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The Global Oil CrunchWe should be preparing in advance

Bruce Robinson, Convenor30th June 2009

? ? ? ?

Look out !! Something serious

is looming on the radar

Senate Select Committee on Fuel and Energy

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Outline This is about oil, not energy in general.

Transport Energy, not Stationary Energy

Global oil supply, not just Australia's

● What is Peak Oil ?

the time when global oil production stops rising and starts its final decline

We will never "run out of oil"

● When is the most probable forecast date ? ? 2012 +/- 5 years

"Peak Exports" is even more important, and sooner

● Oil vulnerability assessment and risk management crucial to many policies

1930 1970 2010 2050

Peak Oilbutwhen?

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Two analogies for Peak Oil risks

1. Hurricane Katrina (New Orleans, 2005)

2. US Financial Crisis (World, 2008-09)

Can we learn to prepare for probable events rather than just hoping business will be as usual ?

KOSPI

Jeremy Leggett The Guardian, UK, 29-Oct-2008

"We have seen with the credit crunch, the banks and governments failed to see a massive problem coming.

With the oil crunch, oil companies and governments are failing to see a massive problem coming.

The difference is we have five years to gear ourselves up to do something about it this time.

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Hurricane Katrina New Orleans

US Federal, State and local Governments were shown to be shortsighted, ill-prepared, uncaring and disorganised.

Most governments and investors are much less prepared for Peak Oil

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"Grappling with Energy Risk"Matthew R Simmons, Chairman, Simmons & Company,

Investment Bankers to the Energy IndustryASPO-USA conference Sept 22nd 2008

www.simmonsco-intl.com/files/ASPO%20USA%202008.pdf

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www.csiro.au/resources/FuelForThoughtReport.html

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August 2008

Unless there is a collapse in oil demand within the next five to ten years, there will be a serious oil 'supply crunch' - not because of below-ground resource constraints but because of inadequate investment by international oil companies (IOCs) and national oil companies (NOCs).

www.chathamhouse.org.uk/publications/papers/view/-/id/652/

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Jeremy Leggett October 29 2008

Time for an energy bail-outPeak oil is just five years away, and we must start to plan now to avert a truly ruinous crisis

Today, eight British companies are warning of a ruinous oil crunch five years from now. Previously unimaginable policy interventions in financial markets have suddenly become imperative, and similar interventions in energy markets today may be worth their weight in gold tomorrow.

www.peakoiltaskforce.net

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World Energy Outlook 2008: The world’s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable — environmentally, economically, socially. But that can — and must — be altered; there’s still time to change the road we’re on.

"Fresh sources of oil equivalent to the output of four Saudi Arabias will have to be found simply to maintain present levels of supply by 2030, one of the world's leading energy experts has said. Fatih Birol, chief economist of the International Energy Agency (IEA), the developed world's energy watchdog, told The Times

The IEA "estimates that the average production-weighted observed decline rate worldwide is currently 6.7% pa for fields that have passed their production peak. In our Reference Case, this increases to 8.6% in 2030. The current figure is derived from our analysis of production at 800 fields, including all 54 super-giants (< 5 Gbbl) in production today". ..

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Even if oil demand were to remain flat to 2030, 45 m barrels/day of gross capacity -roughly four times the capacity of Saudi Arabia - would be needed just to offset the decline from existing fields

2008

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Prof Kjell AleklettGlobal Energy Systems

Uppsala University, Sweden

Australian lecture tourJune 5th-12th 2009

Plenary lectureSupply Chain and Logistics ConferenceSydney

Canberra, Senate Hearing

Energy White Paper,Dept of Infrastructure, Transport etc

University of Technology, Sydney

University of Adelaide

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2008

International Energy Agency (OECD)

WEO 2008 and Uppsala Oil

Outlook 2008

2008

Uppsala Global Energy Systems

group

Using the same IEA datafields to be developed and yet to be found, and the same natural gas production

Different conclusions.

IEA production forecasts are "outside reality", not possible.

