IDEAS21

The Association for the Study of Peak Oil (ASPO) South Africa in collaboration with EcoDoc Africa produced a three part video documentary on Peak Oil and South Africa - Impacts and Mitigation. Presented by Jeremy Wakeford of ASPO South Africa, the presentation outlines what the phenomenon called Peak Oil is all about, and what it means for us here in South Africa.

In Part 1, Jeremy outlines our “addiction” to oil, and details three assumptions that we have about oil — namely business as usual will prevail, that there is plenty of oil left, and markets will solve the problem of depletion. For each assumption, Jeremy provides a reality check.

http://www.youtube.com/watch?v=ooXpYkLzLCQ

In Part 2, Jeremy continues to detail our erroneous assumptions about oil and its substitutes, and shows us how we are heading for a reality check mate. This is followed by an analysis of the global and South African implications of Peak Oil.

http://www.youtube.com/watch?v=d719QRRPC-A&feature=related

Part 3 focuses on how we can respond to the challenges of Peak Oil. Jeremy argues that our society must urgently embark on a ’sustainability mobilisation’ that revolutionises our energy, transport and industrial systems, underpinned by a shift in values to reflect environmental realities. He suggests practical responses that can be taken by government, businesses and individuals. He concludes with a reminder that Peak Oil is NOW, that the impacts will intensify, and that proactive mitigation can ease the inevitable transition to sustainability.

http://www.youtube.com/watch?v=CEqOK5FaTSU&feature=related

There are many similarities between 2008 and 2011, such as rising prices of oil, food and other commodities. The following graph shows how the monthly oil prices compare - it will be updated each month. The drivers of the oil price are similar, but this year are even stronger in many respects compared to 2008: protests and conflict in MENA countries; Japan’s tsunami; static supply in the face of rapidly growing demand for oil in Chindia. The scene is thus set for another superspike, probably exceeding the $147 peak of 2008. The consequences are likely to be similar too - more protests over fuel and food prices, another round of financial turmoil, etc.

Published in the Cape Times on 29 March 2011

The Department of Energy’s “Integrated Electricity Resource Plan
2010″ (IRP2010) aims to guarantee security of energy supply, diversify
the country’s energy mix and reduce carbon dioxide emissions over the
next 20 years. After a round of public consultation, the DoE presented a
revised plan to Cabinet, which approved it on 17 March.

The latest publicly available version, a “revised balanced scenario”
(RBS), is based on a string of deeply flawed assumptions and mean the
country is being steered further down an unsustainable path towards
economic contraction, social dislocation and environmental degradation.

This is a critical juncture in our country’s history, where energy
investment decisions can play a pivotal role in the transition to a
sustainable socio-economic system.

The RBS displays a worrying lack of appreciation of the global and
domestic energy and resource contexts, includes problematic economic and
social parameters, and shows a callous disregard for several critical
environmental factors.

To begin with, several assumptions underlying this scenario are
highly problematic in the face of the imminent decline in global oil
production and its probable impacts.

Most obviously, diesel to fuel new - not to mention existing - open
cycle gas turbines (OCGTs) will most likely be prohibitively expensive
by 2020, if not earlier.

More generally, the costs of the build programme are likely to
escalate substantially as oil prices drive inflation and interest rates
higher.

The assumption of 4.6% annual economic growth is highly unrealistic
in the context of continuing oil price shocks and looming supply
constraints.

Deteriorating economic conditions could also jeopardise imports of coal and electric power from neighbouring countries.

Meanwhile, over the coming years our transport system will need to be
progressively weaned off oil and powered by electricity instead.
Replacing our current fleet of over eight million road vehicles with
electrified transport will require several additional gigawatts of power
capacity.

But oil is not the only fossil fuel that is rapidly depleting. Global
and South African coal production cannot keep pace with voraciously
growing appetites from the likes of China and India for much longer.
Research published in the academic journal Energy last year suggests
that world coal energy output could peak this year, sparking a dramatic
rise in prices.

According to several scientific studies published in the past year,
South Africa’s own rate of coal production is very likely to peak this
decade.

Thus whether sourced from home or abroad, the coal needed to feed new
- and possibly old - thermal power stations will become increasingly
expensive and at some point simply unavailable. This flies in the face
of the RBS’s projection that coal costs will decrease from R300 to R200
per tonne.

