An Energy Overview

Energy is essential to life. Living creatures draw on energy flowing through the environment and convert it to forms they can use. The most fundamental energy flow for living creatures is the energy of sunlight, and the most important conversion is the act of biological primary production, in which plants and sea-dwelling phytoplankton convert sunlight into biomass by photosynthesis. The Earth’s web of life, including human beings, rests on this foundation.

—Energy Information Administration, Energy in the United States: 1635–2000 (2001)

A Historical Perspective

Before the Twentieth Century

People have always found ways to harness energy, such as using animals to do work or inventing machines to tap the power of wind or water. The industrialization of the modern world was accompanied by the widespread use of fossil fuels such as coal, oil, and natural gas.

Significant use and management of energy resulted in one of the most profound social changes in history within a few generations. In the early 1800s most Americans lived in rural areas and worked in agriculture. The country ran mainly on wood fuel. One hundred years later, most Americans were city dwellers and worked in industry. The United States had become the world’s largest producer and consumer of fossil fuels, had roughly tripled its use of energy per capita, and had become a global superpower.

The United States has always been a resource-abundant nation, but it was not until the Industrial Revolution in the mid-1800s that the total work output of engines surpassed that of work animals. As the country industrialized, coal began to replace wood as a primary fuel. Then petroleum and natural gas began to replace coal for many applications. The United States has since relied heavily on three fossil fuels: coal, petroleum, and natural gas.

The Twentieth and Early Twenty-First Centuries

For much of its history the United States has been nearly energy self-sufficient, although small amounts of coal were imported from Britain in colonial times. Through the 1950s domestic energy production and consumption were nearly equal. (See Figure 1.1.) During the 1960s consumption slightly outpaced production. In the 1970s the gap widened considerably, narrowed somewhat in the early 1980s, and thereafter widened year after year. By 2007 the gap between domestic energy production and consumption was quite significant. Since the 1970s energy imports have been used to try to close the gap between energy production and consumption. However, the United States’ dependence on other countries for energy has created significant problems.

Oil Crisis in the 1970s. In 1973 the United States supported Israel in the Yom Kippur War, which was fought between Israel and neighboring Arab countries. In response, several Arab nations cut off oil exports to the United States and decreased exports to the rest of the world. This embargo was lifted six months later, but the price of oil had tripled from the 1973 average to about $12 per barrel. (See Figure 1.2.) Not only did Americans (and others around the world) face sudden price hikes for products produced from oil, such as gasoline and home heating oil, but they also faced temporary shortages. The energy problem quickly became an energy crisis, which led to occasional blackouts in cities and industries, temporary shutdowns of factories and schools, and frequent lines at gasoline service stations. In 1973 the price of gas at the pump was about $0.39 per gallon ($1.81 in 2007 dollars) but it jumped to $0.52 per gallon ($2.20 in 2007 dollars) by 1974. (See Figure 1.3.) The sudden increase in energy prices in the early 1970s is widely considered to have been a major cause of the economic recession of 1974 and 1975.

Oil prices increased even more in the late 1970s. A revolution in Iran resulted in a significant drop in Iranian oil production from 1978 to 1981. During this same period the Iran-Iraq War (1980–1988) began, and many other Persian Gulf countries decreased their oil output as well. Companies and governments began to stockpile oil. As a result, prices continued to rise.

In early 1981 the U.S. government responded to the oil crisis by removing price and allocation controls on the oil industry. By no longer controlling domestic crude oil prices or restricting exports of petroleum products, it allowed the marketplace and competition to determine the price of crude oil. Domestic oil prices rose to the level of foreign oil prices and peaked in 1981. Oil approached $40 a barrel, and gasoline at the pump rose to $1.38 per gallon ($3.14 in 2007 dollars). (See Figure 1.2 and Figure 1.3.)

