NOT FOR QUOTATION WITHOUT PERMISSION OF THE AUTHOR
ON
THE LONG-TERM HlSlDFtYOF
ENERGY MARKEl?SAND
THE CHANCESFOR
NATURAL GASC. Marchetti
May 1984 WP-84-39
Paper presented at t h e International Congress on "Energy-Aspects of a Vast Crisis", Universita Statale, Milan, Italy, 17-20 May 1984.
Working Papers a r e i n t e r i m r e p o r t s on work of t h e International Institute for Applied Systems Analysis a n d have received only limited review. Views or opinions expressed h e r e i n do n o t necessarily r e p r e s e n t those of t h e I n s t i t u t e o r of i t s National Member Organizations.
INTERNATIONAL INSTITUTE FOR APPLIED SYSTEMS ANALYSIS 2361 Laxenburg, Austria
Many of today's m o s t significant socioeconomic problems, s u c h as slower economic growth, t h e decline of some established industries, a n d shifts i n pat- t e r n s of foreign t r a d e , a r e i n t e r - o r t r a n s n a t i o n a l i n n a t u r e . But t h e s e prob- l e m s manifest t h e m s e l v e s i n a variety of ways; both t h e intensities a n d t h e per- ceptions of t h e problems differ f r o m one c o u n t r y t o a n o t h e r , s o t h a t i n t e r c o u n - t r y comparative analyses of r e c e n t historical developments a r e necessary.
Through t h e s e analyses we a t t e m p t t o identify t h e underlying processes of economic s t r u c t u r a l c h a n g e a n d f o r m u l a t e useful hypotheses concerning f u t u r e developments. The understanding of t h e s e processes a n d f u t u r e pros- p e c t s provides t h e focus for IIASA's project on Comparative Analysis of Economic S t r u c t u r e a n d Growth.
Our r e s e a r c h c o n c e n t r a t e s primarily on t h e empirical analysis of i n t e r r e - gional a n d i n t e r t e m p o r a l economic s t r u c t u r a l change, on t h e s o u r c e s of a n d c o n s t r a i n t s on economic growth, on problems of adaptation t o s u d d e n changes, a n d especially on problems arising from changing p a t t e r n s of i n t e r n a t i o n a l t r a d e , r e s o u r c e availability, a n d technology. The project relies on IIASA's a c c u - m u l a t e d expertise i n r e l a t e d flelds and, in p a r t i c u l a r , on t h e d a t a bases a n d sys- t e m s of models t h a t have b e e n developed in t h e r e c e n t past.
In t h i s paper, Cesare Marchetti p r e s e n t s a review of t h e development of world e n e r g y m a r k e t s over t h e l a s t two c e n t u r i e s . This is t h e n used a s a spring- board for projections of t h e likely f u t u r e penetration of n a t u r a l gas.
Marchetti's hypothesis is t h a t society c a n be viewed a s an ensemble of com- ponent s t r u c t u r e s engaged in Darwinian competition; his analysis leads t o i n t e r e s t i n g a n d perhaps surprising conclusions on long-term energy price s t a - bility, t h e f u t u r e role of n a t u r a l gas, a n d t h e vexed question of w h e t h e r o r n o t t h e r e really is a global e n e r g y shortfall.
Anatoli Smyshlyaev P r o j e c t Leader Comparative Analysis of Economic S t r u c t u r e a n d Growth
ON THE LONGTEXM HISTORY OF
ENERGY MARKEX3 AND
THE CHANCES FOR NATURAL GASINTRODUCTION
Tradition gives a sense of security, and a sense of security is badly needed in t h e battered area of energy. So I will delve into tradition, i.e. t h e last couple of centuries, t o detect t h e constant factors and t r y to answer these prickly questions from a solid, long-term perspective.
I must say t h e image I will draw is basically reassuring. Energy will not be short during our lifetime and, quite possibly, it never will be. Politics apart.
Prices have remained curiously constant, in constant money, over the centu- ries, with relatively short spikes. The OPEC spike will be reabsorbed in t h e next few years. The market penetration of new primary sources proceeds with the stately speed of glaciers and never r u n s uphill. So we a r e safe from the devilish r e t u r n of coal, and also from "green" concoctions. Natural gas will be t h e fuel of our lifetime, with nuclear slowly increasing i t s share and the rest slowly fad- ing int,o oblivion. All that will emerge from the maze of cycles and epicycles t h a t make Western society such an admirable and predictable clockwork sys- tem.
