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From the website of the UK Industry Taskforce on Peak Oil and Energy Security:

The UK Industry Taskforce on Peak Oil and Energy Security (ITPOES) is a group of British companies concerned that threats to energy security are not receiving the attention they merit.

The aim of our first report is to engage government more proactively on the peak oil threat, and also to alert the public to the problem. We aim to encourage collaborative contingency planning by government, industry, and communities on measures that can be taken to accelerate independent energy supply within the UK.

In preparing this report, we asked ourselves three related questions: How big is the risk from peak oil? How big is the alternative-energy opportunity? How do the two conflate?

Executive Summary

Plentiful and growing supplies of oil have become essential to almost every sector of today’s economies. It is easy to see why, when we consider that the energy locked into one barrel of oil is equivalent to that expended by five labourers working 12 hour days non stop for a year. The agricultural sector perhaps makes the case most starkly: modern food production is oil dependent across the entire value chain from the field to the delivered package. Within modern cities, for example, life in the suburbs will become extremely challenging without plentiful supplies of affordable oil. Yet in recent years, a growing number of people in and around the energy industry have been warning that global oil supply will soon fail to meet demand, even if the global demand drops, because the world is on or close to its peak of oil production. Peak oil production is the point at which the depletion of existing reserves can no longer be replaced by additions of new flow capacity. Conventional wisdom holds that the peak is many years in the future, allowing a timely transition to alternatives that can replace falling oil supply. However, the International Energy Agency has warned of an oil crunch by 2013. Other authoritative voices warn of severe problems earlier than this.

Being concerned about the implications of an early peak in global oil production for the UK economy, the companies contributing to this report have elected to conduct a risk assessment, from a collective UK industry perspective. Equally, aware of the commercial opportunities that are arising around the world in clean energy, we wanted to examine the opportunities. We asked ourselves three related questions: How big is the risk from peak oil? How big is the alternative-energy opportunity? How do the two conflate?

Risk analysis and the taskforce approach

We sought two opinions on oil-supply risk, one from an oil-industry expert known as a leading advocate of the early-peak scenario, and the second from Royal Dutch Shell, who we expected might advocate a more sanguine prognosis. In our first risk opinion, Peak Oil Consulting presents an analysis pointing to a peak in global oil production in the period 2011-2013. His core argument is that the problem is not so much about reserves, as the timely bringing on stream of new flow capacity to replace the depletion of existing capacity. The “easy oil” that makes up most of existing capacity is declining fast, and the new capacity coming on stream – often from “not-so-easy” oil - will not be replacing it fast enough from 2011 onwards.

In our second risk opinion, Shell argues that we indeed face an “easy oil” supply gap, but should think not of “peak” production, rather “plateau” production, with accompanying tensions as the demand for energy continues to surge. The global supply of oil will flatten by 2015, in Shell’s view, and if the oil industry globally is to maintain hydrocarbons supply on this plateau, very heavy investment will be required in ultradeep water, pre-salt layers, tight gas, coal-bed methane, in the Canadian tar sands and other areas of unconventional oil production.

We find it of great concern that both our risk opinion-providers agree that the age of “easy oil” is over. If so, fast-growing alternative energy supplies become imperative, even if production flattens in 2015 as Shell suggests.

We publish the taskforce’s views, based on the two risk opinions and our own researches, as an interim report and an invitation-to-debate. Given the magnitude of our concerns about the challenges and opportunities we perceive in peak oil and related aspects of energy security, the taskforce companies have elected to continue working on the issue. We plan to produce an annual review of peak oil and energy security, and will prepare other reports, including on the vital issue of net energy in economies (the amount of energy needed to produce energy-generation technologies and services themselves, and the carbon implications thereof). We will seek to recruit other companies concerned about the issue, and we will endeavour to work synergistically with the UK government.

That said, we do not wish to detract from our immediate conclusions. We hope our work to date will act as a wake-up call for fellow companies, for government, and for consumers. For one is surely needed.