Oil Prices Fall in the 1980s. As a result of these increasingly high prices, individuals and industry used less oil, stepped up their conservation efforts, or switched to alternative fuels. The demand for crude oil declined. However, the Organization of Petroleum Exporting Countries (OPEC), and particularly Saudi Arabia, cut its output during the first half of the 1980s to keep the price from declining dramatically. (In the 1980s OPEC member countries were Algeria, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. Angola became a member in 2007.)

In 1985 Saudi Arabia moved to increase its market share of crude oil exports by increasing its production. At the time its production was well below that of Russia and the United States. (See Figure 1.4.) Other OPEC members followed suit, which resulted in a glut of crude oil on the world market. Crude oil prices fell sharply in early 1986, and imports to the United States increased. Eventually, relief was felt by consumers at the gas pump. (See Figure 1.2 and Figure 1.3.)

The Ups And Downs of Oil Prices from the 1990s Through 2002. In August 1990 Iraq invaded Kuwait. The United Nations (UN) responded by placing an embargo on all crude oil and oil products from both countries. Oil prices rose suddenly and sharply, but non-OPEC countries in Central America, western Europe, and Asia, along with the United States, stepped up their production to fill the gap in world supplies. After the UN approved the use of force against Iraq, starting in October 1990, prices fell quickly. (See Figure 1.2.)

The collapse of Asian economies in the mid-1990s led to a further drop in the demand for energy, and petroleum prices dipped sharply in the late 1990s. OPEC reacted by curtailing production, which boosted prices in 2000. (See Figure 1.2.) World crude oil prices then declined through 2001 as global demand dropped because of weakening economies (especially in the United States) and reduced demand for jet fuel following the September 11, 2001, terrorist attacks in the United States. Fear of an increased worldwide economic downturn also added to the decline in crude oil prices.

In late 2002 attacks and counterattacks between Palestinians and Israelis caused concerns that Iraq might halt its crude oil shipments to countries that supported the Jewish state of Israel over Islamic Palestine. Additionally, concerns existed that the Middle East region might become destabilized should the United States invade Iraq, which had the second-largest oil reserve in the world at that time, according to the Energy Information Administration (EIA), in Annual Energy Review 2002 (October 2003, http://tonto.eia.doe.gov/FTPROOT/multifuel/038402.pdf). Moreover, Venezuelan oil workers went on strike, which cut off exports from Venezuela. These three factors were the primary causes of the rise in crude oil prices by the end of 2002. (See Figure 1.2.)

Volatility and Record Highs in Oil Prices From 2003 to 2008. In early 2003 a U.S. war with Iraq seemed imminent. In addition, because of a cold winter and the Venezuelan strike, U.S. crude oil inventories had declined. As a result, the price of crude oil rose to nearly $40 per barrel in February 2003, the highest in twenty-nine months. (See Figure 1.2.) When the war began on March 19, 2003, Iraqi oil fields were shut down. However, other oil-producing countries stepped up production to offset the shortfall. In addition, the Venezuelan strike had ended. The price of oil declined dramatically to about $27 per barrel by the beginning of May 2003.

The lower price did not prevail, however. By June 2003 the price of oil rose above $30 per barrel, largely because supplies of crude oil were low and demand was high—summer, when Americans drive the most, was just starting. (See Figure 1.2.) The price of crude oil continued to climb over the summer and was pushed higher in the fall, when the U.S. dollar sank to a record low against the euro. By December 2003 it had risen to nearly $34 per barrel.

In 2004 crude oil prices continued to rise because of political uncertainty, the weakened U.S. dollar, the weather, and tight supplies. Increases reflected growing demand from the world’s three largest oil consumers—the United States, China, and Japan—as well as concern about terrorist attacks in Spain, Iraq, Pakistan, Saudi Arabia, and other areas. Moreover, sabotage of Iraq’s northern oil pipelines prevented the country from producing the amount of oil that was expected. By March 2004 the price of oil soared to a thirteen-year high of about $38 per barrel. (See Figure 1.2.) By August the price of crude reached more than $45 per barrel. Then in September Hurricane Ivan hit the Gulf of Mexico, forcing the evacuation of oil workers from offshore platforms and delaying oil tankers from Venezuela. By October 2004 a barrel of crude oil cost more than $50 for the first time.