Other economic parameters contained in the IRP2010 revised scenario
are equally tenuous. For example, assuming the exchange rate will hold
at R7.40/$ is unrealistic in the face of looming oil shocks, which
historically have triggered capital flight and sharp currency
depreciation.

Furthermore, the RBS projections exclude the potentially enormous
costs of decommissioning power plants and of storing and safely
disposing of spent fuel (if that is even possible).

From a social equity perspective, the assumed real discount rate of
8% is much too high, as it effectively writes off the welfare of future
generations. It contrasts starkly with the much lower discount rates
assumed in the Stern Review on the Economics of Climate Change (0.1%)
and our government’s own Long Term Mitigation Scenarios.

We cannot assume that future generations will be wealthier - in fact,
the greater likelihood, given fossil fuel depletion, environmental
degradation and climate change, is that they will be economically poorer
than we are today. Thus consumption by our children will be even more
valuable than it is for us, which should be reflected in a zero (or even
negative) discount rate.

Environmentally, too, the current IRP has major shortcomings.

Water scarcity seems to be totally disregarded, and could impose a tough binding constraint on energy production.

Negative environmental and social externalities - like air and water
pollution and associated health impairment from coal combustion - are
not sufficiently incorporated into the costs. A recent peer-reviewed
academic study calculates that the hidden costs of coal mining and use
in the USA amounts to approximately $345 billion a year - enough to
nearly treble the price of coal-fired electricity.

The rate at which carbon dioxide emissions are reduced in the RBS is
much too slow, and ignoring the carbon content of imported coal is
arbitrary.

And has anyone in the government considered the possible impact of
sea level rise on coastal nuclear power plants, which are supposed to
last at least 40 years? Perhaps the tragic events in Japan will provide a
needed jolt.

Grounding the IRP on these realities has some profound implications.

First, the levelised costs of the various energy sources change
significantly. Taking into account the likely trend of rising coal
prices, as well as incorporating the external costs of coal, means that
coal-fired electricity is no longer a cheap option. Power from OCGTs
will quickly rise off the scale of affordability. And incorporating full
life-cycle costs into nuclear calculations would substantially change
its economic profile.

Meanwhile, economies of scale in the production of solar and wind
technologies will reduce their average costs over time. Thus renewables
are actually much more economically favourable than presented in the
RBS.

Second, there is a major risk of power shortages down the line,
unless the economy contracts substantially. If we remove the new build
options from the RBS that are likely to be unaffordable, unavailable or
undesirable, we are left with a meagre net increase in national power
capacity of just 9 gigawatts by 2030.

Three major strategies should be followed to meet the laudable goals of the IRP.

First, our country needs a much more ambitious energy conservation
and efficiency programme that aims to eliminate wastage of energy,
alleviate bottlenecks in the roll-out of the solar water heater
programme, and provide simple and cheap solar cookers - especially to
low-income households.

Second, several critical institutional reforms must be accelerated.
The renewable energy feed-in-tariff (REFIT) must be implemented urgently
so that small and large-scale independent power producers have the
certainty needed to undertake investments. Electricity distribution must
be extricated from Eskom’s monopoly power. And residential consumers
and small businesses should no longer subsidise multinational mining
companies who pay discount rates for bulk electricity.

Third, government must lead a massive, crash programme of investment
to scale up local renewable energy production capacity. As in a war-time
mobilisation - for that is the urgency we face - car factories should
be retooled and workers retrained to manufacture solar photovoltaic
panels, concentrated solar plants and wind turbines. This will boost
local employment and incomes and reduce reliance on imported energy and
equipment.

The so-called Integrated Resource Plan lacks an integrated vision of
the present and future based on a realistic assessment of resource
availability and the waste-absorption capacity of the environment.

We are at a critical turning point in the history of our country and
indeed our species: either we make a successful transition to a
sustainable socio-economic regime, or we face a painful disintegration
of our partially industrialised civilisation.

Energy is the paramount resource sustaining any complex society, so
let us choose our energy path wisely to ensure a peaceful and prosperous
future for ourselves and our children.

Published in the Mail & Guardian, 11 March 2011: http://mg.co.za/article/2011-03-11-mthombo-a-white-elephant-in-the-making/

As the oil price has once again breached the psychological three-figure mark of $100 per barrel, security of oil supply is ascending on the national agenda.

