IDEAS21

The fact that world crude oil production has been stagnant since 2005 is now commonly acknowledged. But for all the world’s net oil-importing countries – including South Africa – the crucial oil supply variable is total world oil exports, rather than total world oil production – that is, oil importers must compete for the surplus oil sold by oil-producing nations that is left over after the latter’s domestic consumption.

According to the US Energy Information Administration, one of the leading providers of global oil data, world oil exports reached a peak in 2005 at 43.4-million barrels per day (mbpd) and have declined every year since then by an average of 1.8% year. World crude oil exports totalled 40.2 mbpd on average in 2009, according to the latest available data. This represented 48% of total world oil production of 82.4 mbpd.

The 12 members of the Organisation of Petroleum Exporting Countries (Opec) cartel currently produce about 31 mbpd of oil and export about two-thirds of this amount. Opec, therefore, accounts for about half of total world oil exports, and wields this market power to influence prices.

The largest individual net oil exporters in 2009 were Saudi Arabia, Russia, Iran, Nigeria and the United Arab Emirates. The top ten together provided 64% of total world exports.

There are several medium and long-term threats to future world oil exports.

The first is the continuing rise in domestic oil consumption in the oil-exporting countries. In most oil producing countries, local fuel prices are heavily subsidised, which encourages high levels of consumption. And the record-high oil prices of recent years have translated into rapid economic growth and incomes in oil exporters, further stimulating domestic petroleum use.

The second factor undermining world oil output is reserve depletion and production decline in some exporting countries. Already depletion has turned several former net exporters into net importers, including the UK, Indonesia and Egypt. Over time, more and more oil producers will become net importers. Mexico – currently one of the leading suppliers to the US – is near the top of this list.

The third threat is posed by wars, conflict and political uncertainty in a number of oil exporting countries. In Nigeria, militants have consistently undermined the country’s export potential by blowing up pipelines in the Niger Delta. Libya’s 1.2 mbpd of exports was taken off line completely last year and may not reach their precivil war levels for some time as the political ructions persist. Although Iraq’s exports are increasing, this country, too, is beset by perennial political conflict. As competition for the world’s dwindling oil supplies intensifies, we can expect more civil and regional strife in oil-producing countries.

The fourth – and most immediate – threat to world oil exports is posed by the looming sanctions on Iran’s oil exports. The US and Europe are pressuring importers of Iranian crude to sharply reduce their purchases from the Islamic republic. At 2.4 mbpd last year, Iran contributed 6% of global oil exports. Even halving this could have a major impact on international oil prices.

These developments surrounding world oil exports have some stark implications.

First, from the net oil importers’ perspective – a large majority of the world’s nations – oil supply effectively peaked in 2005. What’s more, world exports will decline more rapidly after aggregate global production peaks.

Second, the decline in global oil exports goes a long way toward explaining why the average price of oil doubled between 2005 and 2011. And we can expect the upward trend in oil prices to continue.

Third, this rising oil price has contributed to a shift in oil consump- tion from the West – the US, Europe and Japan – to the East. It seems that the dynamic emerging markets have a higher productivity of oil – more gross domestic product per barrel – and, therefore, can better cope with higher oil prices than the oil-saturated Western economies. China and India, in particular, are rapidly increasing their share of world oil imports, thereby squeezing out of the market both poorer developing countries and highly indebted industrialised nations.

Finally, prices are not the only mechanism for allocating diminishing traded oil supplies. China has used its economic muscle to conclude bilateral deals with several oil-producing countries, often providing loans for infrastructure projects in exchange for long-term oil-supply commitments. The US strategy is to use its over- whelming military superiority to ensure access to, and control over, oil resources for Western oil companies.

South Africa depends on imports for two-thirds of its petroleum consumption. But ranking just seventeenth on the list of oil importers in 2009, we will be hard-pressed to outcompete the big players like China, India and the US. The only feasible option is to wean ourselves off imported oil. The myriad ways to do this will be explored in future columns.

