Fossil fuels consisting of coal, oil and gas are the dominant sources of energy worldwide. They constitute a share of about 80% in world’s energy source market. Dependency on fossil fuels as a reliable source of energy seems to be increasing with time. So, there’s always a question if we can rely on coal, oil and gas for producing energy forever and ever or there’s a limit to these resources.
Researches have been conducted in this field. Fossil fuels are now considered as an exhaustible resource that is one day there won’t be any fossil fuel to provide energy for power generation and other purposes. But when these fossil fuels will be diminished is still a question. Researchers or econometrics have been coming up with many theories.
In this paper we are discussing about the demand of fossil fuels in future; reserves of coal, oil and gas with their expected exhaustion dates; estimated price of fossil fuels. Two depletion models one model is from Klass (Klass New Model = Klass Model + New Model) and the other method is based on the ratio of world consumption to reserve for oil, coal and gas are also reviewed in this paper. This article will provide one with complete information about the expected future of fossil fuels.
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According to the Law of Conservation of Energy; “Energy can neither be created nor destroyed by itself. It can only be transformed”. Energy stored in chemical bonds of buried dead organisms formed by the anaerobic decomposition is used to drive engines, turbines etc. Thus, those volatile materials under the earth’s crust which are used for generating energy are called fossil fuels. Coal, natural gas and oil are few examples of fossil fuels. These fuels are rich sources of carbon and hydrogen which make them valuable resources of energy.
Figure 2: Crude Oil TanksOil is the energy resource which has the largest share in energy supply. It is a liquid formed by the decomposition of marine plants and animals. This liquid is refined and products like diesel, gasoline, lubricants etc are obtained, which are further used for various purposes.
Coal is one of the major energy resources. It is a black coloured sedimentary rock formed by anaerobic decomposition on remains of plants. Coal as an energy source is used in industries like power, paper, cement, steel etc. Coal has
Figure 3: Coallargest reserves in comparison to other fossil fuels. Coal reserves can be found in more than 70 countries of the world, making it one of the most broadly distributed fossil fuel. Coal is the second largest fossil fuel in energy supply.
Figure 4: Natural GasGas has the third largest energy resource, after oil and coal. Methane is the primary constituent of natural gas. It can be used for production of electricity, paper, steel etc. Natural gas is also formed by the decomposition of plants and animals.
It takes about millions of years for these fossil fuels (coal, oil and natural gas) to be created. That is why fossil fuels are called non-renewable or exhaustible or non replenishable resources of energy that is these resources cannot be produced or generated or grown easily if once exhausted.
For thousands of year’s humans have been using coal, oil and natural gas as the main source of energy supply. According to International Energy Association’s 2002, about 80% of energy demands are met by fossil fuels. For centuries humans have been using wood and coal for energy purposes, initially it was used to cook food and other vital requirements. Earlier, these energy sources were considered stable and sustainable as forest and coal resources were assumed to be in abundance and sufficient to meet energy demands. But with the increasing population and the improvement in standard of living, there has been a tremendous increase in the rate of energy consumption. Researches prove that the rate of energy consumption is greater than the rate of increase in energy resources.
This article contains information on the expected future of fossil fuels that is their future demand, price and reserves. Article starts with giving a general overview of world’s energy supply that is share of different energy resources (especially coal, oil and natural gas) in world’s energy market. After that expected demand, reserves and prices of fossil fuels in future are discussed. In this article, 3 different models (Klass Model, New Model and ratio of consumption to reserves of oil, coal and gas) are reviewed in order to get depletion time for these fossil fuels and finally econometrics model of fossil fuel reserve is discussed.
WORLD’S ENERGY SUPPLY SUMMARY
From the figure: 5 it could be inferred that, in year 2004, total energy supplied by non-renewable energy resources (coal, oil and gas) accounted to 80.3(20.9 + 34.3 + 25.1) % while rest of the energy was supplied by renewable resources.
As can be seen from the figure # 5, Oil is the largest consumable (34.3 %) fossil fuel followed by coal which occupies a market share of 25.1%. Gas having the lowest share among all fossil fuel consumption occupies 20.9 % of world’s total energy supply.
