SET Energy

This past semester, I studied the price of oil and its relationship to the cost of climate mitigation. It culminated in a paper for Professor Michael Oppenheimer that showed sustained record prices for oil will help make deep emission cuts much cheaper than before. The current price acts not only as a large tax on oil, to the tune of $200 per ton of carbon dioxide, but also pulls the price of other fossil energy sources up as well (as we have been reporting for natural gas and coal). Such a price level was unfathomable in previous mitigation cost models such as the Stern Review estimate of a high oil price being $80 per barrel (70% below today). If oil prices rise to $250 per barrel next year as Gazprom projected that would be equivalent to an almost $500 per ton of carbon dioxide without policymakers having to intervene. The current higher prices, as modeled in the Stern Review, would move optimal concentration of greenhouse gases down a great deal from the 550 parts per million (ppm) level originally estimated by the 2006 study. (more…)

Today, the biggest source of growth in global oil demand cut subsidies that were exaggerating its appetite for the fuel. China, beginning Friday, is increasing the price of gasoline, diesel, and jet fuel by 17%, 18%, and 25%, respectfully. Their price is still below the global market equilibrium, but the increase should help to keep demand from growing as swiftly as their economy (which grew 10.6% in the first quarter of 2008). This should help the demand side of the equation a bit and helped oil prices slide a few dollars today. But the risk of continued increases in the price of oil and gasoline remains as supply struggles to suffice the demand of a growing world population and economy. In fact, large banks such as Credit Suisse and Barclays Capital predict non-OPEC oil production will plateau and even fall slightly in the coming years bringing $150+ oil prices.

In natural gas news, (more…)

As discussed before, all fossil fuels are at historic highs currently. Natural gas is the only major fuel that is not at an all-time high in the US — but that record could be broken this winter, if not before. The key reasons emerge from both supply and demand.

On the demand side, our consumption is rising swiftly. After a 6.5% leap in consumption in 2007 (almost half of global demand growth), the EIA predicts another 2.2% of demand growth in 2008.

On the supply side, (more…)

Coal has been hailed as an abundant, cheap source of energy for over a century. Compared to oil, it is abundant with its 3.3% production increase in 2007 versus oil’s decline. But even with the increase in supply, demand is currently growing faster and driving price increases that rival its fossil fuel cousins. Additionally, as I mentioned a few blogs back, the annual BP Statistical Review of World Energy reported a huge drop in proven reserves of 7.3%. After printing a reserves total of 909 billion tonnes at the end of 2006, the number fell to 847 billion tons at the end of 2007. The largest downward revisions occurred in India, Poland, Indonesia, Brazil, the Czech Republic, Turkey, and Pakistan and are left unexplained as they surpass the amount produced.

The price of internationally traded coal has doubled over the last year, (more…)