Global energy: supply-demand model?

The purpose of this data-file is to enable some simple scenario testing for supply-demand balances in the global energy system. I.e. what energy supplies are most likely to be available from 2020-2030 to meet global energy demand, looking across coal, oil, gas, nuclear, wind, solar and other sources?

Worsening energy shortages are most likely, based on what we are currently seeing. If underlying energy demand ‘wants’ to grow by around 2% per year, while we phase back coal and nuclear, put oil and gas on a “plateau”, and ramp renewables by an astounding 1 TW per year by 2030, then we think energy shortages will deepen to around 10% total under-supply by 2030.

Possible resolutions could be if energy prices rise so high as to “destroy demand”, and thus total final energy use only grows 1% per year (not 2%), or if gas output grows 6% per year (not flat), or some combination of the two. It seems challenging to resolve energy shortages by other means.

Please download the data-file to stress test your own scenarios. Other metrics in the file include CO2 emissions and the total capital investment in primary energy (in $bn pa) that is associated with the scenarios.

Power grids: global investment?

This simple model integrates estimates the global investment in power grids that will be needed in the energy transition, as a function of simple input variables that can be stress-tested: such as total global electricity growth, the acceleration of renewables, and the associated build-out of batteries, EV charging, long-distance inter-connectors and grid-connected capital equipment for synthetic inertia and reactive power compensation.

Global investment into power networks averaged $280bn per annum in 2015-20, of which two-thirds was for distribution and one-third was for transmission. This is a good baseline.

Our base case outloook in the energy transition would see total global investment in power grids stepping up to $400bn in 2025, $600bn in 2030, $750bn in 2035 and $1trn pa in the 2040s.

Our scenario is also not particularly aggressive around renewables, which are seen accelerating by 10x to provide around 20-25% of all global energy in 2050. You can realistically reach $2trn pa of global power network investment in a scenario that relies more heavily upon renewables and batteries.

Amazingly, these numbers can actually become larger than the total spending on producing all global primary energy. Whereas in the past, transmission and distribution were a kind of side-show, equivalent to c30% of total primary energy investment, the energy transition could see them become comparable, at 50-100%.

Definitions. By ‘power networks’ we are referring to the grid, which moves electrical energy from producers to consumers. Please note that our classification of power grids excludes (a) investments in primary energy production, such as renewables, nuclear, and hydro (b) investments in large conventional power-generating plants (c) downstream investments made by customers, such as in switchgear, power electronics and amperage upgrades.

The model can be downloaded to stress-test simple numbers, inputs and outputs. Please contact us know if the work provokes any questions, or further numbers that we can heplfully pull together for TSE clients.

Gas diffusion: how will record prices resolve?

Displacing industrial gas demand in Europe

Dispersion in global gas prices has hit new highs in 2022. Hence this 17-page note evaluates two possible solutions. Building more LNG plants achieves 15-20% IRRs. But shuttering some of Europe’s gas-consuming industry then re-locating it in gas-rich countries can achieve 20-40% IRRs, lower net CO2 and lower risk? Both solutions should step up. What implications?

Mining: crushing, grinding and comminution costs?

Mining crushing grinding costs

Mining: crushing-grinding costs. Extracting useful resources from mined ores requires comminution. This is the integrated sequence of crushing and grinding operations, which breaks down mined rubble (3-10 cm diameter), effectively into talcum powder (30-100µm), which can in turn enter the metal refining process with sufficient surface area to extract the valuable materials.

The purpose of this data-file is to tabulate typical cost estimates for crushing-grinding processes, which consume 1-2% of all the energy in the world and 20-50% of the energy in some mining processes. Our numbers are shown per ton of ore, so clearly lower ore grades translate into higher costs per unit of extracted material (guide here).

Energy economics. A good rule of thumb is that an integrated mining crushing-grinding plant will have capex costs of $20/Tpa of capacity and consume 20kWh of energy per ton, while total full-cycle costs will run close to $10/ton of ore that is processed. (Numbers can be stress-tested in the ‘model’ tab).

Our capex estimates are informed by evaluating a dozen actual project disclosures and technical papers, spanning across the gold, silver, iron, copper and limestone quarrying industries (see the ‘capex’ tab).