Currently, the growth in world energy consumption is approximately 2% per annum (Mason, 2007). According to Energy Information Administration (EIA) energy consumption will increase at an average rate of 1.1 % per annum, from 500 quadrillion Btu in 2006 to 701.6 Btu in 2030 (EIA, 2007 b). Over
Figure 5: 2004 Fuel Shares of World Total Primary Energy Supply, IEA 2007a
70% of this growth will come from developing countries, where populations and economies are growing considerably faster than in the OECD nations. China alone will account for some 30% of increased energy demand (World Energy Council, 2007).The World Energy Outlook (WEO) 2006 claims that energy generated from fossil fuels will remain the major source and is expected to meet about 83% of energy demand in 2030 (International Energy Agency, 2006).
Fossil Fuel Energy
Fossil fuels have been a crucial source of world’s energy. “Fossil fuels (coal, oil and natural gas) account for approximately 80% of primary energy consumption” (Goldemberg, 2006).
Figure: 6 illustrate the consumption of fossil fuel worldwide from 1965 to 2030. As can be inferred from the figure there’s an increasing trend in consumption of coal, oil and gas and it’s expected to continue till 2030. Fossil fuel consumption has increased in last 50 years and is expected to show the
Figure 6: Consumption of fossil fuel world wide from1965 to 2030 (Shafiee and Topal, 2009).
same trend in future. It could be seen that oil is the largest consumable fossil fuel in comparison to coal and gas. Furthermore, it’s been predicted that after 2020 the consumption of coal will be more than that of natural gas in USA (Shafiee and Topal, 2008). ”In terms of global consumption, crude oil remains the most important primary fuel accounting for 36.4% of the world’s primary energy consumption (without biomass)” (BP, 2007). According to WEO 2007, “coal is seen to have the biggest increase in demand in absolute terms, jumping by 73% between 2005 and 2030” (IEA, 2007b). Main cause for the increasing demand of fossil fuels is growth in energy needs for power generation. World’s electricity demand is projected to grow at a rate of 2.5% to 2030 (IEA, 2009). Gas and coal are used for power generation but coal still remains the basic fuel.
From Table 1, we know that coal is a major fossil fuel constituting about 65% of world’s energy resources while oil and gas constitutes 35% of energy reserves, and Coal is widely distributed around the world, while oil and gas reserves are mostly found in Middle East countries, making coal more dominant fossil fuel. Developing countries rely more on fossil fuels to meet their energy requirements.
Table 1: Location of the world’s main fossil fuel reserves in 2006 (Shafiee and Topal, 2009).
The World Energy Outlook (WEO) 2006 claims that energy generated from fossil fuels will remain the major source and is expected to meet about 83% of energy demand in 2030 (International Energy Agency, 2006). “In comparison with other types of fossil fuels, the demand for oil will fall over the next 25 years, even though in absolute terms it will continue to be the main fuel supplying the universal demand for energy until 2030” (Shafiee and Topal, 2008).
Growing Demand of Fossil Fuel
According to IEA 2007a, in absolute terms demand for coal will increase from some 2772 million tonnes of oil equivalent (mtoe) in 2004 to 4441 mtoe in 2030. Greatest increase in coal demand will be in developing countries, with 86% in developing Asia, where reserves of coal are large and cost is low (WEC, 2007).
According to WEC, 2007 fast growing economies in Asia (including China and India), the Middle East, Africa and even Latin America expects gas demand growth rate of 3 – 4 % per annum by 2020. In the OECD (Organisation for Economic Co-operation and Development) countries of North America and Europe, gas share is 24 – 25 % already, which should grow at moderate annual rates of 1.6 % and 2% respectively.
Currently oil, has the largest market share and is expected to be the same in future. According to the International Energy Agency (IEA) (2006b), the demand for oil will grow by 1.3% per annum from 2005 to 2030, broadly in line with global GDP averaging 1.7% from 2005 to 2015 and 1.1% from 2015 to 2030. In absolute terms global oil demand will reach 99 million barrels per day (mb/d) in 2015 and 116 mb/d in 2030 – up from 84 mb/d in 2005 (IEA, 2006b).
