Energy is the topic of our times. Energy issues have an effect on every part of this planet and on every person inhabiting it. We need energy to run our cars, heat and cool our homes, use our computers, illuminate houses and streets and to do lots of other things we either cannot forgo or do not want to. We depend on energy. Consequently, rising energy prices hurt us. Most of the energy we use derives from fossil fuels. When we burn fossil fuels, we emit carbon dioxide gas into the atmosphere. This drives global warming. Climate change will have a devastating effect on many regions of the world. We are already seeing extreme weather events. Sea levels are rising and therefore threaten entire countries. The Maldives are at risk of being inundated in this century. Therefore, the new president of the island nations seeks new homeland for his people. He plans to set up a fund to buy new land on the shores of the Indian ocean.
On Wednesday, the International Energy Agency (IEA), an intergovernmental organization founded by the OECD (Organisation for Economic Co-operation and Development, its 30 members are almost only developed countries) in the aftermath of the 1973 oil crisis, released its World Energy Outlook 2008, an annual report containing energy analysis and projections for the medium and long term. The IEA which has a reputation for being rather optimistic and understating the scarcity of oil reserves sounded the alarm bells that oil’s days are numbered. Between the lines, they acknowledge that Peak Oil is not so far anymore, though they prefer to refer to Peak Oil as “plateau”.
Here’s the opening paragraph: (from the executive summary on http://www.worldenergyoutlook.org/docs/weo2008/WEO2008_es_english.pdf)
“The world’s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable – environmentally, economically, socially. But that can – and must – be altered; there’s still time to change the road we’re on. It is not an exaggeration to claim that the future of human prosperity depends on how successfully we tackle the two central energy challenges facing us today: securing the supply of reliable and affordable energy; and effecting a rapid transformation to a low-carbon, efficient and environmentally benign system of energy supply. What is needed is nothing short of an energy revolution. This World Energy Outlook demonstrates how that might be achieved through decisive policy action and at what cost. It also describes the consequences of failure. “
Their figures from an analysis of more than 800 oil fields around the world shows that demand will severely outstrip supply in the future. The report highlights the urgency to take action as the growth outlook for global oil production was reduced compared with earlier WEOs.
The IEA projects that even if demand for oil remained the same as today, we would need 4 new Saudi Arabias by 2030 to meet demand.
Though the report says “global oil production is not expected to peak before 2030, production of conventional oil […] is projected to level off towards the end of the projection period”, this means that we are extremely likely to see an oil-supply crunch by 2030 or even earlier unless we discover a few gigantic new oil fields and/or reduce our consumption decisively. The IEA expects that $26 trillion need to be invested by 2030, and most of that money is needed just to maintain the current production capacity. The aging energy infrastructure is extremely vulnerable. If nothing is done about that, it will keep rusting away. Besides, the IEA anticipates a massive contribution to future oil output from Canada’s tar sands and Venezuela’s huge reserves of extra heavy oil which cannot yet be processed economically. Sure, Canada’s reserves are gigantic, but to get high quality crude oil out of these sands, it takes lots of energy first what makes oil from Canada quite expensive. Another point is that with oil prices having plunged to below $60 a barrel for delivery in December, reduced investments in these tar sands will delay the grand-scale availability of new oil resources. The oil output estimates in the WEO are also based on the widespread use of enhanced oil recovery (EOR) techniques. This means that either gas or chemicals are injected into the ground in order to get more oil out of the wells. Finally, a considerable share of future oil production should come from yet undiscovered fields. In other words, if anything does not work out perfectly, the crunch will happen much earlier than 2030. The IEA’s assessment of the future development of global oil supplies is not as honest as it should be. With the reliance on sky-high investments, sensational discoveries and expensive new drilling techniques, the IEA estimate is a best case scenario.
More realistic are the figures on output decline. Output from oil fields that already reached their peak decline at an average rate of 6.7% annually. Just imagine what the impact will be when the Ghawar oil field in Saudi Arabia, the world’s largest known oil field reaches its peak! Ghawar is currently producing about 6.25% of the global output.
The problem is that the output decline at existing fields nullifies the contribution from all new discoveries. Unfortunately, most of the new fields are very small in comparison with the few gigantic fields that have been in production for more than 40 years and small fields tend to be declining much faster than bigger ones, once they reach their peak. Moreover, it takes much more energy to extract oil from fields recently discovered, as they’re often offshore or deeper in the ground. Thus, oil from new fields is inevitably much more costly.
You can take a look at the oil production chart on page six from the press conference: http://www.iea.org/Textbase/speech/2008/Birol_WEO2008_PressConf.pdf
Obviously, the point in time when currently producing oil fields reach their peak is right about now. To maintain current levels, oil from fields yet in development and non-conventional oil will have to fill the gap.
Massive investment is needed to stabilize supplies at the current level, but given the impact of the financial crisis, many investments could be delayed, with severe consequences:
“In fact, the immediate risk to supply is not one of a lack of global reserves, but rather a lack of investment where it is needed.” As soon as the economy recovers, oil prices could go up to record levels again. Shortages could occur unless the adequate investment of more than $1 trillion per year is made. Another threat is that renewable energy projects are also delayed due to falling energy prices.
Now, let’s take a closer look at the IEA’s “reference scenario”:
They expect a 1.6% per year demand growth between 2006 and 2030. This would mean a 45% increase at the end of the projection period. Half of that increase will come from China and India. The Middle East also is likely to have a strong demand growth. The bottom line is that 87% of the increased demand will come from non-OECD countries. Back in 2005, non-OECD countries overtook OECD countries in terms of oil consumption.