(because IEA have assumed impossible production rates from the reserves)

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Oil production,OECD Europe (EnergyWatch Group, 2007)

Oil Production UK, field by field(EnergyWatch Group, 2007)

Alaska's giant Prudhoe Bay(Simmons)

Mexico's Cantarell giant(Simmons)

Oilfields and oil provinces "peak". Their production rises, reaches a maximum and then declines54 of 65 most important oil producers have peaked.

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0

2

4

6

8

10

1900 1920 1940 1960 1980 2000

US Oil Production 1900-2006

(million barrels/day)

mb/d

US oil peak 1970

US economic and military power was built on its rising oil production,What might happen down the decline side of the graph?? ( ? financial crisis ?)

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Dr. Sadad I. Al Husseini, ex Saudi AramcoOil and Money Conference, London, October 30, 2007

...predicts a 10 year plateau

a structural ceiling determined by geology

100

90

70

80

Production M b/dayPrice

$/barrel

The economic mantra is that as prices rise, production will increase. Clearly not true from these data.

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17

Germany, October 22 2007

Fig. 7 Oil production world summary

2008www.energywatchgroup.org/fileadmin/global/pdf/EWG_Oilreport_10-2007.pdf

IEA WEO 2008

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Chris Skrebowski Editor, Petroleum Review, London

The practical realities

• Worry about flows not reserves• "Deliverability"

“It isn't the size of the tank; it’s the size of the tap” (ASPO-USA)

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A simple observation -- or why peak will be earlier than most people expect

‘Global production falls when loss of output from countries in decline exceeds gains in output from those that are expanding.’

Decline

Expansion

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0

10

20

30

40

50

60

1930 1950 1970 1990 2010 2030 2050

Gb

/a

Past Discovery

Future Discovery

Production

Revisions backdated.Rounded with 3yr moving average Campbell, 2007.

THE GROWING GAPRegular Conventional Oil

Billion barrels of oil per yearLongwell, 2002

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0

10

20

30

40

0

10

20

30

40

40

10

30

20

01930 1970 2010 2050

IEA 2002

Shell

Bauquis, Total Deffeyes

ASPO & Skrebowski

Gb pa

0

2007

World Oil Production

and Forecasts 2012 +/- 5 years ?

Prof. BauquisFrance

Dr Ali Samsam BakhtiariIran

Chris SkrebowskiUK

Prof. Aleklett, ASPOSweden

Zittel & SchindlerGermany

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WORLD OIL PRODUCTION FORECASTASPO-2008 base case (CJC)

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

1930 1950 1970 1990 2010 2030

kb

/d

NGL

Polar

Deepwater

Heavy

Regular

Millionbarrelsper day

80

60

40

20

0

2009

www.PeakOil.net ASPO 2008

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Perth’s Central Park building is 249 m high, to top of tower

Australia uses 51,000,000,000 litres of oil each yeara cube of about 370 metres size

80% of Australia’s oil usage is in transport

If Australia’s 20 M tpa wheat crop → ethanol = ~10%

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Australia China United States

1 kml l

Million barrels/ day 2007 BP Statistical Review, 2008

Australia uses 0.9 China 7.9US 20.7World 85.2 US 1 cubic km oil / year

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0 5 10 15

5

0

15

25

Years After Crash Program Initiation

Impact (MM bpd)

20

35EOR

Coal Liquids

Heavy Oil

GTL

Efficient Vehicles

Worldwide Crash Program Mitigation of Conventional Oil Production Peaking

A Study for US DOE NETLHirsch, Bezdek and Wendling, 2005

Delay / Rapid growth.

Roughly 35 MM bpd at year 20.

