548. EIA 2004d.
549. Fifty-six percent of residual and distillate fuel oils used in manufacturing in 1998 were boiler fuel (EIA 1998).
550. Cogeneration could save a projected $5 trillion of global capital costs through 2030, $2.8 trillion in fuel cost, and 50% in the incremental power generation’s CO2emissions (Casten & Downes 2004; U.S. Combined Heat and Power Association, www.uschpa.org).
551. The CEF analysis was derived for industrial subsectors from Resource Dynamics Corporation’s DIStributed Power Economic Rationale Selection (DISPERSE) model. The DISPERSE model assumes that U.S. policies are structured to reduce barriers to financing, siting, utility interconnection, dis-criminatory tariffs, etc., and therefore support cogeneration. For additional information on barrier-busting policies that would promote the growth of CHP, see Lemar 2001 and Ch. 3 of Lovins et al. 2002.
552. Cogeneration forecast potential based on Lemar 2001.
553. EIA 2001b reports that 72.6% of residences have access to natural gas in their neighborhood, while 57.3% of commercial buildings (67.6% of com-mercial floorspace) actually use natural gas and 9.7% (9.3% by floorspace) use propane. Presumably more customers may have access to gas than actually use it, but ~44% of buildings that do not currently use gas or propane could switch. Since more oil is saved through efficiency and biofuels substitution in the State of the Art scenario, there is less left to be switched to gas (EIA 2001b, EIA 1999).
Box 12: Replacing one-third of remaining non-transportation oil use with saved natural gas (continued) Substituting for Oil
The CEF study found that 75 GW of new indus-trial CHP capacity were economically viable in the Advanced scenario, assuming that U.S.
policies were structured to eliminate barriers to cogeneration,551and 40 GW in the Moderate scenario.552We thus expect that 1.15 Mbbl/d with our Conventional Wisdom technologies, and with State of the Art technologies, at least 56% of the remaining 2025 industrial oil use, or 1.2 Mbbl/d, could be switched to gas through cogeneration.
Substituting gas in buildings
Since the gas grid does not extend everywhere in the United States, especially in rural areas, we estimate that less than half (0.46 Mbbl/d in Conventional Wisdom or 0.39 Mbbl/d in State of the Art) of 2025 building oil consumption has the ability to switch to gas.553Of this, 0.3 Mbbl/d and 0.26 Mbbl/d, respectively, is projected to be residential building demand that would switch to gas when the existing residential boiler or furnace must be replaced. We assume that this switchover will occur because gas furnaces average one-eighth higher efficiency than their oil-fired counterparts.554The Cost of Saved Energy is –$16 to +$3/bbl for Conventional Wisdom (average homes) and –$8 to +$18/bbl555
for State of the Art (high-efficiency homes).
See Technical Annex, Ch. 19, for details.
The remaining oil consumption is in commercial buildings. Authoritative studies of the relative merits of gas vs. oil commercial building fur-naces and boilers were unavailable at the time of this writing. However, cogeneration and tri-generation are likely to substitute for oil-fired heat at almost all locations served by gas, once the onerous backup charges and interconnec-tion barriers are removed. We make the conser-vative assumption that commercial buildings’
natural gas access mirrors the residential build-ing sector’s, and estimate that 0.15 Mbbl/d in Conventional Wisdom and 0.13 Mbbl/d in State of the Art can be saved through cogeneration, at a CSE of –$2.77/bbl for both scenarios.556 Substituting for petrochemical feedstocks Natural gas and natural gas liquids (NGLs, which EIA counts as part of petroleum con-sumption, p. 40) are important to the chemical industry as both fuel and feedstock. Currently, the U.S chemical industry, making more than one-fourth of the world’s chemicals, accounts for 12% of total U.S. gas demand, and 24% of this feedstock gas consumption is used directly to make such basic chemicals as ethylene and ammonia.557In 1999, when natural gas prices averaged $2.27/MBTU, the average operating margin for the chemical industry was 6.8%, but as gas prices rose to $3.97/MBTU in 2002 (also in nominal dollars), margins fell to 0.6%.558The winter 2000–01 gas price spike idled 50% of methanol, 40% of ammonia, and 15% of ethylene capacity.559Natural gas prices are generally forecasted by EIA to remain at or above their high 2004 level, so eroding margins will force companies to consider either fuel-switching to oil or moving their operations offshore.560
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554. New gas-fired condensing furnaces for residential use have an Annual Fuel Utilization Efficiency (AFUE) of 94–96%. The equivalent oil-fired furnace has an AFUE of 83–86% (ACEEE, undated).
