World trend in energy: an extension to DEA applied to energy and environment

3.1.1 Oil

An amount of proved oil reserve as of 2012 was 1 trillion and 687 billion barrels after excluding Canadian oil sands and Venezuela’s Orinoco Belt, as depicted in Fig. 3, where oil reserve of each nation is expressed by a part of the pie chart. Reserve-Production (RP) ratio calculated from the numbers is 52.9 years. The RP ratio has remained almost constant during the four decades after the 1980s due to an improvement in resource recovery technology as well as newly detected and confirmed oil resources, although oil resource depletion was a serious problem after the oil shocks in 1970s. In particular, recently, the RP ratio has rather been increasing because of an increase in heavy oil reserve in Venezuela and Canada.

As of 2012, a country that has the largest proved reserves was Venezuela, although Saudi Arabia had been in the first position for a long time before it became the second since 2010. The share of the proved reserve of Venezuela was 18% with 297.6 billion barrels, followed by 16% with 265.9 billion barrels of Saudi Arabia, and 10% with 174.3 billion barrels of Canada. They were followed by Iran (9%), Iraq (9%), Kuwait (6%) and United Arab Emirates (6%). Middle East countries accounted for approximately half of the total share of proved oil reserves in the world.

Figure 4 visually describes that world oil production, on the vertical axis, has increased from 53.66 to 86.75 million barrels per day from 1972 to 2013, so becoming approximately 1.6 times larger than the level of 1972 over the past four decades. Since 2000, European countries decreased an amount of oil production, while Asia-Pacific region, Africa and Latin America remained almost constant in their oil productions. Productions from Russia and Middle East steadily increased during the observed annual periods. As depicted in the figure, the world has a large amount of supply capability to satisfy the demand. Here, it is important to note that European nations decreased the amount of oil production, but Russia increased its production level. As a result, the total amount of European nations, including Russia, seemed almost constant as depicted in Fig. 4.

As depicted in Fig. 5, oil production in OPEC countries, on the vertical axis, decreased in the early 1980s after a large increase by the 1970s, but the amount of production gradually recovered in the late 1980s. Here, OPEC stands for Organization of the Petroleum Exporting Counties.

The decreasing oil production trend of OPEC nations in the early 1980s was because of both a production increase from non-OPEC countries, looking for high oil price, and lower oil consumption in the world. Consequently, the production share of OPEC countries decreased to a level of less than 30% in the middle of 1980s from more than 50% in the early 1970s. However, it increased again to the level of low 40% since the 2000s.

Oil production in non-OPEC countries, including former republics of the Soviet Union, the USA, Mexico, Canada, UK, Norway, China and Malaysia, has steadily grown from 17.88 to 49.93 million barrels per day from 1965 to 2013. In recent years, oil production in the USA has been receiving a major attention from the world, whose production has rapidly grown due to the “shale oil and gas revolution.” A problem of the shale oil production is that the production cost is high (e.g., $50 per barrel) due to technical difficulty by water cracking or super critical CO₂ so that many of US oil companies, depending upon the shale oil production, may have a financial problem because of the recent low oil price. See Sueyoshi and Goto (2017).

Figure 6 depicts that world oil consumption, on the vertical axis, has grown from 55.56 to 91.33 million barrels per day from 1973 to 2013. The annual average growth rate was 1.3%. In OECD countries, oil consumption increased during the late 1970s, from 41.32 million barrels per day in 1973, and then decreased in the beginning of 1980s because an economic recession occurred after the two oil shocks. Energy sources, such as nuclear and natural gas, were proposed as an alternative to oil, as well. Along with an expansion of economy after the late 1980s, the oil consumption slowly increased, but it stagnated since 2005, because of improved fuel efficiency of vehicles and rising oil price.

In contrast, non-OECD countries have exhibited a large amount of oil consumption in recent years. The increase was supported by their economic growths. For example, the consumption increased from 14.25 to 45.77 million barrels per day from 1973 to 2013, so indicating an increase by 3.0% as an average annual growth rate. As a result, the share of oil consumption in non-OECD counties increased from 26% in 1973 to 50% in 2013, whereas developed countries decreased their shares of consumption from 74 to 50% during the same annual periods.

