04 February 2016

Modeling the Future -- Oil

I stumbled across an entertaining piece of science fiction on the net at http://www.wolfatthedoor.org.uk/ . WolfAtTheDoor stakes out an extreme version of the future propagated by www.peakoil.net . To paraphrase "Oil prices will rise dramatically and civilization as we know it will end. We will return to living a medieval life." Fortunately, however, both of these web sites clearly have no understanding of economics and thus can be enjoyed as classic horror.

The United States in the 1980s provided a good example as to what will happen when oil demand exceeds supply. Production of oil in the United States started to rise as the economics made older oil fields cost effective. And alternate, more cost effective, energy sources were substituted for oil.

The EIA points out that about 1/3rd of the oil used in the US today is used for stationary (non-transportation) uses such as space heating or power generation. In most of the world, more than half of oil is used for stationary applications. This means that if the price of oil rises high enough, it is relatively easy to substitute natural gas for oil in many applications.

A barrel of oil contains about 6.2 million BTU. At a price of $55.80 per barrel, that's $9 per million BTU. Natural Gas in the US is currently around $6 per million BTU. (And, since natural gas burns cleaner than oil, there is a tendency for consumers to pay more for natural gas than oil in stationary applications.)

[Originally published 4/11/05.  I screwed up the timestamps trying to fix a couple of minor typos.]

Making Predictions about the Future

In March 2005 I outlined a growth scenario for photovoltaics in the U.S. and compared my comparison to the EIA's.  I predicted 10Gkwh of PV electricity in 2014 and stated that the EIA claimed 4Gkwh of PV electricity in 2025.  I was wondering how good my prediction had been, so I went and looked at the AEO 2015 and AEO 2005.

PV generation (GKwh, estimated)
AEO 2015
      EPS         EUG    Total
2012  3.30        7.97   11.27
2013  7.98        9.62   17.60
2014 15.19       11.39   26.58
2015 19.68       13.47   33.47
2025 30.28       24.77   55.05
2040 47.14       59.33  106.47

AEO 2005
      EPS         EUG    Total
2012  0.39       0.86    1.25
2013  0.43       0.88    1.31
2014  0.48       0.89    1.37

2015  0.23       0.95    1.18
2025  0.96       3.74    4.70

Gosh, my silly little economic model was about 12% below end-user segment generation, and 62% below total on-grid PV generation.  The EIA was 95% below total generation?  Of course, the EIA made their predictions a few months before I made mine.  And no doubt changes to state and federal policies completely explain the discrepancies in their predictions.