In March 2005 sabotage forced Iraq to close the northern pipeline it used to export crude oil. In the following months OPEC agreed to increase its production to allow more oil into the world market to help reduce prices. (See Figure 1.2.) In August 2005, however, Hurricane Katrina hit the Gulf coast of the United States, severely affecting oil and natural gas production and oil refining there. Hurricane Rita struck the Gulf coast a month later. Because of the hurricanes, more than a quarter of U.S. oil refining capacity was shut down. In response, President George W. Bush (1946–) directed the U.S. Department of Energy to release as much as 30 million barrels of crude oil from the Strategic Petroleum Reserve. (See Chapter 2.) To bring the price of oil down on the world market, the International Energy Agency released 66.1 million short tons (60 million tons; approximately 450 million barrels) of crude oil to the United States. The crude oil price began to drop, finally falling below $60 per barrel in October and to $56 per barrel in November. (See Figure 1.2.) However, by December 2005 the price bounced back to slightly more than $60 per barrel.

The effects of the hurricanes on U.S. refining capacity lasted into 2006. The price of oil was pushed higher by other events in the world as well. For example, unrest in Nigeria, the world’s twelfth-largest oil producer in 2006, reduced production by more than half a million barrels of crude oil per day. (See Figure 1.4.) By late April 2006 the price of crude oil surpassed $70 per barrel, and by the summer of 2006 the price was higher still at nearly $80 per barrel. (See Figure 1.2.) This rise was attributed to increased gas consumption, the launching of missiles by North Korea, continuing tension between Iran and the United States, and a war between Israel and Lebanon. As tensions eased with Iran during the fall of 2006, oil prices dropped. In October, as oil prices fell below $58 per barrel for the first time since the beginning of that year, OPEC announced that it would cut its crude oil output beginning in November, which halted the price drop.

Oil prices escalated throughout 2007 and into the first half of 2008, surpassing the price spike of the early 1980s for the first time. Figure 1.3 shows this spike in the price of gasoline at the pump in 2007 dollars (real price). One major factor that contributed to the continued price increase of oil in 2007 and 2008 was the falling value of the U.S. dollar. When the value of the U.S. dollar declines against major currencies, the price of oil rises because it is priced in U.S. dollars. Not only did the value of the U.S. dollar decline in 2007 and into 2008 but also the economy was doing poorly, particularly in the housing market sector. Investors were looking for a safe haven for investing, and oil became that safe haven.

In January and February 2008 the price of oil reached $100 per barrel on a few occasions before remaining well above that price into mid-2008. According to the article ‘‘Saudis Signal Boost in Production Capacity’’ (MSNBC, June 21, 2008), Samuel Bodman (1938–), the U.S. secretary of energy, contended that an increasing demand and insufficient supply of oil was the cause of high oil prices, whereas Saudi officials said that investment speculation was the cause. Nevertheless, the Saudi Arabian government pledged to increase output gradually into 2009. The article ‘‘Oil Rises to Trading, Closing Records on Falling U.S. Dollar’’ (Bloomberg News, June 28, 2008) notes that the price of crude oil hit an all-time high of $142 per barrel as the stock market fell and investors continued to see oil as a safe haven.

Governmental Energy Policies

Under President Ronald Reagan

According to the article ‘‘Primary Sources: The President’s Proposed Energy Policy’’ (2002, http://www.pbs.org/wgbh/amex/carter/filmmore/ps_energy.html), President Jimmy Carter (1924–), a Democrat, said in a televised speech in April 1977 that the country could have ‘‘an effective and comprehensive energy policy only if the government takes responsibility for it and if the people understand the seriousness of the challenge and are willing to make sacrifices.’’ However, when Ronald Reagan (1911–2004), a Republican, took over the presidency in 1981, he downplayed the importance of governmental responsibility. His administration sharply cut federal programs for energy and opposed governmental intervention in energy markets. For example, the administration did not tax energy imports, even though doing so might have stimulated domestic production and conservation. His administration transferred decision making to the states, the private sector, and individuals.