These results have been obtained using a single heuristic hypothesis:
S o c i e t y c a n be d e c o m p o s e d i n t o f o r m & s t r u c t u r e s that c o m p e t e in a hrwiniun w a y .
THE
ENERGYMARKETS
Let us begin to analyze t h e energy market a t t h e world level. After all, t h e supertanker has made energy a world commodity. Following our hypothesis, the primary energy sources, such as wood, coal, oil, gas, and nuclear, can be seen as "structures", i.e. socio-techno-economic networks, competing to con- quer the energy market. The struggle can be displayed if we measure t h e market and t h e sources in homogeneous terms, like tons of coal equivalent, and if we plot t h e various market shares versus time. Energy consumption by source is given in Figure 1, and shares are reported in Figure 2, where t h e basic equation of competition, logF/ 1-F
=
at+
b , is used t o fit t h e data.F
is here the share of one of t h e competitors (usually the winner), and1-F
is t h a t of t h e other. The parameter a expresses t h e r a t e of the penetration, and b locates the process in time (Marchetti a n d Nakicenovic 1979).In t h e case of Figure 2, where various competitors are present a t t h e same time, t h e arithmetic is slightly more complicated formally, but the substance is the same (Nakicenovic 1979). We are now dealing with simple solutions of the Volterra-Lotka differential equations for ecological competition (Montroll et al.
1971).
FIGURE 1 World primary energy consumption (10 t c e ) .
WOOD
.
\
FlGURE 2 World primary energy substitution.
Some of t h e reassuring features announced in t h e Introduction can be already seen by inspecting Figure 2. Straight lines t h a t span a century mean' t h a t t h e r a t e constants a have stayed constant, i.e. t h a t t h e behavior of society toward acceptance or rejection of a certain type of primary energy did not change for a century. Which is remarkable, to say t h e least.
These equations involve two parameters, a s we have seen, and conse- quently only two points, e.g. t h e data for two years, a r e in principle necessary t o fit them. Because t h e data a r e noisy, as can be seen from t h e wriggling lines in:Figure 2, longer swaths a r e needed t o smooth out t h e noise. Figure 3 shows ari experiment in forecasting and "backcasting" using a swath of twenty years, between 1900 and 1920, a s a data base. The inputs are t h e wriggling lines in t h e grey area. The equations, represented by t h e smooth lines, a r e fitted using them. The d a t a outside t h e grey a r e a have been superposed afterwards. This particular example shows t h e remarkable capacity of this competition model to forecast and backcas t primary energy m a r k e t s t r u c t u r e s even Afty years for- ward and backward. There is nothing magic in it, except for the fact t h a t aggre- gate social behavior is incredibly stable. Just like in physics, where t h e indivi- dual drives and actions of single molecules, a r e balanced a n d compensated, resulting in t h e smoothness and stability of thermodynamic laws.
I keep stressing t h e question of stability because it is a necessary concept for supporting t h e bright f u t u r e of n a t u r a l gas expressed in t h e right side of Figure 2. And I would like t o strike t h e nail once more.
People living in a given e r a t e n d to think it represents t h e high point of h u m a n history, and is quintessentially different from anything t h a t went before. In o u r own e r a , World War I1 is seen as marking a fundamental break for Western societies.
To dispel this excessively proud and widespread sentiment, I present Figure 4, where t h e hundred years before World War I1 a r e backcast, using only d a t a from t h e period after 1945 t o fit t h e equations. If o u r world were really different, we could n o t e x t r a c t from i t such vital and precise information about t h e past.
My arguments a r e not confined t o what is shown in world processes. The same type of analysis can be done for substructures, such as nations or indus- tries, and for technologies competing inside industries, o r even in t h e Aeld of science. After a l e c t u r e I gave a t CERN in Geneva, t h e capacity of various machines t o seduce customers was analyzed in t h e same way with excellent results. At present, I have a portfolio of about four hundred cases, mostly stu- died a t IIASA, showing t h e breadth and precision of this exceedingly simple and powerful tool of analysis. Surely, Darwin did not expect t o have gone so deep.
