FOSSIL FUELS

Fossil fuel is a general term for any hydrocarbon or carbonaceous rock that may be used for fuel: chiefly petroleum, natural gas, and coal. These energy sources are considered to be the lifeblood of the world economy. Nearly all fossil fuels are derived from organic matter, commonly buried plant or animal fossil remains, although a small amount of natural gas is inorganic in origin. Organic matter that has long been deeply buried is converted by increasing heat and pressure from peat into coal or from kerogen to petroleum (oil) or natural gas or liquids associated with natural gas (called natural gas liquids). Considerable time, commonly millions of years, is required to generate fossil fuels, and although there continues to be generation of coal, oil and natural gas today, they are being consumed at much greater rates than they are being generated. Fossil fuels are thus considered nonrenewable resources.

This article provides a brief historical perspective on fossil energy, focusing on the past several decades, and discusses significant energy shifts in a complex world of constantly changing energy supply, demand, policies and regulations. United States and world energy supplies are closely intertwined (Figure 1). World supplies of oil, gas and coal, are less extensively developed than those of the United States and the extent of remaining resources is extensively debated. Fossil fuels such as coal, natural gas, crude oil and natural gas liquids currently account for 81 percent of the energy use of the United States, and in 1997 were worth about $108 billion. For equivalency discussions and to allow comparisons among energy commodities, values are given in quadrillion British thermal units (Btus). For an idea of the magnitude of this unit, it is worth knowing that 153 quadrillion Btus of energy contains about a cubic mile of oil. The world consumes the equivalent of about 2.5 cubic miles of oil energy per year, of which 1 cubic mile is oil, 0.6 cubic mile is coal, 0.4 cubic mile is gas, and 0.5 cubic mile is all other forms of energy. Total oil reserves are about 32 cubic miles of oil and total energy reserves are equivalent to about 90 cubic miles of oil. Quadrillion Btus can also be converted to billion barrel oil equivalents (BBOE) at the ratio of about 5:1 (i.e., 5 quadrillion Btu to 1 BBOE). Both energy consumption and production more than doubled between 1960 and 2000, reflecting the United States's increasing need for energy resources (Figure 1). In 2000 the United States was at its historically highest level of both fossil energy consumption and production. However, significant shifts in domestic energy consumption and production occurred between 1980 and 2000. Production of oil and natural gas in the United States did not meet consumption between 1970 and 2000.

Surprisingly, coal is the largest energy source in the United States and the world (Figure 1), despite perceptions that it has been replaced by other sources. In 1997 production of both coal (23.2 quadrillion Btus, or about 4.6 billion barrels of oil) and natural gas (19.5 quadrillion Btus, or about 3.9 billion barrels of oil) on an energy equivalent basis exceeded U.S. domestic oil production (13.6 quadrillion Btus, equivalent to about 2.7 billion barrels, or 3.1 billion barrels of oil if natural gas liquids are included). Coal production in the United States nearly doubled from 1970 to 2000 (from about 600 million tons to about 1 billion tons produced annually). Meanwhile, petroleum consumption at 18.6 million barrels of oil per day is near the all-time high of 18.8 million barrels of oil per day in 1978. Net U.S. petroleum imports (8.9 million barrels of oil per day) in 1997 were worth $67 billion and exceeded U.S. petroleum production (8.3 million barrels of oil per day). Concerns about petroleum supplies, specifically oil shortages, caused the United States to build a strategic petroleum reserve in 1977 that currently holds 563 million barrels of oil or about sixty-three days worth of net imported petroleum. This strategic supply is about half of the 1985 high when the reserve would have provided 115 days worth of net imported petroleum. Although U.S. oil and gas production generally declined from 1970 to 1993, natural gas production has been increasing since the mid-1980s and energy equivalent production from natural gas exceeded U.S. oil production in the late 1980s. Natural gas is expected to play an increasing role in the United States in response to both environmental concerns and anticipated major contributions from unconventional (or continuous) natural gas sources requiring reductions in carbon emissions, particularly if the Kyoto Protocol is passed by the United States.

Due to factors such as extreme fluctuations in commodity prices, particularly oil prices, wasteful oil and gas field practices, and perceived national needs, U.S. government involvement in energy markets has been part of U.S. history from the turn of the century. The U.S. began importing oil in 1948. The 1973 oil embargo by the Organization of Petroleum Exporting Countries (OPEC) made a strong impact on U.S. policy makers who responded by developing regulations designed to encourage new domestic oil production. A two-tiered oil pricing system was introduced that changed less for old oil and more for new oil. The prospect of higher prices for new oil produced record high drilling levels, focusing on oil development, in the late 1970s and early 1980s. Domestic production fell dramatically in the early 1980s following oil price deregulation that permitted world market forces to control oil prices. Since that time, the United States has returned to a period of reliance on oil supplied by the OPEC comparable to early 1970s levels.

