BL Oil & Gas History, Economics and Geopolitics OENA8433: Lecture 6.1: Hydrocarbon Man

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CRICOS Provider No. 00126G copyright © The University of Western Australia
BL Oil & Gas History, Economics and Geopolitics OENA8433

Lecture 6.1: Hydrocarbon Man
Dr. Karin Oerlemans
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Unit Overview
Topic 1: Introduction – The Founders
Topic 2: The Global Struggle
Topic 3: War and Strategy
Topic 4: Oil and Gas Economics
Topic 5: Oil and Gas Technology in context
Topic 6: The Energy Industry Today
Lecture 1: Hydrocarbon Man
Lecture 2: The Global Predicament
Lecture 3: Future Trends
Lecture 4: Course Review
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Lecture Outcomes
Upon successful completion of this lecture you should be able to:
Describe the growth in global hydrocarbon use
Understand the changing global trend in environmental policies
Differentiate between the different responses from the IOC’s
Become aware of the role in world energy agencies in
promoting change
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Recommended Reading
Economides, M. & Oligney, R. (2000). The colour of oil. Katy:
Round Oak.
IEA (2008). Key world energy statistics, 2008. Paris: IEA.
OPEC (2008). World oil outlook 2008. Vienna: OPEC.
World Energy Council (2007). Energy and climate change.
London: WEC. www.worldenergy.org.
Yergin, D. (1991). The prize: The epic quest for oil, money and
power. New York: Free Press.
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In this lecture
Hydrocarbon Man
The new green
Environmental policies of oil and gas
Energy company responses
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Hydrocarbon Man
From WW2
Oil is King
Wealth
Transforming power
Growth, confidence, expansion
Bigger is Better
Waste
Passenger Car Registration

1949-1972 consumption tripled, (millions of cars)
demand increased by 5.5
US World Total
Growth in petrochemical
industry 1950 40.3 12.7 53
Growth in size and numbers of 1960 61.7 36.6 98.3
cars 1970 89.2 104.2 193.4
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Hydrocarbon Man
Consumer as King
Advertising
Additives
Suburbanization – shopping centres, drive-ins, roads
Schumacher (1964) – “no substitute for energy, the whole

edifice of modern life is built on it”, a finite resource that would
not always be cheap and should not be used wantonly
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Hydrocarbon Man
Battle for supremacy
Coal deposed as King
England – major producer
Pollution
Australia
Japan – growing car industry
Decline of oil to LNG – share of

market declined 53% (1978) –
43% (1985)
http://www.sandinorebellion.com/AirToons/1928-Jan-25-KingOil.jpg
Improvements in energy
efficiency
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Hydrocarbon Man
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The New Green
The Environmental waves:
First Wave – 1960s
Clean air and water
Provided impetus of move from coal to oil
Second Wave – 1970s

Anti nuclear power
Third Wave – 1980s

Reborn environmental consciousness
Cuts across ideology, demography and partisan differences
Concerns every environmental hazards
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The New Green
Third Wave catapulting incidents

Chernobyl – April, 1986, technology out of control
Environmental degradation and disaster
Irreversible damage
Exxon Valdez – March 1989

Bligh Reef, Prince William Alexander Sound, Alaska
240,000 barrels
$2 billion
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The New Green
The Third Wave
Consequences of hydrocarbon combustion
Smog and air pollution
Acid rain
Global warming
Ozone depletion
Climate change
Challenges:
Energy conservation
Energy transportation
Alternative energies
Carbon Capture
Economic Growth vs. Environmental Values?

Today vs. Tomorrow?
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WEC
Energy and Climate Change
World Energy Council (WEC)
2007
Promoting the sustainable supply
and use of energy for the greatest
benefit of all
“The world needs urgently to

develop a coherent and practical
approach to reducing greenhouse
gas (GHG) emissions”
GHG emissions are still rising

Existing efforts are insufficient –
most countries with Kyoto Protocol
targets are not on track to meeting
them, many countries do not have
Kyoto targets
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WEC
Problem is not lack of policies – not proving adequate to the scale of
the problem
Why are they failing?
What measures to implement?
How do we promote sustainable development?

