energy economics

JOBLIN+ASSOCIATES, INC.JOBLIN+ASSOCIATES, INC.

ENERGY ECONOMICSENERGY ECONOMICS

Presented byPresented by

Bob JoblinBob Joblin

15 May 200615 May 2006


““The energy crisis has not yet The energy crisis has not yet overwhelmed us, but it will if we do overwhelmed us, but it will if we do

not act quickly...”not act quickly...”

“ “It is a problem we will not solve in It is a problem we will not solve in the next few years, and it is likely to the next few years, and it is likely to get progressively worse... We simply get progressively worse... We simply must balance our demand for energy must balance our demand for energy with our rapidly shrinking resources.”with our rapidly shrinking resources.”

-- President Jimmy Carter (April 18, 1977)-- President Jimmy Carter (April 18, 1977)


ENERGY COMPETITIONENERGY COMPETITION

“ “Simply put, the era of easy access to Simply put, the era of easy access to energy is over. In part, this is because energy is over. In part, this is because we are experiencing the convergence of we are experiencing the convergence of geological difficulty with geopolitical geological difficulty with geopolitical instability... [W]e are seeing the instability... [W]e are seeing the beginnings of a bidding war for Mideast beginnings of a bidding war for Mideast supplies between East and West." supplies between East and West."

-- David J. O'Reilly Chairman and CEO, ChevronTexaco Corporation -- David J. O'Reilly Chairman and CEO, ChevronTexaco Corporation

(February 15, 2005)(February 15, 2005)


ENERGY FACTS OF LIFEENERGY FACTS OF LIFE

The U.S. has less than 5% of the The U.S. has less than 5% of the world’s population but uses about 25% world’s population but uses about 25% of all energy produced.of all energy produced.

China and India are now competing China and India are now competing with the U.S. for every barrel of oil, with the U.S. for every barrel of oil, every b.t.u of natural gas and every every b.t.u of natural gas and every clump of coal.clump of coal.

There is a finite supply of fossil fuels.There is a finite supply of fossil fuels. Therefore, prices will continue to go up. Therefore, prices will continue to go up.


HOW HIGH IS UP?HOW HIGH IS UP?

Natural gas prices for November Natural gas prices for November 2005 delivery closed at $14.196 per 2005 delivery closed at $14.196 per thousand cubic feet… Natural gas thousand cubic feet… Natural gas now costs more than now costs more than three timesthree times its its average of $4.70 from 2000 to 2005 average of $4.70 from 2000 to 2005 and and seven timesseven times the 1990’s the 1990’s average price of $2 a thousand cubic average price of $2 a thousand cubic feet.feet.

Source: AP (September 30, 2005)Source: AP (September 30, 2005)


NATURAL GAS PRICES IN ARNATURAL GAS PRICES IN AR

(Dollars per Thousand Cubic Feet)(Dollars per Thousand Cubic Feet) 20002000 20012001 20022002 20032003 20042004 20052005

Residential 7.43 10.03 8.95 10.33 11.73 13.59Residential 7.43 10.03 8.95 10.33 11.73 13.59

Commercial 5.41 7.80 7.05 7.67 8.86 10.2Commercial 5.41 7.80 7.05 7.67 8.86 10.2

Industrial 5.23 6.38 5.64 6.94 8.03 9.42Industrial 5.23 6.38 5.64 6.94 8.03 9.42

Source: Energy Information Agency, DOESource: Energy Information Agency, DOE


ENERGY FUTURESENERGY FUTURES

Oil analyst John Kilduff of Fimat USA in Oil analyst John Kilduff of Fimat USA in New York said there would be a New York said there would be a "painful runup" in gasoline prices as "painful runup" in gasoline prices as summer approaches, and he said oil summer approaches, and he said oil prices could rise as high as $80 by the prices could rise as high as $80 by the end of June. end of June.

Source: AP (April 19, 2006)Source: AP (April 19, 2006)


ENERGY SPECULATIONENERGY SPECULATION

Oil could reach a “super-spike” of $105 Oil could reach a “super-spike” of $105 a barrel. a barrel. -- Goldman Sachs (March 31, 2005)-- Goldman Sachs (March 31, 2005)

““Expect oil at $150 in a decade …no Expect oil at $150 in a decade …no one has discovered a great oilfield in one has discovered a great oilfield in over 35 years.” -- over 35 years.” -- Jim Rogers, Quantum Fund (April Jim Rogers, Quantum Fund (April

28, 2005)28, 2005) ““Crude oil prices could touch $380 a Crude oil prices could touch $380 a

barrel by 2015.” barrel by 2015.” -- Patrick Artus and Moncef Kaabi, -- Patrick Artus and Moncef Kaabi, French investment bank Ixis-CIB (April 21, 2005)French investment bank Ixis-CIB (April 21, 2005)


ENERGY PRICINGENERGY PRICING

“ “When gasoline prices peaked at $3.06 on When gasoline prices peaked at $3.06 on Sept. 5, it was partly because the nation's Sept. 5, it was partly because the nation's refineries were getting about 99 cents on refineries were getting about 99 cents on each gallon sold. That was more than three each gallon sold. That was more than three times what they earned a year earlier when times what they earned a year earlier when gas was $1.87.gas was $1.87.

“ “Oil companies produce a barrel of oil for Oil companies produce a barrel of oil for about $20. When the selling price goes about $20. When the selling price goes above that, the increase is almost all profit.”above that, the increase is almost all profit.”

