Motoring editor Peter King checks the oil supply — Summer 2004
|2 years later…|
|«Odd as it may seem to some, building more roads quickly to make our
fleet more efficient may be one of the best things we can do for ourselves,
our economy and our planet.»
PETROL IS PART OF OUR WAY OF LIFE. WE HOP IN the car to go to the supermarket, take the kids to sport and visit friends and relatives. In the weekend we fire up petrol-powered motor mowers and go fishing from motor boats.
New Zealand’s agriculture relies on diesel and two-stroke; our tourism industry runs on jet fuel and diesel. Manufacturers need oil to get ships bearing their goods to overseas markets. Our sparse population and remoteness from world trade centres mean New Zealand is an inherently energy-intensive place to live. And, the better our economy is doing, the more transport energy we consume.
So what happens if we run out of oil? Do we all go back to a 19th century lifestyle with sailing ships, horses and carts? Hopefully not. If we replaced all our cars with horses, we’d lose about a seventh of our productive land to feed them. The methane gas produced would be the least of our ‘emissions’ problems. But let’s hold those horses for a moment. Is the world really running out of gas?
A surprising number of people think so. There are large numbers of books, websites and international conferences devoted to the proposition that world oil production has, or is about to reach a peak. According to M. King Hubbert — who prophesied the decline of US oil production — having reached a peak, oil supplies will diminish and prices will rise — steeply.
In this country two separate groups have raised the issue. A group called Oil Crash led by Robert Atack and Kevin Moore; and the Green Party. Although they are not allied, both say that little or no new oil is being found globally, and that the oil companies have all the official agencies in their pockets and are playing fast and loose with the truth. They say oil prices can be expected to skyrocket to the point that our way of life and economy will come under sudden and catastrophic change.
Are they right? It is true that the hydrocarbons buried in the earth’s crust are not a renewable resource. Eventually they will run out. The debate is about the time frames of, and responses to, this inevitable depletion.
The International Energy Agency (IEA) is a United Nations body established after the 1973 Yom Kippur War sparked the first oil shock. Its role is to provide a watching brief to the UN on the global energy market. The agency has concluded that the world’s energy resources are ample and that new sources of energy and advanced technologies will emerge. It predicts that global oil production will rise to 120 million barrels per day by 2030, but that $3 trillion is required to invest in oil field development over the next 30 years. The issue is not about whether the oil exists, but what it is worth for oil companies to extract it. The higher the price of oil, the better the incentive to find and pump it.
There are numerous theories as to why the current price is so high. Some blame stockpiling by China and India; some believe supply is starting to dry up in important fields such as Shaybah and the North Sea. The IEA points to market uncertainty related to political instability in the Middle East, Russia, Venezuela and Nigeria.
Global energy security concerns following the United States invasion of Iraq are unprecedented. Although Iraq has had some success in increasing its pre-invasion output, the IEA assumes that Saudi Arabia will be the source of much of the cheapest oil production over this decade. But this requires the Saudis to invest something like $3 billion and the current stand-off between Saudi Arabia and the United States over security issues does not help with access to finance.
And finance is the key to understanding the oil industry and the flaws in Hubbert’s dismal prognosis for western civilisation.
There is no global agency tasked with finding every last drop of oil on earth. Oil companies prospect for oil as a business — not out of idle curiosity. Their task is to find oil that can generate a commercial return, secure rights to that oil and its revenue stream, and use their reserve estimates as security against the colossal loans they must raise to develop the field. They don’t look if they don’t need the resource — because exploration is terrifically expensive.
Because oil in the ground is considered money in the bank, field size estimates follow deliberately conservative securities rules. For this reason, the supply profile of many fields expands as managers exploit the true geological extent beyond original book value.
Dr Mike Pattrick is the Executive Director of the Petroleum Exploration Association of New Zealand. While he believes that the oil price will not return to $20 a barrel any time soon, he foresees a reduction to around $34 a barrel in coming months. The good news about the higher price, he says, is that it stimulates oil exploration companies to prospect for new fields. One of the places they are risking tens of millions of dollars doing that is New Zealand.
Dr Pattrick says indicative wells drilled during the 1970s suggest that New Zealand may have a significant field of waxy crude off the southern Canterbury coast. He warns that a big strike would not mean cheap oil for New Zealand, as oil companies seek the best price they can get. But it would generate a significant new income stream for the Government and reduce any security-of-supply issues.
To some people, talk of developing new oilfields is akin to a heroin addict enthusing about a new pusher. They see burning hydrocarbons as an environmental catastrophe, with global consequences. Burning petrol is not ideal for the ecosphere, but not burning petrol would set New Zealanders’ average standard of living back two centuries — a sacrifice not many of us are willing to make.
Just as the petrol engine supplanted the far dirtier coal steam engine in the 20th century, so we can expect the emission-free fuel cell to supplant the petrol engine over the next few decades. As former Saudi oil minister Sheikh Zaki Yamani put it: “The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil”.
The fuel cell is likely to be to the 2020s what the personal computer was to the 1980s. Fuel cell company stocks are hot and GM, Honda and Toyota are well advanced in developing fuel cell vehicles. The Royal Automobile Club in Britain has predicted that by 2050 most vehicles will run on fuel cells.
In the meantime, the best response individuals can make to high oil prices is to buy a smaller car and hire larger ones for those occasions they need them. This will reduce day-to-day exposure to higher fuel prices and reduce the burden on the environment.