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Gruppo Consumo Critico – Milano presents The Coming Oil Crisis A survey about the present energy supply and demand, and their implications on war, peace.

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Presentation on theme: "Gruppo Consumo Critico – Milano presents The Coming Oil Crisis A survey about the present energy supply and demand, and their implications on war, peace."— Presentation transcript:

1 Gruppo Consumo Critico – Milano presents The Coming Oil Crisis A survey about the present energy supply and demand, and their implications on war, peace and our future links and references: e-mail:

2 What are fossil fuels? Fossil fuels are high-energy content materials, which directly or indirectly originate from living matter. For instance, coal originates from dead wood, oil from marine organisms bodies, natural gas from subsequent changes of other hydrocarbons.

3 Why do we need fossil fuels? Fossil fuels are hugely important for industrial societies. ItalyItaly satisfies 90% of its energy demand with fossil fuels. The same do United States for 86% of its one.United States Fossil fuels enhanced the working potential of humankind at a level never seen before. For a human the energy daily demand achieved by eating is 2500 Kcal, but it can be as much as 5-6000 Kcal very hard jobs, e.g. traditional woodcutter or miner. Thanks to fossil fuels an Italian burns as much as 100000 kcal per day on average (enough for the work of 40 men), and a Northern American as much as 200000 kcal per day (the energy demand of 80 men!)

4 Renewable and non-renewable resources An energy source is said renewable, when its exploitation doesnt affect its availability in the future. For instance, hydropower is a renewable energy, since generating electricity with a dam doesnt influence the rain in the future. In other words, an hydropower plant generating one million Kcal today, will still generate it tomorrow and, with proper management, forever. On the contrary, when we pump oil from a reservoir there will be less to pump in the future. Every time we use fossil fuels, there are less remaining on the Earth for our descendants. Fossil fuels are a non-renewable energy source.

5 Are the various types of fossil fuels equally important for economics? No, they are not! Although similar in energetic content, coal, oil and gas are very different on the physical-chemical side, and then have different properties. Coal is solid. It cannot be transported through pipelines. This makes coal transportation expensive. Moreover, coal can not fuel car and truck engines. Gas is transportable in pipelines and can fuel car engines. But its difficult to transport it onto ships. This makes difficult to transport gas at very long distances. Moreover, it is more difficult to produce from gas the panoply of plastics that our modern economy needs so much. Oil is the paramount fossil fuel. Because of its transportability it is the fuel of globalisation. Because of its chemical complexity, it is indispensable for high technologies. There is no doubt: oil is the most important fuel for industrial civilisation.

6 Economic relevance of oil Italy (energy needs)energy needs Coal6% Gas38% Oil46% USA (energy needs(energy needs) Coal23% Gas23% Oil40% Oil is the most required fuel, as this figure shows. Even USA, that have the largest coal reserves in the world relies mainly on oil for itsthe largest coal reserves in the world energy demand. USA is the largest oil importer in the world. This is a hint of at what extent oil is irreplaceable with other fuels.

7 from: Strategic Energy PolicyStrategic Energy Policy Challenges for the 21st Century Economic relevance of oil Do politicians and economists know at what extent energy is relevant for our economy? Look at this public document of a Northern American think-tank, written during the Clinton administration.

8 coal reserves ca. one trillion tons consumption ca. 5 billion tons per year 0,5% per year Reserves for 200 years gas reserves ca. 169 trillion cubic meters consumption ca. 2.5 trillion cubic meters per year 1,5% per year Reserves for 65 years oil reserves ca. one trillion barrels consumption ca. 25 billion barrels per year 2,5% per year Reserves for 40 years How much fuel is still in the world, and how fast are we depleting it? reference: ENIENI

9 Further details… Actually, the estimate of latter slide (40 years) is useless for any practical purpose. That figure aimed to show a fact that maybe is not clear to everyone: oil is a limited resource, and at the present consumption rate it is possible to completely deplete it within a human life time. If we wish to estimate more accurately in how much time we are going to face serious supply shortages, we have to account for at least three more factors: the growth of consumption, the discovery of new reserves, and the peak production.

