1 00:00:00,012 --> 00:00:04,647 Hello. So in Energy 101, we're starting to reach 2 00:00:04,647 --> 00:00:12,048 the end of the energy sources section. and today we're going to talk about 3 00:00:12,048 --> 00:00:17,302 energy prices. Now we talked about oil prices Before and 4 00:00:17,302 --> 00:00:22,907 how they're determined and the fact that it's a worldwide commodity and priced 5 00:00:22,907 --> 00:00:26,572 worldwide. Whereas other things, like natural gas 6 00:00:26,572 --> 00:00:32,282 are priced regionally because it can only be transported at a reasonable cost by 7 00:00:32,282 --> 00:00:35,837 pipeline. Today we're going to look at the cost of 8 00:00:35,837 --> 00:00:42,140 all types of energy sources. that we've been talking, been covering 9 00:00:42,140 --> 00:00:48,019 here we're looking at the, going back to our reference diagram here. 10 00:00:48,019 --> 00:00:54,971 We're talking about the natural energy sources in order to satisfy The energy 11 00:00:54,971 --> 00:01:01,229 needs of society, we have to go find forms of energy in, that, that occur 12 00:01:01,229 --> 00:01:06,286 naturally in the Earth. So, we're going to be talking about today 13 00:01:06,286 --> 00:01:12,606 the prices, of these, energy. Sources, and what are they? Just to group 14 00:01:12,606 --> 00:01:19,150 them a little bit differently, the Earth's energy supplies that we use in 15 00:01:19,150 --> 00:01:26,007 order to satisfy our energy needs are fossil fuels, categorizing them as coal. 16 00:01:26,007 --> 00:01:32,620 That is coal, oil, and natural gas. Coal, oil and natural gas are the fossil 17 00:01:32,620 --> 00:01:36,954 fuels. And we chemically react those, of course, 18 00:01:36,954 --> 00:01:43,343 with oxygen in the atmosphere and release the chemical energy as heat in a 19 00:01:43,343 --> 00:01:47,752 combustion process. So, but that, we get 82% of our. 20 00:01:47,752 --> 00:01:53,902 Energy from fossil fuels, 82%. 9% comes from uranium in the form of 21 00:01:53,902 --> 00:01:59,322 nuclear power plants. And then another equal 9% comes from 22 00:01:59,322 --> 00:02:04,872 renewable energy. The largest, component of that being 23 00:02:04,872 --> 00:02:09,292 biomass. as we'll see here in just a minute. 24 00:02:09,292 --> 00:02:14,497 and we know that. Wind is about 10 times what solar is. 25 00:02:14,497 --> 00:02:19,022 Hydro is significant and biomass is significant. 26 00:02:19,022 --> 00:02:26,797 but as we see on the next slide, you can see it graphically, the percent of energy 27 00:02:26,797 --> 00:02:31,622 sources that we use that, come from each of these. 28 00:02:31,622 --> 00:02:37,961 Components this being fossil fuels, nuclear fuels and renewable fuels. 29 00:02:37,961 --> 00:02:44,054 As I mentioned, 82%, 9% and 9%. And I just thought it was worthwhile to 30 00:02:44,054 --> 00:02:51,003 show that to show how we're so dominant. Dependent on fossil fuels that we burn 31 00:02:51,003 --> 00:02:57,748 and combust and then convert to other forms of energy that we're going to cover 32 00:02:57,748 --> 00:03:01,428 next. and renewables are still a small 33 00:03:01,428 --> 00:03:05,598 category. We broke those out earlier and you can 34 00:03:05,598 --> 00:03:12,517 see what those are but it takes a lot of investment And, and converse and process 35 00:03:12,517 --> 00:03:18,168 plants in order to convert from fossil fuels to another form of fuel. 36 00:03:18,168 --> 00:03:24,731 But what I wanted to do today is look at the prices of these energies sources that 37 00:03:24,731 --> 00:03:29,756 we depend upon. the prices that you see quoted every day. 38 00:03:29,756 --> 00:03:33,272 Let's get rid of all the scratching there. 39 00:03:33,272 --> 00:03:39,217 the prices that you see quoted every day and talked about on the news. 40 00:03:39,217 --> 00:03:45,781 Might be confusing sometimes and I wanted to try to clear up some of the confusion 41 00:03:45,781 --> 00:03:49,343 that might occur. We hear about oil prices. 42 00:03:49,343 --> 00:03:54,492 and oil prices somewhere around 90 dollars, has fluctuated. 