World oil trading has steadily increased along with an increase in oil consumption. The volume of total oil trade has reached 55.67 million barrels per day in 2013. The 50% of the total volume of oil imports was occupied by the three large markets, including Japan, the USA, and European nations. Meanwhile, the Middle East occupied the largest share of the total volume of exports with 35% share in 2013. In addition, the 10% of the total volume of exports from Middle East (2.01 million barrels per day) was delivered to the USA, 11% (2.07 million barrels per day) to Europe and 76% (14.74 million barrels per day) to Asia-Pacific region. The evidence confirms that the Asia-Pacific region is the largest sales channel of oil from the Middle East. The regional oil dependency to Middle East has remained higher in Asian countries than that of Europe and the USA over the 1990s in order to support their rapid economic growths, in particular China and Japan. See Sueyoshi and Goto (2017).

Note that DEA applications in the oil industry and related areas include Azadeh et al. (2012, 2015), Barros and Assaf (2009) and Barros and Managi (2009).

3.1.2 Natural gas

As visually summarized in Fig. 7, the world gas reserve was 185.7 trillion m³ as of at the end of 2013. Middle East occupied the largest share of gas reserve with 43%, followed by Europe, Russia and the former republics of Soviet Union with 31% of the total share. Different from a high level of regional concentration of oil reserve in Middle East, natural gas has low regional concentration. Natural gas production was 3.4 trillion m³ in 2013. The average annual growth rate was 2.5% between 2003 and 2013, which was higher than the growth rate (1.1%) of oil during the same annual periods. Two large regions in natural gas production were North America with 27% share and Europe, Russia and the former republics of Soviet Union with 31% share in 2013.

Although the amount of natural gas reserve in Middle East was 43%, the production share was only 17%. This gap between reserve and production occurred because of two business rationales. One of the two rationales was that a very large amount of investment was necessary to transport natural gas through a huge pipeline network. The other rationale was that investment for natural gas production was relatively small because gas was usually produced with oil production. Oil price (per unit) was much higher than gas price. Thus, the gas pipeline network was not constructed from Middle East to large consumption areas in the world. The situation was different between Russia and Western Europe where a gas pipeline network has already existed between them. Most of natural gas produced in Middle East countries were consumed by themselves, and the remaining was liquefied and exported as Liquefied Natrual Gas (LNG).

Responding to increasing natural gas consumption in the world, major oil companies in Europe and the USA developed large natural gas plants. In particular, new LNG projects have been planned and prepared to increase an amount of LNG. In addition, new technologies such as Gas to Liquids (GTL) and Dimethyl Ether (DME) have been applied to natural gas production. Part of them has been already commercialized for gas production.

About 60% of the world natural gas consumption arises from North America, Europe, Russia and the former republics of the Soviet Union. There are two rationales for the large share in those regions. One of the two rationales is that they produce an abundant amount of natural gas and has promoted a usage of natural gas. The other rationale is that these areas have already well-developed pipeline infrastructures. A large amount of natural gas can be easily transported through their established huge infrastructure systems. See Sueyoshi and Goto (2017).

From 2003 to 2013, the world natural gas consumption increased by 2.6% as an average annual growth rate. A business rationale for the recent growth of natural gas consumption was because of a demand increase for electricity generation. The natural gas has lower environmental impacts than other fossil fuels. In addition, an economic advantage of natural gas for electricity generation has increased through a technological progress by gas turbine combined cycle generation. As of 2013, the natural gas accounted for 30, 32 and 22% in total primary energy consumption in the USA, OECD nations in Europe, and Japan, respectively. See Sueyoshi and Goto (2017).

Pricing system of natural gas varies from a region to another region. For example, the price of natural gas (i.e., LNG) exported to Japan is linked to Japan Crude Cocktail (JCC), which makes an average crude oil price imported by Japan. The pricing formula is designed to reduce a degree of variation in natural gas price. Meanwhile, the gas price in the USA and North-West Europe such as UK is determined by relationship between demand and supply in each gas market. In the other countries in continental Europe, natural gas price is linked to those of alternative fuels such as petroleum products or crude oil.