10 The growth of consumption 1925195019752000 Billion barrels per year year 25 12.5 Economic boom: + 7% per year Oil shock: less consumption Present growth + 2% per year Look at the historical figure of oil consumption. Consumption heavily grew during historical figure XX century, and is still growing at a 2% yearly rate.

11 Discovery of new reserves Billion barrels discovered per year 40 20 197519851995 year Oil discoveries in new reservoirsdiscoveries declines at a 4% yearly rate

12 Billion barrels per year 40 20 197519851995 year discoveries burned Overlap the curves... …and notice that since the early eighties, we are depleting more than we are discovering!

13 194519702000 Billion barrels per year 2,5 3,5 The oil peak production Oil production in USA lower 48 Look at oil production time series in USA: it reaches a maximum in 1970, then declines. 1970 is the year of oil peak production in USA. Until 1970 production follows the demand, that is, it is pumped out so much oil as it is possible to sell. Then, it is sold so much oil as it was possible to pump out.

14 What does peak production mean? Peak production is achieved when oil demand is over the capacity of the reservoirs to match it. Economic consequences of a world oil peak would be oil peak Before the peak, the price of fuels is determined by the cost of production (work, machinery, transportation). After the peak, it will be regulated by the demand and offer law: in other words, the fuel, more and more rare, will be caught by who offers more. The history since second world war (i.e., since when we rely on oil for our energy supply) showed us that when oil prices rise, western economies recede. It couldnt but be so: transportation, dresses, food… there is no industrial process that doesnt need the power of the tens of virtual slaves that fossil fuels provide us.

15 Why a peak? The following question is: if there still is so much oil, why should we slow pumping, instead of having growing consumption until complete depletion? The answer is: because a reservoir is not like a tank, from which the content can be drained at every desired rate. A reservoir is rather like a repository, full of both useful and useless stuff. Imagine you are entering in such a repository, full of little balls and other stuff, and you need to get the balls. First you can easily manage to collect as many balls as you can carry, because you get the most visible, the most grouped, the most reachable. Then, even if there is still most of the balls into the repository, you must slow collecting, as you start to get them one by one, to shift other objects to get some balls, and so on. Getting oil is like collecting such balls. Let us get back to the figure of the USA production time series. Note that the curve hasUSA production time series approximately the same slope, before and after the peak. To get back to our repository, USA slowed their ball collecting, when there was still one half to get.

16 When will oil production peak? May we estimate it with data we rely on? First of all, get back to the consumption time series. The curve signs yearlyconsumption time series consumption, the area below the curve is the cumulative consumption. The same holds for the discoveries time series. The area below the curve is thediscoveries time series cumulative discovery. This helps us to estimate the year of peak.

17 The model 1)starting from todays figure, consumption will rise with an yearly rate c … 2)…and will go on growing until the year of peak pp... 3)…then consumption will decline with an yearly rate m … 4)…and finally, the area below the curve will be a quantity R, that is the sum of known and unknown reserves. 2003 year Billion barrels extracted per year 25 c pp m R

18 The model if we know c, m e R, we can calculate pp. The formula to calculate pp, given c and m are time invariant, is reported. So we need to estimate c, m and R The consumption growth rate, c c, the growth rate of consumption and economy, was 2% during last years. So 2% will be our c estimate for following years.

19 An estimate of global reserves, R R is the amount of known oil reserves plus the still undiscovered ones. Known reserves total one trillion barrel (see page 7). What about undiscoveredsee page 7 reserves? To estimate the amount of such reserves, extrapolate the discovery time series to the right...discovery time series...and the area below the curve (S) is an estimate of the oil still in the ground......R is obviously 1000 billion barrels + S. 20002025 S S 400 R 1400

20 The yearly rate of decline, m The variable m is affected by different factors. m is a measure of the technological quality of the pumping industry, the amount of capital invested in it, the peace and the stability of the region around the reservoir. m is higher (i.e., decline is steeper) if the reservoir was exploited efficiently, and if the peak was delayed. Let us try to show with a graph how this can happen.

