Energy Futures

Oil: future historians will no doubt look back at our short 150/200 year era as the one of oil. This human era will sit neatly between the Industrial Revolution of coal and steam and a new period that we will ultimately decide. The future is unwritten but there are interested parties not least the oil industry who actively write their version.
I don’t want to join the ranks of conspiracy theorists [albeit mild one] who blame all wars on oil but ‘its all about oil’ is a truism. Sure the Iraq war would have unlikely to have happened had it not been for the first one with the invasion of Kuwait, triggered by a supposed oil dispute, and invasion of North Korea with its WMDs [and no oil] is highly unlikely but the real issue is our economy: it is driven by oil and gas. Our love affair for the motor car is such that newspapers eagerly report almost every discovery of a new oil field, reassurance that our lifestyle is not under threat. Only the dark existential threat of Climate Change hovers over the optimism that the wheels will continue to turn and our futures will remain unchanging.

There are facts that are disturbing: there is around 1,200 billion barrels of oil in known reserves, if they are burnt [along with known gas & coal reserves] it  will produce 2,800 gigatons of CO2. The most optimistic view of mitigating climate change is stopping at a 2c increase in temperature by 2050 which means we get to produce 570 gigatons of CO2, so you can see the problem, there are 5 times more reserves than wriggle room. But reserves of fossil fuels is a lot less straight forward than the fossil industry would have you believe.

Saudi Arabia with the worlds largest reserve of crude oil had 261 billion barrels of crude in 1992 yet 18 years later had 264 Bb, this, despite extracting 60 billion barrels and not discovering any new fields in the same period. The same increases in estimates occurred throughout known oil fields. Another figure of interest is the amount of extra heavy and tar sands reserves in the global reserves which is 55% these are mainly in Venezuela and Canada. Canada has the 3rd largest reserves with Saudi 2nd and Venezuela in top position but Canadian oil is in a heavy form, it is oil sands which are close to the surface and are scooped up and processed. Oil wells do not tap down into great lakes of oil they are locked into porous rock with a capping strata of dense rock above. Drill through the capping over-lying rocks and the immense weight of [ 2 Km  in the N.Sea] of rock above the oil bearing strata forces the oil out, the same is for gas. Conventional crude was an easy resource, it comes out of the ground under its own steam and with a 10% input of energy it is quickly converted into useful and cheap fuels, extra heavy and tar sands require a lot more energy to extract fuels. Canadian tar sands require 1 barrel of oil to process 3 barrels so in energy terms there is a quarter less reserves than reported. The other issue is the difference between what is a proven reserve and how much can be actually extracted which is nearer half,  the Forties  field in the North Sea reserves were proven at 5 billion barrels on discovery but less than 2 billion could ever be extracted.

Current global consumption  is around 90 million barrels per day, to put that in perceptive one of the most recent discoveries: the Peregrino South oil field off the coast of Brazil is between 150-300 million barrels  that’s just 2 or 3 days of demand. The Wikileaks documents revealed that countries may actual lie about reserves, Saudi production is huge but despite promising for a decade to supply 12 million barrels per day to help control prices that figure has not been met because there is not the oil. It is guessed that reserves may be between 40 & 50% less.

There are two ways to look at the problem, and either way it is a problem: there is plenty of oil for the next century but in burning it we will raise temperatures above 2c into the extremes of 4c and more meaning certain dangerous change for our grandchildren. How bad? Well it seems many scientists are more pessimistic than the consensual opinion. The other possibility is that there is a lot less oil. Oil reserves link into the whole financial market, as an instance BP is valued on potential production, when its shares are traded [and whose dividends pay pensions] the share is in future oil production- or rather extraction. Big up the companies reserves of oil and you big up the value of the shares. A recent example is UK shale gas reserves: Cuadrilla announced that it found a potential 200 trillion cubic feet of gas, this was, of course hype, as reserves and recoverable reserves in this case can be as little as 10-20% but the British Geological  Society was a lot more reserved with a figure of 5 trillion cu/feet [150 billion cu/m]. The UK annual consumption is 100 billion cu/metres of gas which means fracking would provide 18 months of consumption.

The global energy market is estimated to be $6 trillion, so with the World economy being $60 trillion 10% of our production/consumption is energy. Most of that energy, which drives the power stations, the factories, the farms and our homes is derived from fossil fuels. Getting the value of the fossil fuel market as a percentage of the Global economy is difficult and I don’t know how realistic $6 tr is, a quick look at oil consumption = 32 billion barrels and its price at $100 per barrel gives $3.2 trillion and that is just wholesale oil, once processed the barrel [158 litres] of crude gives up valuable raw materials for the chemical and plastics industry as well as fuel  . Some of that energy market is non fossil fuels, [burning wood being the main energy source in developing countries] but nonetheless our economy is dependant on fossil fuels and the markets use the ‘potential’ value of energy companies as secure investment. Not only is our lifestyle dependant on fossil fuels but also our livelihoods and future economic growth.

If the World’s governments were to take Climate Change seriously and committed to a 2c stabilisation this would restrict us to burn only 20% of fossil fuel reserves and would mean oil, gas and coal companies would lose 4/5ths of their value. The oil companies may be selling an elaborate Ponzi scheme and have significantly smaller reserves which may become apparent when demand from China and India out strips supply but that would be gradual, a Global declaration to avert climate disaster would happen overnight. It would strip value off the markets, trillions would be lost over night, and the global economy would be in crisis. The financial crisis was caused by the banks lying about their value of their assets, their Ponzi scheme of toxic mortgages simply valued property at a higher rate with people unlikely to pay it back. It cost the US economy $12 trillion but that excluded the $23 trillion in Quantitative Easing and bank bail outs, the $2.6 trillion in lost GDP and $trillions in share losses and unemployment.

The markets are not renowned for their foresight and it seems unlikely they are going to switch their investments from fossil fuels to green economies. The solutions are there, and the technology is proven. Even the costs are not an issue: the 1973 oil crisis, when prices quadrupled, made the North Sea Oil fields commercially viable with companies like BP investing and developing technologies that far outstripped the cost of Nasa putting a man on the Moon. Canada’s oil fields of tar sands are only viable because oil prices are so high and it is trend that can only go in one direction.

Investing in green energy on a huge scale is the only safe option given the alternatives are either ecological catastrophe or economic calamity, but with the markets dependency on fossil fuels the only alternative of funding rests with the individual and more importantly government.

2 thoughts on “Energy Futures

  1. You appear, Jules, to refer to Bill McKibben’s scary new maths of climate change, as featured in Rolling Stone magazine a few months ago. If so, I think you are absolutely right to highlight the fact that oil companies are already trading on the profits they expect to make. Therefore, if they are suddenly prevented from pursuing all this unconventional fossil fuel, their share prices will crash and the oil price will rocket.

    The obvious solution (decades ago) would have been for oil companies to become renewable energy companies… Now that position is rapidly becoming untenable (but they could still do it if they act radically and quickly although – having so diligently corrupted the public perception of reality – they would not deserve to share any cudos for doing so).

  2. Quite right: the Rolling Stone article is linked under the 2,800 gigaton hyperlink but taking it further it would be impossible for any nation on economic level to wipe out stock exchange value through saying no to co2. There is a way and that is for governments to create the green competition.

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