## 21 December 2009

### How Large is the Global Energy Economy?

Over at the Energy Tribune Robert Bryce has an interesting post discussing the fallout from Copenhagen. What I'd like to focus on are his estimates of the size of the global energy industry, which help to answer a question I've had for a while. He writes:
The global energy business dwarfs every other sector. It is a \$5-trillion-per-year business, of which at least \$4.4 trillion is derived directly from coal, oil, and natural gas. No matter how much the US and the rest of the world may desire a move away from those energy sources, the transition to renewable sources – and to no-carbon sources like nuclear power – will take most of the 21st century and require trillions of dollars in new investment.
I emailed Robert asking for details and he helpfully wrote back with the following:
Total global energy use in 2008 was 11.29 billion tons of oil equivalent.
At 7.33 bbls per ton, that works out to about 82.8B bbls.
Multiplied by \$60/bbl = \$4.9T (Source)
If the global economy is \$61 trllion (2008, PDF)) then \$5 trillion represents about 8.2% of the global economy. But surely Bryce's back-of-the-envelope calculation is a lower bound. I am posting this up in hopes that readers might help point to other estimates of the size of the energy industry in the context of the global economy. Thanks!

#### 26 comments:

Harrywr2 said...

http://www.eia.doe.gov/oiaf/ieo/pdf/ieoreftab_1.pdf

500 Quadrillion BTU's for 2010.

Coal Prices per million BTU's.
http://www.eia.doe.gov/oiaf/aeo/pdf/trend_5.pdf

IMHO the 'back of the envelope' calculation is a 'high bound' as Oil is one of the most expensive sources of energy.(Solar is still higher)

If one used a price of \$1.50 per million BTU's coal cost I think the global 'energy market' ends up in the \$3 trillion dollar range. I'm not sure how many zero's a quadrillion is.

As an energy source for other then transportation oil is no longer cost competitive.

The amount of electricity generated using oil in the US is pretty close to 'waste/residual' fuel oil levels.

In the "CO2" discussion coal is the 'Big Sinner' by far with 208 lbs/million BTU's compared to oil at 167 lbs/million BTU's compared with natural gas's 117 lbs/million BTU's.

What no one seems to be discussing is that at current usage rates, Europe and China run completely out of coal in less then 50 years.
The entire world runs out in 137 years.

The economic viability of producing electricity from coal is based on a 40-60 year plant life.

China now accounts for 37% of all coal consumption followed by the US at 17% followed by Europe at 10%.

Martin said...

I am not certain I understand at what level the dollars are measured. There is a huge difference in cost or market value between a btu of coal at the mine mouth and a btu of derived electricity (from the mine mouth generating station). Thus is the \$4.9 trillion at the fuel input stage (measuring only the market prices of the coal, petroleum, natural gas inputs) or at the energy use stage (and then including or not the capital and labor that is part of the particular energy use)?

Jonathan said...

The UK has around 20 million households, with average fuel bills around £1000 per year, so that's about £20 billion for UK domestic fuel alone. Transport and industry are about the same, so say £60 billion total, or about £1000 per head. So if everyone lived at UK levels that would be £6 trillion pounds, or about \$9 trillion. Correcting for average energy consumption you would divide by 3 or so, so we're down to \$3 trillion, roughly matching previous figures.

Of course a large part of my estimated costs is due to tax which complicates things.

Harrywr2 said...

Got my zeros all mixed up.

Coal at \$1.50 per million BTU's(6 zero's)
500 Quadrillion Btu's(15 zero's) total energy use

Quadrilion = million billion.

So we use 500 million billion BTU's.

So \$750 Billion dollars for coal at FOB coal mine price if all energy were produced by coal.

The bigger cost is actually in 'plant', rather than 'raw material'.

I.E. Cost of capitol investment in generating capacity range from a low of \$600/KW for gas to \$6000/kw for solar.

http://www.eia.doe.gov/oiaf/aeo/overview/electricity.html/

In the US we have 1 million megawatts of electric generating capacity.

