All posts by Michael S. Davies, CFA, CMVP

The risks of viruses are now starkly apparent, and it’s only going to get worse with climate change according to researchers. This begs the question: How do we better protect building and office occupants from the risks of contagion? This post will explore how we can better prepare for future pandemics, reduce the risks of contagion, and navigate the uncertainty of these challenging times. 

The most important element in any interior air and environmental assay is accessing data regarding environmental conditions and operations within a defined space. Applying data analytics and machine learning algorithms can help create a comprehensive roadmap to improve operating efficiencies and understand conditions pertaining to emergent risks and exposure.

A process improvement framework is constructed by transforming data and analytics into metrics that are aligned to desired outcomes such as sustainability and energy efficiency. Green Econometrics has developed a framework to monitor, measure and curate data pertaining to process and sustainability performance.  This is extremely important.

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Analytics and Business Intelligence provide a framework for process improvement that drives operating efficiencies and enhances business value.  Most business owners and managers want to increase business value to benefit shareholders, stakeholders, and investors.  Individual investors and investment professionals direct capital towards companies that can demonstrate sustainable value.  Changes to performance in revenues, margins, and risks can become a catalyst to invest or divest. Business value is often measured by three performance criteria – revenues, operating margins, and risks.  Therefore, factors that contribute to revenue growth, margin expansion, and risk mitigation become the overarching goals to improve business value.  We add that sustainable value includes resource conservation and efficiency.

Just how does analytics and business intelligence address revenues, costs, and risks in improving business value?  To understand the integration of analytics and business intelligence in improving business value, let’s look at two initiatives in formulating business strategy. 

 In his book Measure What Matters, John Doer describes how establishing goals and objectives along with the corresponding performance criteria provide a better method to assure that key metrics are aligned to goals and business objectives. This process of mapping performance metrics to business objectives defined as Objectives and Key Results (OKRs) determine what is relevant to measure and track.  Adding to OKRs is the balanced scorecard approach which pulls reporting data from each business unit and department and explained by Robert Kaplan and David Norton in their Harvard Business Review article “Using the Balanced Scorecard as a Strategic Management System” to provide an assessment of conditions and performance.  

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Why the analytics framework for process improvement can translate into substantial benefits around sustainability improvements and energy efficiency. The Coronavirus pandemic has upended social interaction – a new normal, with social distancing and protocols, and so why does sustainability play a crucial role in facilitating a smoother transition into the is new normal.  The reason is sustainability engenders confidence.  Knowing facilities are safe and that indoor air quality monitoring is vital for occupant health and safety builds confidence. Health and safety are also essential in generating the confidence that changes consumer behavior.  Therefore, the process by which you implement a sustainability plan plays an expanding role in orchestrating the activities that adhere to values and performance.

A sustainability framework provides the roadmap to monitor, measure and curate data thus enabling performance benchmarking of conditions and processes.  The analytics framework serves as a roadmap to utilize insight gained from data analysis.  Currently available tools such as data visual analysis, machine learning algorithms and cloud computing architecture enable cost effective approaches to achieve business and sustainability objectives.

A sustainability framework provides the foundation to drive business value across several dimensions and performance metrics.  The use of the sustainability process can drive business value, improve our environment, enhance customer loyalty, and better engage healthier and happier employees while rewarding shareholders and stakeholders with higher business valuations.

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IoT connected devices represent the most important technological wave since the Internet, smartphones, and social media. The value proposition for the Internet of Things (IoT) is compelling because of the economic and financial value created for the built environment. The reason IoT is so important is because it builds and leverages upon the confluence and scale of an array of advanced technologies that continue to push the price-performance horizon including cloud computing, Internet connected mobile phones, semiconductors, distributed computing, machine learning and analytics. Inherent in IoT is that secure context aware connected devices drive improvements in efficiency, productivity, yield, and profitability by reducing costs.

IoT and business intelligence (BI) systems can provide a substantial enhancement to monitoring traditional key performance indicators (KPIs) such as marketing, sales, financial, operational metrics by adding new dimensions of analysis including assets, equipment, environmental conditions, health, safety, and energy. The balanced-scorecard approach to BI provides a more comprehensive understanding of business performance. IoT enables a facet of new metrics and automates the metric recording and analytics process right to your cell phone.