3.1.3 Coal

Confirmed coal resources were 891.5 billion tons at the end of 2013, most of which were reserved in the USA (26.6%), Russia (17.6%) and China (12.8%), respectively. Bituminous coal amounted to 403.2 billion tons. Subbituminous coal amounted to 488.3 billion tons. The advantage of coal is lesser regional concentration than oil and natural gas. Coal reserve is widely distributed over the world. Besides, according to the BP statistics in 2014, the RP ratio was 113 years, thus being considerably longer than the other energy resources such as oil.

World coal production in 2013 was estimated as 7.896 billion tons. Among the total coal production in 2013, the sum of China (47%) with the USA (13%) indicated more than half of the total sum, followed by Australia, Indonesia, India, and Russia, whose production sum became 84% of the total coal production.

China has been increasing coal production since 2001 in order to cope with rapidly expanding domestic energy consumption that is mainly used for electricity generation. In the USA, coal has long been positioned as an important energy resource, followed by oil. The coal-fired power generation had more than 50% share of electricity generation until early 2000s. However, because of increased social consciousness on various air pollution problems and increased natural gas generation, the number of coal-fired power plants has gradually decreased so that the share of electricity generation became approximately 43% by 2013 in the USA. Another rationale for explaining the share decrease was because of a large price decrease in natural gas, caused by the recent development of shale gas. The decrease in coal-fired power generation reduced the consumption and production of coal.

The total coal consumption in the world was estimated at 7.697 billion tons in 2012, implying a growth by 2.3% from the previous year. Two largest coal consumption countries were China (48%) and the USA (11%), whose sum accounted for approximately 60% of the world consumption in 2012.

The total coal export in the world was estimated at 1.255 billion tons in 2012. The largest exporter of coal was Indonesia that occupied 30.5% of the world total. The second was Australia with a share of 24.0%, followed by Russia (10.7%). China was the second largest exporter of coal in 2003. However, the amount of Chinese export drastically decreased since 2004 because of its rapid expansion in domestic coal consumption. In recent years, Asian countries such as China and India increased coal consumption for electricity generation at many coal-fired power plants to satisfy an increase in electricity consumption. In 2012, the total sum of coal imports by Asian countries, including Japan, China, Korea, India and Taiwan, was estimated to be 0.822 billion tons, or 64.4% of the world total coal import. In particular, China’s import of coal exceeded 0.1 billion tons in 2009 and became a pure importer of coal as a result of a drastic increase in coal consumption.

Note that DEA applications in this area include Budeba et al. (2015), Byrnes et al. (1988), Fang et al. (2009) and Kulshreshtha and Parikh (2002).

3.1.4 Non-fossil energy

3.1.4.1 Nuclear

After the world’s first nuclear power generation began its operation in 1951 in the USA, many other countries have actively promoted the development of nuclear power generation. However, from the late 1980s, the growth of a nuclear power generation capacity became steady over the world, as visually summarized in Fig. 8. The figure depicts the nuclear generation capacity in the three groups (i.e., Europe, Asia and America) of OECD nations.

Many nations have paid serious attention to the nuclear power generation both to alleviate global competition for fossil-fuel energy resources and to tackle the global warming and climate change. As a result, a total nuclear power generation capacity may have increased before 2004 and stayed almost same after the period, as depicted on the vertical axis of Fig. 8.

Figure 9 visually describes the amount of nuclear power generation in the three groups of OECD nations. The USA and Europe have constructed only a limited number of new nuclear power plants. However, during the observed annual periods, the amount of nuclear power generation indicated an increasing trend because of its enhanced generation capacity and improved utilization factor. For example, the utilization factor was approximately 90% in the USA as a result of efforts for high operational efficiency since the accident of Three Mile Island. Meanwhile, after the disaster of Fukushima Daiichi nuclear power plant in March 11, 2011, the amount of nuclear power generation decreased in Japan and Asian regions, but it has not largely changed in the other regions.

