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Guardian Weekly: Crunch time for decision makers

EXTRACT: There is coal enough for centuries, but the world runs mainly on oil and it is not at all certain how much is left. Shell admits that “no one can make an accurate prediction of when and where new deposits will be found, or how much exists”, but it says that it does not expect major shortages for 30 years.

THE ARTICLE

Remember January 23, 2007. That was the day President Bush grasped reality and told the world that America could not go on importing 12m barrels of oil a day. In his state of the union address he committed the most energy-profligate country to reducing its use of petroleum by 20% within 10 years, something that would be achieved, he said, by making US cars run more efficiently on homegrown maize or palm oil.

Never mind that food and fuel crops will compete with each other for land, or that it could lead to the devastation of Indonesia or Latin American forests, or that it may not even reduce climate emissions much. This was the first clear signal from a country addicted to oil that the age of burning fossil fuels is ending, and that an energy revolution is under way.

On current trends, says the UN’s international energy agency (IEA), which collates national figures and predicts demand, humanity will need twice as much energy as it uses today within 35 years. Where that comes from will define the next century. Produce too little energy, say the economists, and there will be price hikes and a financial crash unlike any the world has ever known, with possible resource wars, depression and famines. Produce the wrong sort of energy, say the climate scientists, and we will have more droughts, floods, rising seas and worldwide economic disaster with runaway global warming.

Just harnessing enough energy for so many people eager for development is the first problem. The breakneck rush for industrialisation in China and India, Brazil and Mexico, has catapulted a huge increase in demand. China became a net importer of oil in the mid-1990s. By 2002 it had become the world’s second-biggest oil consumer, growing by 19% in 2003 and by more than 10% a year now.

It is now adding 2m more cars to its roads, and an extra 20 million people to its cities every year, and is scouring the world for oil and gas, steel and timber, plastic and metals, soya beans and maize, all of which need energy to extract or grow. Its demand for oil is expected to more than double within 15 years, to at least 10m barrels a day, half the US’s present demand. Meanwhile India’s energy consumption is expected to rise by nearly 30% in the next five years as its middle class grows to more than 300 million.

But rich countries also want more energy. A recent report by the OECD group of the 29 richest countries says that $20bn must be invested in energy infrastructure over the next 25 years just to meet the growing demand for the new generation of computers, mobile phones and TVs. The OECD predicts a huge increase in demand for all fuels, but expects oil, gas and coal to go on dominating supplies for years to come. China may commission a new coal-fired power plant every week, but the US is planning more than 150 new coal-fired stations in the next 10 years.

There is coal enough for centuries, but the world runs mainly on oil and it is not at all certain how much is left. Shell admits that “no one can make an accurate prediction of when and where new deposits will be found, or how much exists”, but it says that it does not expect major shortages for 30 years. The oil majors are spending nearly $100bn a year on exploration, yet are barely able to meet current demand. In 2005 they produced 81m barrels a day, rising to only 82m barrels a day last year. However, by 2030 the IEA expects demand to be running at more than 130m barrels a day.

It is impossible to extract oil in these quantities, says Chris Skrebowski, of Petroleum Review, published by the Energy Institute in London. There is plenty of evidence, he says, that the world is about to reach what is called “peak oil”, that point when half the total oil known to have existed has been consumed, beyond which extraction goes into irreversible and rapid decline, and prices soar.

He and others, including geologists, financial analysts and traders, say that conventional oil reserves are now declining at 4%-6% a year. Eighteen large oil-producing countries, including Britain, and 32 smaller ones, all have declining production. He expects Denmark, Malaysia, Brunei, China, Mexico and India all to reach peak production in the next few years.

Jeremy Leggett, former oilman and Greenpeace chief scientist, now head of the photovoltaic electricity company Solar Century, says the decline in discoveries is serious. “There were 16 oilfields larger than 500m barrels found in 2000, just nine in 2001 and since then there have been only three. We need to produce 3m barrels a day more each year, but are depleting at 4-5m barrels each year, so we need to find nearly 8m barrels a day of new oil each year”, says Mr Leggett. “That [the equivalent of] one Saudi Arabia every year and a bit more. In 2005 we found a total of 3.7m barrels a day.

