Global oil depletion: stop chasing dreams

The present debate on global oil-depletion is built around two implicit assumptions. First, no oil is to be left for future generations. Our justification for this theft is, of course, that technical progress will make oil obsolete. I’ll say more about this below. The second assumption is that the oil-exporting countries - the most important of which are grouped in OPEC - should put other countries’ immediate interest in ever-increasing imports of OPEC oil ahead of their own interests, whether economic or social. When considering their own interests, OPEC nations might also want to consider their future generations: Indonesia, for example, is still a member of OPEC, but is now a net oil importer because of declining production plus rising domestic demand.

The US Government’s Energy Information Administration (EIA) projects that world demand for oil in 2025 will be 119 million barrels per day compared with around 83 million barrels today. In total contrast, the Association for the Study of Peak Oil and Gas (ASPO) - whose key figures are retired petroleum geologists - argue that production in 2025 will be only about 65 million barrels per day. Clearly, they can’t both be right. The EIA figure could be interpreted as what the world would like to consume in 2025 - but wishing won’t make it happen. ASPO further argues that oil production will peak around 2010. Meanwhile, Australian cities are still busy building freeways.

World oil demand is now growing rapidly, with industrialising Asian countries - particularly China - responsible for most of the growth. China today is the world’s second largest importer of oil, but its per capita consumption is still less than 10 per cent of that of the US, the leading importer. Rising demand requires new oil-field capacity to be brought on line each year, not only to fuel rising demand, but also to cover depletion from older fields.

And production capacity is what counts, not the total oil reserves remaining, which for OPEC are anyway the subject of considerable uncertainty. It’s the size of the “pipe” that’s important, not the size of the “tank”.This “pipe” includes not only the annual production capacity of the world’s oil fields, but also the capacity of pipelines and tankers that move it to domestic or overseas refineries, and the annual output capacities of the refineries themselves. All must expand together if demand for petroleum fuels grows.

After the oil crises of the 1970s, two responses to higher oil prices and supply uncertainty were available. One was to reduce demand, mainly by substituting other fuels for oil wherever possible, particularly for electricity generation. Over 28 per cent of global electricity was generated from oil in 1980, but today the corresponding figure is below 7 per cent. In Australia, it’s about 0.1 per cent.

The second approach, developing non-OPEC oil reserves, also proved successful: OPEC’s share of world oil production fell from a peak of 55 per cent in 1973 to a low of 30 per cent in 1985, but has now risen again to over 40 per cent. Since non-OPEC oil reserves are limited, production from these fields has either peaked, or will do so soon. Australia’s net self-sufficiency has been around 80 per cent or more for the past three decades. But according to official forecasts from Geosciences Australia (pdf file 1.82MB), the gap between our production and consumption is set to widen dramatically in the coming years. It couldn’t happen at a worse time.

Other examples are: production in the lower US 48 states peaked around 1970, and in the UK’s North Sea fields in 2000.

Both approaches can only be used once, and are now nearing their limits. Future oil demand reductions will increasingly need to come from transport fuels, and future supply increases from OPEC fields.

Increasingly in the future, reducing oil use will mean reducing transport oil use. A variety of alternatives to oil have been advocated for transport, including battery electric vehicles, ethanol or methanol made from biomass, synthetic fuels made from coal or natural gas, and the present US favourite, hydrogen fuel-celled vehicles. Enthusiasm for electric vehicles died when the difficulty of storing sufficient energy in batteries became apparent. Hydrogen fuel-cell cars, once promised in 2004, have had their debut postponed for several decades. I don’t believe they will ever achieve a significant market share - they face insurmountable problems in hydrogen storage, safety-related litigation potential, and fuel cell reliability and cost. LPG and compressed natural gas are useful alternatives, but are themselves hydrocarbon fuels in limited suppply.

Australia, as well as many other countries including the US, the European Union (EU) and Brazil, are promoting biomass-based liquid transport fuels. The large US and Brazilian ethanol programs are based on corn and sugarcane respectively, the EU’s biodiesel fuels on rapeseed oil. Since all are food crops, there are definite limits to their expansion in a hungry world with a still-growing population.

A very different approach is to improve the efficiency of petroleum-based transport. The idea is that if we use fewer litres of petrol per 100 km of car travel, we can reduce our total oil consumption. Does it really work this way? Car fuel efficiency hasn’t changed much over the past half-century, which raises the question of how easy it really is to improve fuel efficiency. Instead, we’ll look at air travel, where fuel efficiency - measured by fuel use per seat-kilometre - has improved by 70 per cent since the 1950s.

You’ve probably guessed the answer - far from decreasing, Australian and global demand for aviation fuel has risen many-fold since the 1950s. It’s possible that, in countries like Australia and the US, where car ownership levels and travel are near saturation, dramatic improvement in fuel efficiency - assuming they’re feasible - could cut national petrol demand. But, given the huge unsatisfied demand for private car ownership in Asia, global car efficiency improvements could follow air travel’s experience. In fact, over recent decades, the modest gains in vehicle engine efficiency in countries such as Australia have not led to significant fuel savings, but have instead been swallowed up in higher performance cars, air conditioning and vehicle entertainment, information, safety and control systems.

So what can Australia do about oil? First, stop chasing dreams. I’ve suggested that alternatives will take several decades to appear in useful amounts - if they ever do. We can’t wait that long. So we’re all going to have to get used to the idea of using less oil - and sharing it more equitably with industrialising countries. Cutting back will not only cut greenhouse gas emissions and import bills, but can also help end oil-related turmoil and wars.

In Australia, it won’t be so easy finding substitutes for either urban freight or passenger travel for non-metropolitan residents. Reductions will therefore have to come mainly from metropolitan motorists. It needn’t be a huge problem - our major cities mostly have very good public transport infrastructure. Public transport was the dominant means of travel in our major cities until the 1950s. And no one thought of themselves as transport-deprived.