Wednesday, May 30, 2007

Economic Dependence on Oil Growth will be a Disaster.

Supplies of oil are limited and finite. This at least is the view of a geologist. An economist, however, does not often see things in the same way and it is generally assumed that the relative forces of supply and demand for resources depend only on their price. Hiccups in oil supply, for example during the actions of the OPEC group of nations in the early 1970's, were indeed economically driven, and the price of crude oil was artificially hiked-up; it had nothing to do per se with how much of it was left in the ground. Now, we can expect to see oil prices rise inexorably, as the sweet, light crude production has peaked and the remaining heavy, sour (high sulphur) oil will prove more difficult to process and refine into gasoline. Indeed, it is more likely that diesel will be used increasingly as a fuel, necessitating the adaptation of vehicles to diesel engines in which to burn it, rather than the spark-ignition engines in which gasoline (petrol) is burned.

It is an apparent contradiction, however, that even though it is known that oil supplies will run-short and become more expensive, economies of nations are planned as though production will continue to grow, and that the oil that underpins economic expansion will not become outrageously expensive. George Monbiot has written a salient article in the Guardian (Tuesday May 29th), in which he refers to a UK government white paper on "energy" which speaks about new taxes, new markets, new incentives and new research, almost creating the impression that all is in hand and under control. However, in another part of the document is the bald fact that "66% of UK oil demand is derived from demand for transport fuels which is expected to increase modestly over the medium term." This rather begs the question that if it is necessary to implement all those "new" measures, how could our use of fuel increase?

There are plans to build another 2,500 miles of new trunk-roads and to double our airline capacity by 2030 (and more veiled allusions to triple the number of people flying around our skies by 2050). This surely is complete nonsense, as conventional oil supplies will be reduced to a trickle by then, so what are we going to put into all these planes by way of fuel, and in any case what about cutting our CO2 emissions in order to stall global warming, which is another pledge we hear from the government. The truth seems to be pretty clear. Inexorable growth is not an option. If we could extract crude oil from the ground maintaining current rates, we would have run out of this conventional resource in about 30 years (i.e. 2037), since there are about one trillion (1,000 billion) barrels of it left and we get through just over 30 billion barrels of it each year as a world sum total.

Clearly oil-production is not such a straightforward matter, and as a well depletes it gets harder to pump the oil out of it, so production will fall inevitably according to the "bell-shaped" Hubbert Peak type curve. Indeed, the harder you squeeze a well, using enhanced recovery methods, the quicker it becomes exhausted and so the fall in crude oil production is likely to be rather a steep plummet. The most probable outcome is that within 10 - 15 years the amount of world-crude coming onto the market will be significantly attenuated, maybe to just a half of current levels. How adequately that deficit might be augmented using unconventional oil (from coal-liquefaction, tar-sands, oil-shales etc.) is anybody's guess, but obviously the cost of the commodity overall must soar.

It is debatable just how much oil can be drawn out from the Earth, and estimates as to how much there is down there and what proportion of it can be brought-up vary considerably. I imagine we simply won't know until the fateful day comes and we may be either pleasantly or sorely surprised. Either way, now is the time to plan for the "Oil Dearth" Era. The stuff is going to run-short; even if it won't quite run-out for decades, the present jamboree of oil will prove a short-lived benefit. How beneficial is debatable too, since if the world does hit a wall of rapid depletion we can kiss our lifestyle goodbye. We might then rue the dawn of its discovery, realising we would have been better-off without it. However, what is necessary is a class-act. We all need to think about how we might survive in a new-age when we can no longer rely on plentiful, cheap oil. If I am right that we may have 10 - 15 years of significant conventional oil production (probably augmented by natural gas liquids, condensates, tar-sands and coal-liquefaction), that may be enough time to implementing a strategy of gearing-down in terms of our energy use.

Inexorable growth is not an option, but relocalising economies, and using less might be. However, applying the brakes (simply through a sudden loss of energy) to mighty and ambitiously expanding economies like China (expected to match the US in oil consumption by 2020), India and the US itself, would prove an extremely painful jolt to the relatively smooth ride we have come to take for granted.

Related Reading.
George Monbiot, "Our blind faith in oil growth could bring the economy crashing down." The Guardian, Tuesday May 29, 2006.

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