“We should be very worried. Time is short and we are not even at the point where we admit we have a problem,” Skrebowski says. “Governments are always excessively optimistic. The problem is that the peak, which I think is 2008, is tomorrow in planning terms.”

The oil firms are developing better technologies to extract oil from deeper, more inaccessible fields and are turning to the vast oil shales. But few believe that there are more giant fields to be found, and shale oil is expensive and dirty to extract.

Industry expects gas to take up the energy slack if oil becomes scarce. Known reserves are equivalent to about 85% of known oil reserves, but only a quarter have been fully exploited. Gas reserves increased on average by 3.3% a year between the early 1980s and early 2000s, with discoveries more than replacing production. Russia, Iran and Qatar together have 55% of proved reserves.

The arrival of climate change, however, urgently changes the world’s energy equations. Over the next 30 years all rich and many developing countries will have to commit to cutting or at least restraining greenhouse emissions. The likelihood is that a post-2012 Kyoto agreement will bring in China, India and Brazil, as well as the US and Australia, and a global carbon emissions market will develop. Together, they are bound to skew world energy supplies and investment away from coal and oil, towards developing low-carbon sources like hydro, nuclear, hydrogen, wind, crops, solar and marine, which make up only 20% of the energy supplies now.

But the alternatives to fossil fuels all have problems and none is expected to dominate future energy supplies. Many governments favour a new generation of nuclear power but these are expensive to build, and no one has satisfactorily dealt with the waste problem. Wind power is attractive but needs immense investments and scale to match other power sources; marine power is the most exciting, but inexplicably has barely been developed; hydrogen is emerging but needs renewable electricity to be emission-free.

Rich countries are expected to try to become more energy self-sufficient and adopt a range of technologies, encouraging at the same time “micro-generation”, the use of wind and photovoltaic power on buildings. Developing countries, many of which are in the tropics and have vast acreages of barely used land, are heading in a different direction.

China and India will insist that they be allowed to continue to exploit their massive coal reserves. Indonesia and Brazil, Zambia and the Philippines are all developing large biofuel industries growing maize, palm oil or sugar cane for ethanol for export. There are grand schemes to dam the Congo to provide electricity for much of central Africa, and solar power stations are being considered for Algeria, Egypt and Morocco.

But governments wanting to address climate change now understand that the biggest untapped energy resources are prevention of emission losses, energy conservation and reduction of demand. Until recently many companies barely looked at their fuel bills, which they regarded as marginal to profits.

Companies, with one eye on the inevitable rising cost of future energy and the other on the profits from selling expected carbon quotas, have moved from being reluctant to address energy to becoming enthusiasts. The construction industry, challenged to build “carbon-neutral” homes, says it’s possible. Supermarket chains have pledged to reduce energy demand on their own premises by 50% within 20 years. Power stations say that they are happy to burn clean fuels. As a global carbon market develops, it is expected that attention will increasingly focus on industrial design, to try to reduce the “embedded” energy inherent in every appliance, good and crop.

Major investments in energy production have a typical lifespan of between eight and 30 years, so any shift from one energy source to another comes slowly. But there is now a sense of urgency and possibility, says British environment secretary David Miliband. He estimates that 40% of all the UK’s energy plants and a similar percentage of its housing stock will have been replaced by 2035, which suggests that Britain at least can become energy-efficient if it makes the right decisions now.

Governments, the European Union and business all hope that the real cuts and energy efficiencies will come from trading carbon. The European emissions trading scheme is burgeoning, and the UN’s Clean Development Mechanism, set up to help developing countries invest in the most efficient way, is expected to secure 1.4bn tonnes of carbon dioxide emission reductions by the end of 2012. More than 400 projects have been approved and 900 are in the pipeline.

Solving the energy problem is now as much about political will as new technology, and there is no guarantee that governments and companies will meet their targets and timetables. But if the world cannot change fast enough, and climate change does eventually make the planet uninhabitable for millions, at least future generations will know that in 2007 there was still a chance to arrest the process.

http://www.guardian.co.uk/guardianweekly/outlook/story/0,,2007806,00.html

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