Some of these r e s u l t a r e reported i n Marchetti (1980a, 1983a) and Sanford (1983).
THE
EXPANDING HESOURCESThe previous considerations refer t o t h e s t r u c t u r e of t h e market but say really nothing about quantities and t h e i r relation t o physical resources. Cer- tainly, multiplying m a r k e t fractions by m a r k e t size, we g e t absolute quantities, but for market size prediction I could not find an equally s t r i n g e n t logic.
For t h e world market, totals including noncommercial energy a r e reported in Figure 5. The only clear p a t t e r n h e r e is t h a t in t h e last c e n t u r y or so, energy consumption grew quite steadily by 2.3% p e r year. The simplest decision is to assume "business as usual" for t h e future. To e r r on t h e pessimistic side, I assumed 3% annual growth for t h e future considered. I feel t h a t these flgures
FRACTION (Fl
FIGURE 3 World primary energy substitution (short data).
FIGURE 4 World primary energy "backcasting" from postwar data ( a f t e r Peterka).
are fairly safe, since through analyzing in detail the development of energy use I found t h a t much of the virtual expansion came via increasing efficiency in use. And mean (second-law) efficiency of energy use for society as a whole is still low
-
less than 5%. Consequently, a lot of expansion is still possible there.Taking the assumption a t face value, and multiplying the fractions of Fig- ure 2 by the totals of Figure 5, we obtain t h e physical quantities shown in Fig- ure 6 for each of t h e primary energies, homogeneously expressed in tons of coal equivalent. The smooth lines a r e the products of the equations and t h e wriggling lines as usual represent t h e statistical data.
TABLE 1. Cumulative world energy consumption ( l o 9 tons of coal equivalent).
- - - - - - - - - -
Natural Rejected
Wood Coal Oil Gas Nuclear Solfusa Atmos. C 0 2 1860-1974
2.3% growth
r a t e 25 125 55 2 5 0.4 6 5
1975-2050 3% growth
r a t e 2.5 80 210 550 750 250 190
Reserves 1000 100 100
Resources 3ob 10000 400 300
Solar, fusion, etc.
Renewable annual output.
Assumptions on market shares: Nuclear 1% in 1970 and 10% in 2000;
Solfus 1% in 2000 and 10% in 2030.
In this exercise I make integrals over periods of t i m e and compare t h i s demand with resources and reserves, as reported in Table 1. This comparison is interesting because, for example, i t explodes the myth t h a t t h e driving force for exploiting new primary energy sources is t h e exhaustion of t h e previous ones. This is certainly not t r u e for wood a n d coal, where resources are such, a t t h e world level, t h a t we could happily r u n our system on either of t h e m for a considerable number of years ahead. And also for oil, t h e r e is no physical rea- son for a downturn. Incidentally, as shown in Table 2, estimates for final reserves have kept increasing since 1940, which is just a manifestation of our slowly growing knowledge about t h e location of oil deposits. As shown 'by Menard and Sharman (1975), t h i s knowledge is really acquired mostly through drilling and, from this angle, the Earth's c r u s t i s mostly unexplored. A palpable hint of the t r u t h of such s t a t e m e n t s is Table 2, which reports oil findings per m e t e r of exploratory wells drilled in various parts of the world Not only virgin Africa, but also worn-out Europe fare outstandingly well.
Before leaving these global considerations, I would like t o present a piece of evidence, which points to the dominance of subjacent physical r a t h e r than monetary indicators. The sinusoid in Figure 7 is t h e fit t o deviations in electri- city and total energy consumption with respect t o t h e secular t r e n d in t h e United States. The line with peaks over i t is t h e indexed (up t o 1880) arid constant-money price for energy in the United States or on t h e international
FIGURE 5 World p r i m a r y energy consumption (10 tce).
10' TCE
FIGURE 6 World primary energy inputs (10 tce).
TABLE 2. Drilling finding r a t e s (barrels per foot drilled).
United Western Latin
Period S t a t e s Europe America Africa
1970-1974 7 520 200 520
1960-1964 6 17 5 7 380
1950-1954 7 40 8 0 37
6ource: B.F. Grossling.
m a r k e t a f t e r oil s t a r t e d t o be internationally traded. The flares in prices neatly coincide with t h e first p a r t s of t h e downswings i n consumption shown by t h e sinusoid. which by t h e way h a s a strong connection with economic activity, invention a n d innovation waves plus Kondratiev cycles, a s discussed in detail in Marchetti (1980b). Because t h e flares in price have a width of about t e n years, a substantial fall in oil prices is due shortly.