FOSSIL FUEL RESERVES
Coal
Coal has the largest worldwide reserve and is widely distributed around the world unlike oil which is limited to Middle East countries. “Coal remains the most important energy, amounting to about 55% of the reserves of all non renewable fuels” (BGR, 2007). According to World Energy Outlook (WEO) 2007, economically recoverable reserves of coal are available in more than 70 countries worldwide and in each major world region (IEA, 2007b). According to WEC 2007, when data was compared from the 2004 Survey of Energy Resources it was found that Coal reserves in North America declined by 2 billion tonnes, in South America they declined by 3.5 billion tonnes and in Asia they declined by 41 billion tonnes. But, it has been reported that there’s about 850 billion tonnes of recoverable coal, which is estimated to last for about 150 years (WEC, 2007). Following is the figure illustrating coal reserves in various countries of the world.
Figure 7: Proved recoverable coal reserves: the top ten countries WEC, 2007
Gas
Since, 1980 gas resources have increased at an annual average rate of 3.4 %, due to successes in gas exploration and better assessments of existing fields (WEC, 2007). According to WEC (2007), volume of gas reserves has doubled from about 77 trillion cubic metres (tcm) in 1980 to 177 tcm in 2006, growing at a rate of 4 tcm/yr. According to WEC, 2007 natural gas is expected to last for 130 years at a rate of consumption of 2930 bcm. Following is the figure showing gas reserves at the end of year 2005.
Figure 8: Proved natural gas reserves as at end-2005 (tcm and % of world) WEC, 2007
OIL
According to WEC 2007, the ‘estimated ultimate recovery’ (EUR) of crude oil was about 387 billion tonnes at the end of 2005. The Middle East has highest EUR. About 65% of North America’s, 24 % of Middle East and 37% of CIS countries EUR has been recovered so far. “The depletion mid-point – when half of the EUR will have been recovered – will be reached within the next 10 to 20 years. Afterwards, the decline of conventional oil production is inevitable” (WEC 2007). Following is the figure showing oil reserves in year 2005.
Figure 9: Distribution of the estimated ultimate recovery of conventional crude oil in 2005, WEC 2007
FOSSIL FUEL PRICES
Fossil fuel consumption is enormously affected by price fluctuations and economic growth. According to IEA, 2009 “Global energy use is set to fall in 2009 – for the first time since 1981 on any significant scale – as a result of the financial and economic crisis.” There’s a big difference between past predictions of fossil fuel prices over the last couple of decades and actual prices (Shafiee and Topal, 2008). Predicting prices of fossil fuels is a tough task as it requires knowing predictions about demand and supply of future market of fossil fuels. Price of fossil fuels can be well determined when variables like production, consumption and net imports are taken in account along with political implications. But some of these variables cannot be identifies clearly. Therefore, prices forecasted by some articles are unrealistic (Shafiee and Topal, 2008). Past studies show that world’s economy is very sensitive to oil prices and reacts negatively to crises such as war, sanctions or UN Security Council Resolutions, in any country which has oil reserves (Shafiee and Topal, 2008).
Figure 10: Trends of world coal proven reserves and coal price from 1987 to 2006 (Shafiee and Topal, 2009).
Above figure shows the relation between coal and its reserves. It can be deduced from the figure that price of coal is decreasing along with its reserves. While over the last couple of years, the coal prices have moderately increased in comparison with the previous coal price trend. Figures below show a trend in oil and gas which is different from coal. In case of oil and gas prices will increase along with the reserves. Their prices have increased unexpectedly with their reserves over 26 years. The oil price in 2008 reached over $138 per barrel. (Source: Shaifee and Topal, 2009)
Figure 11: Trends of world crude oil proven reserves and oil price from 1980 to 2006 (Shafiee and Topal, 2009).
