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Energy policies will lead to diesel fuel rationing in Europe

Today (24 May), Sweden's most widely read broadsheet newspaper, Dagens Nyheter, chose to publish a contribution from me on future oil production (Read the contribution in Swedish). They gave the article the following headline:

"Energy policies will lead to diesel fuel rationing"

Below is an English translation of the article by Michael Lardelli and I have supplemented the headline to clarify that I am discussing the situation in Europe. I have also added two illustrations from my book "Peeking at Peak Oil":

During the last six years the world’s production of oil has, overall, been flat. From 2005 up to and including 2010 annual it was around 81.5 Mb/d with top production in 2010 at 82.1 Mb/d. World oil production has never been greater than in that period. We describe the maximum rate of oil production from an oilfield, region or the world as “Peak Oil”.

Ten years ago in May 2002 Colin Campbell and I organised the world’s first conference on Peak Oil in Uppsala. ASPO, The Association for the Study of Peak Oil and Gas was also formed at that time. In a press release we displayed a graph of estimated future oil production. It showed a plateau of maximal production for 2009, 2010 and 2011 at 85 Mb/d. Our analysis was published in a scientific journal in 2003 and was generally regarded as far too pessimistic. Some regarded it as sheer fantasy. We can now state that we were, in fact, too optimistic.

Principally it is oil production in Iraq that is lower than we predicted. One conclusion we can make is that higher production in Iraq would probably have led to lower oil prices today and we see now that war was not a good business plan.

All the nations of the world use oil. The nations can be divided into those that export oil and the remainder that import it. In my book, “Peeking at Peak Oil” that will be released in Vienna on 30 May I have studied the changes in export volumes since the end of the 1990s up until 2010.

Peeking at Peak Oil

Figure 19.3 from “Peeking at Peak Oil”: The consumption of global oil production can be separated into three groups: the oil producing nations, importing Asian nations that will increase consumption in the next 10 years (China, India and other nations in South East Asia [SEA] with the exception of South Korea and Taiwan) and importing nations that will, overall, decrease consumption (OECD-nations, South Korea, Taiwan and the rest of the world). The volume of oil exported was greatest in 2005 and by 2010 it had decreased by 4.1 Mb/d. While total oil exports during this period decreased, the volume imported by China, India and the SEA nations increased by 2.7 Mb/d. This means that, overall, the other oil importing nations and, in particular, the OECD nations, experienced a decrease in oil imports of 6.8 Mb/d. In a business-as-usual linear extrapolation of past trends, this volume would decrease by a further 13 Mb/d by 2020. (Calculations are made using data from the BP Statistical Review of World Energy.) With the advent of Peak Oil in the period to 2020, the decreased availability of oil on world export markets will be much more severe.

From 1999 to 2005 the total world volume of exported oil increased by 6 Mb/d to 48 Mb/d and it then declined to 44 Mb/d by 2010. During the years when world oil production has been on a plateau the living standard and oil consumption of the oil exporting nations has increased while the volume available to export has shrunk. At the same time we can see that imports of oil into India, China and the nations in South East Asia that lie between those two giants have increased from 7 Mb/d to 10 Mb/d. The consequence of this is that the importation of oil by, primarily, the OECD nations has decreased by 15 %.

The decline in world oil exports is significant and so great that it means Peak Oil for export volumes occurred in 2005. The oil importing OECD nations of America, Europe and Asia are currently experiencing economic difficulties. History shows that increased use of oil raises living standards – we have never seen otherwise. The economic crisis that we are currently struggling with can, fundamentally, be due to us having insufficient oil to consume.

In a scientific article published in the journal Energy Policy in 2010 we showed that global oil production, including unconventional oil such as from Canada’s oil sands, will decline in the period to 2030. Despite this, let us assume that oil will show a plateau of constant production until 2020. During this coming 10 years we can anticipate that the oil exporting nations will become wealthier and so will continue to increase their own consumption of oil. At the same time China, India and several nations in South East Asia will increase their oil imports. If the trend we have seen over the past 5 years continues then the volume of oil that the OECD nations will have available to consume in 2020 will contract by a further 13 Mb/d. That it could increase is impossible. Compared with 2005 this means a reduction in imports of around 50%. This will help the EU to achieve its goals for reduced use of oil by a good margin.

Around 9% of what is called oil is used as a raw material in industry and directly as vehicle fuel. The rest is separated by oil refineries into gasoline, aviation fuel, diesel and heavier products such as the “bunker fuel” used by shipping. On a global scale oil is separated by refineries into approximately 24% gasoline, 6-7% aviation fuel and 33% diesel. The crude oil that can currently be purchased on the world market is heavier than previously and also contains more sulphur. In recent years, the refinery Preemraff in Lysekil, Sweden, has made large investments to equip itself to process such oil. However, it is not possible to change drastically the proportions of products produced from the available crude oil.

Peeking at Peak Oil
Figure 16.2 in “Peeking at Peak Oil”: The distillation of crude oil. The lightest products from distillation are normally subsequently burned to provide heat to boil additional crude oil. On the right are shown the relative amounts in % of the various distillation products that constituted global refinery production in 2007. Individual refineries would show different relative amounts of each product depending on the grade of crude oil used and other factors.

Based on this information, it is informative to study the results of the political measures that have been taken and that are planned within the EU. Adding a 10% proportion of ethanol to gasoline reduces the pressure on gasoline supply. However, because production of ethanol requires diesel-powered machinery this increases the demand for diesel. Furthermore, environmental demands for less carbon dioxide emissions mean that new environmentally-conscious cars are diesel-powered to a greater extent. In addition, coastal shipping is being required to switch from bunker fuel to diesel to reduce pollution.

These political decisions mean that the need for gasoline production is reduced while the demand for diesel is growing. But refineries are unable to change the mix of their production output rapidly enough to keep up with these political ambitions.

The reality is that the European storage capacity for gasoline is full while there is a shortage of diesel fuel. Continued political movement down this path will force closure of some refineries in Europe that cannot earn sufficient income from gasoline production since gasoline storages that are full cannot be filled further. It is, therefore, very probable that today’s political decisions will lead to rationing of diesel fuel.

It is difficult to predict when this will happen but it will most likely occur within the next ten years. Another economic recession could cause a decrease in consumption and delay the onset of the problem. But when the diesel shortages occur we must, of course, prioritise transport of food, public transport and freight in general. The Swedish Energy Authority has begun preparing itself for this crisis situation.

There are policy targets to reduce consumption of fuels in the EU by increasing their cost. However, consumption will fall even without these measures. Studies in, among other places, Australia show that high gasoline prices affect low-income families most severely and if the same conditions apply in Sweden then high gasoline taxes will be an additional burden on the Swedish people. The Alliance [Sweden’s governing coalition of political parties] should therefore consider reversing the decision it took when it assumed power of increasing the tax on gasoline. Of course, it should simultaneously expand initiatives to cope with the future reality that awaits us.

The situation that we currently face requires very significant investment in biogas. The absolutely most important requirement for society is food and food transport and so we should encourage agriculture to adapt its activities to become self-sufficient in biogas. What I would like to see are not policies that act through penalties but rather those that encourage change through incentives.

Kjell Aleklett,
President of ASPO International
and professor in Global Energy Systems, Uppsala University

What do you think? Leave a comment below.

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