200 100
& L I G H T H & L GULF OPEC
F'IGURE 7 Invention a n d innovation waves
-
t h e s e c u l a r s e t . S Z05 t o
-
0;
-10 : -20METHANE
FOR
KING!-
US D.11r E l a c t r ~ u l Enarmy Total Enargy
Much h a s been said about t h e f u t u r e mix of p r i m a r y energies t h a t will keep us warm a n d moving for t h e n e x t fifty y e a r s with t h e revival of t h i s a n d t h a t and with ingenious new ways to utilize old energies. My s t a t e m e n t s a r e condensed in t h e aseptic curves of Figure 2. The t i m e c o n s t a n t s of societal behavior will keep t h e contribution of new technologies on t h e negligible side, whatever t h e degree of s t a t e support, as r e c e n t American experience clearly demonstrates.
On t h e o t h e r hand, no c a s e of technological substitution I have ever analyzed
h a s shown a revival. This argues directly against a newly increasing s h a r e of coal in the global energy budget. So, as t h e figure shows, we a r e left with gas, becoming progressively dominant during the next fifty years, and n u c l e a r claw- ing its way up, albeit with a fifty-year handicap. This is certainly not a condem- nation of nuclear, which incidentally was born a t the right time in t h e cycle a s detailed i n Marchetti (1980b), b u t only a refocusing of i n t e r e s t a n d potential i n t o the n a t u r a l g a s area.
Natural gas has a long history of managed use, a n d already by t h e year 1000 m e t h a n e wells a n d a n e t of bamboo pipelines served the capital city of Peking. The s a m e fields a r e active today and t h e r e is a suspicion t h a t this methaXe is of nonorganic origin, i.e. linked to volcanic seeps, which could explain t h e longevity of t h e fields.
The success of m e t h a n e really began in the last century, with t h e advent of t h e steel pipeline. So something t h a t was originally considered a nuisance, making crude oil fizz, could be burned somewhere for some useful purpose.
This "by-product" tag has always accompanied n a t u r a l gas, and showed up in consistently low prices with respect t o oil, calorie for calorie, and i n monumen- t a l blasphemies u t t e r e d when oil m e n , after long and expensive toil, discovered
"dry" gas.
The situation changed drastically, if gradually, a f t e r World War 11, a n d for different reasons in different places. In America a well-established m a r k e t and ramified transportation system m a d e i t easier to tie up t h e unlucky, but finally profitable, dry gas fields. In Holland and Italy t h e discovery of a consistent gas deposit was considered a blessing, if a somewhat second-rate one, a s t h e s e countries h a d no oil. My interpretation, if not contradictory, points in a n o t h e r direction. Things t e n d t o happen when they "fit" (Marchetti 1980b). Methane is distributed by a network of pipelines, which becomes competitive when a cer- tain minimum spatial density of energy consumption is reached.
Spatial density increases with the population density in a c e r t a i n a r e a and t h e level of individual consumption. All over the world, t h e population implodes i n t o t h e cities, and, becoming r i c h e r , consumes more. So the critical level is surpassed a t a n increasing rate. After t h a t , the distribution n e t being usually oversized in t e r m s of capacity, every increase in consumption can be accom- modated a t basically zero marginal cost, making the implant irreversible.
On t h e o t h e r hand, i t s secondary features make m e t h a n e ideal for urban areas: it does not i n t e r f e r e with transportation, i t does not pollute, i t is friendly to t h e equipment used to burn i t , and, finally, i t makes life automatic.
I a m drawing a rosy p i c t u r e here, which is an a t t e m p t t.o i n t e r p r e t t h e s t a t e l y m a r k e t penetration of Figure 2. The black side is still t h e fact t h a t gas is costly a n d complicated t o transport. over long distances, which is a c l e a r cause of i m m e n s e waste, e.g. i n t.he Middle East. The curves a r e a challenge t o t h e ingenuity of scientists a n d engineers.
One solution could be to transform m e t h a n e into methanol a t source.