Figure 12: Trends of world gas proven reserves and gas price from 1980 to 2006. (Shafiee and Topal, 2009)
Large prices of oil and gas in comparison to coal, predicts coal to be a good substitute for the other two fossil fuels. Shaifee and Topal (2009) mentions “coal is seen to have the biggest increase in demand in absolute terms, jumping by 73% between 2005 and 2030” (IEA, 2007b). According to WEC, 2007 in 2030 oil prices are expected to reach about $62 per barrel while coal prices are estimated to be about $60 per tonne. According to Annual Energy Outlook 2007 gas prices are expected to be between $2.07 and $2.44 per thousand cubic feet in 2030 (EIA, 2007a). “Forecasting fossil fuel prices are uncertain and for the future are unpredictable” (Shafiee and Topal, 2009).
FOSSIL FUEL DEPLETION TIME (Source: Shaifee and Topal, 2009)
One methodology describing fossil fuel depletion is modified Donald Klass formula (Klass, 1998). In this method compound rate method is used and rate of fossil fuel consumption is assumed to be constant.
TFC = ∑ FCi = R where, i = 1 to n, TFC = Fossil fuel consumption, FC = Fossil fuel consumption, n = year and R = reserve.
In a new model rate of fossil fuel consumption was not assumed to be a constant. In this case FC is derived using following equation.
FCn = FC1 e(n-1)g where g = annual continued growth rate of fossil fuel consumption.
Following equation is derived on solving above 2 equations
n = {Ln[(R/FC1)(eg -1) + 1] } / g
Following table shows the depletion times of fossil fuel with both approaches, that is one in which rate of fossil fuel consumption is assumed to be constant (Klass Model) and the other in which rate of fossil fuel consumption is not constant (New Model).
Table 2: Fossil Fuel reserves depletion times, Shaifee and Topal 2009
From above table, it could be seen that coal reserve has a longer availability than oil and gas, It is expected to last till 2112 and will be a single fossil fuel in the world after 2042.
The new model has calculated the depletion time considering world’s fossil fuel reserve to be constant. If new reserves are discovered then the depletion time should be calculated again.
Another methodology is by calculating the ratio of consumption to reserves. Following figure shows the ratio from 1980 to 2006. According to the figure this ratio was constant for oil and gas for about 40-60 years. This means oil and gas reserves have been increasing during last 26 years. But depletion in coal resources could be seen too, which is believed to exist because of the inaccurate estimates of coal reserves in past 2 decades. If fossil fuels are continued to be used at 2006 rates, then oil, coal and gas reserves are expected to last for 40, 200 and 70 years, respectively.
Figure 13: The ratios of world consumption to reserves for oil, coal and gas from 1980 to 2006 (Shaifee and Topal, 2009)
ECONOMETRICS MODEL OF FOSSIL FUELS RESERVE (Source: Shaifee and Topal, 2009)
According to Shaifee and Topal (2009), econometrics techniques can be used to determine the effect of variables on fossil fuel reserves. Following is ad hoc liner model:
RESt = α + β1Ct + β2Pt + εt
where, RESt = world fossil fuel proven reserves, Ct = world fossil fuel consumption, Pt = world fossil fuel price.
According to the model fossil fuel reserve is the dependent variable while fossil fuel consumption and price are independent variables. Following table shows econometrics model for coal, gas and oil. This model is based on autoregressive moving average for fossil fuel reserve from 1980 to 2006.
According to oil econometrics model, oil consumption has a positive effect on world oil reserve while oil price has a negative effect on world oil reserve. According to the model if oil consumption increases by one million dollar per year, world’s oil reserve will increase by 66.48 billion barrels, with the other things same.
Table 3: Regression models of oil, coal and gas reserves in the world (Shafiee and Topal, 2009)
According to coal econometrics model, coal consumption has a negative effect while coal price has a positive effect on coal reserves. According to the model if coal consumption increases by 1 billion tonne, world’s reserve of coal will decrease by 402.82 billion tonne, with the other things same.