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The value of IoT is its ability to monitor, control, and compile data. Data derived from IoT sensors when combined with analytics can lower operating costs, enable new business models, and improve productivity. Embedded sensors monitor, measure, and manage connected devices with limited human interaction. Less human interaction translates into higher productivity. Sensors that can monitor and control devices can also minimize maintenance costs, reduce energy costs, optimize resources allocation and process flow.

For instance, photo and occupancy sensors that can control lighting typically save 20% of a building’s lighting cost. On average, lighting accounts for 25% of the buildings energy costs or approximately $0.70 per square foot according to the DOE. When lighting controls sensors are connected to the Internet, they enable remote diagnostics, device control, and collect data.

By analyzing data from IoT devices, new business models can be created. Analytics play a crucial role developing these new business models. Uber uses analytics to know user demand by the minute. Palantir Technologies provides visual analysis using disparate transactional activities to detect fraud. IoT devices allow greater detail in data capture and faster timing responses. IoT sensors that enable device control and data capture will engender new business models.

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Advances in technology such as seismic imaging with Dawson Geophysical and horizontal drilling with Schlumberger have dramatically changed the economics of oil and gas extraction. The change in oil economics is so profound that the cost structure of hydrocarbon fuels will reverberate through the global energy market and impact pricing of renewables energies and investment decisions. So profound are these changes that the US has surpassed Saudi Arabia and emerged as the world’s largest oil producer.

With the price of oil falling as a result of large production gains in US oil production. The price of oil is may fall below $40 per barrel according to an article in Barron’s The Case for $35 a barrel Oil suggesting further oil price declines are possible.

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Technology and innovation drive productivity, but transaction costs arising from technology implementation limit gains. Analytics and decision science could provide the means to tame transaction costs and improve productivity. Transaction costs were defined by Ronald Coase in “The Nature of the Firm,” published in 1937 and who earned a Nobel Memorial Prize in Economics in 1991.

Access to and sharing of information drives competitive advantage. Businesses often require global sourcing of physical and digital resources and collaborative workgroups often span several nations across the globe. Information flow is an integral aspect of collaborative workflows and global supply chains. Data serves as the foundation for business models where competencies are achieved through analytics. To achieve visibility and granularity into business processes, greater amounts of data are generated.

By reducing transaction costs, advances in technology and innovation can translate into higher productivity; lower operating costs, and a greater supply curve shift. At the same time, the network effect, enhanced consumer utility found with increasing number of users, may push demand.

The takeaways are: 1) analytics provide a process to reduce costs and improve productivity; 2) a process to monitor, measure, and benchmark performance; and 3) enable a firm to assimilate new technologies and manage uncertanties.
How Analytics can Improve Productivity

The turnaround in oil and gas production appears to create a tailwind to drive further economic growth as seen in vehicle and housing sales. Recent advances in technology such as Seismic imaging with companies such as Dawson Geophysical (DWSN) and horizontal drilling with industry leaders like Schlumberger Limited (SLB) (through its acquisitions of Smith International and SII’s acquisition of W-H Energy Services) have dramatically change the economics of oil and gas extraction and subsequently, the energy picture in the US.

Recent data from the Energy Information Administration (EIA), EIA the improving production levels for oil and natural gas suggest the energy headwind driven by high oil prices may lead to a tailwind. Advances in technology Seismic imaging, hydraulic fracturing, and horizontal drilling have enabled production of shale oil to be more economically attractive.

Figure 1 US Oil Production

High-energy prices have had a negative impact on the US economy. With improvements in oil and natural gas production, the economy should experience a more favorable outlook. Recent data from the housing sector and vehicle sales suggests the level of activity is improving.

Figure 2 US Vehicle Sales

Since the Great Recession starting in 2008, vehicle sales in the US have remained substantially below 15 million units on a seasonally adjusted annual rate until 2012. According to data from Motor Intelligence Autodata the level of vehicle sales has maintained sales above the 15 million units through January 2014 indicating positive economic improvement in the car and truck industries.