P r e s e n t processes have about a s m u c h elegance as killing mosquitos with dynamite, but soil bacteria m a k e t h e transformation in one go a t room tem- p e r a t u r e . Chemists a r e trying t o steal t h e i r subtle "tour de main" s o f a r without success, b u t t h e r e is always hope for the future. Methanol can be t r a n - sported by s u p e r t a n k e r o r cheap pipeline, and mixed with t h e gasoline pool a s a nonlead anti-knock component a t first, a n d finally a s a s t r a i g h t fuel. Much work is going on t o c h e c k this business e n d of the line.
The second line of a t t a c k is t o install pipelines larger t h a n t h e p r e s e n t m a x i m u m of about 1.5-meter diameter. The Russians s t a r t e d with a 2.5-meter
project, but I do not know of other attempts. The rationale lies in t h e fact t h a t transportation costs a r e roughly inversely proportional t o pipe diameter, so t h e 3000 km accessible t o a 1.5-meter pipe could, without excessive economic strain, become 6000 km with a 3-meter pipe. Throughput would be about seven times larger, b u t sources a n d markets of sufficient size already exist, such a s e.g. Europe and Siberia, t h e Middle East and Western Africa, or Japan and Siberia.
All t h a t is speculation, but l e t us look a t what is happening in t h e real world, and haruspicate from t h a t .
1 a m currently making a study of t h e deployment of large infrastructures, like canals, railways, roads, telegraphs, and telephones, over t h e last t h r e e cen- turies, to see what might be more appropriate in t e r m s of anticonjunctural public works, i.e. devices t h a t could counteract t h e adverse impacts of secular trends a n d cycles. After all, t h e recession is going to stay with u s for a n o t h e r ten years. as analyzed in Marchetti (1980b, 1983b).
One of t h e important infrastructures for t h e next fifty years will obviously be t h e gas network, and I will describe here some of t h e results of t h e analysis, if still in a preliminary s t a t e .
The simplest way to describe t h e evolution of a spatial network is to meas- ure its length vs. time. The final length can be calculated approximately depending on t h e actual stage of deployment and noise in t h e data. For t h e three-parameter logistics presented h e r e , m y guess is a 10% e r r o r , regardless of t h e qualitative considerations I will draw from t h e cases. The fitting is done by visual interpolation of t h e data on the linear transform, for different s a t u r a - tion values, till a straight line is obtained.
The case of trunklines (major gas pipelines) is reported in Figure 8 for t h e European Community, in Figure 9 for Italy, and in Figure 10 for t h e l X G . In all t h r e e cases we a r e not f a r from a 50% stage, where t h e final objective is reported as t h e number in parentheses. For Italy it is around 30,000 km and for t h e FRG 60,000. The time constants a r e of about 40 years, a n d t h e p r e s e n t stage of realization about 50%, meaning t h a t this s p u r t should thin o u t in twenty years. My proposal, in passing, would be to condense this activity into ten years as a n anticonjunctural device for suffering industxies, like steel and civil construction. F'igure 11 illustrates t h e situation for t h e entire gas pipeline system in t h e EEC.
A t this point, a natural question arises: if it has t o be gas, where will all of this stuff come from? The answer may appear naive: from t h e bowels of t h e earth.
Gas is a simpler and more abundant substance than oil. Beyond a certain depth, only gas can be found. I t is also more mobile, facilitating displacement into traps. The maturing of coal releases large amounts of gas, but no oil. And, last b u t not least, t h e r e is increasing evidence t h a t m e t h a n e is p a r t of Mother Earth's exhalations, together with t h e more classical ones HZO, SO2 and H,S.
This may give rise t o large pools of abiogenic gas, unexpected on t h e basis of normal geological thinking, a n d consequently not looked for. A workshop on t h e subject was held in May 1983 a t Oak Ridge to review t h e evidence on such a hypothesis, originally presented by t h e astrophysicist Tommy Gold.
Another a r e a so far overlooked is t h a t of unsealed layers where m e t h a n e is kept in place by capillary forces. Large deposits have been found in Canada, fol- lowing t h a t lead, and now one is being explored in Germany t h a t r e a c h e s all t h e way t o Britain.
FIGURE 8 Major gas pipelines in t h e European Community (final "objective"
160,000 km).
