Peak projections
Like climate change, the possibility of peak oil poses an uncomfortable challenge to citizens and governments alike in the 21st century. ‘Peak oil’ is the term first used by M K Hubbert in the 1950s to describe the point in time at which the worldwide production of crude oil extraction will be maximised. But while it is inevitable that production will peak at some point, it is uncertain when that point will be reached.
Peak oil concerns exploded during the rapid escalation of oil prices prior to the 2007 global financial crisis (GFC), and resurfaced recently when oil prices appeared to resume their upward trend. These concerns have been underscored by official bodies such as the International Energy Agency (IEA), warning of a possible ‘supply crunch’ brought about by a lack of new investment following the GFC.
World oil field discoveries (as distinct from the amount of oil extracted) peaked in the 1960s at around 55 Gigabarrels (Gb) a year, but fewer than 10 Gb a year have been discovered between 2002 and 2007. Current demand is 31 Gb a year. According to official estimates, around 40 to 75 years of supply remains at existing usage rates but much fewer if demand continues to grow. Although usage has more or less stabilised in developed western countries, the rapid economic growth of populous nations such as China and India is creating significant upward pressure on the demand for oil products.
There is not much disagreement about the concept of peak oil, but there is fierce debate about how near the world is to the peak and what, if anything, should be done about it. In fact, a substantial amount of oil remains in the earth and peak oil doomsayers have often been proved wrong in the past. But this is not a reason for complacency.
Oil is a precious resource; there is a finite supply in the earth and there is no reason at all to use it wastefully. Moreover, as the IEA has argued, the world is currently embarked on a fossil-fuel future that is patently unsustainable from an environmental perspective, quite apart from the fact that rates of extraction will exhaust fossil-fuel resources far too quickly, thus ignoring the needs of future generations.
World economies are built on oil. The question is what will happen when it runs out, or merely becomes difficult and very expensive to procure. The probable answer is not an acceptable one.
As occurred in response to the OPEC oil shock of the 1970s, skyrocketing oil prices are likely to result in severe disruption to economies, with central banks raising interest rates to slow runaway inflation, people out of work, famine, hunger and serious civil unrest. It is a scenario that governments and their constituents should be attempting to avoid at all costs, but so far very little has been done to prepare for or contend with the eventuality.
Perhaps the first step is for governments to recognise that there is a looming potential problem and to begin to plan for it. Not only will this cushion the impact if it does occur, but many of the solutions to peak oil are also advantageous in the fight against climate change, thereby doubling the benefit of remedial measures.
So what are the policy options available to the Australian government to assist in addressing the contingencies that are already confronting the country as a result of increasing oil prices and a rising population?
From an international perspective, the important immediate steps are for countries to stop subsidising liquid fuels, and for the US to cease its profligate consumption, a result of very low fuel taxes.
But countries like Australia, while small in terms of their contribution to demand, also have a role to play, and fuel and road-pricing regimes need to be altered to encourage fuel efficiency. Moreover the sustainability of the current low-density urban model, itself a reflection of the US situation, needs to be re-evaluated.
Finally, some of the alternatives to conventional oil are becoming economic at current prices, and might offer a way around the impending predicament occasioned by the finite supply of the resource. But it must be recognised that they involve extremely high and possibly unsustainable costs in terms of greenhouse gas emissions, for example the extraction of oil from tar sands or its processing from coal and natural gas.
This poses a potential dilemma for policy, but the answer is actually quite simple – a price on carbon. A carbon tax, rather than a trading system, is the optimal method for pricing carbon, but ultimately the method is not as important as the existence of a price that is relatively uniform across countries and is sufficiently high to materially affect production and consumption decisions, particularly the decision as to whether or not to pursue the development of emission-intensive alternatives to oil.
In the medium term, the circumstances created by a price on carbon will likely expand the use of natural gas, both for power generation and transport; in the long term, it is likely to expand the role of electric vehicles and non-fossil forms of power generation.
As with climate change, the most cost-effective response to the inevitable but uncertain timing of peak oil is to invest in early adaptation. It will be impossible to redesign cities, switch the vehicle fleet to new forms of fuel and transform the location decisions of producers in a timely manner after the oil supply has peaked.
Early investment in adaptation measures will pay high dividends in the future, whether in response to peak oil, climate change or simply better city design and reduced congestion on roads.
The peak-oil issue is sufficiently important for regular official re-assessments of the situation to be designed and implemented. If mitigation actions are not planned in advance, the alternative may be for a future where periodic price spikes and shortages affect the nation’s ability to manage the economic cycle by causing the re-emergence of ‘stop-start’ economic conditions such as those experienced in the 1970s.
Dr David Ingles is a research fellow at The Australia Institute, a Canberra-based think tank. This article is an edited summary of his new paper, Running on empty? The peak oil debate.
Comments on this article
Peak uranium - response
Hugh Saddington
Your points are well made, and you raise some important questions. But on all counts, you are wrong. The pessimist life-cycle studies usually reference back to the Storm van Leeuwen study
http://www.stormsmith.nl/
which has been thoroughly debunked.