To replace those plants at a cost of \$1 million per megawatt would cost a trillion dollars.

0tim0 said...

Harry beat me to it wrt using the price of oil for coal. He also brings up another thing that I've wondered about for years. Do the "business as usual" scenarios take into consideration "peak oil" (and, I guess, "peak coal")?

I've always wondered if that increasing cost to extract oil, etc was going to (essentially) create the "carbon tax" politicians are unable to.

--t

Cathal said...

As David MacKay brilliantly puts it:
Numbers, not adjectives
For further reading I was about to recommend MacKay's book 'Sustainable energy - without the hot air' (also available online), but on checking his website I found this:
List of people and organisations known to be using SEWTHA in teaching
[...]
Graduate seminar, University of Colorado. Instructor: Roger Pielke, Jr.
[...]
Oh well, perhaps I'll have better luck next time.

Carolus Obscurus

Richard Tol said...

One measures the size of an industry by its value added, not by its revenue.

BEA has data for the US. Utilities is 2.0%, extraction 1.1%, refining 0.5%, transport 0.1% = 3.8% of GDP or half a trillion dollars. In 2007, that was.

Roger Pielke, Jr. said...

-7-Richard

Thanks -- any guess for share of global GDP that the energy industry represents?

DocMartyn said...

“Total global energy use in 2008 was 11.29 billion tons of oil equivalent.”

The Earths surface is 5.1 x10^14 square meters. With an average density of 0.9g/ml this is 24.6 mls/meter square and so would cover the planet with a slick 24.6 micrometers thick; the thinnest human hairs are 40 micrometers thick.

David Stern said...

Roger, I'd guess that the 4% of GDP that Richard quotes is a lower bound because:

1. Cost of imported oil in the US is not in GDP, in fact it is deducted from GDP as an import. But globally it is value added somewhere else.

2. Because energy demand is inelastic, energy's share of expenditure is higher in countries where the price is higher.

Which leads to the point that share of value added isn't the only way to look at this. It depends on what your question is. If the question is how much does it contribute to economic activity, then Richard's approach is correct. But we can also look at the share of expenditure which includes the energy taxes as well. That's likely a higher percentage.

DeWitt said...

Looking at the price of coal or oil or the value added by the mining and refining industries does not really reflect the true value to the economy. Almost everything we do or use depends on energy. You need energy to turn metal ores into metals. You need energy to fabricate the raw metal into useful parts. Even the so-called service industry runs on energy. Try flipping burgers without gas or electricity to heat the grill. So I would contend that the size of the Global Energy Economy is at least the size of the sum of the GDP's of the developed world plus a lot of the less developed world as well.

David Stern said...

DeWitt - that's the issue of use value vs exchange value - i.e the paradox of water vs. diamonds... You are looking at use value. As energy is essential, taking it all away means that there will be zero output or well-being and so its use value is the sum of all of that. But taking a small amount away doesn't have such dire effects and so its value in exchange (i.e. price is much lower). I think the question is about the latter.

MIKE said...

I have some numbers from The Eoconmist "Pocket World In Figures" 2010 ed.
World GDP \$54.6 trillion
" energy consumption 11,525 mTOE

a comment on what has been said
peak oil to me is silly give me carbon and water and I'll give you liquid fuel coal, nat gas, biomass, etc can all be converted via fischer tropsch process. It was done by the Germans WWII and S Africa on a commercial scale.

DeWitt said...

MIKE,

Fischer-Tropsch and other gas to liquid technologies aren't very efficient. And the sole source of your elemental carbon for conversion to syngas (CO + H2) in the long term is biomass? I think you need to run the numbers on total solar energy conversion by photosynthesis compared to current energy use, factor in the inefficiency of gas to liquid conversion technology and realize we will still need land to grow food.

markbahner said...