555. There is less oil to displace in homes that have already implement-ed efficiency measures so their CSE is higher.
556. Cogeneration for commercial buildings is generally on a smaller scale than for industrial uses. Therefore, the CSE for cogeneration for commercial buildings assumes a 1-MW electric generating capacity, vs. 50 MW capacity for industrial applications.
557. NPC 2003.
558. NPC 2003.
559. NPC 2003, II:54.
560. The National Petroleum Council predicts that gas demand for feedstocks will decrease during 2001–25. However, we do not classify this decrease as saved gas, because the decrease will be made up for either by switching to oil or by petrochemical producers’ simply leaving the U.S.
Substituting for Oil Box 12: Replacing one-third of remaining non-transportation oil use with saved natural gas (continued)
Therefore, substituting gas for naphtha feed-stocks is unlikely. However, if our gas-saving recommendations are implemented, natural gas prices will probably decline substantially due to decreased demand. (Indeed, gas-intensive industries can best obtain cheap gas to sustain their U.S. operations by supporting regional and national electricity and gas efficiency.) In that case, companies would probably stay in the country, thereby sustaining U.S. jobs, but might still not switch to gas. Refineries will make less naphtha as they produce fewer refined prod-ucts, but the naphtha is cheaply available, and any left over will be made into gasoline.
Shifting natural gas from peaky power-generat-ing loads to steady industrial and petrochemical loads also has a major hidden advantage: the industry could better time gas-storage injec-tions, further reducing price volatility. This may even reduce average prices by reducing buyers’
need to hedge against price volatility and peak-period deliverability problems in a quite imper-fect market. And of course anything that makes natural gas prices lower and steadier improves the competitiveness of U.S. industry and reduces migration offshore, preserving American jobs.
We conservatively omit the following three further ways to save feedstock natural gas:
• substituting biomaterials for gas just as we did above (pp. 93–96; Technical Annex, Ch. 18), to save 0.9 Mbbl/d of oil-derived chemical
feedstocks (e.g., plant-derived polyhydrox-yalkanoates have properties similar to petro-chemical-based polypropylene’s);
• potential savings in petrochemical feedstocks (e.g. from plastics recycling561) that would lower natural gas use, just as it does for oil (pp. 93–96); and
• using precision farming and organic methods to reduce the ~0.5 q/y (1998) of natural gas that goes into nitrogen fertilizer, much of which isn’t effectively used and simply wash-es away as water pollution.562
Other uses
The remaining two uses of oil that could use nat-ural gas as a substitute are small (details are in Technical Annex, Ch. 19). We expect intra-city buses to switch from diesel to compressed natu-ral gas (CNG) at relatively low cost.563If CNG hybrid buses were deployed, 0.07 q/y of natural gas would displace 0.04 Mbbl/d of diesel fuel at a CSE of $8–16/bbl.564Both hybrid and CNG tech-nologies are already commercialized separate-ly—the largest U.S. fleets are respectively in Seattle and Los Angeles—and we expect their combined adoption to occur in both Convention-al Wisdom and State of the Art. Conversion can occur rather quickly: Beijing recently converted its entire bus fleet to CNG and LPG in just three years. In the electric power sector, the other main remaining oil use that could in principle be substituted by gas, end-use efficiency and dis-placement by renewables eliminates most oil-fired electric power generation (p. 98); any minor potential remaining for gas substitution is neg-lected here. All the rest is located only in
Hawai‘i and Alaska in areas beyond the gas grid;
as a result, no additional gas-for-oil substitution is expected, although there is often major poten-tial from efficiency plus small-scale renewables, both encouraged by high power costs.
561. A Dutch lifecycle assessment found a 31% near-term potential for improving the 1988 energy efficiency of plastic packaging (Worrell, Meuleman, & Blok 1995).
562. A 30–50% potential saving available within a decade was found in the Netherlands (Worrell, Meuleman, & Blok 1995).
563. The reasons for such conversions are often as much to clean up urban air as to cut fuel and maintenance costs.
564. Powertrain hybridization of intra-urban buses, which are relatively inefficient because of their slow, stop-and-go service, should save
~30–37% of their fuel, with an increase of 60% in bus fuel economy;
see GM 2004a.
Without assuming that saved natural gas will be resold for below the burner-tip price of petroleum products, the State of the Art methods summarized in
Box 12 can still plausibly displace 1.6 Mbbl/d of oil using just 4.0 TCF/y of the 12 TCF/y of saved natural gas. The average cost565of this displace-ment is –$2.3/bbl, dominated by the largest term—industrial cogenera-tion (Table 3).
The potential 2025 natural gas savings in Table 1 and their substitutions for oil in Table 3 are summarized in Fig. 32 (see next page) as supply curves.
