IDEAS21

South Africa has learned the hard way about the consequences of inadequate planning for energy security. Since the electricity crisis erupted in January 2008, supply constraints have hobbled our economy’s development. Our leadership urgently needs to take action to avoid a similar looming energy crisis – this time concerning liquid fuels.

 

Over the past couple of years the world has begun to wake up to the reality of ‘peak oil’: the empirical fact that global oil production will inevitably reach a maximum rate – a peak – and thereafter decline inexorably due to the depletion of this finite resource.

 

Most of the world’s governments have for decades taken their cues on security of oil supply from the International Energy Agency, which was set up after the 1970s oil shocks. Until recently, the IEA maintained that there was no prospect for oil supply constraints before 2030.

 

But the IEA’s Chief Economist, Fatih Birol, admitted in an interview with the UK’s Guardian newspaper last year that he expects conventional oil production to peak by 2020.

 

In November, a whistleblower from the IEA alleged that the agency knew very well about the threat posed by peak oil, but was under pressure from member governments – chiefly the United States – to keep the issue under wraps out of fear that open acknowledgement would lead to a stock market collapse.

 

A comprehensive survey of academic research and industry reports on peak oil published last October by the UK’s Energy Research Centre concluded that “there is a significant risk of a peak before 2020”.

 

A report for the US Department of Energy in 2005 warned that mitigating actions needed to be implemented at least 20 years before the oil peak to avoid serious economic and social dislocations.

 

The peak and decline will happen at a time when demand for oil is growing very rapidly in many developing economies. China’s oil consumption has leapt from six to nine million barrels per day in the past three years alone.

 

Because oil exporting countries like Iran and Saudi Arabia have been consuming an increasing share of their oil production, total world oil exports have in fact been declining since 2005 – a major factor underlying the steep rise in international oil prices observed since then.

 

Until now, most national governments have had their heads in the sand with respect to the threats posed by oil depletion. One exception is Sweden, whose government in 2006 outlined plans to halve the country’s oil consumption by 2020.

 

And just last week, the UK’s Energy Minister called a summit with industrialists to discuss his government’s response to a near-term oil peak.

 

This follows the publication in February of a report entitled “The Oil Crunch” by the UK Industry Taskforce on Peak Oil and Energy Security. The taskforce – whose membership includes Sir Richard Branson, founder of the Virgin Group – stated that “We must plan for a world in which oil prices are likely to be both higher and more volatile and where oil price shocks have the potential to destabilise economic, political and social activity.”

 

The dramatic price spike in 2008, when oil reached $147 per barrel, was a major contributor to the global economic crisis. The recession dented demand for oil in the industrialised countries and effectively postponed the oil supply crunch for a couple of years, buying the world some precious time to prepare.

 

Despite the synthetic fuels produced by Sasol and PetroSA from coal and gas, respectively, South Africa imports about 70 per cent of its liquid fuels and is therefore highly exposed to international oil shocks. More than 80 per cent of oil imports come from the volatile Middle East.

 

Our transport systems are overwhelmingly reliant on petroleum fuels, which make up 98% of the sector’s energy supply. Conversely, the transport sector accounts for over three quarters of national oil consumption and is thus our Achilles heel with respect to global oil depletion.

 

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 hamper economic activity in general. The Department of Energy estimated in 2005 that a total liquid fuel supply disruption would cost the economy nearly a billion rand a day.

 

What should our government be doing to prepare for the inevitable decline in global oil production?

 

For a start, preparing for peak oil should become a cornerstone of the National Planning Commission – and it should be integrated with plans for poverty alleviation, food and water security, job creation, climate change and other pressing development challenges.

 

More broadly, all aspects of government policy should be underpinned by an expectation of much more expensive and scarcer oil supplies in the future.

 

There is a wide range of policies and measures that can be implemented to 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. Carpooling can be encouraged by having dedicated multiple-occupant lanes on city freeways. Various types of fuel rationing could also be considered.

 

Any government support that is given to the automotive sector should be tied to improved fuel efficiency standards. Even better, government should appropriately incentivise the development and production of electric cars – such as the home-grown Joule – which are much more energy efficient than internal combustion vehicles and not nearly as reliant on oil.

 

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 Cape Town and Johannesburg 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 refurbished, extended and electrified. Priority should be given to major freight transport corridors such as between Johannesburg and Durban. Light rail systems could be an option for the big metros.

 

For rail and road transport systems to be progressively electrified, the country will need to expand its electricity production even more than Eskom is currently planning. 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 is particularly vulnerable to rising oil prices.

 

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.

 

By ignoring the reality of the imminent peak and decline in global oil production, and not planning accordingly, our leaders are imperilling our future.

 

There is much that can be done to mitigate the impacts, but the longer actions are delayed the more costly and difficult they will be. We need to seize the moment and accelerate the transition to a sustainable economy.