Under President George H. W. Bush

The subsequent Republican administration of President George H. W. Bush (1924–) continued the Reagan policy. In 1991 President Bush unveiled an energy policy that promised to reduce U.S. dependence on foreign oil by expanding domestic oil production into new areas and by simplifying the permit process for construction of nuclear power plants. Both proposals put him in conflict with conservationists, who objected to increased offshore drilling, especially in the coastal plain of the Arctic National Wildlife Refuge in Alaska. They also wanted to see automobile fuel economy improved and conservation methods stressed, rather than the use of nuclear power. President Bush’s proposals did not include government-directed conservation efforts, tax incentives conservation, or the use of alternative energy sources.

Under President Bill Clinton

The Democratic administration of President Bill Clinton (1946–) sought a larger role for government in energy and environmental issues, although the major energy bills it proposed were not passed by the Republican-dominated Congress. Nevertheless, the Clinton administration did increase funds for alternative-energy research, mandate new energy-efficiency measures, and enforce emission standards. The administration also opened up several areas for oil exploration, including some Alaskan and offshore areas.

Under President George W. Bush

The major policy goals of the first term of President George W. Bush, a Republican, were to increase and diversify the country’s sources of oil and to make energy security a priority. For example, his administration encouraged efforts to import more Russian crude oil into the United States and reopened the U.S. embassy in Equatorial Guinea, an oil-rich nation.

However, in his second term in office, President Bush began to advocate policies that would curb dependence on foreign oil and promote efforts to make the United States less dependent on oil and other fossil fuels. In August 2005 he signed into law the Energy Policy Act of 2005, which set new minimum energy-efficiency standards for appliances; provided tax credits for energy-efficient improvements to homes and for use of energy-efficient heat pumps, water heaters, and air conditioners; and sought to reduce the use of energy by the federal government. President Bush followed that with the Advanced Energy Initiative (http://www.whitehouse.gov/stateoftheunion/2006/energy/print/index.html) in February 2006, the goals of which were ‘‘promoting energy conservation, repairing and modernizing our energy infrastructure, and increasing our energy supplies in ways that protect and improve the environment.’’ He also proposed developing new kinds of alternative fuel vehicles and using nuclear, solar, wind, and ‘‘clean coal’’ technologies to help power homes and businesses.

In 2007 and 2008 President Bush moved his agenda forward to improve fuel economy in vehicles and reduce American dependence on foreign oil. In his 2007 State of the Union address, he proposed the ‘‘Twenty in Ten’’ policy (January 2007, http://www.whitehouse.gov/stateoftheunion/2007/initiatives/energy.html) of reducing by 20% the amount of gasoline Americans used within the next ten years by increasing the fuel efficiency of automobiles—increasing the Corporate Average Fuel Economy (CAFE) standards—and using alternative fuels. Congress responded by developing the Energy Independence and Security Act (EISA) of 2007, which mandated that fuel producers make at least 36 billion gallons (136 billion L) of biofuel annually by 2022. EISA also required that the CAFE standard be raised for cars and light trucks to 35 miles per gallon (6.7 L/100 km) by model year 2020. The White House states in the press release ‘‘President Bush Discusses Energy’’ (June 18, 2008, http://www.whitehouse.gov/news/releases/2008/06/20080618.html) that in June 2008 President Bush asked Congress to pass legislation to help increase domestic production of oil by exploring the Outer Continental Shelf for oil resources; allowing the extraction of oil from oil shale located in the Green River Basin of Colorado, Utah, and Wyoming; permitting oil exploration in the Arctic National Wildlife Refuge in Alaska; and expanding and enhancing U.S. oil refinery capacity.