2005

Study

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COST AS A FUNCTION OF START TIME (Notional)

Time

Cost of Error

Premature Start

Peaking Scenario I

- 10 Years Scenario II

- 20 Years Scenario III

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0.0

0.2

0.4

0.6

0.8

1.0

1965 1975 1985 1995 2005 2015 2025

Million barrels/day

Actual ForecastAustralia

}$17.8 billion2007/08

P50

Consumption

Production

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Failure to act now will prove incredibly costly

Oil vulnerability assessment and risk management should be a central part of most policy decisions

www.ASPO-Australia.org.au

Bruce.Robinson@ASPO-Australia.org.au 0427 398 708 08-9384-7409

Hint: Check your superannuation is not being invested into urban toll-roads, tunnels and airports.

General priorities for facing Peak Oil1: Awareness and engagement 2: Frugality3: EfficiencyLast: Alternative fuels

and technologies

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a few more slides follow,in case they are needed for questions

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1: “Talk about it, Talk about it”2. Engage people, “Participatory democracy”3. Dismantle the "perverse policies" that subsidise heavy car use and excessive freight transport.

Australian Government Policy and Action Options

4. Encourage frugal use of fuel, and disadvantage profligate users. Fuel taxes should be incrementally raised to European levels to reduce usage.5: SmartCard tradable personal fuel allocation system. A flexible mechanism for short-term oil shocks, as well for encouraging people to reduce their fuel usage..6. Concentrate on the psychological and social dimensions of automobile dependence, not just “technological fixes”7. Implement nationwide "individualised marketing" travel demand management.8. Railways, cyclepaths and public transport are far better investments than more roads.9. Give priority for remaining oil & gas supplies to food production, essential services and indigenous communities, using the Smart-Card system.

10. Review the oil vulnerability of every industry and community sector and how each may reduce their risks.

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Australian petrol & diesel rationing using 2008 technologySmart-card based, scalable, tradeable, flexible, quick to change, equitable, transparent.

Fuel allocations should be per person, not per vehicle, and depend on Location (inner or outer suburb, public transport access, regional or remote) Health status (elderly or infirm, expectant mothers with toddlers), less for the fit

who can ride a bicycle 20kms if needed Job importance (defence, essential services, hospitals, food)

People are encouraged to conserve by being able to trade unused allowances electronicallyand automatically.

Martin Feldstein, Chief Economic Advisor to President Reagan, now at Harvard, (WSJ 2006)

"tradeable gasoline rightsare more efficient than fuel economy standardsor gasoline taxes"

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A rational pricing system Perth domestic water

Renewable scarce resource

A personal fuel SmartCard system could tax petrol and diesel on a sliding scale like water.

People could trade unused allocations to those who want more fuel.

Water Analogy for Fuel Pricing

$0.00

$0.50

$1.00

$1.50

$2.00

0 150 350 550 950

Perth domestic water prices per kilolitre 2008

Consumption range kilolitre/year

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toroads,4WDsprofligate vehicle usersheavy inefficient vehicles

Supermarkets subsidise CO2 $18/tonne with their fuel dockets

Supermarket petrol discounts

People who walk to the supermarket are subsidising those who drive in the big SUVs

There are innumerable “Perverse” subsidies

0%

10%

20%

30%

0 15,000 25,000 40,000

FBT tax on motor vehicles

km range

FBT tax on cars as part of salary

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Petrol taxes OECD

IEA Dec 2003

Korea

UK

Australia

US

€ 0.80

0.60

0.00

0.20

0.40

Au$cents/litre

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The UK Fuel Tax Escalator Margaret Thatcher

Australian fuel taxes should be raised to European levels on a fuel tax escalator

1988 1990 1992 1994 1996 1998

Nominal tax per litre (pence)

Real tax

10

30

50

40

20

0

pence

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China

US

Australia

39www.ASPO-Australia.org.Au

Bicycles are powered by biofuel, renewable energy,

either Weetbix or abdominal fat

No shortage of either

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WORLD OIL & GAS PRODUCTIONASPO 2008 base case

0

20000

40000

60000

80000

100000

120000

140000

1930 1950 1970 1990 2010 2030

kb

/do

e

NonCon GasGasNGLPolar OilDeepwater OilHeavy OilReg.Oil

140

120

100

80

60

40

20

0

Million barrelsper day

(equivalent)

2009

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