Bioenergy in the USA - The U.S. Energy Problem

The U.S. is facing a critical energy problem. This problem, and actions being taken are explored here in three sections: this section (The U.S. Energy Problem), Bioenergy in the USA, and Appropriate Bioenergy Development. You can also download and/or view the full text and PowerPoint slides for this paper in pdf format.

Introduction
To what extent can expansion of domestic bioenergy utilization improve energy and economic security in the United States? Deciding how to best increase bioenergy production and use in the U.S. is not as simple as focusing on the growth of a particular market sector or the development of a promising new technology. Understanding how to foster appropriate growth in U.S. bioenergy production and use requires a thorough understanding of both the fossil-energy supply problem and the hardships it creates. Only then can projects be developed that make optimal use of bioenergy’s ability to mitigate these hardships. Fortunately, this is understood to some extent at the United States Department of Agriculture, which funded this paper and the bioenergy projects on which it is based.

This paper takes a detailed look at the U.S. energy problem, assesses the current state of its bioenergy development and the potential for expansion, and proposes several criteria for evaluating future bioenergy projects to ensure that they directly address America’s core energy problem and its consequences.

The U.S. Energy Problem
The U.S. is facing a critical energy problem characterized by rising energy prices, declining productive capacities for oil and gas, increasing reliance on foreign oil, and the weakening of its currency. The root of this problem is the inexorable decline of its two most important energy sources - petroleum, which accounts for nearly 40 percent of total energy consumption and 96 percent of transportation energy [6], and natural gas, which provides 23 percent of all energy consumed in the U.S. See Table 1 and Figure 1.

Table 1: U.S. Energy Consumption 2003 Figure 1: U.S. Energy Consumption 2003

  
Source: U.S. Energy Information Administration

The decline of the energy resources on which the U.S. is currently so heavily dependent is presented here in some detail because it serves as a basis from which to discuss and evaluate bioenergy development and its potential to alleviate the problem.

Petroleum Decline
U.S. oil production peaked at about 11.6 million barrels per day (million bbl/d) in 1970 and has since declined to its present level of 7.5 million bbl/d. [1]. The steady decline is not for lack of trying: the 165 active oil-drilling rigs in the U.S. brought 5,694 new wells on line in 2003, adding to the more than 500,000 wells already producing [2]. In comparison, Saudi Arabia produces 9.8 million bbl/d from 1,560 active wells [1,3]. Oil consumption in the U.S. has meanwhile increased from 14.7 million bbl/d in 1970 to the current level of 20.0 million bbl/d [1]. The net result is that 62 percent of all oil demand is now met with imports. Petroleum decline for the continental U.S. is shown in Figure 2.

Figure 2. Oil Discovery and Production in the Continental (lower-48) United States

Source: Colin Campbell, Association for the Study of Peak Oil
Note:Excludes heavy, deepwater, polar, and natural gas liquids.

Natural Gas Decline
Annual natural gas production in the U.S. peaked at 21.6 trillion cubic feet (tcf, 624 Billion cubic meters) in 1971, and has since declined to its current level of 19.1 tcf (550 billion cubic meters, bcm) in 2003. Consumption stands at 22.2 tcf (629.8 bcm). Imports, mainly from Canada, comprise about 17% of consumption [1]. The steady decline once again is not for lack of effort: The natural gas industry drilled an estimated 20,011 wells in 2003, but no increase in production resulted [2]. The drilling required deployment of more than 1000 drilling rigs, whereas in 1995 only about 400 rigs were needed to maintain the same production level [4]. Declining productivity in Texas gas wells, dominated by the decline of the important Texas Gulf region, is shown in Figure 3.

Figure 3: Average Projected Ultimate Recovery from a Texas Gas Well, by Year Drilled

Source: Gary S. Swindell and Associates

Understanding the Implications of Oil and Gas Decline
The depth of the problem that results from the decline of fossil-energy resources can be understood on the three levels detailed below. Each higher-order understanding eliminates more misconceptions about the problem, especially regarding the substitutability of energy resources and overestimation of the potential of new technologies.