Domestic Energy Usage

Domestic Production

The total domestic energy production of the United States (the amount of fossil fuels and other forms of energy that were mined, pumped, or otherwise originated in the United States) has more than doubled since 1949, rising from 31.7 quadrillion British thermal units (Btu) in 1949 to 71.7 quadrillion Btu in 2007. (See Table 1.1 and Figure 1.5; Figure 1.5 shows how energy production was related to energy consumption in 2007.) One quadrillion Btu equals the energy produced by approximately 170 million barrels of crude oil. Large production and consumption figures are given in these units to make it easier to compare the various types of energy, which come in different forms.

Table 1.1 and Figure 1.6 show that after declining in the 1950s, energy produced from coal increased fairly steadily between 1960 and 2007, with its highest level recorded in 1998 (24 quadrillion Btu). The production of oil rose from 1949 through 1970, but by 2007 it had declined to about the level produced in 1949. Natural gas production quadrupled between 1949 and 1970, from 5.4 quadrillion Btu to 21.7 quadrillion Btu; after peaking at 22.3 quadrillion Btu in 1971, natural gas production has generally ranged between 17 quadrillion Btu and 20 quadrillion Btu since that time. Energy produced from nuclear power rose dramatically during the 1970s, from 0.2 quadrillion Btu in 1970 to 3 quadrillion Btu in 1978; it continued to rise, doubling to 6.1 quadrillion Btu by 1990 and reaching its highest production level of 8.4 quadrillion Btu in 2007. Hydroelectric power reached its highest level during the mid-1990s but has not shown dramatic changes over the past several decades. The use of biomass (wood, waste, and alcohol) has increased in recent years; the production of energy from biomass reached its highest level ever in 2007 at 3.6 quadrillion Btu. At 23.5 quadrillion Btu, more energy was produced from coal in the United States during 2007 than from any other energy source. Energy produced from natural gas was second (19.8 quadrillion Btu), followed by oil (10.8 quadrillion Btu), and nuclear electric power (8.4 quadrillion Btu).

Domestic Consumption

Even though total domestic energy production more than doubled from 1949 to 2007, total domestic energy consumption (the amount of energy used in the United States) more than tripled during that time. (See Figure 1.1) This increase did not happen in an even progression over those years. A doubling of domestic energy consumption occurred from 1949 to 1973, increasing from 30 quadrillion Btu to 74 quadrillion Btu. However, after huge oil price increases in 1973, energy consumption fell, then rose, and then fell again, eventually returning to 1973 levels by 1984. The level of domestic energy consumption remained relatively stable through 1986, but following a drop in the price of crude oil that year, imports of oil began to rise and energy consumption increased quite steadily. In 2007 domestic energy consumption reached an all-time high of 101.6 quadrillion Btu.

One of the reasons that energy consumption has increased in the United States is the growing number of people who use it. According to the U.S. Census Bureau, in Measuring America: The Decennial Censuses from 1790 to 2000 (September 2002, http://www.census.gov/prod/2002pubs/pol02marv.pdf), the U.S. population grew from 151.3 million in 1950 to 281.4 million in 2000, an increase of 86%. Nonetheless, energy consumption has outpaced this increase in population, rising by 181% during the same period. (See Figure 1.1.)

Figure 1.7 shows energy production and consumption flows, including types of energy sources, in 2007. According to the EIA, in Annual Energy Review 2007

(June 2008, http://www.eia.doe.gov/aer/pdf/aer.pdf), coal, which accounted for nearly 13 quadrillion Btu (17% of all energy consumed) in 1973, accounted for 22.8 quadrillion Btu (22.4%) in 2007. Nuclear electric power, which contributed 0.9 quadrillion Btu (less than 1%) in 1973, made up 8.4 quadrillion Btu (8.3%) in 2007.

Energy Imports and Exports

As indicated in Figure 1.1, since the late 1950s energy consumption in the United States has outpaced energy production. The difference has been made up by importing energy sources. Imports (mainly oil) grew rapidly from 1953 through 1973 as the U.S. economy expanded using inexpensive oil. The EIA indicates in Annual Energy Review 2007 that in 1973 net imports of petroleum reached almost 13.5 quadrillion Btu.