43 00:03:54,492 --> 00:04:00,048 Gosh when I got into the energies area in the 1970's it was as low as $2 a barrel, 44 00:04:00,048 --> 00:04:03,558 $2 a barrel. Of course, the cost of living has 45 00:04:03,558 --> 00:04:09,642 increased and, and price, escalation has gone up and that's, in today's dollars, 46 00:04:09,642 --> 00:04:15,484 that's about $8 or $10 a barrel. But today it's about $90 and when it's 47 00:04:15,484 --> 00:04:21,972 high is about $140 to $150 depending on whether you're looking at daily closing 48 00:04:21,972 --> 00:04:27,716 or monthly closing price. But it's fluctuated wildly as we'll see 49 00:04:27,716 --> 00:04:32,555 here in a minute. you see natural gas quoted as of right 50 00:04:32,555 --> 00:04:39,500 now at the end of 2012 when I'm Recording this at around $3.50 per 1000 cubic feet. 51 00:04:39,500 --> 00:04:46,119 Now, one question that I want to try to answer today is, how do we compare $3.50 52 00:04:46,119 --> 00:04:51,390 per 1,000 cubic feet of natural gas, with $90 per barrel of oil. 53 00:04:51,390 --> 00:04:58,967 we'll get to that here in just a minute. coal you see quoted at about $50 per ton 54 00:04:58,967 --> 00:05:05,507 delivered to electric power plant. I focused on electric power because 55 00:05:05,507 --> 00:05:13,362 that's where most of our, our coal goes. We also use coal for making of iron and 56 00:05:13,362 --> 00:05:17,518 steel. Processes and other industrial processes, 57 00:05:17,518 --> 00:05:24,228 but the problem I wanted to try to clear out is, how do you compare these prices 58 00:05:24,228 --> 00:05:30,474 because they're obviously in different units? It's a lot like pricing one thing 59 00:05:30,474 --> 00:05:36,430 in, in, by the dozen and another thing, another item by the single item. 60 00:05:36,430 --> 00:05:43,299 what does it mean there and Going on down the list of our, these being the fossil 61 00:05:43,299 --> 00:05:47,159 fuels, those top three that all cost us money. 62 00:05:47,159 --> 00:05:52,568 You get people to get 'em out of the ground and pay people who go in the 63 00:05:52,568 --> 00:05:58,942 ground, and transport 'em to us. nuclear, nuclear I don't want to get into 64 00:05:58,942 --> 00:06:02,532 the to the. Nuclear fuel cost, is a, relatively 65 00:06:02,532 --> 00:06:06,727 complicated topic. Right now, we're getting about half of 66 00:06:06,727 --> 00:06:12,937 our nuclear fuel from, the destruction of warheads from the Soviet Union, well the 67 00:06:12,937 --> 00:06:18,709 previous Soviet Union, Russia. this, we had a nuclear treaty that to 68 00:06:18,709 --> 00:06:25,050 which they would disassemble and we would use the uranium that comes out of the 69 00:06:25,050 --> 00:06:29,464 warheads. things get complicated so, but it's, it's 70 00:06:29,464 --> 00:06:33,865 inexpensive. Relative to fossil fuels, its inexpensive 71 00:06:33,865 --> 00:06:39,601 by any Measure you want to make. And of course, renewable energy's free. 72 00:06:39,601 --> 00:06:46,703 The sun's free, the wind's free the wood is grown naturally and just out in the 73 00:06:46,703 --> 00:06:53,548 woods and so the renewable energy is certainly nice but it's gotta look at the 74 00:06:53,548 --> 00:06:59,322 infrastructure and you have to build to utilize that renewable energy. 75 00:06:59,322 --> 00:07:03,567 so those are industry prices that you see quoted today. 76 00:07:03,567 --> 00:07:09,662 But what do they mean on apples to apples basis? well, in order to do that, we have 77 00:07:09,662 --> 00:07:15,097 to look at what, what are we using those fuels for. Well, we're using them to 78 00:07:15,097 --> 00:07:20,612 burn, as I mentioned before, for the heat back, how much heat that we get out of 79 00:07:20,612 --> 00:07:26,117 the combustive process, and we use that heat for building energy. 