/ 30 October 2009

Where has all the oil gone?

It’s 30 years since the film Mad Max was made, launching the career of Mel Gibson.

The film made a big splash at the time for its terrifying view of a world without oil, where gangs of grisly-looking people roam deserts in a post-apocalyptic world, killing one another to get their hands on the few drops of petrol that some have managed to produce in makeshift refineries.

Complete fiction, of course. Or was it years ahead of its time?

Last year oil prices spiked at $150 a barrel — 10 times the level of a decade earlier. At petrol stations in some European countries people started to drive off without paying and drivers had to be banned from filling cars before they paid.

Imagine what would happen if prices rose to, say, $300 a barrel. Or higher. Not only would it become too expensive to drive unless absolutely necessary, but food would become prohibitively expensive to transport, goods from China would be too expensive to ship and plastics would be unaffordable.

The cold turkey after more than a century of cheap oil would be painful. But for developing countries it would be fatal — many could not afford energy.

Oil has fallen sharply in price, but only because the world tumbled into its worst recession in decades, clobbering oil demand. But prices, having tumbled below $40 earlier this year, went back above $81 recently, their highest in a year.

There are many possible reasons, such as the continuing fall in the value of the dollar, in which oil is priced, or the piling in of speculators who think a recovery will push up oil prices.

Or you could reach for the old chestnut of supply and demand. Demand has fallen a lot, sure, but maybe supply is not what it used to be. Indeed, take a graph of the oil price in the past few decades, chop off last year’s spike and this year’s plunge, and you can see that oil prices have been on a steady upward trend for a decade.

The excellent new report, Heads in the Sand, released last week by the Global Witness — the group that brought “blood diamonds” to world attention — looked in depth at what is happening to oil supply. And it is frightening.

The author, Simon Taylor, spent two years analysing the forecasts issued late last year by the Paris-based International Energy Agency (IEA), which admitted for the first time that world oil supplies were about to start to dwindle just as demand from countries such as India and China is rapidly accelerating.

The IEA had previously asserted that oil production would not peak before 2030 at the earliest. Now it thinks we might be very close to that point.

The IEA figures showed there could be a supply-demand gap of seven million barrels a day by 2015 — about 8% of the expected world demand by then, 91-million barrels a day. The gap will grow as demand keeps growing. Taylor warns that world supply levelled off between 2005 and 2008, so where the new oil will come from is unclear.

Taylor takes issue with the IEA’s recommendation that the world spends $450-billion (yes, billion) a year looking for new oilfields that may or may not be there and that render its forecasts overoptimistic. He thinks governments should admit they have ignored the problem and don’t have a plan B.

They certainly need one. Britain’s oil production, for example, has fallen by half in the past decade and the IEA expects production from all other existing oilfields to fall by that amount between now and 2020. It warns that the world needs to find an extra 64-million barrels a day of capacity by 2030 — six times Saudi Arabia’s current production.

That seems unlikely given that new oil discoveries peaked in 1965. In 1984 world production overtook new discoveries for the first time.

Taylor also points out that the announcements of “big” discoveries by the oil majors in the past few years amount to less than two million barrels a day — if those fields contain as much oil as the companies reckon. But that is a long way short of replacing the 3,7-million barrels a day the world loses every year.

Many people think Canadian tar sands will save us. Well, even the Canadians don’t think they can produce more than three million barrels a day from the tar sands of northern Alberta.

This is nowhere near the scale of the problem, quite apart from the environmental degradation caused by tar-sand extraction.

Taylor said the four key issues — declining output, declining discoveries, increasing demand and insufficient projects in the pipeline — have been apparent for at least a decade.

The British government has done no work on future oil supplies, has no plan and barely acknowledges the problem.

Taylor says governments must move at lightning pace to reduce energy demand through greater efficiency and go hell for leather for renewable energy sources, although he knows it is probably too late to avoid a huge energy crunch within the next decade or so.

