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ODAC Guest Commentary - The Wicks Report

“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 This paper gathers together many well-known, but selective and sometimes outdated, data.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.

Dr. Richard Miller is an Independent Consultant, and former geochemist for the BP Exploration Department

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