As most emerging nations need any source of energy available, coal’s share in global energy generation will also increase from 26% in 2006 to 29% in 2030. This is exactly how we can help climate change to feel comfortable and stay.
I find it quite surprising that despite the recent renaissance of carbon-free and inexpensive nuclear power, the share of nuclear power of the total global energy consumption will be lower in 2030 than it is today.
To no one’s surprise, renewable energies are anticipated to grow faster than any other source of energy – at an average rate of 7.2% annually until 2030. Solar, wind, geothermal and marine (tide and wave energy) are on the rise. I assume that the IEA experts didn’t consider the enormous progress that is being made in the solar industry and in other alternative energy areas. Thin-film solar panels, more efficient technology and mass-production will result in falling prices and a quicker spread of solar technology. Energy storage systems will also help to drive up solar energy generation much more quickly and cheaper than the energy experts from the IEA probably expect.
In the IEA scenario, most of the oil production increase should come from OPEC countries. as non-OPEC production is “at plateau” – I’d call it peak as it will decline fast, just as reported. By 2030, more than 50% of the global oil output will be controlled by the OPEC cartel. The oil fields which are declining the slowest are also located in the Middle East while those fields whose output is dropping fastest are in the North Sea. This should be a reminder to the Western world to make efforts to get away from oil as soon as possible – without spending too much attention at how long we could afford lazing and doing nothing. The Middle East and the OPEC are set to become even more influential in the future and will be able to dictate prices. After all, alternative energy means money spent at home and jobs being created at home.
Natural gas is no powerful alternative either – as the reports wants to make us believe – because more than 56% of global gas reserves are in the hands of Russia, Iran and Qatar. They’re already considering to start a gas-OPEC to make sure they’ll be making a killing.
IEA figures suggest that proven oil reserves are between 1.2 and 1.3 trillion barrels (including 0.2 trillion barrels of non-conventional oil). These so-called “proven reserves” more than doubled since 1980 and in most OPEC countries, oil reserves are a state-secret and some experts say that the official reserves are vastly exaggerated. Based on the numbers they obtained, the energy experts from the International Energy Agency say that the world has “enough [oil] to supply the world […] for over 40 years at current rates of consumption.” Even if this is true, it doesn’t mean that oil will be affordable for so long. The IEA chief economist Fatih Birol expects highly volatile prices and hefty fluctuations. Their price assumption for 2030 is $200 per barrel in nominal terms. They also say that the inevitable price hike will have “serious adverse implications for the economies of consumer countries.” Another adverse trend is that the largest share of oil reserves is in the hands of national government-controlled and inefficient oil companies who lack the skills and equipment necessary.
Sure, but who says that the United States, Japan and Europe will be that dumb and keep consuming expensive, unsustainable oil from a cartel that is looking forward to terrorize the Western economies in conflict situations?
As can be seen on the “fact sheet”, three quarters of the demand growth will come from the transport sector. Despite an improving fuel economy, more and more gasoline is consumed in cars since the global car fleet is rising from 650 million vehicles in 2005 to about 1400 million vehicles in 2030. The IEA says that they do not expect a shift away from conventionally -fuelled vehicles before 2030. That’s bullshit! A fundamentally wrong estimate. Gasoline prices will inevitably rise globally soon. Drivers in emerging countries are struggling to afford driving anyway. Without hefty government subsidies, the number of drivers in these countries were much lower.
In 2007, Iran and Russia both subsidized energy with more than $50 billion to artificially keep domestic energy prices down. China, Saudi Arabia, India and Venezuela also subsidize gasoline with enormous amounts of money for the same reasons. Altogether, more than $310 billion were spent in the 20 largest non-OECD countries in 2007. These subsidies must be removed to prevent artificially high oil demand and emissions. (take a look at China, India and other countries subsidizing gasoline to keep domestic prices down are forced to embrace electric cars)
The World Energy Outlook 2008 also calls for urgent action to combat climate change. The IEA projects a 45% rise in CO2 emissions given the global climate policy of inaction. Co-ordinated action is urgently needed. At the Copenhagen conference in 2009 where a post-Kyoto framework is to be established, emerging nations must be included as 97% of the increase in carbon dioxide emissions will come from non-OECD countries. That’s also the reason why the 2007 G8 summit in Heiligendamm, Germany, remained effectless. The G8 nations cannot bring about major changes anymore unless they’re pushing in the same direction with China and India.
The IEA suggests a “decarbonisation of the world energy sources” in order to prevent a catastrophe and irreversible damage to the global climate. “Governments have to put in place financial incentives and regulatory frameworks that support both energy security and climate-policy goals in an integrated way.”
As a conclusion, the last paragraph of the executive summary:
“The energy future will be very different.
For all the uncertainties highlighted in this report, we can be certain that the energy world will look a lot different in 2030 than it does today. The world energy system will be transformed, but not necessarily in the way we would like to see…[W]hile market imbalances could temporarily cause prices to fall back, it is becoming increasingly apparent that the era of cheap oil is over…It is within the power of all governments, of producing and consuming countries alike, acting alone or together, to steer the world towards a cleaner, cleverer and more competitive energy system. Time is running out and the time to act is now.”
IEA WEO 2008 fact sheet IEA WEO 2008 executive summary IEA WEO 2008 press conference
Check out the following posts for more information:
OPEC’s plan to cut oil output to keep prices from falling emphasizes the urgency for the western world to get independent from the cartel
Our prosperity hangs by a thread as it is based on a limited resource – oil