Friday, February 17, 2017

On American Energy (Including Fracking, Renewables, Big Oil, and the Whatever Else)

This post will be a little bit different from most of my posts and will be purely focused on energy. It'll be the first in a series of posts regarding the current structure of American energy. The next post(s) in the series will discuss where our energy goes from here and how it'll fit into economic development in the 21st and 22nd centuries. This post will be split up into several sections:
1. Introduction
2. American Oil Production (Fracking vs "Big Oil")
3. Geopolitics and Energy Networks of American Energy
4. Renewable Energy
5. Nuclear Energy

1. Introduction:
For most of human history, almost all energy used has either been from animals or fossil fuels. In what we consider "civilization", it's been mostly predicated on fossil fuels or wood. In global energy consumption, the biggest consumers consist of the largest economies (the US, China, Japan, Germany, France, India, etc). The largest producer and consumer of energy is the US.

In the US, the primary sources of energy are oil, natural gas, and coal. Coal in the US is primarily used in electricity production, but it's use has been rapidly falling due to the fact that it's just not profitable. The collapse in oil prices that occurred a few years ago hasn't affected American energy production negatively. Instead, American oil production has actually risen in spite of an oil price collapse--largely due to advancements in fracking.

In terms of the sources of American energy, almost all American energy comes from fossil fuels. According to the EIA, petroleum accounts for ~36%, natural gas accounts for ~26%, coal for ~16%, nuclear for ~10%, and renewable energy for ~9% as of 2016.

2. American Oil Production (Fracking vs "Big Oil):
In the 2000's, almost all American oil produced domestically came from offshore drilling that was from the "big oil" companies. Today, the US produces more oil even though almost all offshore oil production in the US has been shut down. The primary reason is due to technological advancements in hydraulic fracturing (or fracking). After the oil price crash in 2014, there was a wave of consolidation among fracking firms. The amount of active rigs FELL BY >60% even though oil production was flat.

Note that fracking isn't just used for crude oil, but for natural gas as well. In addition to the drop in the necessity for imports, natural gas has been displacing coal as the primary source for electricity production (with natural gas overtaking crude in 2016) last year. Due to the advancements in fracking, most frackers in the US are profitable at ~$50/barrel of crude. The natural gas that comes from fracking is a byproduct, so our frackers don't actively search for the natural gas. They just get it as a byproduct. One of the biggest reasons fracking has been so impactful is cuz it produces BOTH crude oil AND natural gas.

Now, notice natural gas is very different from crude. Crude oil can be put into basically any container and shipped. With natural gas, it must go from pressurized point A to pressurized point B. Hence, it requires an extensive pipeline infrastructure to carry the energy. Due to the advancements in fracking over the past ~6-8 years, we've seen a rapid buildout in natural gas pipeline infrastructure that's the most sophisticated the world has ever seen.

3. Geopolitics and Energy Networks of American Energy:
In terms of consumption of petroleum liquids as of 2016, the US consumes ~19 million barrels/day (mbpd) of petroleum liquids--as defined by the EIA. Petroleum liquids consist of crude oil, natural gas, and biofuels (there's others, but those numbers are negligible). In terms of production, the US produces ~9 mbpd of crude, ~3.5 mbpd of natural gas, and ~1 mbpd of biofuels. So the net gap between production and consumption is ~5-6 mbpd. Keep in mind that in the 2000's, the importation of crude oil alone was almost double the net gap between production and consumption of total petroleum products today.

So, what's the impact of the US producing more petroleum products with the consumption of these products staying relatively flat (or falling)? The impact is that the US needs to import much less of these products from abroad. In the 2000's, the largest American importer of petroleum products was Saudi Arabia. Today, the largest importer is Canada. Almost all energy consumed by the US economy is produced domestically or is sourced from Canada, Mexico, Venezuela, Colombia, and Saudi Arabia. To put simply, >90% of American petroleum liquids come from the Americas and are totally unreliant on supply-lines from the Middle East.

In other words, the US is no longer dependent on foreign oil outside of the Americas implies that the US can effectively retrench from its position as the "global policeman" without facing a risk of disruption in its internal energy flows. Also note that almost all of the refining is done in the US. Actually, the US is a net exporter of refined products (like gasoline, diesel, liquefied natural gas, etc). So what happens is that there's many countries (*cough* Venezuela *cough*) that export the raw materials, our refiners refine the product and ship it back to these countries--or across the world.

4. Renewable Energy:
In terms of the future of energy, fossil fuels will still be used over the next few decades. Renewable energy would seem wonderful because it can embed itself into life-cycles of ecosystems, but it requires a whole host infrastructure and other prerequisites that make it very difficult to rapidly increase energy use from renewables overnight. Renewables create several problems:
1. They don't produce all the time (solar only produces during sunlight, wind only when there's wind, etc.). So storage becomes a problem.
2. They require an energy grid that can go back and forth between different sources of energy. So you need a grid that can handle the ebbs and flows of renewable energy which can turn to fossil fuels when renewables don't produce.
3. Battery technology is nowhere near what it needs to be for energy storage to become a serious alternative. For example, there isn't even enough lithium in the world for it to store 10% of the energy needs necessary if the US were to go to renewable energy.
4. Raw materials (like silicon and lithium) need to create many of these items are environmentally damaging to extract and refine. In fact, they're so environmentally damaging that most developed countries ban their extraction and refinement on domestic soil.

In order to shift to renewable energy, building out the grid infrastructure alone would cost ~$1 trillion and take about a decade. So switching over to >50% renewables won't be feasible for another ~15-20 years. But in the mean time, what renewables can do is to supplement the structure we already have. For example, once you build a solar farm, it just generates energy on its own. You don't have to go out and extract anything or do anything more other than to capture or use the energy. So we're already developing two-tiered systems wherein solar farms or wind farms or geothermal energy is being plugged into the grid and being used whenever it's generating while fossil fuels are used the rest of the time. This process is only accelerating.

5. Nuclear Energy:
My personal favorite kind of energy is nuclear energy. With the latest technology, the issues that've plagued old power plants are issues ranging from nuclear waste to bad design that allows for flooding of the water cooling systems to a whole range of factors. Of course, more recent technology (like thorium reactors) wipes many of these risks or drastically reduces the scale of the impact of these risks.

My point with nuclear energy boils down the fact that the risks of nuclear energy are drastically reduced with more recent technologies. In other words, the most recent technology in nuclear allows for energy that's got low environmental cost and is equivalent to free energy. However, the problem is one of geography. Building nuclear power plants in areas where there's lots of earthquakes or flooding may not be wise. Similarly, nuclear waste needs to be dealt with and all of the infrastructure necessary to link the energy to the grid must be suitable for the geography.

However, there isn't that much energy the US receives from nuclear energy. Going forward, it'd be wise to expand the portion of energy consumed from nuclear energy produced domestically in the US.

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