Meeting 'peak-oil threat' will cost $20tn: US
The world needs to spend $1tn a year in alternative fuels, starting 20 years before the peak in conventional oil production, in order to mitigate fuel shortages, a US Energy Department study showed.
Production peaks in Texas, the UK and Norway were examined as part of two studies for the department that advised on “crash course’’ efforts to cope with an eventual shortage of gasoline and other liquid fuels.
The study, led by Robert Hirsch, didn’t predict when world production will peak, though Hirsch told reporters his guess is “within the next five to 10 years.’’
“Conventional oil will peak at some point,’’ Hirsch said at the Oil and Money Conference in London. To lessen the impact, “we have to start a long time before the peak or we’ll have severe liquid fuels shortages worldwide.’’
Conventional oil production peaked in Texas in 1972, North America in 1985, the UK in 1999 and Norway in 2001, and all of those peaks were “sharp and sudden,’’ he said. To offset losses when world output peaks, “unconventional oil’’ will need to be rapidly developed, including heavy oil, oil sands, coal liquefaction, gas-to-liquids and enhanced oil recovery. Vehicle fuel efficiency will need to be improved.
Hirsch, who is a senior energy programme adviser at research and engineering firm Science Applications International Corp, said the effort required is similar to “the race for the moon, or the mobilisation for World War II’’ and consumers can’t rely on oil companies alone to make the right decisions and investments.
“The market is moving into a number of these things but at a rate which is determined by risk and public perception,’’ he told reporters. “The character of this problem is so large and time-consuming and difficult that we’ve got to move away from business as usual and move to a crash program, otherwise we are not going to be able to replace or save the volumes necessary.’’
Governments will likely take different approaches because some are less self-sufficient than others, putting them more at risk of economic failure, he said.
Oil company executives have typically downplayed the peak oil theory, saying that there are plenty of resources in the ground. At the same time, executives such as Chevron Corp vice-chairman Peter Robertson have noted shortages of equipment and skilled labour, and restricted access to resources in some countries.
“It’s not that it’s not out there, but converting it from a resource to a reserve and a reserve to production capacity is a very slow process,’’ Sadad Ibrahim al-Husseini, retired executive vice-president at Saudi Aramco, the world’s biggest oil exporter, told reporters at the conference.
“There is no reason to panic if you have a strategy, but if you leave it to the market to decide you are going to have these ups and downs, with repercussions on the economy,’’ al-Husseini said. “Getting the strategy right means you start early.’’
Using the lower 48 states of the US as a model, Hirsch’s study based calculations on a 2% annual decline in world production once the peak is reached, leading to a large global shortage 20 years later. Field declines may well be quicker, he said. – Bloomberg