FIGURE 9 G a s t r u n k lines - t h e F R G (final "objective" 60,000 km).
FIGURE 10 Gas t r u n k lines
-
Italy (final "objective" 30,000 km).FIGURE 11 Gas transportation and distribution pipeline length (source:
Inf.. 1976).
Without a t t a c h i n g a n y figures t o these new exploration a r e a s , i t is evident t o m e
-
being in t o u c h with t h o s e closely involved-
t h a t t h e y will add a lot t o t h e figure for r e s e r v e s r e p o r t e d in Table 1. After all, we n e e d only a doubling of t h i s figure which, according t o t h e t r e n d s of Figure 12, m a y only need 20 y e a r s of searching.109 t
WEC OELPHI*ANO OTHERS
500
400
300
200
100
P A 1%5 1950 1955 1960 1965 1970 1975 l%O 1985 1990 YEARS
"Vbrld 01-August Issuer 1960 t o 1976 + Conscrvation Co.m.isslcn. Reporf on Oil Resource.
FIGURE 12 Estimates of world u l t i m a t e reserves of crude oil.
CONCLUSIONS
I would like t o close and draw s o m e conclusions a t t h i s point. Although m y analysis of t h e behavior of t h e e n e r g y (and social) s y s t e m , using Darwinian principles a n d systems-analysis practice, is still in a fluid stage, t h e conclu- sions a r e clearly optimistic, i n a broad sense. In a nutshell, society o p e r a t e s t h r o u g h stable m e c h a n i s m s t h a t make i t s long-term aggregate behavior predictable; e n e r g y is a b u n d a n t by all m e a s u r e s ; t h e next form of primary energy h a s all t h e prerequisites t o satisfy c o n s u m e r s , producers, environmen- talists, and perhaps even steelmakers; "soft" energies have essentially n o c h a n c e for t h e next fifty years, which saves u s from pangs of conscience; a n d l a s t but n o t least, prices will fall shortly.
In t h e s h o r t r u n , however, both temporally and spatially, t h e r e is no doubt t h a t problems still lurk. Energy is too i m p o r t a n t not t o be coveted by politi- cians as a tool for t h e i r designs. I hope t h a t throwing l.ight into t h e m e c h a n - isms involved will r e d u c e t h e a m o u n t of tampering.
Marchetti, C. (1980a) The Evolution of t h e Energy Systems a n d t h e Aircraft Industry. C h e m i c a l E c o n o m y a n d E n g i n e e r i n g R e v i e w , May: 7-13.
Marchetti, C. (1980b) Society a s a Learning System: Discovery, Invention, and Innovation Cycles Revisited. Technological F b r e c a s t i n g a n d Social C h a n g e . 18: 267-282.
Marchetti, C. (19B3a) The Automobile in a System Context. The P a s t 80 Years a n d t h e Next 20 Years. Technological F b r e c a s t i n g a n d Social C h a n g e , 23: 3- 23.
Marchetti, C. (1983b) R e c e s s i o n 1983, D n More Y e a r s t o Go? WP-83-35. I n t e r n a - tional Institute for Applied Systems Analysis, Laxenburg. Austria.
Marchetti, C. a n d N. Nakicenovic (1979) The L h p a r n i c s of h e r g y S j s t e m s a n d t h e Logistic S u b s t i t u t i o n Model. RR-79-13. International I n s t i t u t e for Applied Systems Analysis, Laxenburg. Austria.
Menard, H.W., a n d G. S h a r m a n (1975) Scientific Uses of Random Drilling Models.
S c i e n c e , 190(4212): 337-343.
MonLroll, E.W., N.S. Goel, a n d S.C. Maitra (1971) On t h e Volterra a n d Other Non- linear Models of Interacting Populations. R e v i e w s of M o d e r n P h y s i c s , 4 3 (2/1): 231-276.
Nakicenovic, N. (1979) S o f t w a r e P a c k a g e f o r t h e Logistic S u b s t i t u t i o n Model.
RR-79-12. International I n s t i t u t e for Applied Systems Analysis, Laxenburg, Austria.
Sanford. T.W.L. (1983) Trends in Experimental High-Energy Physics. Technologi- c a l F b r e c a s t i n g a n d Social C h a n g e , 23: 25-40.