Even though the Arab oil embargo of 1973–74— coupled with increased oil prices—momentarily slowed growth in petroleum imports, the general increase continued, with total energy imports exceeding 19 quadrillion Btu in 1977 through 1979. (See Table 1.2.) During those years U.S. dependence on petroleum imports rose to more than 45% of the nation’s oil consumption. (See Figure 1.8.) Despite the lesson of 1973, it took a second round of price increases from 1979 to 1980, accompanied by long and frustrating lines at gas stations, to persuade Americans to become less dependent on imported oil, conserve resources, or both. By 1985 U.S. dependence on foreign oil had decreased sharply, to 27.3% of oil consumption.

After 1985 U.S. dependence on foreign sources of oil increased gradually, as a drop in the price of crude oil drove up demand. When Iraq invaded Kuwait in 1990, the potential threat to the flow of oil to the United States and other industrialized nations was one of the reasons the United States challenged Saddam Hussein (1937–2006) in Operation Desert Storm. However, after the terrorist attacks of September 11, 2001, and the Bush administration’s subsequent war on terror, the concept of energy independence, or at least reduced energy dependence, became increasingly important. In 2003 the United States was again at war with Iraq, and by 2007 imported oil accounted for a record 58.2% of U.S. oil consumption. (See Figure 1.8.) That year net imports of petroleum (total imports minus total exports) reached 25.8 quadrillion Btu. (See Table 1.2.)

Even though the United States imports energy, primarily in the form of oil, it exports small amounts of energy in the form of coal and oil. In 2007 coal exports totaled 1.5 quadrillion Btu, about 28% of U.S. energy exports. (See Figure 1.9 and Table 1.2.) The United States also exports some oil. The reasons for exporting oil are complicated but have to do with the cost of transporting Alaskan oil; the sale of certain types of petroleum used to make steel; and exchanges with Canada and Mexico of crude products for refined products.

Fossil Fuel Production Prices

Production prices are the value of fuel produced. The combined production prices of fossil fuels (crude oil, natural gas, and coal) slowly declined from 1949 through 1972. (See Figure 1.10.) These prices then increased dramatically from 1973 through 1981 and fell almost as dramatically through 1998: the composite value of all fossil fuel prices (in real dollars, which account for inflation and reflect the buying power of the dollar in 2000) dropped from $4.64 per million Btu in 1981 to $1.46 per million Btu in 1998, a decrease of more than two-thirds. (See Table 1.3.) This drop created economic problems in fuel-producing American states, such as Texas, Louisiana, Oklahoma, Montana, West Virginia, and Ohio, and in energy-exporting countries, such as many Middle Eastern nations, Nigeria, Indonesia, Venezuela, and Trinidad. However, it was a windfall for industries that used a lot of energy, such as airlines, electric utilities, steel mills, and trucking companies. Since 1998 the combined production prices of fossil fuels have been generally rising, reaching $4.17 (in real dollars) per million Btu in 2007. These same industries suffered with this rise.

The production prices of both crude oil (the most expensive of the fossil fuels) and natural gas followed a pattern of rising and falling similar to that of the fossil fuel composite price from 1949 to 2005. Crude oil production prices then shot up, whereas natural gas and fossil fuel composite prices declined then leveled off from 2005 to 2007. (See Figure 1.10.)

Even though crude oil production prices have generally followed the fossil fuel composite, its price shifts have been the most dramatic of all the fossil fuel production prices over the decades. After slowly declining from 1949, the crude oil production price rose most dramatically from 1972, when it was $1.94 per million Btu, to 1981, when it topped at $9.27 per million Btu. The price then tumbled to $1.94 in 1998. (See Figure 1.10 and Table 1.3.) However, it rose sharply during the next two years, reaching $4.61 in 2000. After a slight decline in 2001 and 2002, the crude oil production price rose to $4.47 in 2003, $7.67 in 2005, and $9.58 in 2007. For natural gas, the price sank from $3.55 per million Btu in 1984 to $1.83 in 1998.It rose to an all-time high of $5.87 per million Btu by 2005. In 2007 the production price of natural gas had dropped about a dollar to $4.84 per million Btu.