Figure 3 US Housing Inventory

The US housing market has been a drag on the economy since the financial crisis and now housing is beginning to show signs of improvement. Latest information from Association of Realtors shows the existing inventory of houses on the market remains at an acceptable level consistent with the inventory levels before the financial crisis began.

While efforts to expand renewable energy require further support, the positive effects of less reliance on foreign oil are deemed positive.

Global oil demand grew 0.6% in 2012 and over the last ten years oil consumption grew at a compounded annual growth rate (CAGR) of 1.3%. With near term oil demand at a lower level then the trend for the past ten years suggests the pace in oil consumption is slowing.

According to the Energy Information Administration (EIA), EIA the trend in oil consumption is pointing towards slower if not anemic growth. In the two largest areas, the US and Europe, demand is for oil is declining. While the increasing demand for oil in China and India is significant, the rate of growth is slower.

Figure 1 Global Oil Demand

In the US, oil demand declined 2.1% in 2012 and over the last ten years oil consumption is down 0.6%. The oil consumption trend in the US suggests the decline maybe more structural, particularly as vehicle fuel efficiency is improving and high oil prices may change consumer-driving habits.

Figure 2 Oil Consumption – Major Countries

While the economic weakness in Europe and moderating growth in China, it is not surprising to see weakness in global oil demand. The trend is lower oil consumption might just be the result of short term economic weakness.

Europe and the US account for over 37% of the global demand for oil and that demand has declined over the last ten years. While the US was down 0.6%, demand for oil in Europe was down 1.1% in the last ten years.

Figure 3 Oil Consumption Perspective

There is still strong demand for oil in China and India, but the rate of growth has slowed. China and India represent 15% of the global demand for oil. China and India have one-year oil demand growth rates below their respective ten-year rates.

Figure 4 Oil Consumption Trends

The bottom line is that is demand for oil has slowed and it maybe at a point where oil prices may soon reflect slowing demand.

The latest data on oil consumption suggest the dip in consumption that appeared in 2008 after the global financial crisis quickly reversed. The contraction in oil has now turned to expansion with consumption up 4% y/y globally.

According to the latest reported information from the Energy Information Administration (EIA), EIA oil consumption is up 4% for 2010 from 2009. The data oil consumption data suggests the global economy has recovered from the financial crisis and is translated into higher oil demand.

Figure 1 Global Oil Demand

WE have seen economic contraction result into declines in oil demand before. Oil demand dropped in the 1979 to 1983 period with of a 10% decline per year. On a global basis, oil demand declined approximately 2% in 2009 from 2008, but is not up nearly 4% in 2010

In the US, oil demand dropped 5.7% in 2008 and 3.7% in 2009 with demand in 2010 increasing 3.8%. The oil consumption trend in the US suggests the decline in oil demand was cyclical as apposed to any structural changes in US consumer demand.

Figure 2 US China & India Oil Consumption

The real story is the growing demand for oil from China and India. According to data from The Centre for Global Energy Studies (CGES) , the demand for oil from China is up 100% from in the last ten years. China’s oil consumption rate has grown from 4.8 million barrels per day (MBPD) to 9.6 MBPD amounting to half of the total US consumption. In 2010 the growth in oil demand in China is up 17%.

The demand for oil in India is also increasing. Oil consumption in India is up 58% in the last ten years and up 8% in 2010.

Figure 3 China and India Oil Demand

The bottom line is that is demand for oil continues to increase and we expect further increase in oil prices.

The worst global economic recession in since the Great Depression seems to be abating. Given the severity of the financial crisis, it might serve to review what impact the recession has had on oil consumption. In addition, what impact did the decline in oil consumption have on atmospheric CO2 concentration levels?

Since 2006, global oil consumption declined by 1.1 million barrels per day (BPD) from 85.2 in 2006 to 84.0 in 2009. Oil consumption in the US declined 9% to 18.8 million from 20.7 million BPD in 2006. Europe experienced a decline of 7% over this same period with a drop of 16.5 million to 15.2 million BPD. However, over this same period, oil consumption in China and India increased 16% and 13%, respectively. This data was complied from the US Department of Energy Information Administration (EIA) and is displayed in the following charts.

