Welcome to the ODAC Newsletter, a weekly roundup from the Oil Depletion Analysis Centre, the UK registered charity dedicated to raising awareness of peak oil.
In its monthly report the IEA this week revised its oil demand projection for 2010 upwards by 70,000 barrels/day to reflect growing demand in Asia. David Martin an analyst for the agency stated however that “There is not clear evidence yet we have seen the worst [of the recession].” Debate on the recovery continues in the press as commentators interpret the mixed data and extrapolate to what degree any short-term recovery is due to increased economic activity or simply fiscal stimulus spending. The markets were driven by the optimists this week as oil rose above $71/barrel.
In the UK this week, following the release of the Wicks Report on UK energy security, the Financial Times published a response by ODAC patron Jeremy Leggett and his Industry Taskforce on Peak Oil and Energy Security (ITPOES) colleague Will Whitehorn. The article, which warns the government against dismissing peak oil includes this insightful quote – “If we imagine a review of financial security in 2006, the equivalent of the cursory dismissal of peak oil in the Wicks review might have read as follows: “Few authors advocating the toxicity of derivatives take into account factors such as the investment banking industry’s sophisticated treatment of risk, and the extent of the due diligence involved in awarding triple-A investment grading.”” For further detailed commentary on the Wicks report by ODAC trustee Dr. Richard Miller see below.
Should the government , or indeed the opposition, choose to heed these warnings then help is at hand via a report released this week by the All Party Parliamentary Group on Peak Oil & Gas (APPGOPO), & The Lean Economy Connection. The report Tradable Energy Quotas (TEQs): A Policy Framework for Peak Oil and Climate sets out a mechanism by which it would be possible to equitably reduce dependence on fossil fuels and carbon emissions. While TEQs are not a new idea the report sets out the framework of the system with background and benefits. It also addresses DEFRA’s 2008 decision that Personal Carbon Trading was “ahead of its time” and too expensive to implement. Never let it be said that a government would implement something ahead of its time – much better to cobble together a response when the crisis hits!
Disclaimers
Oil
Do not discount the threat of peak oil
Last week, the government published a review of the UK’s energy security situation. In a report commissioned by the prime minister, Malcolm Wicks, the former energy minister, pronounced that “there is no crisis”…
Wicks Report on energy security is fantasy
“There is no crisis”, states the introduction to this paper. We suggest that Mr Wicks is therefore not entirely in command of his brief. This paper gathers together many well-known, but selective and sometimes outdated, data. The conclusions are therefore rather predictable from the outset. There is little critical thought to be found here. For example, Korea is cited as a case study of successful, stable energy importation. Critical thought would suggest that what is possible for one OECD country, consuming only 2% of global primary energy, may not be possible for all thirty, consuming almost 50% of GPE.
This paper considers both the security of UK energy supplies and the reduction of CO2 emissions, although the two goals are not often integrated in the discussions. Our concern, however, is his overall target, which can be paraphrased as, “How can the UK sustain the unsustainable?” In this report Mr Wicks offers a map for the UK to continue its current way of life, enjoying all the energy it wants at affordable prices, but this is a fantasy. We wish he had aimed at a different target: how can the UK change its economy to severely reduce its dependence on oil? This target is critical, because (as the IEA notes) we must leave oil before it leaves us.
Mr Wicks has recognised the obvious loss of UK energy self-sufficiency, the medium term heavy reliance on imports, a decade of dramatic transition and a century of serious energy uncertainty. His solutions are intended to “produce a better balance between home-grown energy and imports”, and these solutions include more geopolitical influence, better regulation of energy markets with state intervention, energy efficiency, more gas storage, and more use of indigenous energy sources including renewables, nuclear and coal. Mr Wicks has correctly identified many potential disruptors of British energy security, but has dismissed the inevitable one – peak oil.
We start with a recent comment by Dr Fatih Birol, the chief economist at the International Energy Agency (IEA) in Paris, which is charged with the task of assessing future energy supplies in OECD countries. In an interview with The Independent on 3rd August 2009, Dr Birol said that the public and many governments appear to be oblivious to the fact that oil is running out far faster than previously predicted, and that global production is likely to peak in about 10 years – at least a decade earlier than most governments had estimated. This doesn’t mean that oil will completely run out, but it does mean that it will cost far more, so we will only be able to afford far less.
