Direct and indirect effects of fossil fuels...Lower NOC investments in very expensive oil technologies short term Internalizationof externalcosts: Strictglobal climateprotection objectives

Direct and indirect effects of fossil fuels

Era Energy Research Architecture

Björn Pieprzyk

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A. Basis for the analysis of direct and indirect effects of fossil fuels

� ERA � study: The impact of fossil fuels (November 2009)

Analysis of conventional and unconventional fuels:

� Greenhouse gas emissions

� Environmental consequences

� Socio-economic effects

Recommended actions: Alternatives to conventional and unconventional oil have to be created: biofuels and efficiency measures

� Current research - short study: Substitution of biofuels for fossil fuels

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B. Definition of system boundaries of direct and indirect effects of fossil fuels

Resourceextraction

AgricultureRaw material production

Fossil fuels Biofuels

Direct effects

Indirects effects

Life Cycle AnalysisLower OPEC production ?

Lower tarsandproduction?

Lower futureTransport

Processing

Utilisation

Lower deepwater oilproduction ?

Lower futureCTL production?

Lower futureGTL production?

Lower EOR-production ?

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Increase of biofuel produktion

Decrease in oil import

Decrease in fossil fuel production in the refineries

Decrease in global oil demand - due to low price elasticity of oil demand

Decrease of global oil price

Strong

directeffects

indirecteffects

Decrease in oil demand prevents investments due togrowing comerical interests of NOCs

Decrease in oil demandprevents investments due togrowing comerical interests of NOCs

C. Results of the analysis: 1. Biofuels replace fossil fuels

Decrease in OPEC production

Scenario 1: Lower production of tar sands, extra heavy oil, CTL, oil shale

Strongimportance of OPEC for global supply decisionsin the short term

Increase in OPEC production

Nationalinterests of OPEC members

Lower IOC investements in very expensive oil technologies

Decrease in oildemandpreventsinvestments

Lower NOC investments in very expensive oil technologies

short term

Internalization of external costs: Strict global climate protectionobjectives

Lack of internalization of external costs: Weakglobal climate protectionobjectives

Scenario 2: Lower production of deep sea oil, Artic oil , EOR, GTL

medium and long term

NOCs

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Strong

directeffects

indirecteffects



2. Biofuels don´t replace the most expensive fossil fuel in the short term









short term





NOCs

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2. Biofuels don´t replace the most expensive fossilfuel in the short term

� Instead a higher biofuel supply would result in OPEC production cuts

� The most expensive oil (such as tar sands or deep water oil) will continually be produced as long as the retail price is higher than the operating costs

� National oil companies (NOCs) secure mainly risky and � National oil companies (NOCs) secure mainly risky and marginal oil reserves

� Oil supply increasingly depends on credit agreements, such as the delivery of 0,5 million barrel/day from Venezuela to China (Equity Oil).

� National energy supply objectives � example: Jordan and Morocco are highly interested in exploiting their oil shale reserves to become more independent of oil imports






Strong

directeffects

indirecteffects



3. Biofuels replace the most expensive fossil fuel in the medium and long term









short term





NOCs

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3. Biofuels replace the most expensive fossil fuel in the medium and long term

� OPEC cutbacks are only temporarily possible: � Bilateral contracts between OPEC-countries and NOCs will increase

� OPEC countries depend on income from oil export

� OPEC have to compensate for their own national increase in oil consumption.

� Biofuel objectives will prevent future investments in very � Biofuel objectives will prevent future investments in very expensive oil technologies of international oil companies (IOCs): � Profit chances on very expensive and risky marginal oil sources decrease due to

biofuel objectives.

� In the future biofuel objectives will also prevent investments in very expensive oil technologies of national oil companies (NOCs): � the yield orientation of demand-NOCs increases

� When biofuels can create an alternative to marginal oil, NOCs will participate in biofuel markets

4. But the most expensive oil is not the dirtiest oil

9Source: ERA 2009






Strong

directeffects

indirecteffects



5. The most expensive oil is only the dirtiest oil when costs are completelyinternalized









short term





NOCs

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6. Greenhouse gas emissions does not suffice forevaluating the indirect effects of fossil fuels

What is the dirtiest oil?

Photo: U.S. Coast Guard Photo: Suncur

� Improvement of current LCA methodology is necessary to evaluateenvironmental effects of catastrophes like in the Mexican gulf and in theNiger Delta. � Further indicators such as aquatic toxicity are needed.

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E. Conclusion

� The replacement of marginal fossil fuels with biofuels is anindirect effect which depends on many factors

� The replacement of the fossil fuel with the highest greenhouse gas emissions and environmental impact with biofuels depends on the internalization of costs and therefore on political decisions. decisions.

� The biggest environmental benefits that biofuels can provide through indirect effects, will only be achieved in cooperation with international climate and environment protection objectives.

� The opposite is also true: international climate and environmental policy can only be achieved when alternatives to conventional and unconventional oil resources are created.

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Thank you for your attention!

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Direct and indirect effects of fossil fuels...Lower NOC investments in very expensive oil technologies short term Internalizationof externalcosts: Strictglobal climateprotection objectives