Source: The Washington Post (September 27, 2005)Source: The Washington Post (September 27, 2005)


ENERGY REALITYENERGY REALITY

Natural gas drilling is at an all-time high, Natural gas drilling is at an all-time high, but demand continues to outpace but demand continues to outpace supply. supply.

Oil prices are at or near record highs, Oil prices are at or near record highs, and refineries are operating at capacity.and refineries are operating at capacity.

Increasing foreign demand for coal puts Increasing foreign demand for coal puts pressure on its pricing. pressure on its pricing.


WHAT TO DO?WHAT TO DO?

Lower energy costs.Lower energy costs. Use savings to pay for improvements.Use savings to pay for improvements. Select capital improvements that will Select capital improvements that will

lower energy consumption lower energy consumption andand on-going on-going operational & maintenance costs (not operational & maintenance costs (not necessarily the cheapest front-end cost, necessarily the cheapest front-end cost, which will almost always increases which will almost always increases operational & maintenance costs).operational & maintenance costs).


VARIOUS WAYSVARIOUS WAYS

CashCash Bond issuesBond issues LeasesLeases Performance ContractsPerformance Contracts B.O.O.M (Build. Own. Operate. B.O.O.M (Build. Own. Operate.

Maintain.)Maintain.)


THE HVAC FACTORTHE HVAC FACTOR

40% of all energy consumed in the 40% of all energy consumed in the U.S. is used to heat and cool U.S. is used to heat and cool buildings.buildings.

All buildings over ten years old are All buildings over ten years old are heated and cooled with inefficient heated and cooled with inefficient equipment (by today’s standards).equipment (by today’s standards).


Garrett Office BuildingsGarrett Office BuildingsOklahoma City, OKOklahoma City, OK


VAV (VAV (variable air volume)variable air volume) BuildingBuilding15,000 Sq. Ft.15,000 Sq. Ft.


Geothermal BuildingGeothermal Building20,000 Sq. Ft.20,000 Sq. Ft.


Month Gas Mcf Elec kWh Gas Mcf Elec kWhJan-00 36.2 12,400 0.0 9,920 Feb-00 21.0 14,720 0.0 10,880 Mar-00 6.9 13,600 0.0 9,960 Apr-00 4.3 15,760 0.0 10,120 May-00 3.5 17,920 0.0 11,600 Jun-00 4.2 18,560 0.0 12,400 Jul-00 3.2 21,280 0.0 13,120 Aug-00 3.2 23,520 0.0 14,480 Sep-00 3.2 18,720 0.0 11,120 Oct-00 11.2 16,080 0.0 9,840 Nov-00 21.9 12,720 0.0 10,360 Dec-00 69.4 13,600 0.0 13,600 Total 188.2 198,880 0.0 137,400

$ Cost 1,882 $ 17,899 $ $ 10,992 $

$/ft^2

VAV 15,000 ft^2 Geothermal 20,000 ft^2

1.32 0.55

Garrett Office BuildingsGarrett Office Buildings2000 Energy Consumption2000 Energy Consumption


SAMPLE ENERGY SAMPLE ENERGY SAVINGSSAVINGS

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

2000 2005 2010 2015 2020 2025 2030 2035

Cooling Savings

Heating Savings


SAMPLE CASH FLOW SAMPLE CASH FLOW SAVINGSSAVINGS

-$50,000

$0

$50,000

$100,000

$150,000

$200,000

2000 2005 2010 2015 2020 2025 2030 2035


POSTSCRIPTPOSTSCRIPT

““AT PRESENT CONSUMPTION RATES, AT PRESENT CONSUMPTION RATES, THE WORLD’S KNOWN RESERVES OF THE WORLD’S KNOWN RESERVES OF CRUDE OIL WILL BE EXHAUSTED IN A CRUDE OIL WILL BE EXHAUSTED IN A

LITTLE MORE THAN 40 YEARS.”LITTLE MORE THAN 40 YEARS.”-- Congressman Roscoe Bartlett (R-MD)-- Congressman Roscoe Bartlett (R-MD)

Member, House Science Committee – Subcommittee on Member, House Science Committee – Subcommittee on EnergyEnergy

(March 14, 2005)(March 14, 2005)


The Industry AgreesThe Industry Agrees

Exxon Mobil President Rex Tillerson Exxon Mobil President Rex Tillerson says the world “may still have” more says the world “may still have” more than 3 Trillion barrels of oil available than 3 Trillion barrels of oil available from from allall known sources known sources..

The world now uses about 29 Billion The world now uses about 29 Billion barrels a year.barrels a year.

Oil consumption is growing at 3.4%/yr.Oil consumption is growing at 3.4%/yr. That’s works out to a 45-year supply.That’s works out to a 45-year supply.


WHAT’S NEXT?WHAT’S NEXT?

"I'd put my money on the sun and "I'd put my money on the sun and solar energy. What a source of solar energy. What a source of power! I hope we don't have to wait power! I hope we don't have to wait 'til oil and coal run out before we 'til oil and coal run out before we tackle that." - Thomas Edisontackle that." - Thomas Edison

(The sunlight that intersects the earth in 24 hours (The sunlight that intersects the earth in 24 hours contains more energy than all the conventional contains more energy than all the conventional oil that has been or ever will be extracted from oil that has been or ever will be extracted from the earth.)the earth.)


JOBLIN+ASSOCIATESJOBLIN+ASSOCIATES

Bob JoblinBob Joblin

501.868.6400501.868.6400

[email protected]@sbcglobal.net

Little Rock, ArkansasLittle Rock, Arkansas

energy economics

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