Oil Peak
Author: Jeremy Wakeford - Chairman, Association for the Study of Peak Oil South Africa (ASPO-SA)
( Article Type: Opinion )
Addicted to Oil
Oil is the quintessential commodity in the modern industrial economy. Although the industrial revolution was initially powered by coal, since the first commercial oil well was drilled in Pennsylvania in 1859 oil has gained increasing prominence as an energy source. Today oil accounts for just over a third of the world’s primary energy supply. Fossil fuels – oil, coal and natural gas – together comprise over 80% of the world’s energy, compared with just 13% for renewable energy, most of which is biomass, with the remaining 7% derived from nuclear energy.
Oil has two principal uses: as a form of energy, and as a feedstock for chemical processes and manufactured products. As an energy source oil is used for electricity generation, heating and – most importantly – as liquid fuels for transportation. The transport sector accounts for over 60% of petroleum product consumption, while industry consumes nearly 10%, the residential sector 6%, commercial and public services 3%, and agriculture, forestry and fishing 3%. About 17% of oil products are used for non-energy purposes, mainly as feedstock for an astounding range of petrochemical products – from pharmaceuticals to plastics and fabrics – and also for lubrication of machinery. Critically, 95% of the world’s transport systems – ships, trains, airplanes and road vehicles – are powered by oil.
South Africa has a similar dependence on what has appropriately become known as ‘black gold’. Unfortunately we are in a vulnerable position as approximately 66% of our oil is imported, almost all from OPEC members like Iran, Saudi Arabia, Nigeria and Angola. Only 30% of our current need is produced domestically by Sasol using its coal-to-liquids (CTL) process, and about 4% by the state-owned oil company PetroSA, which produces small amounts of crude oil as well as synthetic fuels via gas-to-liquid (GTL) technology. More than three quarters of our petroleum products are consumed by the transport sector, which is 98% dependent on these fuels. Motorised passenger transport is overwhelmingly road-based and some 80% of all freight tonnage is moved by trucks.
Rising production of oil has underpinned world economic growth for over a century. It has impressively boosted agricultural productivity and thus allowed a massive expansion of the world’s human population from 2 billion in 1930 to 7 billion today. Cheap transport fuels derived from oil have enabled the globalisation of the world economy. Demand for oil is still growing rapidly in many developing countries, especially the emerging giants China and India.
The global oil peak and decline
But oil supplies cannot grow indefinitely. Oil – like other fossil fuels – is a finite resource, having been formed millions of years ago from decaying plant and animal matter that was subsequently heated under the Earth’s crust. On a human time scale, oil is a non-renewable resource. This necessarily implies that at some point, the annual production of oil at a global scale must reach an all-time maximum – a ‘peak’ – and begin an irreversible decline. The evidence indicates that we are on the ‘peak plateau’ now: world oil production has been essentially fl at since 2005, despite the huge increase in prices and intense exploration activity. Global new oil discoveries maxed out in the 1960s and have been on a declining trend ever since (see above Figure). Conventional oil production has already peaked and declined in the majority of individual oil producing nations, and in large regions such as North America and Europe. Although unconventional oil reserves (e.g. oil sands and extra-heavy oil) are large, their flow rates are severely constrained by high energy and economic costs as well as by environmental factors, and independent experts say they are unlikely to offset the decline in conventional oil production.
World conventional oil discoveries and production
More importantly for oil importing nations like South Africa, the amount of oil that producing nations are selling as exports has been shrinking since 2005. This is because the exporters are consuming more of their own oil each year. Moreover, it is taking increasing amounts of energy to find, extract, refine and deliver oil to markets. This is mainly because the easier to access oil deposits, typically discovered decades ago, are being rapidly depleted and the frontier for new oil has moved into areas that are economically more costly and technically more difficult to access – such as deep off-shore wells and Arctic regions. Thus the ‘net energy’ derived from oil – i.e. the energy output minus the energy used to produce oil – is set to decline faster than the ‘gross energy’, which will in turn further boost the price of oil. In sum, ‘peak oil’ does not mean the end of oil supplies – it means the end of cheap oil. From here on, oil is going to get scarcer and more expensive every year – albeit with heightened price volatility in the short term.
A looming oil crunch
Whilst we are seeing a steady decline in traded oil supply, this is contrasted by a rising demand for oil on a scale as never seen before – especially in developing countries such as Brazil, India ,China, and South Africa. The effect of a limited and reducing supply can have very severe implications. History has demonstrated the sensitivity of the oil market to even modest supply disruptions. . Every major recession in the United States since the Second World War has been preceded by an oil price shock. In 2008, the oil price spike to nearly $150 per barrel helped to pop the US housing bubble, triggering a financial crisis and global recession. Without mitigation, the likely result of declining oil production will be deepening cycles of recession, unemployment, financial crises, and chronic fuel shortages. The globalization of trade in physical goods will begin to unwind as rising transport costs enforce the localisation of production and consumption. Given the dependence of globalised industrial agriculture on oil for production, processing, packaging and distribution, agricultural production could be seriously constrained and food prices rise substantially, with serious social and political consequences. At worst, competition over diminishing oil might spark off resource wars on a global scale.