Criteria of three “A’s” –
Accessibility – to affordable energy
Acceptability – of the energy sources used, particularly in
environmental terms
Availability – how secure and reliable are those sources
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Greenhouse Gas Emissions Trends

Buildings – 35% of emissions
Industry – 35% of emissions
Transport – 25% of emissions
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OECD Europe Key trend: slow rise in emissions from a relatively high base
North America and Pacific OECD Key trend: a steady rise in emissions and a high
level of emissions per head
Economies in transition Key trend: a rapid fall in emissions after the fall of the
Berlin Wall, though from a very high initial base
Developing countries Key trend: rapid rise especially in East Asia, but significant
national and regional differences. Still very low emissions per capita
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The broad conclusion that can be drawn from the above analysis is
that the issue is multi-factorial
No single driver of emissions
No single area for policy to focus on
Broad correlation between increasing wealth and increasing
energy consumption
Implications for CO2 emissions depend on a number of other
factors:
Geography
Industrial structure
Indigenous resources
Climate
Policy stance
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Conclusions:
Energy sector is where greatest reductions will have to be
sought
Energy-related GHG emissions have been growing steadily
Differences between countries underline need for differentiated
policy approaches
No automatic link between economic growth and energy use or
between energy use and emissions
Some evidence that emissions growth tends to slow down as
economies mature
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Measures & Policies to Reduce GHG Emissions

Measures according to policy instruments employed:
Economic and fiscal instruments
Subsidies
Taxes
Emissions trading
Clean Development Mechanism (CDM)

Joint Implementation (JI)
Regulations and standards

Voluntary agreements
Information and awareness
Research and development
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Measures & Policies to Reduce GHG Emissions
Findings:
In many cases companies are ahead of governments in emissions reduction
efforts
Majority of subsidies for energy sector in many countries are now devoted to
renewables
Removing subsidies may involves real social costs
Fuel taxes common in OECD countries
Few “pure” carbon taxes
Not an appropriate instrument in all circumstances
European Emissions Scheme has been accompanied by significant
increase in electricity prices
Considerable variation in planned use of Kyoto mechanisms
Regulatory approaches are widespread in OECD countries
Voluntary measures are more effective when combined with other measures
Technology – central to nearly all governments’ approaches
Carbon capture and storage – one of the most promising technologies
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Policies that support renewables

3 broad approaches: Economic instruments, regulation, and R&D
Renewables portfolio standards (requiring electricity suppliers to

source a certain proportion of their supply from renewables);
Subsidies (or cross subsidies via electricity prices), which increase
the income of renewables generators or subsidise investment costs;
Tax breaks, (with similar objectives to investment subsidies);
Tradable certificates (on the lines of emissions trading, so-called
“green certificates” can be traded between companies to meet their
portfolio obligations);
Research and development support for new renewable sources
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Types of Renewable
Large scale hydro
Small scale hydro
Wind
Biomass
Solar power
Combined heat and power and distributed generation
Nuclear
Hydrogen and fuel cells
Wave Power
Tidal Power
Geothermal power
Hybrid vehicles
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Energy Efficiency
Along with renewables, energy efficiency is probably the most
popular area for policy intervention in both the developed and
developing worlds
Cleaner fossil fuel systems
Intelligent technology
Use of high efficiency products
A 2006 World Energy Council Statement “Energy Efficiencies: Pipe-

dream or reality” summed up the position as follows:
“the opportunities for enhanced energy efficiencies throughout
the world are a reality… but… further gains will not be easily
won and will vary across countries and components of the
energy value chain.”
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The Future Direction of Climate Change Policies
Efforts to stabilise, and then begin to reduce CO2 emissions between now
and 2050 will require a portfolio of technological options
The study concludes that, so far, the response from governments and
others has not been up to the challenge
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Need to take a holistic view of the energy and climate change issue
in two key respects:
Energy availability, accessibility (and affordability) are goals quite as

important as acceptability, and policies must be designed to meet all
three goals
Decision making for energy needs to take account wider system

effects – an increase in demand in one part of the world affects the
whole world through its impact on prices and world markets; a
change in demand for one fuel will affect demand for other fuels;
short-term decisions may have long term effects in an industry
where investments typically have a lifetime of decades or more
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Phase 1 – begins when there is a universal and credibly sustainable global

commitment to curbing GHG emissions, particularly CO2
Phase 2 – CO2 emissions can be stabilised and the process of absolute
carbon emission reduction initiated, by a decoupling of economic growth
and GHG emissions; the aim is to move towards zero carbon emission
fossil-fired power plants
Phase 3 – combination of ever-cleaner energy resources, plus an
increasingly robust portfolio of advanced power generation and
transportation technologies, will facilitate further carbon reductions while
enabling sustainable economic growth worldwide
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Energy Company Responses