21 pp ? m m Note: these areas must be equal The yearly rate of decline, m if I have best technologies, as much money as I need and political stability, I delay the peak at pp... …but I cant increase the amount of world oil (that is, the area below the curve)... …and then the declining curve m must cross the m curve...

22 The yearly rate of decline, m Factors like obsolescent technologies, shortage of money, political instability are negatively affecting m. On the ground of theoretical considerations, some scholars of oil hypothesise decline rates as high as 10%. But in reality, even USA, in the best attainable conditions foras 10% capital availability, technology and stability, didnt succeed in pushing m above 3%.3%

23 The year of oil peak production now we can estimate the year of peak production. Fix c at 2% as we told before. Give m all possible values between 2% (easilyas we told before attainable even in developing countries) and 3% (see page 21).page 21 Finally, give R all possible values between 1400 (see page 18) and 2000see page 18 (theoretical maximum for some scholars).for some scholars Look at the results in the next slide.

24 The year of global oil peak production R (billion barrels) 2%2,5%3% m

25 Few considerations… By imposing western exploitation rates (privatisation), but without discovering new oilfields, the peak will be before 2015 (R=1400; m 3%) 2%2,5%3% R (billion barrels) If we discover huge amounts of new oil, and we respect the sovereignty of oil countries (m 2%), the peak will be before 2015. m The amount of reserves we are discovering now, and the rate at which world reservoirs can be exploited now, put the peak before 2010! presentsituation paximperialis luck Finally, the trend of discoveries changes, and oil countries cooperate to satisfy western needs. This puts the world peak of oil at... 2025 (R=2000, m=3%). utopia

26 Intermezzo: are our politicians so crazy? I think these conclusions are absolutely incredible! If a new, unprecedented energy crisis is so close, why are the governments of western countries that will be hardly hit the by such a crisis doing nothing about it? There are different explanations, on economic, political and geostrategic grounds. Lets see them:

27 Intermezzo: economy the leaders of the Earth are used to seek advice from economists. No problem, of course. But economy, like every science, has its dogmas and its ideology. One such dogma is that a growth in demand generates a rise in offer. Economists think that a rise in the oil price will enhance investment in the oil sector and finally will make the production to rise. The bare fact that world oil is a finite quantity finds no place in their equations. A clever geologist defined them flat Earth economists. Unfortunately, the leaders of the Earth are not used to seek advice from geologists or physicists. Another common tale from economists is that the rise in the price of oil will make other renewable energies profitable. Right! But if we wait for the rise in oil prices, we will have to build the new infrastructures in a landscape of crisis, energy shortage, mass unemployment, maybe famine. Should not be better to do it now?

28 Intermezzo: politics Few politicians seem to have realized the risks we are facing for our wealth and even our culture, and are trying to cope with the problem. German and Icelandic governments are two such examples. Unfortunately, even clever and long-sighting politicians cannot be completely honest about energy supply. Imagine to go to the polls, campaigning upon consume reduction and improvement of public transport while taxing private mobility, and upon general tax raising to build the sustainable energy infrastructure. Do you think you could be elected? So many politicians who recognized the problem but are too fearful to claim it are waiting that everyone gets convinced. But, of course, at that time it will be much harder to cope with the crisis.

29 Intermezzo: geopolitics Until now we looked at oil scarcity from a global point of view. In other words, we looked at the supply shortage for all humankind. But someone as usually could think to gain economic and geostrategic influence thanks to the crisis. Because of this, it is much more difficult to find the less harmful solution for everyone. Lets try to understand who gains and who loses, in the global energy shortage game.

