Ireland's Bet on Peak Oil

Ireland, along with most of the western world, made a bet.  We bet that Oil production would not peak until we have developed a replacement.  We have not yet lost the bet, but the odds are shortening.  Is it still too late to hedge our bets and what will happen if we lose?

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In 1973 a 9% drop in world production caused an oil crisis. There was widespread panic, and for a short time, seemed to be a wake-up call that cheap and plentiful oil was not a permanent state of affairs.  But confident in our own abilities to innovate ourselves out of difficulty, and the lack of an immediate threat, we did nothing.

Faced with the choice between changing one’s mind and proving that there is no need to do so, almost everyone gets busy on the proof.
John Kenneth Galbraith

So here we are in 2006, and there are no direct replacements for oil and gas.  There are plenty of alternatives, all of which require substantial amounts of energy, ie. oil and gas, to scale up to a point where they can make a significant impact on our energy needs.  At the same time, while we can only pinpoint the date of Peak Oil in retrospect, we are getting many of the symptoms. Erratic oil prices, each spike being higher than the last and prices never returning to previous levels.  Increasing price of oil futures. OPEC no longer able to control oil prices, suggesting their swing capacity is limited. Oil companies are starting to talk about life “Beyond Petroleum” (BP) and more businesses, particularly aviation, starting to buy oil futures.

There are two sides to the debate on the timing of Peak Oil.  The Geologists argue that we have searched hard and long for oil on this planet, and we have found 95% of all recoverable oil, 90% of which is in production.  Therefore we know roughly how much oil there is, how much we are using and can predict that oil production will peak within 5-10 years and gas shortly after.  The Economists say that as oil prices increase (note this assumption) that oil companies will spend more on discovery and therefore find more oil and that previously uneconomic finds will go into production.  The Economist predict Peak Oil in about 20-25 years.

But from the point of view of Irish business men and women, the amount of oil and gas is irrelevant, and the date of peak oil of passing interest.  What is of vital importance is the price and availability of energy to power our businesses.

Energy Prices

Current energy prices are rising.  Since 2000 domestic electricity has risen 44%, gas 55% and oil 60% . Further increases of 10% for electricity and 30% for gas are proposed for this year and oil prices are still rising.
Cumulative % price increase since 2000

From Sustainable Energy Ireland Data

In order for these trends to reverse, and enable Business as Usual under our familiar cheap and plentiful energy paradigm, we need the following:
increase in oil and gas production. This is in fact likely in the short term with new fields, already under development, coming into production in about 2 years time.  However, long-term the outlook is poor with no significant finds of oil since 2003 and current usage at 4 barrels used for every one found.
investment in oil refinery capacity for poorer quality oil (already happening and likely to come on stream in about 18 months).
no interruption of supply by acts of war or terrorism.
no significant action on climate change , though reducing carbon emissions would also reduce our oil and gas vulnerability.
no change in world economic order - dollar remaining strong, no disease pandemics, no property prices crash etc.  Conversely, a world depression would lead to a drop in oil price.
no significant moves to penalise oil and gas use in favour of alternatives such as carbon taxes.

Energy Availability

The US and Eastern Europe already know about interruptions to energy supply.  They have experienced both unexpected and planned outages, but the concept of not being able to count on totally reliable source of energy is not something Irish business is currently geared to handle.

No Saviours

While there are many alternatives to oil and gas there is no replacement.  Oil is unique in its versatility - it is portable (unlike nuclear), has high energy density (unlike biomass), and is the raw material for a whole range of products from plastics to pesticides.  There is no direct replacement, so we must look at each of the uses of oil and identify alternatives.
All replacements for oil and gas as power sources require significant investment of capital and energy, in order to build and maintain them, and to develop the infrastructure to support them.
Nuclear - limited supplies of uranium put a cap on the total available.  Price is high and not fully known, as we have not yet permanently disposed of any waste.  Risks are low but impact of an accident in both human and financial terms is potentially catastrophic. 
Wind, Wave, Hydro, Solar, Biomass - all these technologies are still in their infancies and are already becoming competitive with oil and gas.  However, they require significant investment of energy in order to scale them up to provide an alternative for oil.
Coal - the most likely short term solution. The US and China already generates over 50% of their electricity from coal and there are significant reserves worldwide.  This is bad news from a climate change perspective - although there are new processes that claim to burn coal without carbon emissions, this technology is costly and unproven.
Nanotechnology - holds great promise of delivering small scale solutions from micro wind turbines to solar capture devices.  Scalable solutions are some years off.

Hedging our Bet

Our position then is that we are dependant on cheap oil and gas for everything that we do and are unprepared - both mentally and technologically - for any alternative.  So what can we do?
Change mindset - create an awareness of the scale of upcoming changes and sense of urgency in the inevitability of change.  Most people still have a touching faith that “they” (the government? scientists? businesses?) will not let it happen. “They” can start to change the nations mindset by explaining the causes and potential changes that Peak Oil will bring.  Recognise there are business opportunities in the new energy paradigm.  Not only for energy industries, but in the businesses that support the energy industry and changes the new paradigm will bring.
Measure and understand how we use energy .  Do you know what appliances are using the most energy in your home?  Energy is currently too cheap for measurement to be worthwhile, but in order to reduce our energy use, we need to know where to target our efforts.  “What gets measured gets done”.
Incentivise - Enable people and business to start changing.  Reduce, Reuse and Recycle applies just as much to energy as to waste.  By reducing our energy usage, not only do we buy ourselves time, but also reduce our fines due to carbon emissions. Ensure we are taxing the behaviour we want to avoid and incentives the behaviour we do.
Support innovation , especially at grass-roots level.  In the US, people are “hacking” the Prius hybrid car, adding extra batteries, solar panels and experimenting with other changes.  Like open-source software, this significantly speeds up the development cycle.  Given the scale and speed of change required, it will not be enough to simply give large sums of money to a few innovators.
Create confidence in the alternative energy market .  It is highly likely that oil prices will fall as well as rise so the fledgling sustainable energy industry needs to be supported through these periods.
Don’t try to pick winners - during times of great change it is impossible to predict what the winning technologies will be .  All that we can guarantee is that we will generate, distribute and use energy very differently in the future than we will today.  Therefore, we need to have a policy of “try everything” .

Impact of Losing the Bet

The potential impact of not preparing in time for Peak Oil has been written about extensively.  From world famine and a return to the dark ages as the worst possible outcome.  Two more optimistic scenarios are described at http://www.energyscenariosireland.com.
These are:
Enforced Localisation is a back to the land, world recession and a long slow climb back to our current standards of living.  Fair Shares looks at what could be done if we were to handle the situation proactively.  Still tough times ahead, but more capital available for investment and a shorter period to recovery.

We can all start the process of preparing for Peak Oil by considering the risks when we make long term decisions.  What car to buy next, where to build or buy our next home, what heating system to use in our business and houses.  And we can start to analyse how much we individually spend on energy - transport, gas and electricity - what equipment is using that energy and is it delivering good value. 
But in the rush to deal with energy, a concept we can understand, we should not forget the other bet placed.  That doing anything significant about climate change is less important than maintaining the economic status quo.  The odds are shortening on that one too and that is a bet the human race cannot afford to lose.

Phoebe Bright

+353 (0)23 55195

http://www.vividlogic.ie
Find out more:
http://en.wikipedia.org/wiki/Oil_price_increases_of_2004-2006
http://www.energyscenariosireland.com
http://www.feasta.org
http://www.alternative-energy.ws/content/view/127/ - discussion of the assumptions that underlie a business as usual, peak oil no time soon, outlook.