# Presentation: 681805

## Oil Markets—Transition or Continuing Evolution: The Emissions Prediction and Policy Analysis model with disaggregation of oil production and refining sectors (EPPA-ROIL)

**Presented by John Reilly,**
** ****Massachusetts Institute for Technology, USA**
**Based on work by Frederic Choumert, Total (France) & Visting Researcher (MIT)**

- Modeling the Oil Transition
- A DOE/EPA Workshop on the Economic and Environmental Implications of Global Energy Transitions
- Resources for the Future
- 1616 P Street NW, Washington DC
- April 20-21, 2006

## Speaker Guidance:  Background on Model

- What is the main purpose of your model?
- What is its geographical scope (U.S., world regions, world)?
- What is its sectoral detail (e.g., is the transportation sector represented?)
- What future time period does it address?  In what time increments?
- What is its principal methodology (e.g., optimization, CGE, simulation, econometric, etc.)?
- What environmental impacts are addressed?
- With respect to a transition from conventional oil to other energy resources to supply energy for transportation and other uses, what important questions does your model address?
- Resource depletion and oil supply costs?
- Technological change and the costs and availability of alternative energy sources (oil sands, oil shale, CTL, GTL, biofuel, etc.)?
- Relationships (e.g., timing) between investments in energy resource development and supplies?
- Effects of choice of resources and conversion processes on greenhouse gas emissions and other environmental impacts?
- Effects of a transition from conventional oil on world oil markets and energy security?
- Impacts of a transition from conventional oil on economic growth and other economic variables?
- Have you used your model to analyze a potential transition from conventional oil to other energy resources?  If so, what insights about environmental, economic and energy security impacts did it yield?
- What do you see as the strengths and shortcomings of your modeling methodology for addressing the question of the oil transition and energy transitions in general?

## EPPA Model-Overview

- A recursive dynamic Computable General Equilibrium (CGE) model of the world economy with international trade in goods among regions.
- Developed to produce scenarios of GHG emissions and evaluate the cost of reducing them.
- Time horizon of 2100, solved at 5 year time steps
- Many policy studies focus mainly on the nearer term—e.g. to 2010-2020.
- Part of MIT Integrated Global Systems Model (IGSM)
- An Earth System Model of Intermediate Complexity, modeling atmosphere, ocean, and terrestrial processes that represent fate of emissions (e.g ocean and land carbon cycle, atmospheric chemistry, feedback processes from wetlands, polar regions).
- Recent focus on feedbacks of ‘non-market’ environmental impacts.
- Agriculture productivity shocks from climate, tropospheric ozone, CO2.
- Health effects (morbidity, mortality) of air pollution
- In these cases driven by output from IGSM (or exogenous air pollution levels).
- Work ongoing to dynamically link EPPA-IGSM to model feedbacks—e.g. climate-ozone effects on vegetation, crop productivity, economy, land use, and thus effects on emissions/uptake of CO2.

## Slide 4

## In general.. EPPA well-suited to many questions.

- CGE well-suited to economic issues: investment, growth, macroeconomy.
- Air pollution emissions and multiple greenhouse gases.
- Enhanced versions of EPPA to examine economic impact of environmental change.
- Traditional weakness of CGE fit exclusively to I-O and NIPA data—lack of technology detail, rooted in technology as it existed in the base year, or extrapolated trends of capital-labor-energy-materials input capture tech. ∆.
- In EPPA, extensive development of supplemental tables on physical flows, explicit treatment of advanced technological options provides ability to evaluate against/parameterize with engineering data.
- Global model with regional and technology detail is able to integrate sector/technology specific issues with macroeconomic interactions and feedbacks—effects on economic growth, interaction with taxes.
- 5-year time step means model not well-suited to business cycle issues
- putty clay capital structure of EPPA advantage for 5-10 year forecasts.
- experiments with version where shocks can cause unemployment though not in standard version
- Recursive dynamic structure vs forward-looking, endogenous technical change...

