Monday, March 30, 2009

A stitch in time ...

From Petroleum Economist:

A stitch in time ...

There's a new peak-oil organisation on the block. Is it saying anything new? Does it matter? Tom Nicholls writes

THE ENERGY locked into one barrel of oil is equivalent to that expended by five labourers working 12-hour days non-stop for a year. When you put it like that – as a new report warning the UK government of the perils of peak oil does – petroleum's not something you want to run out of, unless you have something that does the same job. And nothing does.

As Jeremy Leggett, co-author of The oil crunch: securing the UK's energy future, puts it: "Nothing will impair our competitiveness as much as premature peak oil." It's a bigger worry – in the immediate future – than global warming, he argues. "In the longer term, climate change is formidable; it could be curtains for civilization." But a mismatch between oil supply and demand is likely to occur sooner – possibly as early as 2011-13.

That is the view of the report's publisher, UK Industry Taskforce on Peak Oil & Energy Security – a newly formed association of UK companies "concerned that threats to energy security are not receiving the attention they merit". In its analysis of market dynamics, the taskforce is in good company: the International Energy Agency's (IEA) World Energy Outlook (WEO) 2008, published last month, makes similarly alarming predictions. It says the oil industry will struggle to meet the world's energy needs in the next two decades, because of falling production rates at existing fields and continued energy-demand growth, making supply shortages and price spikes increasingly probable (see p25).

The taskforce – which aims to provide a "pro-active" strategy for tackling these problems – comprises an eclectic mix of prominent corporate names: transport companies Virgin, FirstGroup and Stagecoach; architects Foster and Partners; energy company Scottish and Southern; Arup, a consultancy; and internet search-engine firm Yahoo. More want to join, says Leggett. The organisation plans to continue its research, with a report next year on the net return on energy that various energy-producing systems are able to provide, which would allow useful comparisons to be drawn between different energy sources.

Many of the arguments the taskforce uses to support its pessimistic view about the outlook for the upstream industry are familiar: huge field discoveries are rare and lead times for projects are long. Producers, many of which are already protective of their natural resources, will need more oil and gas for their domestic markets, leaving less for export. Investment in maintaining and expanding the world's ageing energy infrastructure is insufficient. There aren't enough young people replacing retiring skilled workers in the energy sector. And the fall in prices since mid-year is already causing project delays and cancellations, which could have serious implications for supply in a few years' time.

The report also repeats the accusation – made, for example, by Matt Simmons, an investment banker specialising in the energy sector, against Saudi Arabia – that Opec countries may be overstating their reserves, lulling the world into a false sense of security about oil and gas production. One or two radical downward revisions and the world could be facing a collapse in supply, says Leggett.

The taskforce calls for a national energy plan that would promote exploration and production, energy conservation and efficiency, investment in renewable energy and sustainable renewable fuels and a national skills programme to deal with the manpower shortage. Policies in the Renewable Energy Strategy process should go beyond the EU target for renewable energy to account for 20% of the EU-wide energy mix by 2020. Decisions on nuclear power must be taken more speedily.

Again, there are many similarities with the approach advocated by the IEA's WEO 2008, which calls for improved energy efficiency, more low-carbon energy and very large investments in energy infrastructure.

Fortuitously, too, the policies that are needed to tackle peak oil and those needed to achieve sufficiently deep cuts in greenhouse-gas emissions to abate climate risk, a greater concern for the IEA, are the same – "immediate and rapid acceleration in our use of non-fossil sources of energy, and reduction in the overall demand for energy," in the words of the report. But these technologies must be introduced much more quickly to the UK, it adds, than "anything that has yet been considered in the climate-change response arena".

In his day job, Leggett, a geologist and former Greenpeace activist, heads up Solarcentury, a UK supplier of solar-photovoltaic panels. The company claims it's in business "to make a big difference in the fight against climate change" and "to revolutionise the global energy market".

They are lofty-sounding aspirations, certainly. But, claims the taskforce, it would not take much to accelerate the development of clean energy: many of the numerous alternative-energy technologies being explored in Silicon Valley and elsewhere can displace traditional energy markets "far faster than many people probably realise" – dealing with the problems of energy security and climate change simultaneously.

One-dimensional thinking

Solar – in common with many other emerging energy technologies – suffers from the perception that it is prohibitively expensive. But that's partly down to one-dimensional thinking, says Leggett. It's about return on investment, not just pay-back time on energy bills. Investing in solar is "better than putting your money into the building society, assuming you take a view that energy prices will continue to rise as they have done."

Various organisations have been frightening the public for years – almost since the start of the oil industry in the mid-19th century – about the imminent exhaustion of oil reserves. In that sense, the taskforce and its gloomy report do not break new ground. Many of the arguments behind the theory and solutions to the problem have been deployed before. But the price of inaction makes the argument worth repeating. Leggett draws a parallel with the prevailing financial crisis: what would have happened, he wonders, if eight well-known companies had warned the world about the threat of a credit crunch five years ago?

And, he adds, even if the more conservative oil companies, such as ExxonMobil and Saudi Aramco, are proved to be right in their assertion that peak production is decades further off than the peak-oil movement believes, it makes economic and environmental sense to be building alternative-energy capacity as quickly as possible anyway. "We have to try."