CHALLENGES AND FUTURE DEVELOPMENTS IN ENERGY LOGISTICS Ernst G. Frankel MIT

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CHALLENGES AND FUTURE DEVELOPMENTSIN ENERGY
LOGISTICSErnst G. FrankelMIT
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New Energy SystemsGlobal energy supply
dominated by petroleum during the second half of
the twentieth century will undergo a radical
shift towards more gaseous fuels and alternative
non-fossil fuel sources before the middle of the
twenty-first century, this not only to reduce air
emission-caused pollution but also to lower
dependence on fuel from politically unstable
regions. Changes in fuel sources and use will
impact energy logistics in many ways. Different
transport technology, routing, storage, and
management will be used, and the traditional
producer/consumer links will undergo radical
changes.
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The major new developments are the rapid increase
in petroleum demand by China and India, both
poised to become major global economies, and the
increasing push by the major industrial nations
to conserve or reduce petroleum consumption. The
effects of both are difficult to predict but it
seems certain that Chinas and Indias
consumption will increase by at least 12 and 6
respectively per year, which will probably offset
a major part of the reduction of petroleum use
projected by the industrialized countries.
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Fig. 1 Global Energy Systems
Transition, 1850-2150
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Fig. 2 The Role of Petroleum in Global
Energy Supply
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Changing Energy LogisticsMiddle East remains
the worlds largest supplier of petroleum, major
new producers in Central Asia, Russia, Africa,
and elsewhere are rapidly capturing market
shares. Their large-scale entry will have a
great impact on energy logistics and tanker
demand. The new Russians and Central Asian
exports are primarily aimed at East Asia, a
market where they have a distinct geographical
advantage. Similarly, West African producers are
becoming major suppliers to America and Western
Europe, where again they benefit by shorter
delivery distances.
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New Tanker Routes (oil and gas) ? Russia
Northern Sea Eastern Siberia via Bering
Straits Japan China ? Russia Murmansk N.W.
Europe E.C. USA ? Alaskan/Northwest
Territories North Slope via Bering Straits ?
East Africa China/India ? West Africa
USA/China/India ? Venezuela (heavy crude) Far
East
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New Pipeline Routes (oil and gas) ? Gazprom
Baltic submarine (on completion Russia will
supply 80 of W. Europe gas) ? Siberia
Murmansk ? Iran India ? Kazakhstan China
(Caspian countries) ? Chad Cameroon (oil) ?
Sakhalin Japan ? Baku Tbilisi Cayam ?
Primorsk Oil Terminal ? Kazakhstan Black Sea
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Fig. 3 Northern Sea Routes
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Fig. 4 Northwest Passage
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World Tanker Markets Tanker/NG orderbooks full
for 3 years Newbuilding prices at historic
heightsOrders at end of 2005 93 VLCCs 77
Suezmax 159 Aframax 130 PanamaxTotal Orderbook
459 large crude tankersMajor Changes in
Routes China India Polar routes Backhaul
cargoes Clean trades mushrooming because of lack
of refinery capacityExtra Heavy Crude
Transport Venezuela Canada
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Growing Demand for Natural GasGlobal LNG or
natural gas demand continues to escalate. It
grew at a 7.6 rate between 2003 and 2005, a rate
expected to be maintained until 2015 when it
could slow to a growth rate of 3.5-5.5/year.
Demand was 158 bm3 in 2005. It is expected to
grow to as much as 269 bm3 in 2015 and 428.5 bm3
in 2025. The principal demand for natural gas
comes from Western Europe, though U.S. and East
Asia demand is also exploding. The reasons for
this growth in demand are increased availability
of natural and other combustible gases and their
low emissions. Natural gas combustion produces
mainly CO2 and HO2 vapor and very little sulphur
and nitric oxide, while oil and coal produce much
more sulphur, nitrogen, oxides, ash, CO, and CO2
which cause acid rain, smog, and air pollution.
As a result, 80 of new power plants in the U.S.
for example are gas fueled. (Gas is also an
effective fuel for hydrogen production which is
touted as the fuel of the future.)
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Sources of Natural Gas ? Russia (Gasprom) - 40
of global reserves ? Qatar 12 of global
reserves ? Canada ? Bolivia ? North Sea
Netherlands ? USA ? Other Persian Gulf ? Africa
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Fig. 7 Development of the LNG Carrier Fleet
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Deviations and Risks in Tanker RatesThe
variations in both daily rates and availability
of crude oil tankers of different sizes from
Handymaxs to VLCCs and even ULCCs during recent
years show a trend towards declining spare
capacity resulting from large changes in oil
demand and an ever increasing range of crude oil
services used by various major crude importers.
Adding to this an increase in political and
weather uncertainties, owners and charterers are
subject to ever greater risks.
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Fig. 8 Shipping Earnings (Source
Clarkson)
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The Future of the Energy Logistics MarketThe
unprecedented demand for tanker tonnage in the
last few years resulted in historically high
rates, tanker prices, tanker deliveries, and
order books, conditions which are not sustainable
for much longer. While crude and gas markets
will continue to grow with Chinas and Indias
imports expanding at a 5-7 per year rate, new
sources for oil such as sub-Saharan Africa,
Siberia, Sakhalin and processed extra heavy
crude, all of which are closer to major
consumption centers as well as the increasing
construction of new pipelines, will affect future
demands for crude tankers and gas carriers.
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Another important strategic issue affecting the
future of energy logistics is the development of
alternative (often renewable) energy sources or
uses such asMajor renewable energy
developments ? hydro, wave, current energy ?
wind power ? solar power ? other
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New energy sources or fuels ? extra heavy oil
? gas gas hydrate ? coal gasified coal
liquefied coal ? nuclear ? hydrogen ? biofuels
biodiesel ethanolEnergy saving and
pollution prevention technologies ? hybrid
cars ? fuel cell powered plants and transport
vehicles ? other energy saving technologies
including low consumption buildings