Our energy intensity estimates are informed by mine disclosures and technical papers, but we have also derived our own bottom-up numbers using the Bond Equation. The suggested work index for this model depends on rock hardness, and varies from 9kWh/ton in soft rocks (barites, bauxites, fluorspars, phosphates) through to 13kWh/ton at harder rocks (copper ores, hematites, limestones) and higher again at volcanics (see ‘Bond’ tab).

Please download the data-file to stress-test mining crushing-grinding costs, across capex, opex, maintenance, labor, electricity prices, CO2 prices, uptime & utilization and ore grades.

Our 5 conclusions on the crushing-grinding industry are highlighted in the article sent to our distribution list here.

Air conditioning: energy demand sensitivity?

Air Conditioning Energy Demand

Air conditioning energy demand is quantified in this data-file. In the US, each 100 Cooling Degree Day (CDD) variation adds 26 TWH of electricity (0.6%) demand and 200bcf of gas (0.6%). Total global demand for air conditioning consumes 1,885TWH of electricity (7% of all global electricity, 2.5% of all global useful energy). IEA numbers see air conditioner demand trebling, from 1.9bn to 5.6bn by 2050, underpinning 3,500-6,000 TWH of electricity demand for air conditioning in 2050. We think the numbers could be materially higher, and will more than treble from 2021 levels.

A brief history of air-conditioning. In 3rd Century Rome, Emperor Elagabalus built a mountain of snow in his summer villa, permanently replenished by donkeys descending from the mountains. Similarly, Seneca mocked the “skinny youths” who ate snow rather than simply bearing the heat ‘like a proper Roman’. Millennia later, dying US President James Garfield was palliated by blowing air over ice-water: The White House went through half a million pounds of ice in two months. It took until 1902 for the first modern air conditioner to be invented, by Willis Carrier, while he was working at the Sackett-Wilhelms printing plant in Brooklyn. His systems sent air through coils filled with cold water, where the latent heat of evaporation would be transferred out of the water into the air. In 1922, Carrier added a centrifugal chiller, to reduce the unit’s size. Carrier Air Conditioning later developed a belt-driven condensing unit and mechanical controls for commercial units by 1933.

A surprising influence on the entirety of 20th century society stems from this world-changing invention of air conditioning. It was debuted at the Rivoli theatre, in Times Square, in 1925. Some sources say that the move industry’s “summer blockbuster” even has its roots in air-conditioned cinemas, as American audiences would attend as much for the coolness as the entertainment. At the same time, US populations began expanding into otherwise inhospitable regions of the sun belt. The US population living in the sunbelt has risen from 28% in 1950 to over 40% today. In 1960, the tiny town of Las Vegas hosted 100,000 people, and it has since grown by a factor of 30x. Over a similar timeframe, Persian Gulf Cities went from 500,000 people in 1950 to 20M now, and now these hot climates even host air-conditioned football stadiums and indoor ski-slopes.

Present energy demand. By 2022, there are 1.9bn air conditioners in circulation globally, of which two thirds are situated in China (c60% household penetration), the US (90%) and Japan (91%). They accounted for 1,885TWH of electricity demand in 2020 (7% of world electricity consumption). They accounted for 390TWH of US electricity in 2021, comprising 10% of the US’s electricity consumption, of which two-thirds are residential, one-third commercial. This share rises to 25% of ASEAN’s, 30-40% of Singapore’s electricity consumption, and up to 70% of the UAE’s.

Air Conditioning Energy Demand

Future energy demand. The IEA projects that by 2050, the number of air conditioners around the world will reach 5.6bn (up 3x). This could see air conditioning demand rise to 3,500-6,000 TWH of electricity in 2050, depending on future efficiency initiatives. c75% of the gain is seen coming from increasing income in emerging markets, as less than 10% own air conditioners in India and Africa, compared with 44% of the world’s “hot climate population” today. Another c25% of the demand increase is actually expected to come from climate change itself.

We think IEA numbers are light, and the most likely output will see total global electricity demand for air conditioning rising by over 3x, to well above 6,000 TWH pa by 2050. In a ridiculous case, where 1.4 bn people in India ultimately aspired to achieve a US-level of air conditioning comfort, despite India’s 4x hotter climate (as measured by cooling degree days), then the resultant energy demand in this one country alone would be 6,500 TWH (10% of today’s total global energy), equivalent to 1,000 MTpa of LNG demand. These numbers are insanely high. They are quantified back-of-the-envelope in the data-file.