Mr Wicks supports the idea, expressed as recently as last year by the IEA, that sufficient investment will bring forth sufficient and affordable supplies. Energy security therefore just means making sure that the investment is made (together of course with mitigation of all the other risks, from export routes to market misbehaviour). He also treats the demand for oil as a target which can, must and will be met. If only it was that simple. We will offer a different assertion: no reasonable amount of investment can defer peak oil for more than a year or two. We will consider why later.
Let’s consider the matter of spare capacity. Mr Wicks quotes this to be 6.8 mb/d at present, and is thereby comforted (although some of this is sour heavy crude, for which there is too little refining capacity). Now, estimates vary, but the IEA and other bodies suggest that global production from all of today’s operating fields is declining by around 3 mb/d, every year. A Saudi Arabia every three years. There are certainly new projects under way, despite the current financial crisis, which will replace this for a few years, but today’s spare capacity is only going to be a brief cushion.
We turn to Mr Wicks’ view that OECD production will “…grow from 2015 only due to the production of non-conventional oil reserves, in particular Canadian oil sands.” His source book, the IEA’s World Energy Outlook for 2008, forecasts that this oil sand output will grow by 0.2 mb/d each year. Unfortunately OECD oil production has been declining by 0.5 mb/d each year since 2002. Further, how can Mr Wicks rely upon Canadian oil sands while following his other brief, to reduce global CO2 emissions? Does he believe he can have both?
Now to the heart of the matter. Regarding fossil fuels, Mr Wicks says, “…physical supply risk due to geological constraints may be effectively ruled out as a serious concern since there are sufficient proven reserves and even larger remaining resources.” This is the trap. Peak oil will be driven by the rate at which oil can be produced, not by the quantity of reserves that are left. It happens because larger fields are generally found sooner, and developed before, the smaller ones. When those larger fields start to decline, which happens when they still have two thirds or more of their reserves left, the smaller ones coming on-stream eventually don’t add to production, they just help keep it flat. And eventually they can’t even do that. Whole countries go into decline even when they have half of their reserves left, when their biggest fields are still producing, and when new discoveries are still being made. The production rate in a fields falls because pressure falls and water starts to enter the wells, and there’s very little that can be done cheaply to prevent that. Expensive “enhanced oil recovery” techniques may temporarily halt or even reverse the decline, but it’s expensive, and it’s temporary.
Mr Wicks does devote a short piece to peak oil, but it simply does not address the relevant issues. It effectively states that because oil is not (yet) scarce, there cannot be a problem. It just shows a woeful misunderstanding of the issues, from an MP who was once Minister of State for Energy and Science Minister.
One could go on. The assertion that Middle East states can raise their production “..to ensure sufficient supply to meet global demand” is unsupported by evidence. It is uncertain because there are real constraints on the rate at which reserves can be produced. But finally, Mr Wicks notes the IEA’s estimate that by 2030, the equivalent of 4 Saudi Arabias will be needed simply to maintain oil supply at today’s levels, or 6 to match the expected increased demand. Does he really imagine that can be achieved?
The Wicks Report rightly contends that energy security should be a ‘national priority’, but its claim that “there is no crisis” suggests an alarming complacency at the heart of British energy policy. A more egregious case of famous last words would be hard to find.
Oil Rises for a Second Day on European, U.S. Economic Optimism
Crude oil rose for a second day after the German and French economies unexpectedly grew in the second quarter, and the U.S. Federal Reserve said the recession is easing, sparking hopes for a rebound in fuel demand…
IEA trims 2010 oil demand growth, recovery patchy
Oil demand growth next year will be slightly less than previously forecast at 1.3 million barrels per day (bpd) and the evidence of a “bottoming out” of the global recession is patchy, the IEA said on Wednesday…
OPEC sees demand for its oil falling further
Rival oil supplies and the sluggish pace of recovery in world consumption will shrink demand for OPEC’s crude oil next year, the producer group said on Tuesday…
China oil and iron ore imports surge
China imported record amounts of crude oil and iron ore last month, lending support to a commodities market rally that has seen the price of both raw materials nearly double this year…
Mexico gov’t doubts mount on Chicontepec oil project
The multibillion-dollar megaproject that Mexico hopes will turn around its slumping oil industry is being questioned by some officials as results fall short, according to a source familiar with the issue…
Monday Manifesto: Christophe de Margerie asks if oil is offering a Total solution
From his 44th floor office overlooking La Défense, surrounded by fat art books and bonsai trees, Christophe de Margerie is drawing a typically eccentric analogy. The oil business, he says, peering over his moustache at the sweltering streets below, is a bit like hairdressing, especially during a recession…
FSA ready to resist tougher controls on oil trading
Britain’s financial markets regulator is ready to resist American-led pressure for tighter controls on trading in the London oil market.