To measure how significant the impact has been, the following charts provide some insights in evaluating how deteriorating world economies may have impacted oil consumption and secondly, whether reduced oil consumption has mitigated heightened CO2 levels.

Figure 1 Global Oil Consumption
Source: EIA

From Figure 1, the impact of the global financial crisis is depicted with the decline in global oil consumption. When a comparison is applied to oil consumption between the US China, and India, the relative drop in oil consumption is less discernable.

Figure 2 US, China, and India
Source: EIA

Figure 2 provides a summary of oil consumption of the US, China, and India. A measurable decline in oil consumption can be seen, but only in the US market.

Figure 3 China and India
Source: EIA

Figure 3 demonstrates the steady and pronounced growth in oil consumption for China and India. Despite the global financial crisis, oil consumption significantly expands in China and India due to secular growth from rapid industrialization in both countries. When measured with respect to the European market, China and India have grown from 15% of the oil consumption rate of Europe in 1980 to over 74% of the consumption level in 2010.

Figure 4 CO2 Levels
Source: NOAA

With the decline in global oil consumption, perhaps a positive benefit would be a fall in CO2 levels. The atmospheric CO2 readings in part per million (PPM) where taken from the National Oceanic and Atmospheric Administration (NOAA) from the Mauna Loa CO2 Levels monthly measurements. Figure 4 illustrates the average annual atmospheric CO2 concentration readings in Mauna Loa, Hawaii from 1980 through 2010.

The bottom line is even while global oil consumption declined during the recession, growth in China and India remained unabated and subsequently, CO2 concentrations in the atmosphere continue at elevated levels.

In memory of Jamie Kotula – loved by family, friends, teammates, and school.

Insulation is one of the most important factors in improving building energy efficiency. Heating, ventilation and cooling (HVAC) often accounts for more than half the energy expense of a building. Insulation helps to improve the energy efficiency of heating and cooling. Depending on the selected insulating material, the economic impact on heating costs can be quite dramatic.

To understand how insulation helps improve building heating and cooling, it’s helpful to review the dynamics of building heat loss as it applies to building materials and outside actual air temperatures.

To calculate the heating requirements for a building, the overall heat loss from a building can be derived as a function of the combined heat loss of transmission through the roof, walls, windows, doors, and floors, as well as heat loss caused by ventilation and air infiltration. In general, without getting too scientific, the heat loss from transmission through roof, walls, doors, and windows represents the largest impact and is primarily a function of the temperature difference between the inside and outside air and thermal conductance of he building material. For a more detailed review of building heat loss see Heat Loss.

The difference between inside and outside temperature plays a critical role in building heat loss. The first step is to understand heating and cooling requirements from weather data. Heating degree day (HDD) are a measure of energy demand required to heat a building. HDD is derived from the difference between the daily outside temperature observations and the ideal indoor air temperature, say 65 degrees Fahrenheit (18.30 Celsius). The heating requirements for a building in a specific location can be derived from the HDD data in conjunction with building factors such as insulation, windows, solar heat gain, and use. Air conditioning also has a similar metric and is defined as cooling degree day (CDD) and measures the amount of energy used to cool a building.

From the historical data on outside air temperature, an average heating and cooling degree day can be assigned to a specific region. To calculate degree days for both heating and cooling Daily Temperatures can be assessed by zip code to capture historical data on specific climate zones.

When it comes to selecting building materials and insulation, material suppliers often supply two measures – the R-value and C-value. A material’s R-value (thermal resistance) is the measure of its resistance to heat flow. The C-value (thermal conductance) is the reciprocal of thermal resistance and measures the ability of a piece of material to transfer heat per unit time or more specifically, specifies the rate of energy loss through a piece of material.

The US Department of Energy (DOE) has provided revised R-value recommendations based on climate zones. To understand the energy impact of selecting the right R-value insulation material for your building, an on-line heating calculator will help illustrate the heating requirements and associated energy costs for different insulating materials. Building heating requirements are often expressed in BTU (British Thermal Units) per cubic foot.

The Heater Shop BTU Calculator Heating Calculator provides some useful insight into managing energy expenses. The calculations were based on an average of 25 HDD for New York City.