Weather dependency. Power demand can double on a hot day versus a mild day, in a city with heavy air conditioning demands. This happens to be at the exact same time that heat detracts from the output capacity of solar, wind, gas plants, nuclear plants, power lines. Hence we have previously noted how “hell is a hot still summer’s day” if you are power-grid planner. This data-file calculates how energy demand changes with cooling degree days. Against a baseline of 1,500 US Cooling Degree Days per year (in Fahrenheit terms), a good rule of thumb is that each 100 Fahrenheit variation will add 26 TWh of electricity demand, which equates to 200bcf of gas demand, or 0.6% upside in total US gas consumption. Numbers can be stress-tested in the data-file.

Incremental technologies are envisaged to make future air conditioning more efficient, and even take the string out of growing global cooling demands. Interesting options that have crossed our screens include improving insulation, smart energy, phase change materials, heat pumps, power factor correction, absorption chillers with CHPs, and urban trees that can reduce temperatures in cities by 2-8°C.

Global oil demand: rumors of my death?

Oil demand during COVID

‘Rumors of my death have been greatly exaggerated’. Mark Twain’s quote also applies to global oil consumption. This note aggregates demand data for 8 oil products and 120 countries over the COVID pandemic. We see 3.5Mbpd of pent-up demand ‘upside’, acting as a floor on medium-term oil prices.

Global oil demand: breakdown by product by country?

This data-file breaks down global oil demand, country-by-country, product-by-product, month-by-month, across 2017-2021. The goal is to summarize the effects of the COVID-19 pandemic.

Overall, global oil demand fell by -22Mbpd at trough in April-2020, with an average of -9Mbpd YoY in 2020. In 2021, global oil demand was still -2.5Mbpd below 2019 levels, with an exit rate of being -1Mbpd below in 4Q21.

Of the 9Mbpd of demand destruction in 2020, 3Mbpd was jet fuel (-40% YoY), 3Mbpd was gasoline (-13%) and 2.5Mbpd was distillate (-9%). Jet fuel remains most subdued and was still 2Mbpd below 2019 levels in 4Q21.

By region, OECD demand declined faster than non-OECD demand, at -12% and -6% respectively, in 2020. Many non-OECD product categories have already made new highs.

The data are split out across 120 countries, 15 global regions and 8 product categories (LPG, gasoline, jet fuel, distillate, naphtha, fuel oil, other, total).

Oil demand: how much can you save in a crisis?

oil demand in a crisis

Countries are encouraged to hold 90-days of emergency oil imports in inventory and have plans to reduce their oil use by 7-10% in emergency times. This has long been IEA guidance to reduce oil demand in a crisis.

Hence this data-file tabulates proposals from the IEA to quantify how these reductions (5-10Mbpd globally) could be achieved.

It is important to be realistic. Implementing all of these measures on a global basis would be extremely painful and could still only cut 10Mbpd of global oil demand at most. But a selective combination of measures would not be unsensible, and could realistically take the edge of the most extreme possible price spikes.

The largest measures are odd-even rationing (up to 6Mbpd), ride-sharing (up to 2Mbpd), free public transport (up to 2Mbpd) and slower driving mandates (up to 1.5Mbpd).

Further research. Our outlook on global oil demand during COVID pandemic is linked here. Our key points on oil demand in a crisis and how we could reduce the use of it are highlighted in our recent commentary, here.

Energy transition: the world turned upside down?

Alleviate energy shortages

Energy shortages are now the second largest problem in the world. Hence this 14-page note evaluates short- and medium-term options to alleviate them. Despite a lot of posturing, we see ‘new energies’ slowing down in 2022-23. The world is upside down and somehow coal is going to be an unexpected savior.

Auto manufacturing: the economics?

This data-file is a very simple model, aiming to break down the sales price of a typical mass-market automobile. Our numbers are informed by a survey of typical numbers for specific auto-plants in Europe and the US.

In typical times, a vehicle’s cost is estimated around $30k, of which c25% accrues to suppliers, c20% is sales taxes, c20% is dealer costs and logistics, c10% employees, c10% material inputs, c10% O&M, 1% electricity and c5% auto-maker margins. Numbers and calculations are in the data-file.

Amidst energy and industrial shortages, it is likely that the same vehicle could cost closer to $50k, representing c40% inflation, mostly due higher costs of materials and bottlenecks in supply chains.

Copyright: Thunder Said Energy, 2022.