30 Oil: ReservesReserves Oil: ConsumptionConsumption Areas that are darker in the bottom map than in the top one will face oil shortages sooner than the others Identify them: North America Europe Eastern Asia

31 Fossil fuels geopolitics Therefore, it looks that all the world powers, maybe except Russia, share the same problems. They are all going to face an oil shortage soon. The emerging China is not different. Lets give a look at natural gas, now.

32 production reservesconsumption Natural gas: reserves, production, consumption Remarks: 1)Look at the two continental blocks (Ancient and New World). Production and consumption are roughly equivalent. This is due to difficulties in sea shipping for natural gas. 2)Notice the huge discrepancy between reserves and production for North-America and, with inverted direction, for Middle East. 0% 50% 100%

33 Natural gas: reserves/production ratio Here is a more friendly way to evaluate what is shown in the last slide. The R/P ratio is correlated with the future lasting of production. Look at the average tonality of Eurasia and Americas. It is a hint for who is going to face the first an energy shortage.

34 Summarising: 1)our civilisation and our wealth were born on the ground of a dilapidation of fossil fuels; 2)the coal, once of paramount importance, is now secondary. Oil is now the star of energy supply, but natural gas is also very important. The location of the reservoir is much more important for gas than for oil, because oil is easy and cheap to transport both on the ground and the sea. Natural gas is very expensive to transport overseas; 3)cheap oil is going to find its place on history books. Maybe natural gas is going to last a little more, since reserves are still growing and production decline does not seem imminent; 4)but for gas there is not only a global issue to consider: North America could be very close to a gas production decline, while for the Ancient World decline is everyway sure, but farther in time.

35 Fossil fuels geopolitics (2): Looking at world politics, with an eye on energy supply, many things turn clear, e.g. 1)USA aggression to Iraq: with no choice to find new energy sources, and more and more addicted to oil imports, USA stole by force the second world oil reserves. Its goal is to delay the world peak production, by privatising Iraqi reserves (raising m) and finding new reservoirs that could be in Iraqraising mnew reservoirsbe in Iraq 2)European opposition to the war: Europe has no such urgent energy need like the United States. The huge gas reserves of Russia and Iran, make Europe less dependent on oil than USA.

36 Fossil fuel geopolitics (3): 3)International disagreements onto the Kyoto Protocol: Europe signed the protocol soon, accusing USA of environmental indifference. But Europe will be able to reduce emission by using natural gas, that is everyway its short term energy future; while USA in oil shortage will have to rely on coal aggravating CO 2 emissions. 4)The International Penal Court: Europe backed supranational rules aimed at limiting expansionism and aggressiveness from single countries, because European wealth do not rely, on the short term, on its imperial capability, the opposite of USA situation. 5)The US menace of aggression against Iran: fourth oil reserves in the world, next global star of natural gas, soon a paramount energy supplier for Europe.

37 Conclusions The end of cheap fossil fuels, in probably not more than twenty years, is to mark the end of western civilisation, at least the way many think of it. The future is foggy: a war between powers blinded by the will to get the last oil drops could throw us in something very similar to a new Middle Age. On the opposite, from comprehension of other countries necessities, from responsibility for us and our descendants, a new age could be born, an age that will be surely poorer, but maybe more equitable and liveable, and, I think, even happier. As individuals, it is to us to look in our daily lives for the path to emancipate from fossil fuels and their derivatives. As political subjects, our role is to promote a new common sense, the sense of limited resources, giving a new point of view to those that want to solve black-outs by building new plants; or to those that want to stabilize the world by getting Europe more and more armed. And these are only two of the most foolish ideas recently heard. The crossroad which brings to a new Middle Age or to Peace and Dignity is now in front of us.

38 sources slides 2 e 5 : Department Of Energy (USA)Department Of Energy (USA) slide 6 : Strategic Energy Policy Challenges for the 21st CenturyStrategic Energy Policy Challenges for the 21st Century slide 7, 30-33 : ENIENI pagina 13 : More information and contact us

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