80 00:07:26,117 --> 00:07:31,175 the heat buildings to, cook with. For industrial drying, like carpet 81 00:07:31,175 --> 00:07:34,380 drying. when you make carpets, you dye them. 82 00:07:34,380 --> 00:07:39,003 And then you need to dry them. All kinds of manufacturing processes, we 83 00:07:39,003 --> 00:07:42,399 have to dry. We burn it in our automobile engines and 84 00:07:42,399 --> 00:07:46,547 our diesel engines. fossil fuel for the heat value, the more 85 00:07:46,547 --> 00:07:51,637 heat we can release in our cylinders and gas turbines and jet airplanes, the more 86 00:07:51,637 --> 00:07:56,352 power we get out so we're using the combustion heat and thermal energy, the 87 00:07:56,352 --> 00:08:01,092 heat energy and then we burn it in electric power plants and there again, 88 00:08:01,092 --> 00:08:06,137 we, the amount of electricity we get out is proportional to the amount of heat we 89 00:08:06,137 --> 00:08:11,816 get out of the combustion process. So, since we're using all of these for 90 00:08:11,816 --> 00:08:16,398 the same purpose. That is, to burn and produce heat. 91 00:08:16,398 --> 00:08:20,782 Then we want our prices on a per unit of heat basis. 92 00:08:20,782 --> 00:08:26,181 And since we're U.S. centric in this course, we'll price it on 93 00:08:26,181 --> 00:08:31,481 a million BTU basis. And that's a number usage quoted in a lot 94 00:08:31,481 --> 00:08:35,703 of places. Now what is a BTU? A million BTU's is, of 95 00:08:35,703 --> 00:08:42,184 course, a million of whatever a BTU is. Well, just for clarification, one BTU is 96 00:08:42,184 --> 00:08:48,367 defined as the amount of heat it takes to heat one pound of water up to 1 degree 97 00:08:48,367 --> 00:08:51,460 fahrenheit. Up 1 degree Farenheit. 98 00:08:51,460 --> 00:08:58,143 So if you want to heat 1 pound of water up 10 degrees Farenheit, then it takes 10 99 00:08:58,143 --> 00:09:01,425 BTU's. So, or a million BTU's will heat a 100 00:09:01,425 --> 00:09:05,433 million pounds of water up 1 degree Farenheit. 101 00:09:05,433 --> 00:09:10,741 So that's what a BTU is and we'll. Later I'll get into the conversions of 102 00:09:10,741 --> 00:09:14,960 BTU's to kilowatt hours, and, various things that you see quoted. 103 00:09:14,960 --> 00:09:19,112 But, these numbers that you see in articles and news, and hear on the 104 00:09:19,112 --> 00:09:23,441 television, that they quote, are meaningless unless you know how that 105 00:09:23,441 --> 00:09:27,962 number compares with something else. Or there's a whole and put it, and could 106 00:09:27,962 --> 00:09:31,988 it be able to put it in context. And, that is one thing I hope we can 107 00:09:31,988 --> 00:09:36,676 accomplish in this course, is try to put all this information that you see and 108 00:09:36,676 --> 00:09:42,652 read of it, read on the news and in the public media, put it in context. 109 00:09:42,652 --> 00:09:48,976 So that you'll have some kind of, you'll distract some kind of meaning out of it. 110 00:09:48,976 --> 00:09:55,186 well here are the prices of the fossil fuels per million BTU's, per million 111 00:09:55,186 --> 00:09:59,506 BTU's. I've converted everything to a million 112 00:09:59,506 --> 00:10:04,259 BTU basis. I've got it for natural gas, I've got it 113 00:10:04,259 --> 00:10:11,779 for oil, and I've got it for coal, which supplies 82% of our energy that we use in 114 00:10:11,779 --> 00:10:16,316 the U.S. I got it plotted here from 1998 to the 115 00:10:16,316 --> 00:10:24,658 end of 1998 to the end of not quite, it's actually about the middle of 2012 but I 116 00:10:24,658 --> 00:10:32,525 show it for demonstration purposes. This is, it starts off that the, in 1998 117 00:10:32,525 --> 00:10:39,271 the red is oil. Oil was about $2.60 a million BTU's, 118 00:10:39,271 --> 00:10:44,838 Natural gas was about $2 a million BTU's right here. 119 00:10:44,838 --> 00:10:52,911 And coal was around a $1 a million BTU's. Well, coal has been gradually increasing 120 00:10:52,911 --> 00:10:58,065 and these are actual dollars that you would have paid in 1998 or 2003 and 121 00:10:58,065 --> 00:11:01,773 without any escalation factors for cost of living. 122 00:11:01,773 --> 00:11:06,304 and you can see it's been pretty steady over the years. 