For a good review of the life-cycle energy analysis of nuclear, try
http://www.isa.org.usyd.edu.au/publications/documents/ISA_Nuclear_Report.pdf
We have enormous quantities of untapped uranium, and thorium if we need, followed by fast reactors which derive 100 times more energy than current generation reactors. Nuclear fuel is so cheap that there is currently little incentive to either develop more uranium deposits or build fast reactors. For more information, try:
http://bravenewclimate.com/2010/07/28/nuclear-power-yes-please-for-cc/
http://www.world-nuclear.org/info/inf75.htm
Oil will never "run out" we just won't be able to afford to burn
David’s opening comments are absolutely correct: peak oil is the end of cheap oil, not the end of oil. A shift from a supply market to a demand market (which happens when we reach peak oil) not only pushes prices up, it also makes these very volatile; first high prices will kill the economy and thus demand will collapse, then prices reduce and the demand goes up again and so on. It is a widely held belief that the laws of supply and demand will lead to stable markets, this is mathematically not true, in the real world this can be the case but does not have to be the case, as can be seen in all commodity market that are demand driven.
All publications that I have read (since I came across Hubbert's work in 2001) indicate firstly that oil production will peak, and secondly that it is peaking now. Hubbert predicted world peak oil for about the year 2000, which is pretty good estimation considering that he predicted that sometime in the early 60's. Luckily we will have oil for many decades to come; the question is only how we will put it to good use to create sustainable economy (world!). In regards to the last statement from Bill I see little value in a level playing field if that only brings us to the brink of collapse (or the peak of oil) quicker, and increases the risks of climate change.
Momentum
There are numerous inventions, technologies and alternative energy sources in the pipeline to address peak oil should it occur during the lifetime of anyone reading this comment.
Should oil demand exceed supply, these ideas will gain momentum on a level playing field unlike the field proposed by carbon trading or taxation, where government subsidizes selected players.
A carbon tax is not an answer to anything except for the non-productive and/or inefficient elements of society to extract wealth from the productive elements of society.
It would need to be a BIG elephant
A typical electric car travelling 50 km a day would need 10kWh per day to keep it recharged. Allowing for cloudy days you would need at least 4 kW of PV panels on the roof just to keep one electric car going. If you have two cars that would be 8 kW. Very few homes have sufficient north facing roof space for 8 kW of panels so solar PV for domestic recharging isn't really very practical.
Back to the grid .....
Peak Uranium
Nuclear energy is not the answer, simply because there is ~59 years of resources left at current global consumption rates*. If the wordls starts using uranium at US consumption rates, then supplies would last ~19 years. This ignores in the increasing energy cost required to purify lowe grade uranium into a form suitable for nuclear fission reactors.
All this suggests taht we will invest far more energy into extracting, purifying and build reactors that we will get back. The energy involved in these processes would be largely coal based electricity with carbon emissions.
*Source: New Scientist, 26 May 2007, "Earth Audit"
Peak Oil - Nuclear alternative
Australia can very significantly reduce its consumption of fossil fuels by commencing an aggressive program of nuclear energy. Clean, lasts essentially for ever, safe.
Peak Projections
Ok - so what Dr Inglis is saying is that peak oil will make prices skyrocket which will pose problems for economies - so the logical thing to do is to put a tax on it now to push the price up that will therefore protect the world from the price going up. Am I imissing something ????
Taming the Elephant
Martin said "Electric cars. [..] The elephant is - where is the electricity going to come from?"
Easy. In our case it will come from the sun. We have made significant cuts to our daily electricity use, are gradually increasing our PV capacity, and already exporting back into the grid 75% of the electricity we generate. If and when we need to buy a new car, it will be an electric one.
I don't see a problem. Energy saving is easy. Renewable energy generation is easy. Return on investent is excellent. Anyone can start future-proofing their energy situation here and now. No need to go from the hidden costs of carbon to the hidden costs of nuclear.
The Elephant in the Room
The motor vehicle industry seems to be voting with its developments. Electric cars. Almost ever major manufacturer has either released one or is about to.
The elephant is - where is the electricity going to come from? A hefty price on carbon will discourage production from coal and gas but a large fleet of electric vehicles could add 50% to the electricity demand. It seems unlikely that renewable energy can meet that challenge.
Better start seriously considering that nuclear option. Peak oil might just be the catalyst.
Peak oil and interest rates
David said "skyrocketing oil prices are likely to result in severe disruption to economies, with central banks raising interest rates to slow runaway inflation,..."
Are the central banks, and the economists that advise them, really going to do that? It seems to completely lack common sense to compound a problem of rising fuel prices, and thus rising oil-derived and fuel-dependent products, by increasing non-oil dependent costs such as housing and investment in infrastructure (including infrastructure that may avoid or reduce oil consumption).
Do we need some better economic theories? Or just some better guidlines to be followed by the central banks?
This is a question we can address now, even if we don't know the timing of the actual onset of the price escalation.
Peak oil
As oil supplies become depleted and an end of cheap oil is in sight, we should value oil for its various uses other than powering inefficient motor vehicles. For instance, in petro-chemicals and fuel for aviation until alternatives can be found.
Peak timing & depletion timing
David said;
According to official estimates, around 40 to 75 years of supply remains at existing usage rates
Even the IEA has abandoned those dates and is now suggesting that there could be supply problems by 2015 or sooner.
Opinion is firming that peak crude occurred in May 2005 and peak crude + all liquids in July 2008 just before crude reached US$147 a barrel. That was shortly followed by the financial crash, (coincidense ?) in October when the US's cost of oil reached 4% of US GDP.
The real question is depletion, when will it exceed one or two percent ? That is when problems will start. The betting is on 2015 in most estimates.
Oil will never "run out" we just won't be able to afford to burn it.