IOCs: NOCs:
ExxonMobil (XOM) Saudi Arabian Oil Company
Royal Dutch Shell (RDS) ("Aramco") Saudi Arabia
BP (BP) National Iranian Oil Company
Chevron Corporation (CVX) ("NIOC") Iran
ConocoPhillips (COP) Iraq National Oil Company - Iraq
Total S.A. (TOT) Kuwait Petroleum Corporation -
Kuwait
Pertamina - Indonesia
Petrobras - Brazil
Gazprom - Russia
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ExxonMobil Royal Dutch Shell
Efficiencies by developing new Advocacy, technology and
supplies and to safeguard the operational improvements
environment Their approach to climate change:
In 2007, greenhouse Ending flaring and improving
gas emissions were 141 million energy efficiency
metric tons CCS
Seeking reduction through CO2 emissions from production,
efficiency, cogeneration, flare refining and use of products
reduction, CCS
Carbon footprint reduction
10 percent reduction in
Respecting the environment
emissions between 2002 and
2012 Voluntary Climate Respecting biodiversity
Challenge Program Preventing spills
R&D: Global Climate and Energy Tackling air pollution
Project at Stanford University Reducing water use
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BP Chevron Corporation
Managing industry social and Seven Principles for Addressing
environmental impacts Climate Change, 2007
Invest in renewables, energy Innovation, collaboration and
efficiency, raise public awareness, partnership
build a low-carbon future Reducing carbon Emissions and
Emissions reduction, emissions trading Improving Efficiency - GHG emissions
scheme for 2007 came to 60.7 million metric
$8 billion on clean, secure alternative tons of CO2 equivalent
energy solutions over a 10-year period 2007 27 % increased energy efficiency
Wind per unit of output
Solar Minimize gas flaring and venting
Biofuels Gorgon Carbon Sequestration
Hydrogen Power Accounting for Carbon Costs in New
CCS Project Evaluation
Cogeneration
R&D
Technology
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ConocoPhillips Total S.A.
Focus on alternative, renewable New energy mix and enhancing
and environmental efforts energy efficiency
Renewables such as wind and Biomass, photovoltaic solar
solar power energy, wind power, marine
Alternatives such as nuclear energy
power Synthetic liquid hydrocarbons
Additional fossil fuels such as oil (Coal to liquids) & hydrogen fuel
shale, natural gas hydrates and cell R&D
clean coal Manage greenhouse gas
Technology emissions – 60 million metric
Education tons of CO2 annually
Innovation Reducing flaring
CCS
R&D
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Common themes
Technology
R&D
Reduction in greenhouse emissions
Focus and investment in alternative fuels
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In Summary
The growth of Hydrocarbon Man
The development of new environmental policies and concerns
World Energy Council study
Responses from the energy companies
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Lecture Conclusion
Final Online discussion:
Read Economides position on climate change (p. 139)
Why the intense interest of oil companies to invest in alternative
energies when not everyone agrees that climate change is
occurring?
What has been the response of the NOC’s, and how will this impact
their economic positions?
This is the end of Lecture 1, Topic 6

You may now continue to Lecture 2, Topic 6
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CRICOS Provider No. 00126G copyright © The University of Western Australia

BL Oil & Gas History, Economics and Geopolitics OENA8433

Dr. Karin Oerlemans

CRICOS Provider No. 00126G copyright © The University of Western Australia

Passenger Car Registration

 Schumacher (1964) – “no substitute for energy, the whole

 Decline of oil to LNG – share of

 Second Wave – 1970s

 Third Wave – 1980s

The New Green

 Third Wave catapulting incidents

 Exxon Valdez – March 1989

 Economic Growth vs. Environmental Values?

 “The world needs urgently to

 GHG emissions are still rising

 How do we promote sustainable development?

Greenhouse Gas Emissions Trends

Greenhouse Gas Emissions Trends

Measures & Policies to Reduce GHG Emissions

 Clean Development Mechanism (CDM)

 Regulations and standards

Policies that support renewables

 Renewables portfolio standards (requiring electricity suppliers to

 A 2006 World Energy Council Statement “Energy Efficiencies: Pipe-

The Future Direction of Climate Change Policies

 Energy availability, accessibility (and affordability) are goals quite as

 Decision making for energy needs to take account wider system

 Phase 1 – begins when there is a universal and credibly sustainable global

Energy Company Responses

Energy Company Responses

Energy Company Responses

 This is the end of Lecture 1, Topic 6

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Schumacher (1964) – “no substitute for energy, the whole

Decline of oil to LNG – share of

Second Wave – 1970s

Third Wave – 1980s

Third Wave catapulting incidents

Exxon Valdez – March 1989

Economic Growth vs. Environmental Values?

“The world needs urgently to

GHG emissions are still rising

How do we promote sustainable development?

Clean Development Mechanism (CDM)

Regulations and standards

Renewables portfolio standards (requiring electricity suppliers to

A 2006 World Energy Council Statement “Energy Efficiencies: Pipe-

Energy availability, accessibility (and affordability) are goals quite as

Decision making for energy needs to take account wider system

Phase 1 – begins when there is a universal and credibly sustainable global

This is the end of Lecture 1, Topic 6