Transcript Slide 1

Lessons from Past ‘Energy Crises’
Presentation by
Brent Layton
‘Breaking Dependence on Fossil Fuels by 2020’
Institute of Policy Studies
Energy Roundtable Series
4 August 2006
Introduction
• The lessons from ‘Think Big’
• ‘What energy crisis?’
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‘Lessons from Think Big’: Background
• Electricity demand forecasts in mid-1970s had growth at 7%
per annum continuing
– Majority on Committee to Review Power Requirements supported this
view - NZED, MoW, Power Supply Authorities
– Based on extrapolation of history
• Failed to materialise from mid-1970s
– 1977 Treasury, Statistics and Ministry for Energy Resources develop a
lower forecast
– 1978 Power Planning Committee recommended two large gas-fired
stations in Auckland be deleted from the plan
• Maui development already underway at cost of $650m
3
‘Lessons from Think Big’:
Creation of LFTB
• Ministry of Energy was in process of being formed and
Treasury with DTI developed inter-departmental committee to
look at using the gas which was about to arrive but had no
‘home’ to produce liquid fuels
• Liquid Fuels Trust Board established in the 1978 Budget
– Sir Colin Maiden (Chair)
– Dr Basil Walker (Technical Director)
– Sir William Birch (new Minister of Energy late 1978)
• Late 1978, OPEC increased crude price by 14.5% - second ‘oil
shock’
• Revolution broke out in Iran in late 1978 (Shah left 16 Jan
1979)
• OPEC raised price again in July 1979 – third ‘oil shock’ and
NZ hit BoP crisis
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‘Lessons from Think Big’: LFTB
Recommendations
• LFTB made recommendations in August 1979
– A synthetic fuels project – either Fischer Tropsch or Mobil ZSM-5 (The
appropriately named Lurgi, Badger and Parsons to assist)
– Methanol plant to produce 2500 tonnes/day for export medium term but
later potentially for blending into motor spirits
– Gas liquids be reserved for extraction of LPG and to be basis for
possible plastics industry
– No recommendation on methanol blending
– No recommendation to pursue LNG, although apparently highest value
use
• Reluctance to export so much of the gas fields contents and
• Environmental risk
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‘Lessons from Think Big’: The Projects
• Core Projects
– Mobil synthetic gasoline plant at Motonui
– Complementary expansion of oil refinery in Whangarei
– Stand-alone methanol plant for export
• Other Energy Intensive Projects early 1980s
– NZ Steel expansion
– Electrification of the NI main trunk
– Bluff third pot line
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‘Lessons from Think Big’: The Lessons
• Don’t believe ‘engineers’ forecasts of demand and supply,
especially when they have a vested interest in building assets
hanging off them
• Don’t assume price movements in response to political events
are going to be sustained – revolutions take a finite time
• Autarky is a dumb idea if you are interested in economic
welfare
• There are always people willing to spend other peoples money
to experiment with new ideas and technology, even if the
scheme is hopeless economically
• Politicians and bureaucrats should not be trusted to make
investment decisions; they will probably get stitched up
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‘What Energy Crisis?’
• Energy prices are likely to rise rapidly as oil becomes scarce
and other more expensive source of energy are brought on
stream - John Fair 1979(Former Managing Director of
B.P.)
• At current rates of growth world demand for oil will overtake
expected available supplies by the mid-1980’s, perhaps sooner
- Christopher Laidlaw 1978 (International Energy Agency)
• New Zealand will face real restrictions on energy use in the
future despite any alternative energy plans New Zealand might
implement - Mike Venter 1979 (Auckland University, School
of Architecture)
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Crude Oil Prices - 1861-2012
120.0
80.0
60.0
40.0
20.0
Current Prices
2011
2001
1991
1981
1971
1961
1951
1941
1931
1921
1911
1901
1891
1881
1871
0.0
1861
$US per Barrel
100.0
Constant 2004 dollars
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Years of Proved Reserves 1980-2005
180
160
140
100
80
60
40
20
Oil
Gas
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
0
19
80
Years
120
Coal (2005 only)
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Energy Consumption 1965 - 2005
12000
10000
Millions toe
8000
6000
4000
2000
0
1965
1969
1973
Gas
1977
Coal
1981
1985
Nuclear
1989
Hydro
1993
Oil
1997
2001
2005
Primary
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Lessons from Past ‘Energy Crises’
• Prices do affect demand – may even lead to a drop in demand
• Prices do affect supply – exploration effort - discovery
• Doomsayers are not hard to find. There are always people who
seek reasons why they should control things politically
• Discovery/consumption charts are misleading as the
recoverable energy in every field changes with knowledge of
the field, drilling/extraction technology and price
• Proved reserves are estimated quantities that analysis of
geologic and engineering data demonstrates with reasonable
certainty are recoverable under existing economic and
operating conditions
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Lessons from Past ‘Energy Crises’ (2)
• Updated proved reserves/production ratios are more reliable
indicators of physical supply relative to demand
– Proved reserves have more than kept pace with consumption for gas and
oil
– Proved reserves/production ratios for coal are very high
– I have used BP’s data from their Statistical Review of World Energy
June 2006
• Current high prices largely reflect political factors, including
OPEC, and not the market warning of impending doom and
lack of low cost supply. The current price is well above the
current marginal cost of production.
• If you don’t believe me, I suggest you demonstrate your faith
in your analysis by mortgaging the house and buying longdated oil futures. If the ‘Peak Oilers’ are only half right you’ll
be on to a bonanza
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