First-Order Understanding: The quantity of the resources is finite.
This premise – that the fossil-energy endowment is limited – is widely accepted based on the nearly uniform concurrence that the earth’s fossil-energy resources were formed in the geologic past and are not being renewed, at least not within a time frame that is useful to us. One contrasting theory suggests that petroleum is still being produced in large quantities by chemical reactions within the earth’s mantle, but overall the premise that the geology is well understood and that fossil-energy resources are finite is widely accepted. Failure to move from here to higher-order levels of understanding leads to incorrect conclusions regarding the energy problem, most notably the belief that the problem manifests only after all of the oil has been consumed.

Second-Order Understanding: The production rate of the resources has a maximum.
This premise is actually nothing more than a logical extension of the first, but its acceptance is nonetheless limited, and its consequences are not widely understood. Further, calculating where we are relative to this maximum requires an understanding of energy resource quality, which shows that the amount of effort required to extract and process a resource increases over time as the easier-to-extract (higher quality) resources, such as onshore gusher wells, become depleted and we turn to ever harder to get (lower quality) resources (i.e. ones that are distant, in deep water, or not as “sweet”). Organizations studying energy from both a quantity and quality perspective, including the Association for the Study of Peak Oil and Gas (ASPO), understand that world petroleum production levels are at, or very near, their peak.

Third-Order Understanding: Declining energy-resource quality leads to destabilization.
This is the least accepted level of the energy problem because, in addition to second-order comprehension, it requires an understanding of thermodynamics, economics, and the relationship between the two. The comprehension of thermodynamics is needed primarily to appreciate the importance of life-cycle analyses of energy processes, which characterize the degree to which energy extraction and production methods yield net-excess energy. Economics tells us that healthy economies are fundamental prerequisites for maintaining social and geopolitical stability. The interrelationship of thermodynamics and economics is, first and foremost, that energy is the fundamental building block of the economy, without which there can be no goods or services; second, that the energy that runs the economy is the net-excess energy produced by a supply technology; and third, that chemical and physical differences in energy resources and the fuels produced from them dictate that not every unit of energy is capable of producing the same amount of economic activity.

An important component of the third-order understanding is the recognition that energy resources and technologies are not economically interchangeable. The amount of economic activity that can be produced depends on both the amount and the type of excess energy produced. The misguided faith in substitutability is likely the result of undergoing so many past substitutions, each one bringing new energy resources and technologies into use. But the substitutions of the past – from solid fuels such as biomass and coal to liquid and gaseous petroleum and natural gas – have always been from lower-quality resources and source technologies to higher-quality ones. Each change brought economic advantages that enabled growth.

Petroleum spawned unprecedented world-economic growth because the net excess energy (also called the energy profit ratio or energy return-on-investment) of the exploration, extraction, refining, and transport process was enormous, and because the energy could be delivered in a highly useful form – an energy-dense liquid. The hypothesis that our current economic level, built and powered by the highest quality fuels known, can be maintained as these resources decline, may not be grounded in sound scientific and economic principles.

The Onset of Destabilization
The instability precipitated by the decline of oil and gas has already begun in the form of price destabilization. Maintaining a stable energy price requires the existence of excess production capacity. Excess production capacity for world petroleum is not known exactly, but is believed to be less than 2 percent of market volume – far less than needed for price stability. Crude oil prices now sometimes fluctuate by 5 percent per day on speculation of changing political or climatic conditions. The inability to increase production elsewhere when political or weather events threaten a particular energy supplier makes each event significant from a market perspective.

Spare productive capacity for continental U.S. natural gas had been shrinking for many years before it finally vanished in the fall of 2000 [4]. This phenomenon, and its effect on prices, are shown in Figure 4.

Figure 4: Loss of Spare Productive Capacity and its Relation to Price, Continental U.S. Natural Gas

The destabilization of energy prices, particularly for oil and gas, has immediate economic consequences. Higher energy prices reduce the amount of money consumers have to spend while simultaneously raising the cost of consumer goods (which are made and transported with energy). The effect is highly regressive because low-income households spend a disproportionate share of their income on energy. Energy purchases for home-heating, cooking, and transportation are furthermore basically non-discretionary.

Research of the process by which energy price instability develops into economic instability, and how this in turn leads to social and geopolitical instability, is ongoing. The growing body of empirical evidence correlating the worsening fossil-energy supply problem with economic and geopolitical events suggests that the process may already be well underway.