The Other Inconvenient Truth
Al Gore has done a great job of popularising global warming. His crystal clear presentation of the scientific consensus has helped swing world opinion to the belief that governments and individuals have a moral imperative to address greenhouse gases.
But what about another inconvenient truth – oil depletion?
The fact that conventional crude oil production is in decline is now irrefutable. From production data from the International Energy Agency, global crude oil and condensate production has never exceeded 74.15 million barrels a day. This happened in May 2005.
Of the 98 oil producing countries in the world, 60 produce less and less oil each year. North Sea oil production in the UK, for instance, peaked in 1999.
OPEC, supposedly the “swing” producer that can quickly bring more oil supplies to the market, has not increased oil export volumes since July 2006. Official OPEC excuses vary, from blaming a lack of US refinery capacity to the supposed commercial threat of biofuels.
OPEC secretary general Abdalla El-Badri said moves to use biofuels would make his members consider cutting investment in new oil production, “pushing prices through the roof”. At the same time, OPEC promises a 15% increase in capacity later in the year, but this remains to be seen in the face of significant output declines in Saudi Arabia and Venezuela.
Governments around the world are reacting to oil depletion in different ways.
China is locking in supplies by buying entire oil and gas fields in countries around the world, including Australia, Burma, Ecuador, Indonesia, Iran, Yemen and Venezuela among others. An oil pipeline from Russia to China will reportedly be completed by next year. This will divert up to 30 million tonnes of oil from the rest of the world annually. Another pipeline is planned from Iran. In 2005, China even looked like it had won a bid in for Unocal in California, until this was vetoed by the US Congress.
The US is seeking to secure its oil supplies through the militarization of the Middle East and the privatisation of Iraqi oil fields. Claiming that this is the best way to rebuild Iraq’s infrastructure, the Bush administration is pushing to give control of the majority of Iraqi oil fields to foreign oil companies for thirty years. Amid widespread opposition, the Iraqi Parliament is expected to vote on the new law this October.
Here in New Zealand, despite having built cities and transportation systems that are highly dependent on oil, our Government seems oblivious. The recently published New Zealand Energy Strategy dismisses oil depletion in one sentence: “While there will be peak ‘cheap’ oil from conventional sources, the world has plentiful sources of fossil-based fuel.”
The strategy, which supposedly has a fifty year outlook, does not attempt to estimate the price of the more expensive oil. This is unsurprising as Treasury has had enough trouble predicting how much the ‘cheap’ oil will be. Three years ago Treasury predicted long term prices of $US35 a barrel. More recently it predicted $US60 a barrel. Oil prices are now over $US70 a barrel and climbing.
The New Zealand Government thinks that biofuels and technology will be able to fill the gap created by increasing demand and declining oil production.
But fuel from non-conventional sources is very expensive to produce. The New Zealand Energy Strategy mentions the huge reserves of the Canadian oil sands, but it doesn’t acknowledge that converting oil sands to usable oil requires huge amounts of natural gas and water. It takes 1,000 cubic feet of gas to generate enough steam to produce one barrel of bitumen. For Alberta to achieve 5 million barrels a day by 2030 would require 60 per cent of all gas available in western Canada each year. In fact so much energy is required to convert oil sands to usable oil that one company, Total, is considering using a nuclear power plant for the purpose.
Biofuels are also a false hope that will never be able to replace the 30 billion barrels of conventional oil that is consumed every year. A study by the International Energy Agency has found that replacing just 5 percent of European diesel consumption with biofuels would consume 20 percent of its crop land area.
But even if our Government did acknowledge oil depletion as a serious problem, what could it do? It would have to go way beyond the recent announcement to electrify the rail network. Instead of guaranteeing state highway road widening projects for the next five years, as it is currently doing, it would have to cancel uncommitted projects altogether.
It would have to find some way to force everyone to consume less oil, and hasten the transition to non-fossil fuel alternatives. It could do this by raising the excise duty on fuel by a significant amount and investing the proceeds in transport alternatives that were not fossil fuel dependent. Alternatively, it might consider some other form of rationing.
But with an election a little over a year away, unless it could convince the public that such drastic measures were necessary, it is extremely unlikely that the Government will announce policies that require people to alter their lifestyles which have been built around the consumption of cheap oil.
In the end, the status quo will prevail. Oil production will continue to decline year on year and demand will continue to rise. Petrol prices will rise, pushing up inflation and interest rates. There will be angry calls from the public to do something about “price gouging” oil companies. Politicians who don’t understand the root cause will lobby to lower excise tax until the price of petrol comes back to “normal” levels.
None of this will work, because oil depletion is a geological fact and is here to stay.
The signs are everywhere, especially on the forecourts of service stations around the country. Those signs are telling us to reduce our consumption of oil. But the signs are being ignored.
[ends]
Other resources:
The Last Oil Shock: http://www.lastoilshock.com/
Matt Simmons interview:
http://www.youtube.com/watch?v=4IwtAQzrfiw
Above chart taken from Oilwatch Monthly, produced by ASPO Netherlands:
http://www.peakoil.nl/wp-content/uploads/2007/06/oilwatch_monthly_june_2007.pdf