According to gas econometrics model, gas consumption has a positive effect on gas reserves while gas prices have a negative effect on gas reserves. According to the model if gas consumption increases by one billion cubic feet in 1 year, then the world’s gas reserve will be increased by 0.081 trillion cubic feet, with the other things remaining constant.
“Additionally, the Goldfeld – Quandt test, the Durbin-Watson test and the F-statistic test for all three models prove that the developed model has 99% significance and has no multicollinearity, heteroscedasticity or autocorrelation problems” (Shafiee and Topal, 2009).
DISCUSSION
This review article leads to the conclusion that one day oil, coal and gas will cease to exist. Thus, fossil fuels are not inexhaustible resources. Many theories have been developed by econometrics in order to discuss the future of fossil fuels. From this article, it’s sure that the demand of fossil fuels will continue to increase but there’s a limit to which oil, gas and coal resources could be used.
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According to the text, from 2005 to 2030 demand for oil and gas will grow by 1.3 % per annum. Demand for coal is expected to see a jump of about 73% between 2005 and 2030. According to the theories discussed in the paper there’s a positive correlation between oil and gas reserves and their consumption while a negative correlation exists between coal’s reserve and consumption.
Three different theories have been discussed in the text explaining the depletion time for these fossil fuels. According to Klass model coal is expected to last for 106 more years while oil and gas are expected to last for 34 and 36 years respectively. New model predicts coal, oil and gas will cease to exist after 107, 35 and 37 years respectively. According to the methodology of ratio of consumption to reserve oil, coal and gas reserves are expected to last for 40, 200 and 70 years respectively. From all these theories it could be concluded that coal, oil and gas will at least provide energy for 106, 34 and 36 years. From all these data it could be concluded that after some time (30-40 years) coal will be the only available fossil fuel which will available for mankind to use for energy generation purposes.
All theories discussed in this paper lead to different depletion time periods for these fossil fuels, so more research is required in the field. If fossil fuels are exhausted, there will be a need for other energy sources. So, it is also recommended to look for other inexhaustible resources of energy and employ them.
REFRENCES
JOURNALS:
BGR, 2007. Reserves, resources and availability of energy resources 2005. In: Federal Institute for Geosciences and Natural Resources, H. (Ed.), Bundesan- stalt fu¨ r Geowissenschaften und Rohstoffe.
BP, 2007. BP Annual Review 2007. British Petroleum.
EIA, 2007a. Annual Energy Outlook 2007 with Projections to 2030. Energy Information Administration, Washington.
EIA, 2007b. International Energy Outlook 2007. Energy Information Administration, Washington.
Goldemberg, J., 2006. The promise of clean energy. Energy Policy 34, 2185-2190.
International Energy Agency (IEA), 2006. World Energy Outlook 2006. Organisation for Economic Co-operation and Development, IEA, Paris and Washington, DC
IEA, 2007a. Renewables In Global Energy Supply, An IEA Fact Sheet. International Energy Agency, Paris and Washington, DC.
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IEA, 2009. World Energy Outlook 2009, Executive Summary. International Energy Agency, Paris and Washington, DC.
Mason, J.E., 2007. World Energy analysis: H2 now or later? Energy Economics 35, 1315 – 1329
Shafiee, S., Topal, E., 2008a. An econometrics view of worldwide fossil fuel consumption and the role of US. Energy Policy 36, 775-786.
Shafiee, S., Topal, E., 2009. When will fossil fuel reserves be diminished? Energy Policy 37, 181-189
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WEBSITES:
Figure1: http://people.bukiki.com/2009/01/08/the-hidden-costs-of-using-fossil-fuel/
Figure2: http://www.energyindustryphotos.com/crude%20oil%20tanks%202.jpg
Figure 3: http://www.asia.ru/en/ProductInfo/412763.html
Figure 4 : htp://www.hybridcarblog.com/uploaded_images/natural_gas_set_to_change_everything_about_fight_for_energy_independence-720907.jpg
Introduction text is from Lecture # 14, Lec14 Energy resources from 61-213 course
http://www.eia.doe.gov/energyexplained/index.cfm?
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