Uranium resource is widely distributed in the world. As of 2012, Canada, Australia and Kazakhstan ranked high in terms of an amount of uranium reserve and production. The uranium price in a spot market fluctuated with nuclear power plant constructions. The price was also influenced by other difficulties such as oil shocks and accidents of nuclear power plants. In 2007, the price once rose to $136/lbU₃O₈ and it remained above $60/lbU₃O₈ until March 2011 before the disaster of Fukushima Daiichi’s nuclear power plant. Here, lbU₃O₈ stands for a unit mass of triuranium octoxide. After the disaster, the uranium price slightly dropped and it has remained at a relatively stable level because of a tight condition on supply and demand as well as an influence of speculation money.

Note that a DEA application in this area can be found in Sueyoshi and Goto (2015b) and Sueyoshi and Goto (2017).

3.1.4.2 Renewable energy

Solar photovoltaic power generation: According to the statistics of International Energy Agency, Photovoltaic Power Systems Program (IEA PVPS: 2014), the total installed capacity of solar Photovoltaic (PV) power generation was 125 GW in 2013 over IEA countries.

Figure 10 visually describes the amount of cumulative installed PV power from 1999 to 2013. Although Japan was the largest installer of the PV capacity until 2004, the installation grew faster in Germany and Spain because the two nations adopted Feed-in-Tariff (FIT) to support expensive PV cost. See Sueyoshi and Goto (2014b) about their positive and negative concerns on the FIT.

Wind power generation: The world installed capacity of wind power generation rapidly increased in recent years, reaching at a level of 369.55 GW in 2014. Figure 11 depicts the global cumulative installed wind power generation capacity between 1997 and 2014. As of 2015, the new installation of wind power generation capacity was 30,753 MW (48.5%) in China and was 8598 (13.5%) in the USA, whose accumulation became 62.0% in the world. In addition, offshore wind power generation has been rapidly expanding, recently reaching 12.1 GW in cumulative capacity by 2015. In particular, UK focuses on the offshore wind power generation, accounting for 41.8% of the accumulated installed capacity in the world in 2015.

Biomass: It supplied approximately 10% of the world’s primary energy as of 2012. In particular, the biomass accounts for 4.8% of the primary energy supply in OECD countries on average, while it is 13.6% in non-OECD countries. The OECD countries, such as the USA and European nations, have been promoting the biomass generation through their energy policies in a context of countermeasure against the global warming and climate change.

To enhance the biomass usage, many countries have been developing various energy policies that attempt to reduce an amount of oil dependency in a transportation sector and an amount of GHG emissions. Meanwhile, there are social concerns on a rapid increase on the biomass usage. For example, a use of biomass seriously influences a steep rise in food prices, and it invites cutting rain forests to convert them to farm lands. Thus, to reduce such impacts originated from the biomass usage upon natural environment and food markets, international conferences are open to discuss how to construct global sustainability standards on biomass. In addition, research has been promoted to produce biofuel from non-food materials such as straw, timber and algae. International major oil companies have been recently focusing on new research and development on the next-generation biofuel.

Hydro: The capacity of hydro-power generation amounted to 1010 GW, which was approximately 20% of total generation capacity in the world as of 2012. Countries with large hydro-power generation capacities include China, the USA, Canada and Japan.

Geothermal: Installed capacity of geothermal power generation amounted to 11.7 GW as of 2013. Countries with large geothermal power generation included the USA, Philippine and Indonesia. They had a generation capacity of approximately 3.4, 1.9 and 1.3 GW, respectively.

Note that DEA applications in this area can be found in Lee et al. (2012, 2015), Liu et al. (2015), Longo et al. (2015), Madlener et al. (2009), Menegaki (2013), Peng and Cui (2016), Racz and Vestergaard (2016), Sueyoshi and Goto (2014b) and Wang and Sueyoshi (2017).

5.2.1 Formulations for fossil energy

To describe the formulations for performance assessment related to fossil and non-fossil fuels, let us consider \(X \in R_{ + }^{m}\) as a controllable input vector with m components, \(Y \in R_{ + }^{z}\) as an uncontrollable input vector with z components, \(G \in R_{ + }^{s}\) as a desirable output vector with s components and \(B \in R_{ + }^{h}\) as an undesirable output vector with h components. In these column vectors, the subscript (j) is used to stand for the jth DMU, whose vector components are strictly positive.