It is understood that the Financial Services Authority (FSA) invited up to 30 market participants, including traders, banks and funds, to a private meeting last Wednesday to discuss transparency and regulation in the oil market…
Oil May Fall Below $10 in Next Decade, Prechter Says
Crude oil may plunge to less than $10 a barrel in the next decade after surging to a record $147 last year, said Robert Prechter, who achieved fame for cautioning on Oct. 5, 1987, that stocks would crash…
Gas
Turkey Plays Both Sides on Gas Pipelines
Turkey has agreed to grant access to Russia’s South Stream gas pipeline through its part of the Black Sea, in a move which could hurt the prospects of an EU-backed project to reduce Russian energy dependency…
Dmitry Medvedev attacks ‘anti-Russian’ Ukraine
Mr Medvedev said Moscow would not be sending a new ambassador to Kiev due to the policies of Mr Yushchenko, who was ignoring “principles of friendship and partnership with Russia” and causing the worst post-Soviet crisis in bilateral ties.
Moscow and Ukraine have had repeated spats over energy supply and the control of pipelines supplying gas to eastern and central Europe…
Electricity
Carbon capture competition hots up as Shell reveals it is joining ScottishPower’s bid
OIL major Shell has joined the ScottishPower-led consortium aiming to win funding for a key carbon capture scheme at the Longannet Power Station in Fife.
The UK government is holding a competition to demonstrate carbon capture and storage (CCS), with the winner in line for cash to develop the technology on a commercial scale…
Chinese electricity use may mislead on economy
Electricity production – supposedly a rare “honest” gauge of Chinese industrial activity and economic growth – may be misleading investors on the true state of the nation, analysts warn…
Renewables
UK Government OKs 95-MW Waste-To-Energy Power Plant In Cheshire
The U.K. government Tuesday gave the green light to a new 95-megawatt power plant capable of turning 600,000 tons of waste a year into electricity and heat at Ince in Cheshire, northwest England…
Landfill gas scheme ‘worth £2.6m’
A project to harness landfill gas in the Borders will provide enough energy to power about 1,000 homes.
The scheme at the Easter Langlee site in Galashiels could be worth about £2.6m to Scottish Borders Council over the life of its 15-year contract…
Crown Estate makes most of power struggle
THE Queen’s property manager is set to pocket a £2.5 billion windfall from the offshore wind energy revolution.
The Crown Estate manages all royal property assets, including the seabed for 12 nautical miles from the coast. It is currently holding confidential negotiations with energy companies over 20-year rental agreements on parcels of seabed designated for huge wind farms capable of producing up to 25GW of power, equal to roughly a third of the UK’s total power generation today…
Food
UK assesses future food security
The government is consulting on how it can ensure that the UK’s food supply remains secure in the future.
While the current situation in the UK is good, ministers warn that factors such as climate change and population growth could have an adverse effect…
Producers, supermarkets and consumers are being encouraged to submit their ideas on how a secure food system in the UK should look in 2030.
UK
Unemployment jumps 220,000 to 2.4m
Unemployment in Britain jumped by 220,000 in the three months to June to 2.435 million, official data showed today, the highest level since 1995.
The Office for National Statistics said that the jobless rate was now 7.8% of the workforce – the highest since 1996, before Labour came to power…
Scottish climate policy is hypocritical, contradictory and counter-productive
It’s the same everywhere. Governments are simultaneously seeking to minimise the demand for fossil fuels and maximise the supply.
In its Low Carbon Transition paper, for example, the UK government makes elaborate plans for cutting the consumption of oil, gas and coal. It then reveals that “[We will] maximise the economic production of oil and gas from the North Sea”…
Geopolitics
Alarm at US-Colombia troops plan
South American leaders at a regional summit have expressed fresh concerns over Colombian plans to grant American troops access to its military bases.
But at the gathering in Ecuador, they rejected a proposal to formally condemn the proposals, which would allow US access up to seven Colombian bases…
Sumitomo in deal with Kazakhstan to supply rare earth minerals
Sumitomo, the Japanese trading house, has struck a landmark deal with Kazakhstan’s state nuclear power company in a bid to secure supplies of rare earth metals — the “green” minerals whose global supply is dominated by China and which are used to make environmentally friendly products such as wind turbines…