The outlook for energy

A report published in May 2004 from the European Union called 'World Energy, Technology and Climate Change Outlook' offers an insight into a future still dominated by fossil-based energy. It predicts that CO2 emissions will increase by 2.1 per cent per year for the next 30 years whilst energy use will rise by 1.8 per cent. The reason for the difference is that there will be increasing use of coal as oil and gas prices rise and reserves contract. It also estimates a fall in the share of energy from renewables from 13 per cent today to 8 per cent. This is mainly because growth in renewables will not keep pace with overall energy consumption.

The report expects that energy use in the US will increase by 50 per cent and in the EU by 18 per cent over the same period. Developing countries, especially China and India, will increase their share of global CO2 emissions from 30 per cent in 1990 to 58 per cent in 2030. China is the world's second biggest emitter of greenhouse gases and the world's biggest producer of coal. To meet its expected energy needs China plans to nearly treble its output from coal fired power stations by

2020. These new power plants are not being constructed to accommodate future CO2 sequestration equipment and they are likely to be in service for 50 years. Oil consumption has doubled in the last 20 years and now stands at 80 million barrels per day, an all time high. So, for decades to come, with cities like Shanghai growing at an exponential rate, China is virtually ruling out measures to mitigate its CO2 emissions, which, as a developing country, it is not required to do.

As the economies of the world power ahead on the back of fossil fuels, the spectre of diminishing reserves heightens anxieties within the corridors of government. The oil companies estimate that reserves will be exhausted within about 40 years but that is not so much the prime issue. According to Stephen Lewis, City economic analyst, 'the kind of growth rates to which oil consuming countries are committed appear to be generating the demand for oil well above the underlying growth in the rate of supply . . . the US, the Middle East, the North Sea ... all appear to be past their production peaks' (The Guardian, 9 August 2004).

There are conflicting estimates, but petroconsultants who advise the government claim that only one new barrel of oil is discovered for every four that are used. Their estimate is that we are only two years away from the peak of oil production.

By 2020 the UK will be importing 80 per cent of its energy based on the current rate of consumption. The histogram in Figure 2.5 indicates the rate of decline of UK reserves of both oil and gas. As regards gas, the major reserves are located within countries that do not have a good record of stability. The North Sea reserves are already diminishing with a

Already produced

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Future production

1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018

Figure 2.5

UK oil and gas reserves to 2020 (Association for the Study of Peak Oil and Gas 2004)

life expectancy of 15-20 years. The government has acknowledged that, by 2020, 90 per cent of the UK's gas will come from Russia, Iran and Nigeria (Ministry of Defence, 8 February 2001).

For the US the Department of Energy estimates that imports of oil will rise from 54 per cent in 2004 to 70 per cent by 2025 due to its declining reserves and increasing consumption. Add to this the fact that at least half the remaining global reserves will be located in five autocracies in the Middle East who have already demonstrated their ability to manipulate prices causing the oil shocks of the 1970s. These states account for 35 per cent of the market, the point at which it is considered they are able to control prices at a time of rising demand, especially by developing countries on the rapid road to developed status.

According to the environmental policy analyst Dr David Fleming it is 'not possible that we can survive without a dramatic increase in the price of oil' (The Guardian, 2 March 2000). The government was warned that another oil price shock could trigger a stock market crash, or even war. In the oil shocks of the 1970s we were extricated from long-term pain by the discovery of large oil reserves in the North Sea and Alaska. This time there are no escape routes. The Kuwait episode then the Iraq war should remind us of the sensitivity of the situation.

The world is one huge combustion engine which consumes 74 million barrels of oil a day to keep it running for now! At the present time in China one person in 125 has a car. The Chinese economy is growing at 8-10 per cent a year. It has joined the World Trade Organisation and opened its markets to international trade which gives additional impetus to economic growth. In no time there will be one person in 50 then perhaps one in 20 owning a car. Even without including the prospects for China the current demand for oil worldwide is growing at 2 per cent a year. By 2020 it is estimated that there will be one billion cars on the world's roads. At the same time petrol geologists estimate that production of oil will peak in the first decade of 2000 and then output will decline by 3 per cent a year. Oil geologist Colin J. Campbell says we are 'at the beginning of the end of the age of oil'. He predicts that after 2005 there will be serious shortages of supply with steeply rising prices and by 2010 a major oil shock reminiscent of the 1970s except that then there were huge reserves to be tapped. There are still large reserves but they are located in places like the states around the Caspian basin which Russia regards as its sphere of influence - not much comfort to the west, in particular the UK, where it is expected that its North Sea fields will be exhausted by 2016.

An updated 2004 scenario for world peak oil production by Colin Campbell shows, in a graph published on the website of the Association for the Study of Peak Oil (ASPO), that both gas and oil worldwide will peak around 2008 (Figure 2.6).

Beyond 2008, increasing price volatility for both oil and gas seems inevitable.

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□ US-48 0 Europe □ Russia □ Other QM.East «Heavy etc. □ Deepwater □Polar □ NGL

□ US-48 0 Europe □ Russia □ Other QM.East «Heavy etc. □ Deepwater □Polar □ NGL

1930 1940 1950 1980 1970 1980 1990 2000 2010 2020 2030 2040 2050

1930 1940 1950 1980 1970 1980 1990 2000 2010 2020 2030 2040 2050

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