Figure 1 illustrates the heating requirements as measured by BTU per square foot of building space for corresponding insulating materials across ceiling heights from 10 to 40 feet to capture cubic feet. As seen from Figure 1, the heating requirements show significant variance depending on insulation assumptions.

Figure 1 BTUs per Square Foot
Source: Heater Shop BTU Calculator

Taking the building heating requirements one-step further, different insulating assumptions (no insulation, average, and good) translate into wide dispersion in operating costs. The on-line heating calculator was used to estimate the building heating requirements based on the following assumptions: 10,000 square foot facility with ceiling height of 10 feet for 25 HDD for no-insulation average insulation, and good insulation. To derive fuel costs, the BTU per square foot for each insulation category was applied to a heating system operating for five heating months with approximately 1,400 hour of operations to coincide with a gas furnace at 90% efficiency and 20-minute on-cycle and 30-minute off-cycle. Gas pricing for heating are based on $17.00 per million BTU.

Figure 2 Heating Energy Cost
Source: Green Econometrics research

Figure 2 demonstrates that heating cost per square foot for good insulation saves approximately $2.90 per square foot in comparison to no-insulation at all. If we compare the heating costs savings to the cost of insulation, the payback period for insulation can be achieved in a year under most circumstances.

Figure 3 Insulation Cost
Source: Green Econometrics research

To assess the C-value and R-Value of various building materials, there are some useful charts available on the web. Insulation and Building Materials R-Values

The bottom line is that insulation is one of the most important building components materials to improve energy efficiency and lower utility costs.

With the oppressive heat and appalling humidity along the Eastern Seaboard, one considers the possibility of climate change and the impact of that greenhouse gases may have on our environment. Without developing statistical regression models to gleam any semblance of understating of carbon dioxide’s impact on climate change, let’s just look at some charts that illustrate the changes of CO2 levels though history.

While industry experts and scientist debate whether elevated CO2 levels have an impact on climate change, the scientific data taken from ice core samples strongly suggests CO2 levels have remained in a range of 180-to-299 parts per million (PPM) for the last four-hounded thousand years. Scientists have developed models to suggest that rising CO2 levels contributes to global warning which are subsequently followed by dramatic climate changes that lead to periods of rapid cooling – the ice ages.

Scientific theories suggest that rising global temperatures melts the Polar ice which allows substantial amounts of fresh water to enter the oceans. The fresh water disrupts the ocean currents that are responsible for establishing a nation’s climate. As oceans warm near the equator, the warmer water travels towards each of the Polar areas. The cooler water near the Polar areas sinks and travels towards the equator. These ocean currents allows for stable climates. The issue is that fresh water is less dense because it is not salty like seawater. Therefore, the fresh water does not sink like the cold salinated seawater thereby disrupting the normal flow of the ocean currents.

Figure 1 CO2 Ice Core Data – illustrates the level of CO2 over the last four-hounded thousand years. The Vostok Ice Core CO2 data was compiled by Laboratoire de Glaciologie et de Geophysique de l’Environnement.
Ice Core Data

Figure 1 CO2 Levels – Vostok Ice Core CO2
Source: Laboratoire de Glaciologie et de Geophysique de l’Environnement

If this Ice Core CO2 data is correct, then the current data on atmospheric CO2 levels is quite profound. CO2 data is complied by the National Oceanic and Atmospheric Administration NOAA at the Mauna Loa Observatory in Hawaii. The latest trend indicates CO2 levels for June 2010 are at a mean of 392 ppm versus 339 in June 1980 and 317 in 1960. Clearly these CO2 levels are elevated. The question is what is the impact on our environment.

Aside from the catastrophe in the Gulf of Mexico and the dire need to find an alternative to our dependence on oil, should we not accelerate our efforts to find an alternative energy solution and as a way to mitigate the impact of CO2 on our environment? Maybe investment into alternative energy could help solve multiple problems.

Figure 2 Mauna Loa CO2 Readings
Source: Source data published by the National Oceanic and Atmospheric Administration (NOAA)

The bottom line is that we need to consider the possibility that elevated CO2 levels in our atmosphere could potentially have a detrimental impact on our climate. In any event, limiting our dependence on fossil fuels, the main contributor to CO2, should be paramount. Let us not forget oil is supply-constrained – there are no readily available substitutes aside from electric vehicles, and without a strategy to embrace renewable energy, supply disruptions will have a painful impact on our economy, national security, and environment.