##  EPPA-ROIL—Further detail on oil markets

- Down stream
- Demand for multiple refined oil products
- Midstream
- Upgrading processes to respond to changing product demand and changing crude “slate.”
- Bio-ethanol, bio-diesel
- Upstream
- Tar sands, shale oil upgrading to “crude equivalent”

## EPPA model v.4 with disaggregated refined products

- Crude Oil
- Energy
- Capital
- Labor
- Other inputs

- Refining Sector
- Production Block

- Emissions

**LPG**
**Gasoline**
**Diesel**
**Heavy Fuel Oil**
**Petroleum Coke**
**Other ****(naptha, lubricants, bitumen, etc.)**

- 

**EPPA model v.4 with disaggregated refined products**

## By-products

## Changing of crude slate: « conventional » crudes

- Towards heavier / sourer « conventional » crudes globally
- Towards extra-light crudes: gas-related liquids from natural gas production or LNG projects (mostly in Africa and Middle East)
-  Represented as exogenous change in product fractions after « conventional » refining, e.g.:

|  | Exogenous share of “conventional” refinery output | 1997 | 2050 |
| --- | --- | --- | --- |
| Heavy Fuel | US | 4% | 7% |
|  | EUR | 14% | 22% |
| Refinery Gases* | AFR | 25% | 34% |
|  | MES | 28% | 40% |

***includes LPG, fuel gas, ethane but also natural gas liquids, condensates**

**Notes:**
« Conventional » in EPPA encompasses extra-light crudes.
Only tar sands/extra-heavy oil and shale are separate categories in the model.

## Changing of crude slate: tar sands / extra-heavy oils

- Towards non-conventional heavy crudes
-  Production of bitumen (tar sands in Canada, extra-heavy oils in
- Venezuela) disaggregrated from « conventional » oil

**Need for upgrading capacity**

- Field upgraders to process bitumen into synthetic crudes (medium or light grade)
- And/or
- Complex refineries to process heavier crudes and upgrade residues
-  Residue upgrading technology (heavy fuel oil  transportation fuels)
-  Bitumen upgrading technology (bitumen  synthetic crude)

**Notes:**
« Conventional » in EPPA encompasses extra-light crudes.
Only tar sands/extra-heavy oil and shale are separate categories in the model.

## Liquids primary production, reference case:

**Liquids primary production, reference case:**

- 2050 level of 350 EJ = 170 MMBd, about twice today’s level

## Liquids production, Kyoto Forever policy case:

**Liquids production, Kyoto Forever policy case:**

- 	Kyoto forever in Kyoto countries, US emissions frozen at 2005 level

- 2050 level of 325 EJ = 157 MMBd, about an 8% reduction from case without climate policy, a bit more biofuels

**Notes:**
Upgrading = conversion and deep conversion, all processes that reduce heavy fuel oil production

## Upgrading capacity additions, reference case:

**Upgrading capacity additions, reference case:**

- 80 EJ = 39 MMBd

## Upgrading capacity additions, policy case:

**Upgrading capacity additions, policy case:**

- 80 EJ = 39 MMBd

## Refining production (excluding upgrading):

**Refining production (excluding upgrading):**

## International CO2 trading price (USA trades with Kyoto Parties, so common world price)

**Notes:**
Upgrading = conversion and deep conversion, all processes that reduce heavy fuel oil production

## Leakage in refining sector:

**Notes:**
Upgrading = conversion and deep conversion, all processes that reduce heavy fuel oil production

## Leakage in upgrading:

**Leakage in upgrading:**

**Notes:**
Upgrading = conversion and deep conversion, all processes that reduce heavy fuel oil production

## Summary

- EPPA combines advantages of consistent CGE framework with technology detail and is able to investigate many issues regarding oil transition
- Oil transition, economic effects are embedded in any model runs.
- EPPA-ROIL designed to examine in detail issues affecting the oil industry.
- Increasing demand for gasoline-diesel even as changes in crude oil slate is pushing toward either heavy fractions (heavy conventional oil, bitumens, eventually shale) or in Middle East/Africa very light fractions as a bi-product of LNG production.
- Relatively weak demand for heavy oil fractions
- Implication is a huge need for upgrading capacity to turn increasing output of heavy fractions into gasoline-diesel, using very light fractions as input.
- Location of this upgrading capacity likely to depend on CO2 policy and could be a major channel of leakage.