The Oil Crisis: Any Light at the End of the Pipeline?

Paper ID:

285

Last updated: 31/01/2012 09:08:31

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Where: Global

When: 11-20yrs

How Fast: Years

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Keywords:

oil, demand, supply, alternative, coal, nuclear, natural gas, wind, biofuels, wave, solar, hydrogen, ethanol, methane, renewable, hydrates, carbon

Summary

Discussion

Future energy consumption is expected to continue at its robust pace with a heavy continued reliance on fossil fuels. Over the past fifteen years the consumption of energy increased at about 1.5% per year. Forecasts for the next twenty years expect energy consumption to grow by 2% per year -- at this rate, we would double our current consumption of energy in only 36 years [1] .

Given that fossil fuels are finite in supply and showing strains in meeting even today's demand, many expect an energy crisis in the near future unless renewable sources of energy are massively expanded. However, despite doomsday forecasts there appears to be enough oil to power our transportation needs for the next century [1] . It will one day however need to be replaced and, as there is no likely silver bullet solution to our energy needs, many sources of energy will contribute to our growing demand [2] . One can also expect an increased push for greater energy efficiency in the developed world for several reasons, including reducing pollution, decreasing reliance on foreign energy sources, and saving money [3] . However, the rapid industrialisation of developing economies, such as China, where energy use is less efficient, will continue to drive the search for more fuel.

Synthetic oil, made by converting non-oil fossil fuels (such as coal, natural gas, shale, or oil sands), will help mitigate the withdrawal from oil. Some optimists believe that synthetic oil will replace natural oil entirely, but since creating it is a heavily polluting activity and is only economic under high fossil fuel prices, governments may move more quickly toward other sources of energy [4] . Natural gas (methane) could be the new primary power source for the 21st Century thanks to its relatively clean combustion and largely untapped supplies. There are great challenges in efficiently transporting it to market but the construction of new infrastructure is being focused upon. However, currently the cheapest source of energy is coal with abundant supplies globally. More countries will probably turn to their own abundant coal deposits via technologies such as coal gasification which can clean up power plant emissions but which have not yet been widely rolled out because of the large investment necessary.

It may be possible to suppress the amount of carbon dioxide released into the atmosphere by fossil fuels by storing it beneath the seabed in redundant oil/gas reservoirs or saline aquifers. Carbon dioxide is already routinely injected into oil reservoirs to improve recovery. Perhaps the biggest scientific challenge is preventing leakage. This might be achieved by trapping it in the form of hydrates [5] .

Despite current plentiful reserves of the three primary fossil fuels, infrastructure limitations and the desire for cleaner energy will make the use of alternative supplies critical to meet the rising growth in demand. Wind currently provides 0.1% of the world's energy needs but this might grow to 1% [6] . Environmental impacts (eyesores, noise, avicide) have been eased with larger, quieter turbines and new offshore developments. Nevertheless, limitations on suitable sites and opposition from local campaigners are likely to keep wind a modest source of power. Biofuels (for example ethanol, methane, pulp, paper waste) already produce a notable amount of energy. In the US, biomass combustion generates as much energy as hydro plants and nearly twice as much as solar, geothermal, and wind combined [1] . However, the sheer size and scale of resources needed to generate larger amounts of energy this way will keep it a fringe producer at best.

Wave and tidal resources could have many advantages. Tidal currents are predictable and wave movements can also be watched and forecast. In the UK several pioneering new devices are being tested at sea. Much research is yet to be done on suitability of sites and robustness of technology. A major question mark remains over whether electricity generated in a remote location will be commercially viable given the cost of transporting it somewhere useful [7] , [8].

Nuclear and solar power have the greatest potential to dramatically alter the energy supply landscape as both could produce enormous amounts of energy. The policy dilemma of nuclear power - abundant energy with no air pollution versus radioactive waste disposal, large upfront costs, and catastrophic accident potential - is one that legislators will need to continue to debate. Some developed countries will be likely to follow France's lead and "go nuclear" while the majority will probably look elsewhere. In the emerging world, take-up can be expected to be greater because local opposition exerts far less influence, pollution is a secondary concern to economic growth, and the rapid development of these economies requires enormous amounts of energy. It is commonly said that proven uranium reserves can only last another 50 years. Others argue that very little effort has so far been expended on uranium exploration. Recently the price of uranium ore has increased with the result that many old, lower-grade ore sites are going into development, and exploration has increased, leading to the discovery of many new sites with economically recoverable uranium. Recoverable reserves will expand with advances in extraction technology and higher ore prices. In the longer term, the industry hopes that “breeder” reactors will become more economical and eliminate issues of supply.

The sun is the one source that can supply most of the world's energy indefinitely but solar energy is currently cost prohibitive. If technological improvements and rising prices for other energy sources allow it to become competitive, the whole energy landscape will change [9].

There is an additional wildcard that is unlikely to appear, but if it did it could have a profound impact: fusion. Extensive research is just getting off the ground, hurdles are enormous and breakthroughs or applications, if they come at all, are likely to be decades away [10] , [11] .