Reasons for concern

All is not well with the discovery and production of conventional oil - easy-flowing crude - as both the risk opinions in this report demonstrate. The production figures of all the five major international oil companies have been falling for five consecutive quarters. The steepest fall was in the last quarter, despite a collective $44bn profits in that three month period. Where the international oil companies now sit, the national oil companies – the largest oil companies in the world, controlling some 80% of global production - can easily follow. Old oilfields and provinces are showing today that local and regional oil production can descend very fast beyond peak-production, even where the best enhanced-oil-recovery techniques are applied. We conclude that global oil production may well descend fast too, once
we reach the peak.

We are concerned that the industry is not discovering more giant fields, given that oil prices have been rising for four years now. We note the long lead times even when they do make a big discovery. We find it difficult to understand, given these long lead times, why the net flowrate data presented in Opinion A, slowing as they do in 2011-13 and dropping thereafter, are not galvanising a response from governments and industry. Finally, we are worried by allegations that OPEC governments have been less than transparent about the size of their national reserves, since deciding to fix quotas based on the size of reserves in the 1980s. Some experts, including within OPEC itself, profess that at least 300 billion barrels out of the 1.2 trillion barrels of supposed global proved reserves may be overstated.

We are further concerned by the infrastructure problems, underskilling and underinvestment in the oil industry. Much of the current infrastructure (drilling rigs, pipelines, tankers, refineries etc) was built more than 30 years ago, and according to some insider experts its physical state would be a major problem area even were global supply not expected to grow. The average age of personnel in the oil industry is fully 49, with an average retirement age of 55. This will entail massive legacy problems. Despite the high profits of late, the industry’s overall budget for exploration has actually fallen in real terms in recent years. We fear these issues will compound the peak oil crisis, and - as things stand - impair society’s collective ability to respond.

“Plateau”, “descent”, or “collapse”?

The risk from premature peak oil can be thought of, globally, in terms of three qualitative scenarios. In a “plateau” scenario, like the one Shell foresees, global production will flatten around 2015 and remain on a plateau into the 2020s, propped up by expanding volumes of unconventional oil production because of the decline of conventional oil production. In a “descent” scenario, global production falls steadily as oilfield flows from newer projects fail to replace capacity declines from depletion in older existing fields. In a “collapse” scenario, the steady fall of the “descent” scenario is steepened appreciably by a serial collapse of production in some – possibly many – of the aged supergiant and giant fields that provide so much global production today. On balance, having reviewed the state of play in global oil production, the taskforce considers that the “descent” scenario is a highly probable global outcome. We also fear that a “collapse” scenario is possible.

The same three scenarios are also germane to a country-by-country analysis of oil supply, including imports. In the “collapse” scenario as it might apply to an individual oil-consuming nation, a major oil producing nation - or a group of them - decides that it has been overoptimistic in its assessment of reserves hitherto, that its domestic economic requirements for oil are growing, and it slows or even stops oil supply to nations it formerly exported to. In the UK’s case, the taskforce considers that the “descent” scenario is a highly probable outcome for future UK oil supply. As with the global situation, we also fear that the “collapse” scenario is possible. These risks may very well apply to gas as well as oil. Gazprom’s historical behaviour, and recent events in the Caucasus, add to this concern.

Energy policy in the UK: reversal of priorities?

Neither the government, nor the public, nor many companies, seem to be aware of the dangers the UK economy faces from imminent peak oil. Big as our current economic problems are, peak oil means a very high probability of worse problems to come. The risks to UK society from peak oil are far greater than those that tend to occupy the government’s risk-thinking, including terrorism.

Currently, it seems to us, the government places climate change as first priority for policymaking, followed by energy security, with peak oil (if it is viewed as a problem at all) in last place. In our view the more serious short-term climate-change impacts – substantial as they will be – will not be the first to wash over our economy. Peak-oil impacts are more likely to arrive first, with 2011-13 being a worryingly early candidate window based on the evidence in Opinion A. The core priorities we think the country faces are the reverse of the government’s current thinking. First we need to buy insurance for our national economy against peak oil. Next in line comes wider energy security, because our gas supplies are much at risk from geopolitics. We could in principle face the prospect of power shortages as soon as the coming winter, but on balance we believe a gas crunch is less likely to hit than peak oil before 2013. Climate change in this approach comes third not because it is less important, but because its severest impacts are further out than 2013.