The annual $450-billion the IEA talks of would buy you a lot of wind and solar power if it were not being spent chasing ever-harder-to-find oil and gas.

Britain’s renewables “revolution”, which the government loves to talk of, will not deliver the goods. This month the department of energy and climate change closed consultation on the “feed-in tariff” proposal it has been forced to introduce through backbench MPs. Such tariffs have kick-started renewables in many countries, especially Germany, by offering consumers a healthy price for electricity they feed into the grid.

Officials want the tariff to offer returns on investment of 5% to 8%. That’s not enough. The Germans get about 10%.

MP Alan Simpson, appointed by the climate change secretary Ed Miliband to oversee the tariff’s introduction, wanted 12% or more. But he has been thwarted by officials. “It’s designed to fail,” he says.

And people who have already invested and got one of the handful of grants available in recent years are likely to be worse off under the proposal.

This means early adopters of these technologies, who put their hand in their pockets to the tune of thousands of pounds, will be penalised.

Renewables beat fossil fuels in race for cash
Green energy overtook fossil fuels in attracting investment for power generation for the first time last year, according to figures released in June by the United Nations.

Wind, solar and other clean technologies attracted $140-billion in investment compared with $110-billion for gas and coal for electrical power generation, with more than a third of the green cash destined for Europe.

The biggest growth for renewable investment came from China, India and other developing countries, which are fast catching up with the West in switching away from fossil fuels to improve energy security and tackle climate change.

“There have been many milestones reached in recent years, but this report suggests renewable energy has now reached a tipping point where it is as important — if not more important — in the global energy mix than fossil fuels,” said Achim Steiner, executive director of the UN’s environment programme.

It was very encouraging that a variety of new renewable sectors were attracting capital, and that countries such as Kenya and Angola were entering the field, he said.

The UN still believes that $750-billion needs to be spent worldwide between 2009 and 2011.

The current year started ominously, with a 53% slump in first-quarter renewables investment to $13,3-billion.

According to a report, Global Trends in Sustainable Energy, which was drawn up for the UN by the New Energy Finance (NEF) consultancy in London, more than $155-billion of new money was invested in clean energy companies and projects, even though capital raised on public stock markets plunged by 51% to $11,4-billion and green firms saw share prices slump more than 60% in 2008.

Wind, where the United States is now the global leader, attracted the highest new worldwide investment, $51,8-billion, followed by solar at $33,5-billion.

The former represented annual growth of only 1%, whereas the latter was up by nearly 50% year on year.

Biofuels were the next most popular investment, winning $16,9-billion, but down 9% on 2007, as the sector was hit by overcapacity issues in the US and by political opposition, with ethanol being blamed for rising food prices.

Europe is still the main centre for investment in green power, with $50-billion being pumped into projects across the continent, an increase of 2% on last year, whereas the figure for the US was $30-billion, down 8%.

But although overall spending in the West dipped nearly 2%, there was a 27% rise to $36,6-billion in developing countries led by China, which pumped in $15,6-billion, mostly in wind and biomass plants.

China more than doubled its installed wind-turbine capacity to 11GW, and Indian wind investment was up 17% to $2,6-billion, as its overall clean-tech spending rose to $4,1-billion in 2008, 12% up on 2007 levels.

Several new green deals — government reflationary packages designed to kick-start economies and boost action to counter climate change — have been laid out by ministers around the world.

The slump in global renewable investment during the first quarter of 2009 alarmed the UN and NEF.

Michael Liebreich, chief executive of NEF, said the second quarter had revealed signs of recovery, which indicated this year could end up with investment at the upper end of a $95-billion to $115-billion range, but still a quarter down on 2008 at the least.

About $3-billion of new money had been raised through initial public offerings or secondary issues on the stock markets in the second quarter, compared with none in the first three months of this year.

The New Energy Index of clean-tech stocks, which had slumped from a 450 high to 134 by March, had bounced back to 230 by June. —