Even if silicon is actually the industry common semiconductor in the majority of electric products, including the solar cells that photovoltaic panels employ to convert sunshine into electricity, it is not really the most effective material readily available. For instance, the semiconductor gallium arsenide and related compound semiconductors offer practically two times the performance as silicon in solar units, however they are rarely utilized in utility-scale applications because of their high production value.

University. of Illinois. teachers J. Rogers and X. Li discovered lower-cost ways to produce thin films of gallium arsenide which also granted usefulness in the types of units they might be incorporated into.

If you can minimize substantially the cost of gallium arsenide and other compound semiconductors, then you could increase their variety of applications.

Typically, gallium arsenide is deposited in a single thin layer on a little wafer. Either the desired device is produced directly on the wafer, or the semiconductor-coated wafer is cut up into chips of the preferred dimension. The Illinois group chose to put in multiple levels of the material on a one wafer, making a layered, “pancake” stack of gallium arsenide thin films.

Figure 1 Thin Film Solar
Source: University of Illinois

If you increase ten levels in one growth, you only have to load the wafer once saving substantially on production costs. Current production processes may require ten separate growths loading and unloading with heat range ramp-up and ramp-down adds to time and costs. If you take into account what is necessary for each growth – the machine, the procedure, the time, the people – the overhead saving derived though the new innovative multi-layer approach, a substantial cost reduction is achieved.

Next the scientists independently peel off the levels and transport them. To complete this, the stacks alternate levels of aluminum arsenide with the gallium arsenide. Bathing the stacks in a solution of acid and an oxidizing agent dissolves the layers of aluminum arsenide, freeing the single thin sheets of gallium arsenide. A soft stamp-like device picks up the levels, one at a time from the top down, for shift to one other substrate – glass, plastic-type or silicon, based on the application. Next the wafer could be used again for an additional growth.

By doing this it’s possible to create considerably more material much more rapidly and much more cost effectively. This process could make mass quantities of material, as compared to simply the thin single-layer way in which it is usually grown.

Freeing the material from the wafer additionally starts the chance of flexible, thin-film electronics produced with gallium arsenide or many other high-speed semiconductors. To make products which can conform but still retain higher performance, which is considerable.

In a document published online May 20 in the magazine Nature the group explains its procedures and shows three types of units making use of gallium arsenide chips made in multilayer stacks: light products, high-speed transistors and solar cells. The creators additionally provide a comprehensive cost comparability.

Another benefit of the multilayer method is the release from area constraints, specifically important for photo voltaic cells. As the levels are removed from the stack, they could be laid out side-by-side on another substrate to create a significantly greater surface area, whereas the typical single-layer process confines area to the size of the wafer.

Figure 2 Solar Arsenium
Source: University of Illinois

For solar panels, you want large area coverage to catch as much sunshine as achievable. In an extreme situation we could grow adequate levels to have ten times the area of the traditional.

After that, the team programs to explore more potential product applications and additional semiconductor resources that might adapt to multilayer growth.

About the Source – Shannon Combs publishes articles for the residential solar power savings web log, her personal hobby weblog focused on recommendations to aid home owners to save energy with solar power.

After reviewing oil data from the Energy Information Administration (EIA), Global Petroleum Consumption , it may be helpful to put energy consumption into perspective. Most of us are quite familiar with alternative energy such as solar and wind, but the reality is, even if solar and wind could supply all of electric energy needs, the majority of our energy needs is still predicated on access to oil.

While industry experts and scientist debate whether more drilling will ameliorate the energy challenge we face, let’s look at a couple of data points. Figure 1 US Oil Field Oil Production and Drilling Rigs – illustrates that higher drilling activity as measured by Baker Hughes Rig Count data does not necessarily correlate to more oil production as measured by US Oil Field Production by the EIA. Higher drilling activity does not produce more oil.