"peak oil to me is silly give me carbon and water and I'll give you liquid fuel coal, nat gas, biomass, etc can all be converted via fischer tropsch process"

The question is whether the liquid fuel you produce from each of those inputs (coal, nat gas, biomass, etc.) is competitive with electricity (e.g. from a plug-in hybrid vehicle).

Even at present, that question is debatable. It's likely to become even more debatable as battery technologies improve.

For example, the average driving distance per day in the U.S. is 29 miles:

http://www.ridetowork.org/transportation-fact-sheet

So if a plug-in hybrid could be produced for only a few thousand dollars more than a gasoline car, and got 30 miles out of its batteries, total gasoline consumption would decrease significantly. (The equivalent cost of electricity at average U.S. rates is something like 50 cents per gallon.)

MIKE said...

DeWitt

When I was at BP they's and others gas to liquids only needed about \$20/bbl oil to hit oil company IRR. It's too far in the past for me to remember the efficiencies,however I do recall that nat gas is quite good. Remember making gasoline and middle distillates from crude is not a free lunch. We don't need to use this forever just plug the gap. When I say biomass it can be waste. There been finding a lot of nat gas and this doesn't count methane clathrates.

Harrywr2 said...

#13

If there were an Organization of Coal Exporting Countries it would be a short list, US, Russia, Australia, Ukraine, Kazakstan and South Africa.
The US and Russia account for 50% of world reserves. There are 112 years of coal left at current consumption. Coal to oil might make sense in the US and Australia economically, but no where else, they would just be trading one increasingly scare imported resource for another.

MIKE said...

markbahner

Like I said to DEWITT I see this a fill the gap technology. There are something like 250 vehicles in America alone. The average is 9 years old and climbing that's a lot of inertia. We also need middle distillates (MD) even if you replace gasoline-aviation, trucks, rail, buses etc. If look at stats for the MD you'll see that the developing world uses primarily use it not gasoline. This because the transportation sector is primarily commercial not cars. We also need chemical feed stock. Gas to liquids by the way is superb at making primarily middle distillate with great cetane no. and no sulfur.

MIKE said...

Harrywr2 #17

The USA consumes about 15mbbl/day of crude oil.10m is imported. The world about 86mbbl/day. If you displace a significant part of the USA demand you change the whole global picture. I wouldn't be surprise if China has coal to liquids in mind.

Harrywr2 said...

Mike,

China is now a Coal Importer.

The world currently consumes 3,300 Million Tonnes Oil Equivalent in Coal. At this rate coal has 122 years left.

If the US were to displace 15 Million barrels of oil a day with coal oil, we would consume 2 million tonnes oil equivalent(7.5 barrels/tonne) a day assuming a 100% conversion rate(which it isn't).

2 million x 365 = 730 Million Tonnes per year.

World Coal demand then moves from 3,300 Million TOE/year to 4,000 Million TOE /year.

MIKE said...

Harrywr2 #20

Supply and demand is such that you only have to displace a few mbbl/day to alter the global dynamics. Coal isn't the only source of carbon in any event. China or any nation can displace coal with nuclear in electricity generation. The real issue is how to make liquid fuels.

Harrywr2 said...

Mike

"China or any nation can displace coal with nuclear in electricity generation"

And if such were to occur, the what to do about CO2 debate would come to an screeching halt. :)

If we displace coal/oil/gas for electricity generation with nuclear/wind/solar then we reduce CO2 emissions at least 40%.

Last cost estimates for a nuclear plant built in the US are in the neighborhood of \$4-9 Billion for a 1,000 megawatt plant. To replace coal with nuclear for electricity in the US we need another 200-300 of them.

If we surcharged every household in the US \$25 a month we could fund maybe 6 new reactors a year. I could support such a straight forward plan.

DeWitt said...

