World Bunkering > News > Summer 2009 > Getting the energy mix right

Demand for energy is rising. That much is pretty clear, although the rate at which that demand increases is still open for debate. In tandem with this, demand for oil is rising, although the rate at which it does so depends very much on how successfully the world can diversify the sources from which that energy comes – the so-called energy mix. Beyond this, though, the ways in which oil majors predict that demand and usage will develop, both in the marine sector and in the world as a whole, differ considerably.

Of the two presentations made by oil majors at this year’s International Bunker Conference, ExxonMobil’s was perhaps the most optimistic. According to Eddy Van Bouwel, European Regulatory and Environment Manager, the company predicts that advances in technology will increase efficiency gains by 70%, equivalent to 170 million bpd, by 2030, providing overall savings of more than twice the predicted increase in demand of 35%.

As a result, ExxonMobil has actually lowered its demand projections from those made in precious years – revising demand levels for liquid fuels in 2030 down by 8% from predictions last year. This increase in efficiency will also mean that carbon emissions will increase at a lower rate than the rate of demand – though at 28%, the increase is still sizeable. Fossil fuel will still make up some 80% of the energy mix by this stage, although the fastest growth will be in the wind, solar and biofuels sector.

Overall, the oil industry must meet the need for reliable, cheaper energy. The three key challenges to be met are:

• Increasing efficiency – this includes conserving existing oil supplies and reducing greenhouse gases;
• Expanding supplies from all commercially viable sources;
• Mitigating emissions – mostly through developing technology that is capable of doing so. Shell’s Mark Harrison, by contrast, warned that while the temporary downturn in the global economy is directing our attention elsewhere, peak oil is a serious concern, and one that the industry must plan for, ideally through cooperation, rather than through a scramble for national interest. According to Shell, the future energy market will be dominated by three factors:
• A surge in energy demand This year, oil demand is down 3%, but demand is expected to recover raipdly. International Energy Agency projections suggest that energy demand will grow by more than half between 2005 and 2030. This is significantly above the increase predicted by ExxonMobil.
• Supply will struggle to keep pace According to figures from BP, investment in exploration and development of oil and gas resources were down by 12% in 2009. As a result, Harrison said: “We could see an oil and gas squeeze by the middle of next decade – and it could be severe.” In addition, this shortage of supply will lead to increasing cost pressures. The oil price is now the same as it was in 2004, but costs have doubled since. “So-called ‘easy’ oil and gas are becoming a thing of the past. There are still plenty of resources in the ground, but accessing them costs more and requires new approaches. Innovation will be important to keep energy supply matching demand,” said Isabella Loh, ceo of Shell Global Marine Products.
• Environmental stresses are increasing The IEA sees carbon emissions increasing by 57% between 2005 and 2030. This is almost twice the increase predicted by ExxonMobil.

Scenarios

In the longer term, Shell prefers to work in what it calls scenarios, rather than forecasts, taking into account a number of different factors that affect the way the situation develops. These allow the company to make plans for periods longer than it can accurately predict. Shell is currently making plans according to two separate long-term scenarios for energy development to 2050. Both are predicated on the same “three hard truths”, but involve very different reactions to the problems that will arise as a result.

The first, dubbed ‘Scramble’, sees a world focused on security of the national, rather than the global, energy supply. Decisions are driven by immediate circumstances rather than long-term thinking. In terms of price, this means high volatility and a series of emerging spikes and troughs. For the shipping industry, this scenario is best represented by a patchwork of regional and local regulations imposed unilaterally.

The second, ‘Blueprints’, relies on a more central approach to energy policy, resulting in long-term change, rather than adaptation of existing policies. The result is a much reduced increase in carbon emissions. While Shell believes that technology can play a major role in this transition, it says that there are no ‘silver bullets’, and that much of the change will have to come through political and regulatory change. This contrasts with ExxonMobil’s belief that “Technology breakthroughs are critical”. Both companies, however, believe that taking a global approach to the problem is the single most important factor in controlling both energy markets and emissions over the next decades.

Implications for the shipping industry

Both ExxonMobil and Shell argued that, while shipping is one of the most efficient methods of transport in terms of carbon produced per tonne-mile, it will be a major target for carbon reduction, simply because it has so far escaped attention. Shell estimates that shipping accounts for approximatel y 4% of global greenhouse gas emissions, 40% higher than in 1990, and likely – according to some projections – to double by 2050. Like Exxon, Shell believes that technology will be crucial in producing this reduction. “Currently, only 30-31% of marine fuel is used to power the vessel, the rest is dissipated as heat. Much can be done to halve the use of energy,” said Loh.

However, environmental regulations may themselves be driving the increase in oil demand in the shipping sector. In particular, regulations on sulphur content will put increased pressure on refineries, “It is generally accepted that with limits at less than 1% sulphur, some distillate fuel will be needed to meet demand. Additional cracking will in fact lead to a further increase in demand as it is not efficient. Heavy fuel oil has sunk from 33.8% of the barrel to 15.9%, of which about half is used by ships,” said van Bouwel.

Likewise, Harrison emphasized that there is a potential conflict between the aims of improving local air quality – for example by using low-sulphur fuels, which results in considerably increased carbon emissions from refineries – and long term aims of reducing greenhouse gas emissions. Both the shipping and the refining industries must work to resolve this contradiction.

New solutions

Looking beyond low-sulphur fuel oil to find alternative marine fuels, Shell has been conducting tests using GTL gasoil as a replacement for Marine gasoil in a Caterpillar Marine Auxiliary engine during 2007. In conjunction with TESO, a ferry operator on the Wadden Sea has been running on pure GTL produced by its plant in Malaysia.

Tests have shown that GTL gasoil results in significantly reduced emissions as shown on the chart, with benefits in NOx, SOx and particulate matters. Additionally, as GTL products are biodegradable and have improved eco-toxicity performance they are far better suited for use in environmentally sensitive areas, says Loh.