Figure 1 US Oil Field Production and Drilling Rigs
Source: Energy Information Administration and Baker Hughes research

Despite the large investment in drilling rigs that more than doubled from 1,475 in 1974 to over 3,100 in 1982, US oil production remained relatively flat. Moreover, even the most recent drilling expansion activity that again more than doubled from 1,032 rigs in 2003 to over 2,300 rigs in 2009, resulted in relatively flat oil production, suggesting that on the margin unit oil production per drilling rig was declining. Perhaps even more disturbing is that the most recent drilling activity in the US was accomplished through extensive use of technology. Seismic imaging technology is being used to better locate oil deposits and horizontal drilling technologies are employed to more efficiently extract the oil, yet oil production still lags historic levels. While on the margin, newly announced offshore drilling could add to domestic oil production, extraction costs of oil will continue to rise adding to further oil price increases.

However, what is most profound is our dependence on oil for most of our energy needs similar to how wood was used for fuel construction material during the 1300’s and 1600’s. If we translate energy consumption into equivalent measuring units such as kilowatt-hours, we can compare and rank energy consumption. Although electricity is captured through consumption of several fuels most notably coal, a comparison of energy usage between oil and electric provides an interesting perspective.

Figure 2 Energy Perspective – provides a simple comparison of the consumption of oil and electricity measured in gigawatt-hours (one million kilowatt hours). A barrel of oil is equivalent to approximately 5.79 million BTUs or 1,699 KWH and the US consumed approximately 19.5 million barrels per day equating to 12 million gigawatt-hours a year. The US uses 4 million gigawatt-hours of electric energy annually. The critical point is that even if solar and wind supplied all of our electric energy needs, it would still only comprise 30% of our total energy needs. Therefore, without an energy strategy that facilitates migration towards a substitute for oil, particularly for transportation, we are missing the boat.

Figure 2 Energy Perspective
Source: Energy Information Administration and Green Econometrics research

It’s not all doom and gloom. Technologies are advancing, economies of scale are driving costs lower, and the economics for new approaches to transportation are improving. From hybrids and electric vehicles benefiting from advances lithium-ion batteries to hydrogen fuel cell vehicles getting 600 miles on a tank of fuel. These advanced technologies could mitigate our addiction to oil, however, without formulating an energy strategy directing investments towards optimizing the economics, energy efficiency, environment, and technology, we may miss the opportunity.

The bottom line is that oil is supply-constrained as there are no readily available substitutes, and therefore, without a means to rapidly expand production; supply disruptions could have a pernicious and painful impact on our economy, national security, and welfare.

Despite the global economic recession, preliminary data suggest oil demand remains rather resilient. According to the latest reported information from the Energy Information Administration (EIA), Global Petroleum Consumption is down one percent y/y in 2008 while China and India show increases of 4% and 5%, respectively. However, current data through September 2009, show oil demand fell quite precipitously in the US. Through September 2009, oil consumption is down over two million barrels per day form the 2007 annual average (an 11% decline). Most of the change in oil consumption is cyclical and with an economic recovery expected, oil demand should rebound and perhaps drive prices higher.

Figure 1 US Average Annual Oil Consumption

Historically, the US has seen this type of demand erosion before. From 1979 to 1983, oil demand in the US declined 28% with annualized rate of a 10% decline per year. Over this same period, oil prices actual rose despite the fall in demand. Oil prices by barrel (42 US gallons) rose from $3.60 in 1972 to $25.10 in 1979. Oil prices are up significantly in 2009. In January 2009, oil was traded at $33.07 a barrel and in January 2010, oil is trading at 2010 Oil prices $78.00 per barrel.

On a global basis, oil demand has only contracted by one percent in 2008, the latest data from the IEA. Despite the fall out in US oil demand, global markets driven from demand from China and India, has kept the global demand for oil relatively stable.

Figure 2 Global Oil Demand

The growing demand for oil from China and India increased their respective share of the global oil markets from 3% and 1%, respectively in 1980 to over 9% and 3% in 2008. At the same time, the US share of global oil consumption has declined from 27% in 1980 to under 23% in 2008. See Figure 3 China and India Oil Demand.

Figure 3 China and India Oil Demand

The bottom line is that as financial growth emerges across the globe, oil demand should increase commensurately and with oil process already at elevated levels, further prices increases are expected. – demand for oil will increase and so will oil prices.