123 00:11:06,304 --> 00:11:12,221 natural gas has been rather erratic. The blue line, which is natural gas Here 124 00:11:12,221 --> 00:11:17,831 is just a couple years. It shot up from about $3 to about $5. 125 00:11:17,831 --> 00:11:22,001 That's almost double. It went back down to about 2.50. 126 00:11:22,001 --> 00:11:26,701 And then it went up, all the way to $10 a million BTU's. 127 00:11:26,701 --> 00:11:34,293 And since then, it has dropped back down. And now, is, is around $3.50 at the end 128 00:11:34,293 --> 00:11:39,428 of 2012. Well, what about oil? Well, if you look, 129 00:11:39,428 --> 00:11:44,602 oil and natural gas track pretty much, together. 130 00:11:44,602 --> 00:11:51,188 between 1998 and 2005. But in 2005, a lot of it due to China's 131 00:11:51,188 --> 00:11:59,662 tremendous increase in the use of energy and oil, in particular, the world oil 132 00:11:59,662 --> 00:12:05,177 price shot up. And everybody was pumping as much oil as 133 00:12:05,177 --> 00:12:12,732 they could pump and it went to that's when oil went to $140 a barrel and which 134 00:12:12,732 --> 00:12:21,282 corresponds to about $16 a million BTUs and that was in early 2008 went up to $16 135 00:12:21,282 --> 00:12:24,750 of, There's actually a little higher than 136 00:12:24,750 --> 00:12:29,616 that, if you look at it on a daily basis. and then the recession came. 137 00:12:29,616 --> 00:12:33,666 Many people will, will argue that the recession, in the U.S. 138 00:12:33,666 --> 00:12:38,926 in particular, was due to the high price of, of energy, because it extracted so 139 00:12:38,926 --> 00:12:43,668 many dollars out of the economy. And that, then, put people in a tough, 140 00:12:43,668 --> 00:12:45,571 bad way in order to try to . . 141 00:12:45,571 --> 00:12:47,973 . Decide to pay their home mortgages that 142 00:12:47,973 --> 00:12:52,167 they were, they were leveraged out on and everything started to collapse. 143 00:12:52,167 --> 00:12:56,560 But certainly price of energy was one thing that had something to do with the 144 00:12:56,560 --> 00:12:59,551 recession. the best way to kill oil price and oil 145 00:12:59,551 --> 00:13:02,827 demand and energy demand in general, is have a recession. 146 00:13:02,827 --> 00:13:07,096 And that's what happened here, it went all the way down to about $8 a million 147 00:13:07,096 --> 00:13:12,483 BTUs, it was cut in half. And this is, again, these are prices I 148 00:13:12,483 --> 00:13:19,102 don't fill for the scatter that occurs on a daily basis but this is just on a 149 00:13:19,102 --> 00:13:24,131 yearly basis. And since 2008 it's escalated back up and 150 00:13:24,131 --> 00:13:30,633 and it, it went to about $110 a barrel which is back up to $16 close to $16 a 151 00:13:30,633 --> 00:13:37,013 million Btu's and then today is down around $15 a million Btu's. 152 00:13:37,013 --> 00:13:44,709 Well the reason I show this chart is because to look at what's the situation 153 00:13:44,709 --> 00:13:52,202 when we have, when we compare prices. If you got a choice of burning natural 154 00:13:52,202 --> 00:13:55,796 gas or burning. Oil, the choice is obvious. 155 00:13:55,796 --> 00:14:01,112 If you're interested in money which will be in a free enterprise system and at US, 156 00:14:01,112 --> 00:14:06,086 in particular, we are and most of the countries don't want to spend anymore of 157 00:14:06,086 --> 00:14:11,279 their money on energy than they need to, you would switch everything to natural 158 00:14:11,279 --> 00:14:16,927 gas and because it's about four to five times cheaper Natural gas is about four 159 00:14:16,927 --> 00:14:23,152 or five times cheaper compared to oil and coal is a little cheaper than natural 160 00:14:23,152 --> 00:14:26,642 gas. But natural, when you start looking at 161 00:14:26,642 --> 00:14:32,932 all the ramifications, coal puts the floor on natural gas because when natural 162 00:14:32,932 --> 00:14:39,413 gas gets that close to the price of coal, The, the power plants can turn on their 163 00:14:39,413 --> 00:14:45,698 natural gas plants that are not running at that particular time, at night and 164 00:14:45,698 --> 00:14:50,032 other times when the load is low and cut down on their coal. 165 00:14:50,032 --> 00:14:54,992 And so coal forms, forms a pretty much a floor for natural gas. 166 00:14:54,992 --> 00:15:00,065 Oil would be the ceiling on natural gas, and it fluctuates in between. 