Published in Engineering News , 1 June 2012

For most of the past couple of centuries of industrial capitalism, the majority of economists, politicians and citizens in general have taken energy supplies for granted. The exceptions were local energy constraints, periods of war, and infrequent incidences of politically-driven supply disruptions such as the 1970s oil shocks triggered by the Arab Oil Embargo and the Iranian Revolution.

But in recent years, two huge challenges to our energy situation have loomed increasingly large and are forcing people to give energy the serious consideration it deserves. The first is anthropogenic climate change, which the majority of scientists ascribe mostly to the burning of fossil fuels. The second challenge – which is still the elephant in the room – is the rapid depletion of cheap and easily accessible reserves of oil, coal and gas.

A Dutch researcher writing on TheOilDrum.com website recently made available a useful data compilation providing global primary energy consumption by energy type (see Figure). An analysis of historical energy patterns shows an astonishing growth in energy consumption and highlights our current dependencies.

World energy consumption 1830-2010

In 1830, the Industrial Revolution was just two generations old in Great Britain, was in its infancy in Germany, and was still in gestation in the United States. Total global energy consumption rose from approximately 24 exajoules (10^18 joules) in 1830 to over 550 exajoules (EJ) in 2010. In the past century alone, energy consumption has grown by a factor of ten. On a per capita basis, energy consumption quadrupled between 1830 and 2010.

In 1830, biomass accounted for over 95 percent of the world’s energy supply. Even today, much of the poorer developing world’s population still relies on traditional biomass fuels like wood and animal dung for cooking and heating. Despite the enormous growth in fossil fuel use over the past century, consumption of biomass energy has continued to grow each year, rising from 23 EJ in 1830 to 63 EJ in 2010. A surge in the last decade is largely due to a huge expansion of ethanol and biodiesel production, driven mainly by government subsidies.

Britain was the first country to exploit its coal reserves in the late eighteenth century, at first mainly because it was running short of wood. Globally, coal replaced biomass as the largest source of energy as recently as 1905. Ironically, the fastest growth in coal consumption occurred in the early part of the new millennium, as China ramped up production to feed its break-neck industrialisation.

Commercial oil production began in the U.S. in 1859, but did not overtake biomass energy until 1955. Oil superseded coal as the dominant energy source in 1964, and still provides the greatest share of primary energy today at over a third.

Natural gas has been the relative late-comer amongst fossil fuels, but has grown rapidly since the 1950s. Where it is abundantly available, it has become the fuel of choice for home heating and increasingly for electricity generation.

Commercial nuclear power generation, derived from the fission of enriched uranium atoms, began in 1954. It was historically the fastest growing new energy source, taking just 12 years to progress from 1 EJ to 10 EJ. But nuclear power has levelled off since 2000, and faces an uncertain future after Fukushima.

Hydroelectricity generation kicked off in the 1870s but has grown very slowly, reaching 12 EJ in 2010. Other renewable electricity generation from solar, wind and geothermal energy sources amounted to just 2 EJ in 2010 – invisible on the figure. This is equivalent to the energy obtained from coal in 1848 and from oil in 1912, shortly after the launch of the model-T ford car.

The figure clearly shows how dependent our industrial society is on fossil fuels. In 2010, 80 percent of the world’s primary energy supply was derived from fossil fuels, 11 percent from biomass, 5.5 percent from nuclear energy, 2.2 percent from hydropower and just 0.4 percent from solar, wind and geothermal energy.

Humanity is now reaching an epic turning point in its energy history. World conventional crude oil production has been basically flat since 2005, and unconventional oil and biofuels have only added marginally to production rates since then. An increasing number of analysts are expecting world liquid fuels output to begin declining within the next few years as discoveries of new oil fields cannot keep up with the depletion of old fields. And a number of recent academic studies have thrown serious doubt on the common assumption of abundant coal reserves.

Installed capacity of renewables like solar and wind have been recording spectacular growth rates in excess of 20 percent a year for several years, but this is off an extremely low base. The transition from depleting and polluting finite fuels to renewable sources of energy represents a monumental and urgent transition for humanity.

Published in Engineering News, 2 March 2012

http://www.engineeringnews.co.za/article/a-century-of-addiction-to-fossil-fuels-2012-03-02