The story of coal prices is a bit different from that of the other fossil fuels. Coal production prices rose from 1970 ($0.97 per million Btu) to 1975 ($2.22), but then— unlike the production prices for natural gas and crude oil—declined quite steadily through 2000 ($0.80). (See Figure 1.10 and Table 1.3.) Coal prices rose to $1.04 per million Btu by 2007.

Energy Use by Sector

Energy use can be classified into four main end-use sectors: commercial, industrial, residential, and transportation. Historically, industry has been the largest energy-consuming sector of the economy. In 2007 industry used about 32 quadrillion Btu, compared to approximately 29 quadrillion Btu in the transportation sector, 22 quadrillion

Btu in the residential sector, and 18 quadrillion Btu in the commercial sector. (See Figure 1.11.)

Within sectors, energy sources have changed over time. For example, in the commercial sector, coal was the leading energy source through 1953 but declined dramatically in favor of petroleum (through 1962) and then natural gas. (See Figure 1.12.) In 1990 energy in the form of electricity pulled ahead as the leading energy source. Similarly, coal was the leading energy source in the residential sector in 1949. (See Figure 1.13.) Natural gas quickly took over, with petroleum in second place. In 1979 electricity took over second place from petroleum. Industry used more coal than natural gas or petroleum through 1957, but after that natural gas and petroleum took over as nearly equally preferred energy sources. (See Figure 1.14.) In transportation, reliance on petroleum has been increasing since 1949. (See Figure 1.15.)

Not included in the four main sectors of energy consumption is the electric power sector. This sector includes electric utilities that generate, transmit, distribute, and sell electricity for use by the other four sectors— in homes, businesses, and industry. Figure 1.16 shows that most of the electricity for the United States is generated by burning coal. The electric power sector consumed nearly 21 quadrillion Btu of coal in 2007, almost all the coal used in the United States. Electricity is also generated by nuclear power, natural gas, renewable energy sources (hydroelectric, wood, waste, geothermal, solar, and wind), and petroleum. As Figure 1.16 shows, renewable sources generate very little of the nation’s electricity.

International Energy Production and Consumption

World Production

World production of energy rose from 215.4 quadrillion Btu in 1970 to 460.1 quadrillion Btu in 2005. (See Table 1.4.) The EIA states in Annual Energy Review 2007 that the world’s total output of primary energy increased by 114% from 1970 to 2005. In 2005 fossil fuels accounted for 86% of all energy produced world-wide, whereas renewable energy accounted for 8% and nuclear electric power for 6%.

In 2005 the United States, China, and Russia, respectively, were by far the leading producers of energy, followed by Saudi Arabia, Canada, and Iran. (See Figure 1.17.) According to the EIA, almost all the energy produced in the Middle East is in the form of oil or natural gas, whereas coal is a major source in China. Canada is the leading producer of hydroelectric power and alone accounted for 12.4% of world production of this form of power in 2005. France produces the highest percentage of its energy from nuclear power—about 79% in 2005.

World Consumption

Table 1.5 shows the world consumption of energy by region from 1980 to 2005. The five countries singled out in the table—the United States, China, Russia, Japan, and Germany—together consumed about 51% of the world’s total energy supply in 2005. The United States, by far the world’s largest consumer of energy, used about 100.7 quadrillion Btu in 2005, or 22% of the energy consumed worldwide. This amount was about 50% more than the 67 quadrillion Btu consumed in China. Russia consumed 30.3 quadrillion Btu in 2005.

Future Trends in U.S. Energy Consumption, Imports, and Prices

In Annual Energy Outlook 2008 (June 2008, http://www.eia.doe.gov/oiaf/aeo/pdf/0383(2008).pdf), the EIA forecasts energy supply, demand, and prices, which are used by decision makers in the public and private sectors. The EIA’s projections, through 2030, are based on current U.S. laws, regulations, and economic conditions.