167 00:15:00,065 --> 00:15:05,431 But to give you an example of why don't we fuel switch and why don't we using 168 00:15:05,431 --> 00:15:09,432 more of the natural gas in lieu of the oil that we have. 169 00:15:09,432 --> 00:15:12,972 Well, then you get into the subject of fuel switching. 170 00:15:12,972 --> 00:15:18,074 Fuel switching is switching, when you switch fuels because one fuel is cheaper 171 00:15:18,074 --> 00:15:21,880 than another fuel. And for instance, when, if you've got a 172 00:15:21,880 --> 00:15:27,197 fuel that's 4 or 5 times cheaper be nice to be able to burn it for it's heating 173 00:15:27,197 --> 00:15:31,042 heat than burning the one that costs 4 to 5 times more. 174 00:15:31,042 --> 00:15:36,807 But what's required when that does not occur is the infrastructure investment is 175 00:15:36,807 --> 00:15:42,623 too much to justify the reduced operating cost because, due to the cheaper fuel. 176 00:15:42,623 --> 00:15:48,232 And an example, and we can talk about many examples, but right now people talk 177 00:15:48,232 --> 00:15:54,291 about why aren't we converting gasoline cars to natural gas cars? and you can 178 00:15:54,291 --> 00:16:01,071 certainly burn natural gas in cars. I was faculty advisor on a, on a student 179 00:16:01,071 --> 00:16:08,377 team that, competed in a, university competition that converted, A 1970's. 180 00:16:08,377 --> 00:16:14,717 This is a 1970's converted a car to run on natural gas and drove it from MIT in 181 00:16:14,717 --> 00:16:21,317 Boston, to Cal Tech in Pasadena, California all the way across the country 182 00:16:21,317 --> 00:16:25,132 on natural gas. it can certainly be done. 183 00:16:25,132 --> 00:16:31,292 But it requires conversion of the fuel system to to or from gasoline or in 184 00:16:31,292 --> 00:16:37,321 addition to gasoline to natural gas. That require high pressure tanks and 185 00:16:37,321 --> 00:16:42,842 requires somewhere on the order of 5 to 10 thousand dollars per car. 186 00:16:42,842 --> 00:16:48,770 5 to $10,000 per car, the DOE estimates it at about $10,000, when you include the 187 00:16:48,770 --> 00:16:53,477 refueling stations. The refueling investment cause now you've 188 00:16:53,477 --> 00:16:58,093 got to have filling stations all around the country to refuel. 189 00:16:58,093 --> 00:17:04,213 So, fuel switching makes sense. But if, you don't have to make too much 190 00:17:04,213 --> 00:17:10,379 of an investment to make the switch to switch from a more expensive fuel to a 191 00:17:10,379 --> 00:17:15,193 cheaper fuel. But I wanted to cover that before we left 192 00:17:15,193 --> 00:17:21,098 energy sources to look at the relationship between natural gas, oil and 193 00:17:21,098 --> 00:17:27,342 coal prices on per unit Energy basis which is what any user looks at when they 194 00:17:27,342 --> 00:17:32,467 are trying to determine what type of fuel to use if they're capable of using a 195 00:17:32,467 --> 00:17:37,067 different fuel in what they're doing. House heating is another one. 196 00:17:37,067 --> 00:17:42,192 You can heat it by, heat your house by oil, you can heat your house by natural 197 00:17:42,192 --> 00:17:47,717 gas but, today, anybody that has natural gas pipelines running down the, close to 198 00:17:47,717 --> 00:17:54,489 their home has a hopefully switched over to natural gas because it's it's for so 199 00:17:54,489 --> 00:17:57,524 much cheaper. It's just another example. 200 00:17:57,524 --> 00:18:03,432 Few cases where natural gas pipelines are not available to the home and they had no 201 00:18:03,432 --> 00:18:08,019 choice but to stay on, on oil up in the northeast in particular. 202 00:18:08,019 --> 00:18:12,079 Okay. so that, that covers the the pricing of 203 00:18:12,079 --> 00:18:15,509 energy and the relative value. Take care. Bye.