to $200 million on engineering studies, while the main base for the operation may end up in Norway. Part of this recent surge in activity may because Russia is suddenly realizing it will have to increase incentives if it is to halt an anticipated drop in production. The intent is to change the tax structure so that investment in new fields will be encouraged, now it is not. Remember that in Russia oil revenue taxes provide 43% of budget revenues.