That said, clearly the core policies needed to meet the challenges of peak oil and wider energy security are the very same as those needed if we are to achieve deep-enough cuts in greenhouse-gas emissions to abate climate risk. The key to all three threats, whenever they unfold upon us, is immediate and rapid acceleration in our use of non-fossil sources of energy, and reduction in the overall demand for energy.

A mandate for (low carbon) mobilisation

The UK government has been conferring with the energy industry regularly of late, given the nature of emerging energy imperatives such as fuel poverty. Some progress has been made as a result. For example, fresh short-term funding for energy efficiency is likely to be measured in hundreds of millions of pounds in the years ahead. Similarly, multilateral negotiations have increasingly involved energy. Many governments are desperate for an effective post-Kyoto deal on climate, so great do they perceive the risks of unabated global warming to be. Again, some progress has been made as a result. But when the full gravity of the oil crunch dawns on governments, we fear that there is scope for the peak oil threat to relegate the climate threat in policymakers’ eyes, both in the UK and internationally.

We anticipate proliferating calls for expansion of production in the tar sands, and for major coal-to-liquids programmes, whether or not carbon capture and storage (CCS) can be brought to bear as a means to deal with greenhouse-gas emissions. We are concerned that CCS technology is well over a decade away from the prospect of commercial deployment, and that there is no demonstration project today that shows industrial-scale deployment is even feasible, much less economic. We consider it imperative, therefore, that policy decisions on the response to peak oil (pro-active or retro-active) should be carbon-constrained.

Nuclear power holds the potential to cut emissions in the longer term, provided its own economics can be made to work in a world of rising construction costs. Much of the automobile industry has aligned behind electricity as the ground-transport fuel of the future of late. This will play to the advantage of nuclear power in the long term. Many renewables advocates profess that their family of technologies can do the job quicker, and ultimately more economically. Equally, many energy analysts profess that we need both renewable and nuclear technologies.

Alternatives and opportunities

Peak oil affects every aspect of energy use. Transportation may dominate in many views of the problem, being 99% oil-dependent. However, oil has many other uses, and transportation of other fuels, notably coal, depends on oil. Furthermore, the price of gas is closely linked to that of oil. Any strategy for tackling premature peak oil must therefore address the entire energy sector. The use of oil, gas, and coal (fossil fuels) must be cut across the board.

Encouragingly, when it comes to non-fossil-fuel energy, investors have begun to talk over the last year or so of a new industrial revolution in the making in the field of “cleantech.” Similarly, architects and city planners have begun to execute designs for cities of the future in much different, low-carbon, ways. In Silicon Valley, which seems to be in the process of transforming itself from the centre of the digital world to the centre of an emerging cleantech world, dozens of families of demand-side and supply-side clean-energy technologies are attracting interest and investment. They span the entire energy spectrum from transportation to generation, to use, smart grid-integration and building design. Automobile manufacturers are in the process of rapid systemic change in manufacturing, favouring electricity as the fuel of the future. This emerging trend is being driven primarily by current high oil prices.

The 2007 global energy investment figures for renewable energy give a flavour of the wider revolution underway. Almost $150 billion was invested in renewables of all types in 2007, out of a global total of some $1,300 billion invested in all forms of energy. This means that well over 10% of all energy investment is going into a sector that currently meets only a few percent of world primary energy, notwithstanding its fast growth rate. This incipient revolution is being driven by technical advances in concert with energy-security concerns and climate-change concerns, and has yet to feel the acceleration that peak oil will add to the equation.

Many of the broad family of cleantech energy technologies in the process of being commercialised around the world are classically disruptive, meaning that they can displace traditional energy markets very fast: far faster than many people probably realise. Given the developments in cleantech of late, out-of-the-box thinking on ambitious targets for replacing oil and other fossil fuels are eminently feasible. There is a silver lining to the challenges: mobilising to deal with peak-oil risk can greatly accelerate the global policy response to climate-change risk.

Speed of mobilisation

To stimulate our discussion of alternative-energy opportunities, we asked researchers from two respected teams to provide opinions for us on the potential for alternative energy supply. A team from the Energy Saving Trust provided a view for our consideration on the demand side. A team from the Open University and the Centre for Alternative Technology provided an opinion on the supply side.

