Without oil, modern civilisation doesn’t work

Treasury’s last Inter-generational Report contains, hidden away on page 91, a simple stunning statement: Australia’s oil will be gone by 2020. The timing could not be worse. By 2020 Peak Oil is likely to have rendered oil imports precarious and costly. And without oil, modern civilisation doesn’t work.

The media ignored this part of the Report, so the ministers of our two major parties and the bureaucrats who advise them, have rarely been required to explain why they let this happen. On those rare occasions the question has been brushed aside with assurances that either market forces will always supply oil (or a substitute) at reasonable prices or Australia has vast reserves of natural gas. 

Both these arguments are shaky. Firstly, for many uses, such as aviation, mining, and most road transport, there simply is no good substitute for oil. No one has yet built a gas-powered plane.

It may seem impressive to find an urban taxi scooting around powered by a large tank of compressed gas that has taken over the boot, but the energy required to find and transport that gas, and to compress it to an amazing 2500 psi, and safely seal it in a robust tank, did not come from gas. We are a long way from knowing how to run our civilisation on gas.

And without cheap oil, most business plans might crash. BHP for instance is threatening to pull out of the Olympic Dam expansion unless diesel prices are kept low but the Pentagon’s projection is that oil prices will in time double.

It is also far from clear that market forces will provide oil cheaply, or spread it evenly. The International Energy Agency has provisions to compel equitable sharing of traded petroleum. Yet once Peak Oil bites, energy-producing countries may hoard the increasingly precious stuff, like Russia did with its grain harvest recently, or sell it selectively to their friends. Or to those who bully them.

Energy shortage will affect each country differently, and often via its effects on fertiliser and food production. Australia’s generally thin soils are particularly dependent on fertilisers made from or transported by fossil fuels. As the Immigration Department’s recent Sobels report (p. 89) showed Australia’s future food supplies are not guaranteed.

As well, higher prices may create a rush to “cut green tape”, which is code for going after dirtier and more environmentally destructive forms of energy. Examples include BP’s deep-sea drilling, or the U.S. “fracking” craze with its now well-known health and environmental risks. Optimists argue that the U.S. is now looking to export Liquid Natural Gas, and hence world gas prices are actually falling. Yet some experts believe the shale gas industry drilled the best sites first, hyping prospects to attract investment and that politicians, and the media, desperate to identify a new energy source to support future economic growth, accepted the hype uncritically.

Turning to the government’s second excuse, Australia does not have vast reserves of gas put aside. We have, or have had, very large gas fields, but almost none of this is kept for Australian use, because we don’t reserve gas: we sell the stuff off soon after we find it. Or we all but give it away, in return for ephemeral jobs and often inappropriate or damaging “development”.

The last government to make a creditable attempt to retain Australia’s energy reserves was the Whitlam government - which got into trouble for trying to borrow huge sums to buy back energy reserves that had been sold off while still in the ground. Oddly enough, the lesson most politicians seem to have learnt from this, under the tutelage of the Murdoch Press, is not that further energy discoveries should be retained, but that they should be sold off as fast as “market forces” would like.

Democratic leaders are often so focussed on getting re-elected in one, two or three years, that they make utterly short-sighted decisions to get a temporary upswing in GDP, so they can boast of being “good economic managers”. 

On a slightly kinder view, they may be blinded by economic growthism - the belief that if you just keep “the economy”, meaning GDP, growing today, your successors are bound to find some other expedient to keep it growing in the future.