R=G, G=∞

I have been toying about this topic for a while now. Please brace yourself for a baronial blog.

Lets talk about Oil.

So what exactly is a 'Barrel' of Oil? Well, for a quick metric, 1 Barrel = 42Gallons (US) = 0.159 kiloliters.

BOE stands for barrel of oil equivalent. It is a unit of energy based on the approximate energy released by burning 1 barrel of crude oil.

So what's the story?

Let us look at this table of Key countries and their Primary Energy consumption in 2007.

	Oil	Natural Gas	Coal	Nuclear Energy	Hydro electric
US	39.9%	25.2%	24.3%	8.1%	2.4%
China	19.7%	3.3%	70.4%	0.8%	5.9%
India	31.8%	8.9%	51.4%	1.0%	6.8%
TOTAL WORLD	35.6%	23.8%	28.6%	5.6%	6.4%

Let's also look at the justreleased 2008 Global Fortune 10 companies by revenue :

1. Wal-Mart Stores; 2. ExxonMobil;3. Royal Dutch Shell;4. BP;5. Toyota Motor;6. Chevron;7. ING Group;8. Total;9. General Motors;10. ConocoPhillips

That's a no-brainer - 6 out of the 10 companies are Oil companies with a total revenue of - hold your breath -1.596 Trillion Dollars and I'm noteven talking about National Oil Companies (Saudi Aramco, the world's largest oil company  has 260 billion barrels as reserves compared to ExxonMobil's 22.7  billion barrel reserve)

There is no doubt, this world isaddicted to Oil. (I know you'll say "and coal", but that's adifferent story)

Here's what I've been reading.It's a rare story about the cure for this Oil addiction.

On October17, 1973, OPEC announced they would no longer ship oil to nations that had supported Israel in its conflict with Syria , Egypt , and Iraq (the United States , its allies in Western Europe, and Japan ).This was the Great Oil embargo of 1973.

NY Times columnist Thomas Friedman, quotes Connie Hedegaard, Denmark 's minister of climate and energy asfollows:

"In 1973, we got 99 percent of ourenergy from the Middle East . Today it is zero."

Friedman adds, "The Danes imposed on themselves a set of gasoline taxes,CO2 taxes and building-and- appliance efficiency standards that allowed them to growtheir economy — while barely growing their energy consumption — and gave birthto a Danish clean-power industry that is one of the most competitive in theworld today.

There is little whining here about Denmark having $10-a-gallon gasoline because of high energy taxes. The shaping of the market with high energy standards and taxes on fossil fuels by the Danish government has actually had "a positive impact on job creation," added Hedegaard. "For example, the wind industry — it was nothing in the 1970s. Today, one-third of all terrestrial wind turbines in the world come from Denmark . Denmark today gets nearly 20 percent of its electricity from wind. America ?About 1 percent."

I know this can never be an apples-to-apples or even a apples-to-raisin comparison, but Wow!

For me, this means hope and I'm not talking about the $10-a-gallon part but the fact that Oil independence can be a reality.  

Let us look at some other drivers in the Energy markets.

Coal and China needs a special mention.

Coal was the fastest growing fuel in 2007, with consumption increasing by 4.5%. More than 50% of the increment in global primary energy consumption is from coal,and more than 70% of this increase is growth in China – almost40% of global primary energy growth therefore originates from one fuel in one country.

 

Over the last ten years, four countries ( Australia , China , India and Indonesia )accounted for 95% of the increase in global coal production (1,557 million tonne). However, this happened for very different reasons: In China (1,164 mt)and India (159 mt), growth was driven by domestic demand; in Australia (114 mt) and Indonesia (120 mt), it was led by exports.

 

India is thethird-largest producer of coal in the world but the coal used in the powerplants is of poor quality (mostly E-F grade or lignite) with high ash content(35-50% ) and low calorific value.

 

What about Rich Countries and Developing countries? Is there a pattern we can see?

In global economics, an accepted benchmark is the member countries under The Organization for Economic Co-operation and Development (OECD). By and large, these 30 countries are referred to as 'Developed' countries.

If I want to compare the efficacy of Energy utilization to produce $1,000 worthof GDP, this is how it looks:

In non-OECD economies, the energy necessary to produce one unit of GDP is three times higher than in the OECD.

 

In 2007, developing countries used 4.4 boe to produce $1,000 worth of GDP, but the OECD only used 1.4 boe.

 

So, it is imperative that the rapid economic growth of India and China has had a significant impact on world energy markets.

We must learn from tiny countries like Denmark and learn fast.