FUELLING FOOD IN WA

How will we eat when oil runs low?

Jeremy Gilbert, Barrelmore Ltd.

FUELLING FOOD IN WA

Who

will we eat when oil runs low?

Jeremy Gilbert, Barrelmore Ltd.

‘Mankind was destined to live on the edge of perpetual disaster. We are mankind because we survive. We do it in a half-assed way – but we do it’

- James Michener

(From a plaque on the Writers’ Walk, Circular Quay, Sydney)

The tank is emptying!

Predicted Fossil Fuel Availability Our lives are highly dependent on fossil fuels It seems supply will soon fail to meet demand – prices are rising ….

International Energy Association :

“ There are three problems:

Geology Investment Policy of main producers

These, taken together, make the future of oil very difficult ”

Fatih Birol Chief Economist

Our Endowment of Oil

Argument continues over volume of initial oil resources and associated reserves (the part of resources that is economically recoverable)

–

Uncertainties due to limited data, secrecy, lack of standard calculation methods

–

Some believe major discoveries still to be made

–

Some believe technology will increase recovery factors

Doubts over World Reserves ….

200 180 160 140 120 100 80 60 40 20 0 Africa 180 160 140 120 100 80 60 40 20 0 W.Europe

N.America

L.America

RESERVES AS REPORTED BY:

– – – – –

Oil and Gas Journal World Oil BP BGR AGIP Eurasia Far East

…. and more doubts! ….

Reserves Claimed (billion barrels) Competing for production quotas?

4500 4000 3500 3000 2500 2000 1500 1000 500 0 1930

… and more doubts …

USGS Estimates to 2025 : Low prob.: 4443 Mean: 3345 High prob.: 2452

● ● ● 1950

Actual

1970 1990 2010 2030

…. and more doubts still!

80 70 60 50 40 30 20 10 0 1950 1960 1970 Past 1980 P95 1990 Mean 2000 P5 2010 2020

Maturity of World’s Producers

21 countries produce over 85% of world’s oil 6 are clearly declining 6 are flat/volatile, near decline 6 could grow but have non technical/political limits 3 have potential for some increase

Is a Production Increase Possible?

The arguments ‘for’: – New major discoveries – “Reserves to Production Ratio” (R/P) is being maintained despite offtake rising – Better technology will increase recovery efficiency

Major Discoveries –

60 50 40 Past Future Production 60 50 40 30 20 10 30 20 10 0

1930 1950 1970 1990 2010 2030 2050

0

The R/P Placebo

120 100 80 60 40 20 0 0 100 80 60 40 20 0 0

1. Reservoirs don't do this:.

10 20 30

Time (years) 2. …. but this:

40 10 20

Time (years)

30 40 50 90 80 70 60 50 40 30 20 10 0

3. So production from known fields will look like this:

0 20 40

Time (years)

60 80

Field rate declines after ~ 50% of reserves produced

50

Total rate not constant, declines ~ 4% /year. After 40 years rate is ~ 20% of original

Effects of New Technology

Little indication that recovery efficiency is increasing in established fields.

Main benefits in coping with unexpected problems and in finding small accumulations 1977 Internal Estimate : 12.5 -15 Gb Initial Report to SEC : 9 Gb

700 600 500 400 300 200 100 0

1977

0 1

1989

2 3 4 6 7 8 8 9 Cumulative Production (billion bbl) 10 10 12

Control of Reserves and Production

Region OPEC FSU RoW World Reserves % of World Production 73 23 14 43 16 41 Comments Restricted Close to peak Mostly in decline

From Ray Leonard, KEC

Huge change from 40 years ago, when ‘Seven Sisters’ ruled the international oil world

Exploration and Investment Policy: 1. (Western) Independent Companies

Limited geographical opportunities Harsh economic terms Unstable price projections have resulted in Falling Production Restricted exploration/development funding

Exploration and Investment Policy 2. OPEC and National Companies

Saudi production capacity will grow to 12.5 mmbd from current 11.3 mmbd by end-2009 BUT King Abdullah (April 2008) : When there was some new oil found I said ‘No, leave it in the ground. With grace from god, our children will need it’

Predicting Production Capacity from Wikipedia

If it looks like a peak – and it feels like a peak – then ….!

World Oil production (mmb/d) Source: BP

World Production

50 40 30 20 10 Non-con Gas Gas Gas Liquids Polar Oil Deepwater Heavy Oils Regular Oil 0 1930 1950 1970 1990 2010 2030 2050

MOEBD 200

The size of the problem!

160 120 New Production 80 40 0 ‘80 ‘85 ‘90 ‘95 ‘00 ‘05 ‘10 ‘15 ‘20

‘Business as Usual’ Demand Growth By Region

MBD 140 120 100 80 60 40 20 0 80 90 Emerging Asia Japan/Aus/NZ Russia/Caspian

By Sector

MBD 140 120 100 80 60 40 20 0 80 90 00 10 20 30 00 10 20 30 How will restricted supply / higher prices alter these?

World GDP and Oil Production

National GDP and Oil Production

Supply/Demand and Consumer Prices

About 50% of world population have been shielded from increases in oil prices

Malaysia uses 7.5% of GDP for subsidies Indonesia uses 4% China, India, Vietnam, ……..

In 2007 Saudi

reduced

petrol prices by 25%

BUT….