Gas-for-oil substitution could become considerably greater than shown in Fig. 32 if driven by a gas price advantage, environmental constraints (such as ozone restrictions or carbon pricing), or public policy. However, at the modest one-third substitution level shown here, about 8 TCF/y of saved natural gas will still be left over in 2025 for a variety of uses.
Two are obvious: combined-cycle power plants (many idled by electric end-use efficiency) or further co- and trigeneration in buildings and industry. Both would displace coal-fired electricity, as would become more likely in a carbon-trading regime. A third use for the leftover gas,
Option 3. Substituting saved natural gas: Substituting saved gas for oil Substituting for Oil
565. CSEs are calculated based on cost of substitution only, except in the case of residential buildings and intra-city buses where substitution and efficiency gains could not be logically separated.
566. Natural gas used for cogeneration would displace not only oil but also coal and other fuels used to generate electricity.
Conventional Wisdom State of the Art
gas gas
oil saved substitution CSE oil saved substitution CSE
Sector (Mbbl/d) (TCF/y) ($/bbl) (Mbbl/d) (TCF/y) ($/bbl)
industrial fuel 1.15 2.89 –$4.52 1.23 3.07566 –$4.52
residential buildings 0.30 0.50 –$6.44 0.26 0.43 $4.72
commercial buildings 0.14 0.50 $0.22 0.11 0.43 $0.22
intra-city buses 0.04 0.07 $11.86 0.04 0.07 $11.86
total 1.63 3.96 –$4.08 1.64 4.00 –$2.32
Table 3: Potential 2025 substitutions of saved natural gas (shown in Table 1) for suitable uses of oil after efficiency and biosubstitution (shown in Table 2). Considerably larger substitutions would be feasible and could be driven by relative burner-tip prices if known or if
influenced by policy (such as carbon trading). The substitutions shown are the minimum expected to be attractive regardless of the relative prices of oil and gas, with no other interventions. The bus term includes both fuel efficiency (via hybridization) and substitution
of compressed natural gas for diesel fuel.
Anything that makes natural gas prices lower and steadier improves the competitiveness of U.S. industry and reduces migration offshore, preserving American jobs.
Substituting for Oil Option 3. Substituting saved natural gas: Substituting saved gas for oil
for probably the highest profit margins and the greatest savings in fossil fuel and carbon emissions, would be conversion to hydrogen for use both in vehicles and in co- or trigenerating fuel cells in factories and buildings (pp. 227–242).
0
4 6 8
2 10 12 14
0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8
cost of saved energy (2000$/Mbtu)
trillion cubic feet/y (TCF/y)
residential/commercial buildings’ direct gas end-use efficiency electricity generation
via demand response
industrial fuel gas end-use efficiency
average CSE Conventional Wisdom
= $0.98/MBTU
average CSE State of the Art
= $0.88/MBTU
0
0.4 0.6 0.8
0.2
0.0 1.0 1.2 1.4 1.6 1.8
5
(–5)
(–10) 10 15
cost of saved energy (2000$/bbl)
commercial buildings industrial fuel
average CSE Conventional Wisdom
= -$4.08/bbl average CSE State of
the Art = -$2.32/bbl
buses
residential buildings
petroleum product (Mbbl/d)
Figure 32a: Potential savings in U.S. natural gas consumption implementable by 2025 at the marginal costs shown (from Table 1). Not shown are compressor improvements and flow reductions, petrochemical
feedstock or end-use savings, and displacements of nitrogen fertilizer.
Figure 32b: Potential 2025 substitutions of that saved gas for oil still being used (Table 2) after full implemen-tation of State of the Art efficiency and biosubstitution. We show only the substitutions that are cost-effec-tive without assuming that the saved gas will be resold at a burner-tip price lower than that of oil (Table 3).
Source: RMI analysis (see pp. 111–121).
T
o recap: if all State of the Art end-use efficiency recommendations were implemented by 2025, 52% of EIA’s forecast oil use would be eliminated. And half of this remaining oil use would in turn be dis-placed by substituting for oil the available and competitive 2025 biofu-els/biomaterials/biolubricants (pp. 103–111), and the clearly advanta-geous portion of substituting saved natural gas (pp. 111–112). In actuality, however, the following section, on Implementation, will show that only 55% of that efficiency potential can be implemented by 2025 by the means described; the other ~45% would remain to be captured soon thereafter.Given that realistic implementation, one-third of 2025 oil demand would be displaced by the supply substitutions (pp. 43–102). The idealized-effi-ciency-only Fig. 29 (p. 102) would then turn into the realistic path shown in Fig. 33; the two graphs are similar because the supply substitutions by 2025 nearly offset the not-yet-captured efficiency.