Table 1.6 shows total energy supply and disposition, including energy consumption, in the United States in 2006 with projections to 2010, 2020, and 2030. There are two projections for each year: the projection from the Annual Energy Outlook 2007 (February 2006, http://tonto.eia.doe.gov/ftproot/forecasting/0383(2007).pdf) and the Annual Energy Outlook 2008 . In 2006 the total energy consumption for the United States was 99.5 quadrillion Btu. By 2030 consumption is projected to increase to between 118 and 131.2 quadrillion Btu. This projection may be greatly affected by factors such as economic growth and world oil prices.

The consumption of liquid fuels (from petroleum-based sources and non petroleum-based sources, such as biomass, coal, and natural gas), coal, and nonhydroelectric renewables (such as solar and wind) is expected to rise significantly from 2006 to 2030. (See Figure 1.18.) Natural gas consumption is expected to increase until 2016 and then decline until 2030. Conversely, nuclear power use will remain steady from 2006 to 2016, and is then projected to increase slightly until 2030. Consumption of hydroelectric power is expected to remain steady.

The rising consumption of petroleum by Americans is projected to lead to increasing petroleum imports by the United States through 2030. (See Figure 1.19.) Gross oil imports are projected to increase from 13.7 million barrels per day in 2005 to 17.7 million barrels per day in 2030. The EIA projects that gross petroleum imports will account for 66% of the total U.S. petroleum supply in 2030.

After an initial jump, electricity prices in the United States are projected to decline slightly through 2015 because of falling natural gas prices, but will then increase slowly as natural gas prices go up. (See Figure 1.20.) From 2006 to 2030 coal prices will remain relatively stable, but petroleum prices will mirror quite closely the rise, then fall, then slow rise of natural gas prices.

How Much Oil, Natural Gas, and Coal Remains?

As mentioned previously, Figure 1.16 shows that renewable energy sources generate very little of the nation’s electricity. Most of the energy sources Americans use are nonrenewable—that is, resources that are consumed faster than they can be generated. By contrast, renewable resources are generated as fast as, or faster than, they are consumed. Examples of renewable resources are solar energy and wind energy; these natural resources are not depleted as they are used. Examples of nonrenewable resources are oil, natural gas, and coal; these natural resources are depleted as they are used. Over hundreds of years of use by billions of human users, the reserves of nonrenewable resources continue to shrink. So how much of these nonrenewable resources remain?

Reserves are estimated volumes of nonrenewable resources in known deposits that are believed to be recoverable in the future. Proved reserves are those volumes that geological and engineering data show with reasonable certainty to be recoverable. According to the EIA, in Annual Energy Review 2007, there were 21 billion barrels of proved reserves of crude oil in the United States in 2006. This amount was down from 31.8 billion barrels in 1977. The EIA also reports that on January 1, 2007, there were between 1.1 trillion barrels and 1.3 trillion barrels of crude oil reserves worldwide.

The volume of natural gas proved reserves can be expressed in crude oil equivalents (COE), which makes comparisons easier. The EIA reports that there were 37.4 billion barrels COE of dry natural gas and 5.8 billion barrels COE of natural gas liquids in proved reserves in 2006, down from 36.5 billion barrels COE in 1977 and up from 5 billion barrels COE in 1978, respectively (see Chapter 3 for a description of these two types of natural gas). Worldwide, there were between 6.2 quadrillion and 6.4 quadrillion cubic feet (175.6 trillion and 181.2 trillion cubic m) of natural gas on January 1, 2007.

The World Energy Council (http://www.worldenergy.org/) has compiled data on the proved reserves of coal throughout the world at the end of 2007. Using these data, Energy.eu (2008, http://www.energy.eu/stats/energy-coal-proved-reserves-total.html) reports that the United States had the largest proved reserves of coal at the end of 2007: 242.7 billion metric tons (267.6 billion short tons). The Russian Federation had approximately two-thirds of the coal reserves of the United States and China about half as much. The total proved coal reserves worldwide at the end of 2007 was 823.6 billion metric tons (907.9 billion short tons).