Pundits talk of hydrogen providing a clean alternative to oil-based automotive fuels. But the cost of making hydrogen fuel and the pollution that results, as well as the enormous vested economic interests in today’s oil infrastructure, mean the hydrogen economy is unlikely to appear on a mass scale soon. What is more likely is that hydrogen will replace oil as the major transportation fuel only in small regions with abundant access to renewable energy (such as Iceland) or with centralised transportation authorities with easy access to natural gas pipelines (like inner city bus lines). Hydrogen-powered fuel cells will probably see adoption in niche areas. The first large market is likely to be for standby power generation for office buildings and hospitals that need back-up energy during blackouts, as well as rural homes that want to live off the grid. Hydrogen-based fuel cells also offer potential as a stored power source for small electronic gadgets. Currently, technological hurdles prevent this from being an attractive option, but future innovation could make this niche application attractive.

Implications

The composition of energy sources is unlikely to vary much in the near to medium term. All sources of energy will be increasingly important but a gradual shift to alternative sources in the industrialised world will be likely to be offset by the rapid growth in energy consumption served by fossil fuels in the emerging world. Oil companies are likely to continue their transformation into 'energy' companies as they pursue sources of natural gas with the same zeal as oil reserves. Natural gas may start to mimic oil price volatility with a resulting impact on economies around the world. The potential "oil peak", whenever it occurs, will also serve a significant jolt to the global economy - and the current models of everyday life. The environment may suffer to an even greater extent as every possible source of oil is explored and exploited.

Geopolitical conflicts and alliances may shift in line with the importance of new fuels. For example, China, India, and South Korea look likely to make enormous investments in nuclear power which could create geopolitical tensions over the potential for catastrophic incidents and nuclear weapons proliferation.There may also be a stabilisation or rebirth of mining industries in countries that invest in coal gasification or synfuel production.

As energy moves up the public agenda, greater energy efficiency may become a key design criterion for many consumer and commercial goods.

Early indicators

Technological innovations in oil discovery and extraction that enable the unearthing of additional reserves and increasing production at existing sites.
Dramatic growth in consumption of natural gas over the past 10 years with associated price volatility.
Rapid growth of synfuel production from Canada's oil sands -- Canada now supplies 10 percent of the North American oil market.
Recent and continued investment of large conglomerate and energy firms in wind production, replacing many smaller independent pioneers.
India’s recent non-proliferation deal with the US and Pakistan’s successful establishment of military nuclear expertise. Nuclear experimentation by Iran and North Korea.

Drivers & Inhibitors

Rapid economic growth in the emerging world (especially Asia) drives increased energy demand. Higher prices for oil, and geopolitical concerns, lead to greater investment in oil extraction techniques and drive faster investment into natural gas exploration, development, and transportation; and into coal gasification technologies; and into the establishment of synfuels industries.
Continued demand by consumers for cleaner sources of energy.
Development of new energy-saving technologies. Continued research investment by large entities and subsequent technological improvements, further lowering the cost of generating wind energy.
Improved access to nuclear technology in the developing world. Continuation of authoritarian regimes in developing countries.

Parallels & Precedents

Impact of oil on world economies and politics is a precedent for the impact of natural gas.
The rapid build out of nuclear energy when it promised an environmentally friendly domestic source of energy.
Germany's development of a synfuels industry to fuel its armies during World Wars I and II in response to its oil supplies being largely cut off.
France’s decision to 'go nuclear', so that nuclear now comprises over 90% of its electricity generation.

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Sources

Ref.	Publisher	Date	Title	Category
1	New Scientist		New Scientist (2005), 'Biggest Nuclear Fusion Project Goes to France' June 28	Tech
2	Other		Energy Information Administration (EIA) (2005), 'International Energy Outlook 2005'	Tech
3	Hill & Wang		Deffeyes, Kenneth (2005), 'Beyond Oil: The View from Hubbert's Peak', New York: Hill and Wang.	Tech
4	World Energy Council		World Energy Council (2001), 'Survey of Energy Resources: Oil Shale'	Tech
5	Other		Centre for Gas Hydrate Research, Heriot-Watt University, UK	Tech
6	The New York Times		The New York Times (2005), 'Shortages Stifle a Boom Time for the Solar Industry', 5 August	Tech
7	Other		Website of Supergen Marine Power Consortium	Tech
8	BBC		BBC News (2006), 'Backing for Severn Barrage Power', April 21	Tech
9	Business Week		Business Week (2005), 'Wind Power Has a Head of Steam' July 11.	Tech
10	Other		Cabinet Office Performance and Innovation Unit (2002), 'The Energy Review', February	Tech
11	New Scientist		New Scientist (2004), 'Fast Forward to Fusion' April 10	Tech

Other Sources

Link	User
BP, 'Statistical Review of World Energy 2005'	TC
International Energy Agency	TC

The contents of this paper were provided by the Outsights-Ipsos MORI Partnership. Any views expressed are independent of government and do not constitute government policy.