Supply/Demand and Consumer Prices

… in much of the rest of the world Governments

increase

consumer prices

Initial Response to Tighter Supply

Many industries starting to feel effect: Agriculture Fertilizer usage pattern changes Ethanol emphasis causing disruption Airlines Routes and staff cut, planes grounded Automobiles Sales declining, smaller cars, fewer miles Electricity Generation Black-outs, price increases

Why we need fertilizers!

• World arable land area has increased by only 13% since 1960 despite 120% increase in population since then

Fertilizer Problems

Farm Productivity increases are essential Arable land area only up by 13% since 1960 - despite 120% increase in population Ammonia (Haber process) uses 33 mscf/ton Costs have near tripled in one year, supply insufficient for 40% world population’s food New interest in cow manure, Chilean guano!

Worldwide Fertilizer Use Patterns

Changes in Farm Output?

Energy Input Required (KWh/d) VEGAN Diet NORMAL ' Diet Components Energy Components Energy Vegetables 3.0

Vegetables Milk/Cheese 1.5

1.5

Eggs 1.0

Total 3.0

Meat Total 8.0

12.0

Reduced energy availability will force human dietary changes?

Source: McKay, “Sustainable Energy – without the hot air’

Changes in Farm Output

Vegetable

Initial drive for corn ethanol has passed Breakthrough in processing of cellulosic material will come Research into growth/processing of other oil-source crops (switch grass, jatropha, ….) will bring new opportunities

Changes in Farming Methods

Conservation Tillage – or ‘No Till’

Reduce soil erosion Cut labour costs by 40% Cut fuel costs by 75% Reduce capex up to 50% Increasing in Americas, Australia; only 6% globally

Return to horse power on small farms

Evaluating Alternative Energy Sources

Must consider Technical Readiness, Scaling Financial Viability Energy Return Environmental Impact Longevity

Energy return: A Vital Criterion

•

Source: C.A.S. Hall, C. Cleveland

Filling Medium-term Energy Gap

Clear that economic supply from ‘sustainables’ will be too small to fill short to medium-term gap Only candidates to fill gap in this period Unconventional Fossil Fuels Oil from Shale or Tar Sands Gas-to-Liquids, Coal-to-Liquids Coal – with CCS Natural Gas Nuclear - but contributions needed from all sources!

Liquid Energy: Tar Sands

Huge resource in Canada, Venezuela (resource 2-3 times world oil resource) ; also Russia, Middle East Recover oil by mining/retorting or in situ heating Huge water (3-10 bbl/bbl) and gas (1 mscf/bbl) demands and cost inflation, environmental concerns (water and spent sand) slowing development Targets will not be met; long term possibility

Liquid Energy: Oil ‘Shales’

Marls with particles of immature hydrocarbons Trillions of barrels in west US, NE Australia, Brazil, China Recover oil by mining/retorting or heating in situ Environmental problems: water demand (3 bbl/bbl) and disposal, shale disposal (2 ton/bbl), high CO2 Commercial tests: Exxon (1980s), Queensland (2001), Estonia; now by Shell and others in Colorado At best, a long term solution

Liquid Energy: Gas-to-Liquids

Direct Process: energy intensive and difficult to control – no commercial application yet Complex Indirect Process: converts CH4 to syngas, then to longer-chain HCs. Used for strategic reasons

Malaysia) (S. Africa)

or stranded gas

(NZ,

New Exxon plant built in Qatar but plans for others dropped in favour of LNG exports

Long term potential if gas supply allows

Liquid Energy: Coal-to-Liquids Potential

Established process; S. Africa uses since 1955, now source for 30% of its petrol/diesel Rising coal prices, x3 in year, impact economics Environmental problems: water use

(10 bbl/bbl),

CO2 output

(50 lb/gal. v 27 lb/gal. for refinery)

CCS could reduce CO2 output

(to 20 lb/gal) Potential source, if CCS developed

Other possible liquid HC sources

Biofuels

First generation Sugar, starch, vegetable oils

Limited by competition with food usage

Second generation Cellulosic, non-food

Awaits technical breakthrough

Third generation Biodegradable fuels from algae

Good medium term potential?

A Plant in your Tank?

Algae produce 30 x energy/area of other crops. Grow on marginal land, saline water Long running pilot in US until 1996; limited operations now in New Zealand and US Need to find strain with high oil/mass ratio, fast growing and easy to harvest Trials involve both open systems (sewage ponds) and closed (polytubing and CO2)

Adding it all up:

Energy supply shortages (and high prices) inevitable. Will start soon, last for at very least a decade Major long term changes to our way of life will be forced on us: Transport Housing - size and location Leisure Agriculture and Food Population Size

“OK, it’s agreed – we announce that to do nothing is not an option and then we wait and see how things pan out” from ‘Private Eye’

RESERVE SLIDES

Surprise

?

141 Yet-to-Find

Filling at 6 p.a

1009 Produced

1734 DISCOVERED

775 Remaining

Each year: One in - Four out Emptying at 24 p.a.

billion barrels

Oil Prices – by currency

Greenhouse Gas, Emissions / Person

from D.McKay, Sustainable Energy – without the Hot Air

Renewables are Diffuse

Source: D.McKay, ‘Sustainable Energy – Without the Hot Air’ Power Source Power / Unit Land Area (W / m 2 ) Wind - offshore Tidal Pools Tidal Streams Solar PV Panels Plants Concentrating Solar - deserts Ocean thermal 3 3 50 5 0.5

15 5 To make a difference, renewable facilities must be country-sized

Oil Producers and Local Demand

Source: F. Harper, BP, 3/2005

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