In terms of risk abatement policy, the implications of the two UK peak-oil scenarios of concern can be summarised as follows.

By 2020, the combined impact of the aggressive renewables deployments mapped for the taskforce’s consideration in Annex 2, added to a suite of wide-ranging multi-sectoral efficiency measures of the kind described in Annex 1, cut UK oil use by 46%, coal use by 79%, gas use by 29%, from 2007 levels. National CO2 emissions drop by 47% from 2007 levels. A cut of c 20% CO2 by 2020 would put the UK on track with existing climate goals. In the scenario mapped, oil use drops at 5% per year, and gas by 2%. We emphasise that the scenario is just one of many possible scenarios, and certainly not a forecast. Our main point is this. The speed with which the UK would need to mobilise for a “descent” peak oil scenario, much less a “collapse” scenario, exceeds anything that has yet been considered in the climate-change policy-response arena. Formulating a plan for either the “collapse” or the “descent” scenarios will require an entirely new framework for energy thinking in the UK.

Failure to act would entail major social and economic problems for government, industry and consumers alike, should either the “descent” or “collapse” scenarios materialise. Acting without taking a total-energy approach could lead to bad decisions involving little net-energy gain for the national economy, and deleterious impacts on our balance of payments. We will consider this vital topic in a later report.

Recommendations

National:

• 1. We call on the UK government, and other companies operating in the UK market, to join us in an effort to appraise the risk from premature peak oil, and plan proactive and reactive strategies - local and national - for facing up to the problem.
• 2. A UK national energy plan to deal with the peak-oil threat needs to have four core themes. First, exploration for and production of conventional oil and gas needs to be expanded. Second, energy conservation and energy efficiency need to be maximised. Third, investment in renewable energy and sustainable renewable fuels must be accelerated. Fourth, a national skills programme is needed to address the dangerous shortfalls in skills and manpower evident in all areas of the energy industry.
• 3. Given the gravity of the risks we have described, there is no time to wait in drawing up and implementing a new national energy mobilisation plan. The policy measures in a national energy plan should include, but not be limited to, the following:
  • Development and implementation of a long term sustainable transport policy, with renewable transport at its heart. This should include measures to increase transport fuelled by sustainable bio-liquids and electricity, and measures to reduce the amount of fossil-fuel-based road transport. If we are to significantly reduce oil consumption, the current measures being proposed in the renewable transport arena must be just the start, and measures well in excess of those proposed will be required.
  • Policies in the current Renewable Energy Strategy process must go beyond the EU targets for renewable energy (20% of the EUwide energy mix by 2020). The renewables industry is confident that 100% renewables energy supply is possible in 20-40 years, according to the overwhelming consensus of participants at the Tenth Forum on Sustainable Energy, held in Barcelona in April. They should be given the opportunity to proveit.
  • Nuclear decisions should be taken rapidly, and government should ensure that uncertainties over the nuclear renaissance should not act as barriers to the mobilisation of energy efficiency and renewables. Mass markets will be needed in these technologies whether we have a nuclear segment in the energy mix or not.

International:

• 1. We call on oil companies and governments generally to be more transparent about oil reserves. OPEC governments could address concerns about the state of their reserves, as summarised in this report, with a minimal programme of verification by a small United Nations team of suitably qualified experts. Such a confidencebuilding measure has been proposed by the G-8 governments.
  It could ultimately be beneficial for the global economy whatever the findings. If its results show the fears expressed in this report to be groundless, oil prices would surely fall. If the programme confirmed reasons for concern, governments could work together with urgency to accelerate sustainable energy alternatives. In the meantime any resultant rise in the oil price would itself stimulate greater efficiency and renewables investment.
• 2. We urge all governments to combine efforts to deal with oil depletion and climate change in the multi-lateral post-Kyoto climate negotiations, and significantly to improve their level of co-operation in that forum. There is ample scope for the UK government to lead by example domestically in this respect. Such leadership could include ensuring rapid trialing of CCS, and rapid national nuclear decision-making so as to give investors clarity on their energy options. Unconventional oil should not be exploited if its net carbon footprint is higher than that of conventional oil.
• 3. All governments should draw up their own national responses to peak oil. National energy mobilisation plans should aim to accelerate the green industrial revolution already underway.