In South Africa, the National Department of Transport calls transport ‘the heartbeat of the economy’. Rising fuel prices lead to higher prices of food and many other goods and services, pushing up the overall rate of inflation and raising the costs of living. Physical shortages of fuel would disrupt flows of commuters to work-places, learners to school and food from farms to supermarkets, and put a brake on economic activity. Increased pressure on the poor – especially those in stranded urban settlements – could result in mass social protests.
Heads in the sand
So if peak oil is such a big deal, why isn’t everyone talking about it and government making plans to deal with the threats it poses? Unfortunately, governments all around the world have ignored the repeated warnings from experts and have been misled by oil companies who mostly insist there is no looming oil crunch.
Acknowledging the oil peak is regarded as political suicide, as it implies citizens will have to change their lifestyles in ways they don’t want to. But ignoring the oil peak phenomenon will not make it go away – it will merely exacerbate the impacts and make it more costly to deal with later on.
How we can respond proactively
The peaking of world oil production need not be viewed as a calamity. In fact it presents a hugely positive opportunity for societies to undertake the necessary transition to a sustainable socio-economic system, before we start facing serious scarcity of other critical resources and perhaps before growing carbon emissions lead to run-away climate change. There are many proactive steps that governments, businesses and households can take to mitigate the impacts of rising oil prices and growing fuel scarcity.
For a start, preparing for diminishing oil supplies should become a cornerstone of national planning across all spheres and departments of government. An oil mitigation strategy should be formulated that is integrated with plans for poverty alleviation, food and water security, job creation, climate mitigation and adaptation, and other pressing development challenges. There is a wide range of policies and measures that can be implemented to effectively reduce our dependence on oil and thus mitigate the effects of peak oil. The first step should be a comprehensive conservation programme that cuts unnecessary fuel use and raises energy efficiency. One simple conservation measure is to reduce road speed limits – which will save lives as well as fuel and money. Another is to educate drivers on ways to improve their fuel economy, such as using the correct gears and tyre pressure. Proper traffic management can also help reduce fuel consumption. Car pooling can be encouraged by having dedicated multiple-occupant lanes on city freeways. Various types of fuel rationing could also be considered. Better still would be a system of tradable energy quotas, which would put money in the pockets of poorer individuals who consume less oil, while allowing more wealthy people to purchase the fuel they need for commuting to work and so forth. To encourage the uptake of more fuel-efficient vehicles and electric cars, government can mandate efficiency standards and provide appropriate taxes and rebates. The second strategy concerns infrastructure spending. Instead of wasting public money widening roads and building new or upgraded airports, the government should invest in more sustainable forms of public transport. The bus rapid transit systems under development in several metros are steps in the right direction, as are safe cycle lanes and cheaper internet bandwidth to support telecommuting; all of these need to be expanded and accelerated. Our long neglected railways must be rapidly refurbished, extended and electrified – fortunately the Department of Transport is on the right track here. Light rail systems are highly energy efficient, and could be an option for the big metros. Transnet’s capital expenditure programme should give priority to major bulk freight transport corridors, e.g. Gauteng-Durban and Gauteng-Cape Town, rather than expanding capacity on mineral export lines.
For rail and road transport systems to be progressively electrified, the country will need to expand its electricity production in a sustainable manner. This will require huge extra investments in renewable energy such as wind farms and concentrated solar power plants. Such investments will have the additional benefit of creating new ‘green’ jobs. Agriculture is another sector of the economy that needs to wean itself off oil. Farmers will need support to cope with rising input costs and to progressively switch over to organic production methods that are not dependent on fossil fuels. A training programme for small-scale and urban farmers is also imperative to promote food security and social stability. Businesses need to examine their vulnerabilities to rising oil prices and fuel scarcity and plan their operations accordingly. Some sectors – like automobile production and tourism – will face decline, while others – such as renewable energy production and bicycles – will expand. Wherever possible, production chains should be shortened: inputs should be sourced more locally, and local markets sought, in anticipation of rising transport costs. Employers can encourage car pooling, telecommuting and flexible work schedules amongst their employees.
At the household level, those fortunate enough to own cars will need to find ways to reduce their fuel consumption. This might involve moving home to be closer to work or schools, or riding a bicycle instead of driving. Crucially, all households should strive to reduce their debt and live within their means. Starting a backyard food garden can help to provide greater food security in the face of rising costs. To build resilience, people should foster community relations and acquire useful, practical skills like repair and maintenance.
For significant steps towards a sustainable economy to be taken, our society will need to re-examine certain cultural beliefs and values that are increasingly incompatible with ecological and social realities. Such as beliefs that continuous growth in material consumption is both possible and desirable, and technology is omnipotent. Values such as individualism, materialism and greed need to be balanced by those of cooperation, sharing, and sufficiency.
Concluding thought
Change is inevitable but the outcome is uncertain. Conscious choices and concerted action can help to usher in an improved socio-economic system that is more equitable and sustainable. The oil peak invites us to seize the day.