Regulations also have a strong impact on natural gas supply, demand and prices. Exploration for and development of natural gas historically have been secondary to oil because of the high costs of transportation, as well as a complex transportation and marketing system that allowed for U.S.-federally regulated interstate gas pipelines but essentially unregulated intrastate pipelines. The natural gas supply shortfalls in 1977 and 1978 resulted in The Natural Gas Policy Act of 1978, which was designed to deregulate natural gas on a 10-year schedule. The Act also extended U.S. federal regulation to all pipelines and gave incentives to explore for and develop certain classes of resources such as unconventional gas. Section 29 of the 1980 Windfall Profits Tax provided tax credits for coal-bed methane, deep-basin gas, and tight-gas reservoirs. These tax credits were graduated and substantial; for example, the tax credit on coal-bed methane was 90 cents per million Btus and 52 cents per million Btus for tight-gas reservoirs by the end of 1992 when the credit was terminated. The price of coal-bed methane during the years the credit was in effect ranged from $1 to $3 per million Btus. Drilling for Section 29 gas wells increased during the late 1980s and early 1990s, allowing drillers to establish production prior to 1993 and thus take advantage of the tax incentive, which remains in effect for gas produced from these wells through 2003.

By contrast, U.S. coal resources are not restricted by supply; however, the environmental consequences of coal use have had a major impact on coal development. The Power Plant and Industrial Fuel Use Act of 1978 was developed in response to perceived natural gas shortages; it prohibited not only the switching from oil to gas in power generation plants, but also the use of oil and gas as primary fuel in newly built large plants. However, coal remains the least expensive source of energy; consequently, coal has soared from 1980 to 2000. The most significant change in the use of coal reflects compliance with the Clean Air Act Amendments of 1990 (CAAA 90), which have stringent sulfur dioxide emission restrictions. Production of coal that complies with this Act has caused a shift from production east of the Mississippi to west of the Mississippi. Many western states have substantial coal resources, particularly low-sulfur coal resources, such as those in the Powder River Basin of Wyoming. In fact, Wyoming has been the largest coal-producing state since 1988. CAAA 90 allows utilities to bring coal-fired generating units into compliance, for example, by replacing coal-fired units with natural gas, or by using renewable or low-sulfur coals. Conversion to natural gas from coal in power plants, made feasible by the relatively low costs of natural gas generation in the late 1980s and early 1990s has eroded coal's 1990 share of 53 percent of domestic electricity generation. Clearly policy and regulations such as CAAA 90 impact U.S. coal quality issues and promote low-sulfur coal and natural gas usage.

Many of the resource additions to natural gas will come from unconventional accumulations, also called continuous deposits, such as tight-gas reservoirs and coal-bed methane. Since deregulation of the oil and gas industry in the 1980s, policy decisions have increasingly affected the energy industry (particularly of natural gas) by providing tax incentives to produce unconventional or continuous hydrocarbon accumulations. However, there are associated costs. For example, coal-bed methane is an important and growing natural gas resource, but the disposal cost of waste water generated by coal-bed methane production is thirty-eight times greater than the cost of disposing waste water generated by an onshore conventional gas well. Similarly, the electricity generated by alternative energy sources, such as windmills near San Francisco, is three times more expensive than electricity produced by conventional electric generators.

Increased energy use both for coal and natural gas likely will have the greatest impact on western U.S. federal lands because major unconventional or continuous natural gas deposits are known to exist in Wyoming, Utah, Montana, and New Mexico. The U.S. Geological Survey, in cooperation with the Department of Energy, estimates that an in-place natural gas resource in the Green River Basin in Wyoming is more than ten times larger than a recent estimate of the entire recoverable conventional natural gas resources of the United States. However, recoverable resources make up only a small percentage of this large in-place resource. These continuous deposits are distributed over a wide area as opposed to conventional resources that are localized in fields. The majority of conventional undiscovered oil and natural gas resources will likely be found on U.S. federally-managed lands, and thus the federal government and policies will continue to play an increasing role in energy development.

Implementation of the 1998 Kyoto Protocol, which is designed to reduce global carbon emissions, will have dramatic effects on fossil fuel usage worldwide. The Kyoto Protocol mostly affects delivered prices for coal and conversion of plants to natural gas, nuclear and/or renewable resources. However, as pointed out by the International Energy Agency, increased natural gas consumption in the United States may likely have the effect of increased reliance on imported oil in the short-term to fulfill transportation sector needs. New technologies, such as gas to liquid conversion, have the potential to create revolutionary industrywide change. This change is contingent upon sufficient commodity prices to support the necessary infrastructure to develop underutilized gas resources worldwide.

Some economists argue that civilization moves toward increasingly efficient energy resources, moving from sources such as wood to coal to oil to natural gas and ultimately to non-carbon based energy sources in 100 to 200 year cycles. Others argue for a far more complicated process involving demand, supply and regulations. Fossil fuels will remain critical resources well into the next century. In the meantime, their abundance and potential shortages are debated.

Thomas S. Ahlbrandt

See also:Geography and Energy Use; Reserves and Resources.

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