To discuss formulations for this type of performance assessment, we need to separate outputs into desirable and undesirable categories, as mentioned previously, because this type of energy produces CO₂ and other types of GHG emissions. The importance of the fossil energy is that it can serve as a base load.

The difference between the two disposability concepts is that the production technology under natural disposability, or \(P_{v}^{N} (X),\) has \(X \ge \sum\nolimits_{j = 1}^{n} {X_{j} \lambda_{j} }\) in Eq. (1), implying that a DMU can attain an efficiency frontier by reducing a directional vector of inputs. Meanwhile, that of the managerial disposability, or \(P_{v}^{M} (X),\) has \(X \le \sum\nolimits_{j = 1}^{n} {X_{j} \lambda_{j} }\) in Eq. (1), implying that a DMU, where it stands for decision-making unit, can attain a status of an efficiency frontier by increasing a directional vector of inputs. Meanwhile, a common feature of the two disposability concepts is that both have \(G \le \sum\nolimits_{j = 1}^{n} {G_{j} \lambda_{j} }\) and \(B \ge \sum\nolimits_{j = 1}^{n} {B_{j} \lambda_{j} }\) in their axiomatic expressions. These conditions intuitively appeal to us because an efficiency frontier for desirable outputs should locate above or on all observations on DMUs, while that of undesirable outputs should locate below or on these observations. See Sueyoshi and Goto (2012a, d, 2014a, c, 2015a, b, 2017) on a detailed description on the two disposability concepts.

Here, it is necessary to discuss that an input vector is usually assumed to project toward a decreasing direction in the previous research efforts on DEA as discussed in Sect. 5.1. The assumption, widely believed by many authors in the previous studies, is often inconsistent with the reality related to environmental protection. For example, many governments and firms consider an increase in input resources to yield an annual “growth” of a desirable output(s). Thus, the conventional framework of DEA is not consistent with the economic concept, or “economic growth,” because the previous DEA studies have implicitly assumed the minimization of total production cost. The cost concept may be acceptable for performance analysis under “economic recession” or “stagnation,” but not in many cases where industrial planning and corporate strategy are based upon their economic growths. Thus, it is easily imagined that DEA applied to energy and environment, as discussed here, is conceptually and practically different from a conventional use of DEA. The cost concept for guiding public and private entities in their strategy developments is average cost (under constant RTS) or marginal cost (under variable RTS), not the total cost, anymore. Furthermore, an opportunity cost, originated from business risk due to industrial pollutions and the other types of various environmental problems (e.g., the nuclear power plant accident at Fukushima Daiichi in Japan), has a major role in modern corporate governance issues. Such cost concepts for current policy making and modern business are implicitly incorporated in formulating the two disposability concepts, in particular in managerial disposability.

5.2.2 For non-fossil energy

Non-fossil energy sources do not produce GHGs for power generation. Thus, policy makers and individuals, who are interested in green energy, pay serious attention to the development of non-fossil energy sources such as solar photovoltaic and wind power stations. Except nuclear generation, the other non-fossil energy sources depend upon a time and a weather condition. The nuclear generation does not depend upon such an uncontrollable condition (e.g., weather), so being able to serve as a base load. However, it is widely known that the generation produces a nuclear waste.

It is important to note that Model (6) is formulated under natural disposability, so being part of a conventional DEA framework. However, when we consider renewable energies such as solar photovoltaic generation, for example, the larger input (e.g., the degree of temperature and the number of sunshine days) produces the better performance. As a result, we should formulate it under managerial disposability. In the case, Model (6) needs to change the slacks \(( - d_{i}^{x - } )\) to \(+ d_{i}^{x - } .\) and such is a necessary requirement to attain the status of managerial disposability. However, as discussed by Wang and Sueyoshi (2017), if we change such an input by the reciprocal of an original data, then Model (6) can be expressed by the natural disposability as it is. See Wang and Sueyoshi (2017) for a detailed description on the data treatment.