South Africa’s national oil company, PetroSA, is pushing hard for Cabinet to approve its “Project Mthombo”, a new oil refinery to be built at Coega in the Eastern Cape.

But it is now widely acknowledged that the world has effectively reached ‘peak oil’, the time when global oil supplies can no longer rise to match demand. In a future of declining oil supplies and rising prices, project Mthombo could become our country’s biggest white elephant – one that we can ill afford.

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South Africa currently imports around two thirds of its liquid fuels. The government’s strategy regarding security of liquid fuel supply assumes that sufficient crude oil imports will be both available and affordable in the foreseeable future.

 The emphasis has been on ensuring that adequate quantities of refined products are available to meet rising demand, especially in the economic heartland of Gauteng. Hence Transnet’s new multi-product pipeline from Durban and PetroSA’s proposed new 400,000 barrel per day refinery at Coega (although the logistical questions about transporting products to distant markets remain unanswered).

However, these assumptions are out of alignment with mounting scientific evidence on the depletion of finite global oil resources and the empirical phenomenon termed ‘peak oil’.  

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It is commonly (mis)believed that the world has abundant supplies of coal remaining, and that the main problem with coal is CO₂ emissions. This is certainly the view of the IPCC. However, in the past few years several studies have questioned this view, noting that many countries’ coal reserve estimates have been downgraded in recent years.

The German-based Energy Watch Group produced a report on coal in 2007, in which they forecast a global production peak as early as 2025.

An article by Patzek and Croft, published in the international journal academic Energy in May this year, makes for even more jaw-dropping reading. The authors use multi-Hubbert models and data from various sources (including the International Energy Agency) to forecast global coal production. Unlike the other studies, however, these authors use the energy content of coal, rather than tons produced. Energy content is much more relevant for economic activity, as it includes the effect of declining ore grades over time.

Patzek and Croft state that “The global peak of coal production from existing coalfields is predicted to occur close to the year 2011.” Note that their forecast does not include new coal from new mines. However, even if new mines are developed (which they surely will be), it is doubtful whether sufficient new mines will be developed quickly enough to offset the decline from existing mines. Patzek and Croft state that “numerous major new mines would have to be brought online within half a decade to arrest the predicted decline of global coal production.” The peak and decline of oil production will make it more costly to develop new coal mines.

The authors forecast a fairly bell-shaped production profile: “After 2011, the production rates of coal and CO2 decline, reaching 1990 levels by the year 2037, and reaching 50% of the peak value in the year 2047.”

If the forecast proves to be reasonably accurate, the implications are profound. As the authors put it, “If we are right, major restructuring and shrinking of the global economy will follow.”

Coal is used to generate about 40% of the world’s electricity, and is crucial for the manufacture of steel. After the peak, coal prices will sky-rocket as competition for sharply falling supply intensifies. Countries that get priced out of the coal import market will face electricity blackouts. Bear in mind that there are only about 6 significant coal exporting countries in the world.

One of these is South Africa, which would stand to benefit substantially in terms of the balance of payments and tax revenues. However, Patzek and Croft estimate that SA’s own coal production in energy units peaked in 2007! The authors state that “The base-case in this study includes all coal-producing regions with any significant production history”; thus it would include the relatively underdeveloped Waterberg Coal Field, which has been supplying the Matimba power station for some years.

An article by Dr Chris Hartnady, forthcoming in the SA Journal of Science, forecasts peak SA coal production (in tons) in 2020. Further work will need to be done to convert his forecast into comparable energy units; this would likely bring forward his peak date estimate.

In any event, sooner or later domestic supply will peak and anticipated rising domestic consumption of coal in SA will have to compete with rising demand for coal exports - a classic example of the “export land model” developed by Oil Drum contributors.

Moreover, the above forecasts do not take energy return on energy invested (EROEI) into explicit account. EROEI for coal has been declining since the early days of mining, since the best ore grades and most easily accessible deposits are generally mined earlier on. Declining EROEI will exacerbate the impacts of falling coal production, as more energy will be required to deliver each successive unit of coal energy.

In short, it is imperative that the world and South Africa embrace energy conservation and efficiency, and accelerate the development of alternative energy sources.

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.

There’s a good chance 2008 will go down in history as the year world oil production and consumption reached their zenith – at nearly 87 million barrels per day. If so, then the immediate cause – somewhat perversely –will not have been supply constraints, but rather demand destruction resulting from the combination of a severe price shock and a global recession.

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