I've been seeing these numbers for decades: if oil would increase to 2x the current price then alternate fuel or energy source X will become competitive. The financial analysis behind these estimates do not consider that all the inputs necessary to make alternate fuel X also go up in price when oil goes to 2x. Alternate fuel X never becomes competitive for a newly constructed plant. The only way it might be competitive, neglecting government subsidies, is if the plant had already been built. But no one is going to make that kind of investment. It's too risky.

Harrywr2 said...

Dewitt,

In nuclear the biggest risk is demand risk. As the primary cost of nuclear is building the plant. Utilization rates effect the financial calculations.

Electricy demand isn't constant. Currently US nuclear plants are running above 90% capacity, 10 years ago they were running at 70% capacity.
There just isn't a lot of demand for electricity at 2 AM.

It's not a random accident that nuclear ended up being 20% of our energy production. It basically provides off peak capacity.

To be financial viable they need at least an 80% utilization rate. Which means either inceased off peak demand or some method to store the energy.

If hydrogen cars were to become a reality then one could use off peak electric capacity to produce hydrogen fuel, or if electric cars were to become a reality, one could use off peak electricty to charge them.

DeWitt said...

Harrywr2,

My comment should have been addressed to Mike. Your comments had not been posted when I submitted mine.

Mike,

Gas-to-liquid, regardless of the source of the gas (methane, coal, petroleum coke) is not trivial. Your examples of WWII Germany and South Africa under UN sanctions are examples of necessity, and were abandoned as soon as the need went away.

The recent experience of Qatar is more relevant. Methane there is essentially free. It is being flared because there are no pipelines or other facilities to ship and sell it. Even so, there have been considerable problems with achieving successful operation of a gas-to-liquid plant there to produce middle distillates and, AFAIK, plans for a second plant have been shelved. Eastman Chemical recently abandoned a gasification plant project in Texas that would have used petroleum coke as the carbon source. Projected methane prices are too low for the plant to be commercially viable. OTOH, Eastman Chemical has also been making acetic anhydride from syngas derived from locally mined coal for decades at a profit. But that's mainly because the chemical process for producing acetic anhydride from syngas is highly efficient. The conversion efficiency for coal to diesel, OTOH is somewhere between 1 and 2 bbls/tonne. That's less than 30% at best. Most of the carbon not converted to liquid is lost as CO2. We'll probably have to do it anyway if people like Deffeyes are correct about Peak Oil, but you won't like the effect on the economy or the environment.

dwm22 said...

Coming back to the point, the question is how large the global energy economy is. I want to know how much money the energy industry controls globally.

Bryce suggests this calculation:
Total global energy use in 2008 was 11.29 billion tons of oil equivalent.
At 7.33 bbls per ton, that works out to about 82.8B bbls.
Multiplied by \$60/bbl = \$4.9T

It's great to have a figure for global energy use, but multiplying by the price of crude oil makes no sense to me. And the price is now \$90 dollars a barrel, 50% higher than the \$60/barrel price quoted.

The man in the street does not pay \$60 for an amount of energy equivalent to one barrel. Let's see just how much he does pay:

11.29 billion tons of oil = 80642857142.857 barrels of oil.

80642857142.857 barrels at \$90.62 per barrel = \$7,307,855,714,285.70 (\$7.3 trillion)

11,290,000,000 tons of oil = 131,302,700,000 MWh or 131302700000000 KWh.

Consumers here in Spain pay 0.168095€ per KWh. If all the energy cost this much, the global energy industry would be worth 22,071,327,356.50€ a year, or \$29,171,725,292,757 a year, about 50% of global GDP as opposed to the 8.2% quoted.

Obviously not all of the energy produced in the world is paid for at 0.168095€ per KWh, but neither is it paid for at \$60 a barrel.

The true size of the global energy industry I suspect will be somewhere in between 8.2% and 50% of global GDP.

Sources:
www.xe.com/ucc
http://www.oil-price.net/
http://en.wikipedia.org/wiki/Tonne_of_oil_equivalent
http://www.unitjuggler.com/convert-energy-from-boe-to-toe.html