Direct and indirect effects of fossil fuels Era Energy Research Architecture Björn Pieprzyk www.energy-research-architecture.com
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A. Basis for the analysis of direct and indirect effects of fossil fuels • ERA – study: The impact of fossil fuels (November 2009) Analysis of conventional and unconventional fuels: – Greenhouse gas emissions – Environmental consequences – Socio-economic effects Recommended actions: Alternatives to conventional and unconventional oil have to be created: biofuels and efficiency measures
• Current research - short study: Substitution of biofuels for fossil fuels
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B. Definition of system boundaries of direct and indirect effects of fossil fuels Indirects effects Direct effects
Lower OPEC production ?
Life Cycle Analysis Fossil fuels Resource extraction
Lower deep water oil production ?
Lower EORproduction ?
Biofuels Raw material production
Transport
Agriculture
Lower tar sand production?
Lower future CTL production?
Processing
Utilisation
Lower future GTL production?
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C. Results of the analysis: 1. Biofuels replace fossil fuels Increase of biofuel produktion Decrease in fossil fuel production in the refineries
direct effects
Decrease in oil import
indirect effects
Decrease of global oil price Decrease in global oil demand - due to low price elasticity of oil demand
Strong importance of OPEC for global supply decisions in the short term
Decrease in oil demand prevents investments due to growing comerical interests of NOCs
Decrease in oil demand prevents investments due to growing comerical interests of NOCs Lower NOC investments in very expensive oil technologies National interests of OPEC members
Decrease in OPEC production
short term
Increase in OPEC production
Decrease in oil demand prevents investments Lower IOC investements in very expensive oil technologies
Internalization of external costs: Strict global climate protection objectives
Scenario 1: Lower production of tar sands, extra heavy oil, CTL, oil shale
Scenario 2: Lower production of deep sea oil, Artic oil , EOR, GTL Lack of internalization of external costs: Weak global climate protection objectives
medium and long term
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2. Biofuels don´t replace the most expensive fossil fuel in the short term Increase of biofuel produktion Decrease in fossil fuel production in the refineries
direct effects
Decrease in oil import
indirect effects
Decrease of global oil price Decrease in global oil demand - due to low price elasticity of oil demand
Strong importance of OPEC for global supply decisions in the short term
Decrease in oil demand prevents investments due to growing comerical interests of NOCs
Decrease in oil demand prevents investments due to growing comerical interests of NOCs Lower NOC investments in very expensive oil technologies National interests of OPEC members
Decrease in OPEC production
short term
Increase in OPEC production
Decrease in oil demand prevents investments Lower IOC investements in very expensive oil technologies
Internalization of external costs: Strict global climate protection objectives
Scenario 1: Lower production of tar sands, extra heavy oil, CTL, oil shale
Scenario 2: Lower production of deep sea oil, Artic oil , EOR, GTL Lack of internalization of external costs: Weak global climate protection objectives
medium and long term
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2. Biofuels don´t replace the most expensive fossil fuel in the short term • Instead a higher biofuel supply would result in OPEC production cuts • The most expensive oil (such as tar sands or deep water oil) will continually be produced as long as the retail price is higher than the operating costs • National oil companies (NOCs) secure mainly risky and marginal oil reserves • Oil supply increasingly depends on credit agreements, such as the delivery of 0,5 million barrel/day from Venezuela to China (Equity Oil). • National energy supply objectives – example: Jordan and Morocco are highly interested in exploiting their oil shale reserves to become more independent of oil imports
3. Biofuels replace the most expensive fossil fuel in the medium and long term Increase of biofuel produktion Decrease in fossil fuel production in the refineries
direct effects
Decrease in oil import
indirect effects
Decrease of global oil price Decrease in global oil demand - due to low price elasticity of oil demand
Strong importance of OPEC for global supply decisions in the short term
Decrease in oil demand prevents investments due to growing comerical interests of NOCs
Decrease in oil demand prevents investments due to growing comerical interests of NOCs Lower NOC investments in very expensive oil technologies National interests of OPEC members
Decrease in OPEC production
short term
Increase in OPEC production
Decrease in oil demand prevents investments Lower IOC investements in very expensive oil technologies
Internalization of external costs: Strict global climate protection objectives
Scenario 1: Lower production of tar sands, extra heavy oil, CTL, oil shale
Scenario 2: Lower production of deep sea oil, Artic oil , EOR, GTL Lack of internalization of external costs: Weak global climate protection objectives
medium and long term
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3. Biofuels replace the most expensive fossil fuel in the medium and long term • OPEC cutbacks are only temporarily possible: – Bilateral contracts between OPEC-countries and NOCs will increase – OPEC countries depend on income from oil export – OPEC have to compensate for their own national increase in oil consumption.
• Biofuel objectives will prevent future investments in very expensive oil technologies of international oil companies (IOCs): – Profit chances on very expensive and risky marginal oil sources decrease due to biofuel objectives.
• In the future biofuel objectives will also prevent investments in very expensive oil technologies of national oil companies (NOCs): – the yield orientation of demand-NOCs increases – When biofuels can create an alternative to marginal oil, NOCs will participate in biofuel markets
4. But the most expensive oil is not the dirtiest oil
Source: ERA 2009
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5. The most expensive oil is only the dirtiest oil when costs are completely internalized Increase of biofuel produktion Decrease in fossil fuel production in the refineries
direct effects
Decrease in oil import
indirect effects
Decrease of global oil price Decrease in global oil demand - due to low price elasticity of oil demand
Strong importance of OPEC for global supply decisions in the short term
Decrease in oil demand prevents investments due to growing comerical interests of NOCs
Decrease in oil demand prevents investments due to growing comerical interests of NOCs Lower NOC investments in very expensive oil technologies National interests of OPEC members
Decrease in OPEC production
short term
Increase in OPEC production
Decrease in oil demand prevents investments Lower IOC investements in very expensive oil technologies
Internalization of external costs: Strict global climate protection objectives
Scenario 1: Lower production of tar sands, extra heavy oil, CTL, oil shale
Scenario 2: Lower production of deep sea oil, Artic oil , EOR, GTL Lack of internalization of external costs: Weak global climate protection objectives
medium and long term
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6. Greenhouse gas emissions does not suffice for evaluating the indirect effects of fossil fuels What is the dirtiest oil?
Photo: U.S. Coast Guard
Photo: Suncur
• Improvement of current LCA methodology is necessary to evaluate environmental effects of catastrophes like in the Mexican gulf and in the Niger Delta. • Further indicators such as aquatic toxicity are needed. 11
E. Conclusion • The replacement of marginal fossil fuels with biofuels is an indirect effect which depends on many factors • The replacement of the fossil fuel with the highest greenhouse gas emissions and environmental impact with biofuels depends on the internalization of costs and therefore on political decisions. • The biggest environmental benefits that biofuels can provide through indirect effects, will only be achieved in cooperation with international climate and environment protection objectives. • The opposite is also true: international climate and environmental policy can only be achieved when alternatives to conventional and unconventional oil resources are created. 12
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