CAMERON LECKIE. Government Myopia and Liquid Fuel (In)security

Oct 31, 2019

Without water we humans die within days. Without oil our society, as currently organised, will follow a similar path. Given the obvious importance of liquid fuels to society, a realistic appraisal of future availability is essential. Unfortunately the Department of the Environment and Energy’s interim Liquid Fuel Security Review provides a myopic and misleading view of the future.

Liquid fuel security consists of three elements. These are the reliability of supply, affordability and how resilient is supply to disruptions. This article focuses on the first and most important element; reliability of supply. Reliability of supply is essentially a question of whether future supply will meet future demand. The handling of this question within the Review is woefully inadequate which leads too an entirely inappropriate assessment of Australia’s future liquid fuel security.

Let’s start with the demand side and assume that the Review’s assessment of future demand for liquid fuels is accurate. According to the Review both global and Australian oil demand will continue to grow until the 2030s, even when a ‘transition’ to other transport energy sources, such as hydrogen, electric vehicles and biofuels, is considered. Thus the Review concludes that Australian demand for liquid fuel in 2040 will be greater than it is currently.

The Review invests a grand total of 114 words on the question of whether future supply will be sufficient to meet the stated demand. Those 114 words do however raise serious concerns. For example, according to the Review, currently producing oil fields will meet only 20 per cent of demand in 2040 whilst the International Energy Agency’s (IEA) figures are quoted stating that US$400 billion must be invested each and every year to meet expected future demand.

To replace 80% of existing global oil production in 20 years, a herculean task, suggests that new sources of oil must be discovered. However oil discoveries peaked in the 1960s and have been in long term decline for over 50 years. In 2017 global oil discoveries (pdf) totalled four billion barrels, a 70 year low, whilst global consumption was 33 billion barrels. If the incredible advancements in oil exploration technology since the inception of the industry are considered it appears highly improbable that the trend of declining discoveries will be reversed.

To make matters worse, there has been chronic under investment in the oil industry for a prolonged period of time, highlighted by a nearly 45 % drop in capital expenditure during the 2014 – 2016 period. An additional concern is that much of the recent investment has been in the United States shale oil industry. The extraordinarily high depletion rates of shale oil wells combined with the continuing multi-billion dollar losses made by shale oil industry suggest that the shale oil boom will not last as suggested by serious analysis from industry experts like Art Berman and David Hughes.

The logical conclusion to be drawn from a combination of existing production declines, declining discoveries and underinvestment is that future production will fail to meet forecast demand; quite possibly by a large margin. The Review glosses over this potentially economy destroying problem with the flippant, inaccurate and meaningless statement that proven oil reserves can meet current demand for 50 years. As the saying goes oils aint oils. Venezuela holds the world’s largest reported oil reserves. Yet their oil largely consists of heavy oil sands (15 % of global reserves). This cannot be produced at the high rates necessary to offset declines from other oilfields. A similar situation exists with Canadian tar sands (9% of global reserves), large reserves but relatively small production rates. Simplistic calculations do not assist in forming a realistic assessment of future oil production.

These factors lead to the very sobering conclusion that liquid fuel supply won’t be sufficient to meet Australian or global demand into the future. As such liquids fuels are unlikely to be affordable and as recent attacks on oil infrastructure in Saudi Arabia suggest, liquid fuel supply will be increasingly susceptible to disruption. This is a very different set of conclusions to those stated in the Review.

The 2005 Hirsch Report offers the most thorough analysis to date of measures required to mitigate the impact of peak oil. This report concluded that it would take a crash action mitigation program implemented 20 years prior to the onset of peak oil to avoid a prolonged period of liquid fuel shortages. Analysing the findings of the Liquid Fuel Security Review suggests that we are now within; perhaps well within, that 20 year window. Yet the Review entirely fails to identify the scope and urgency of our liquid fuel predicament, let alone propose a robust response.

The Review continually emphasises the importance of the oil markets in managing supply and potential disruptions. Left to the market, the imbalance between future supply and forecast demand will be managed through large scale demand destruction. The Global Financial Crisis, which was preceded by a major spike in oil prices as have many other recessions, provides an example of how demand destruction will manage supply and demand imbalances; through economic recession, business failures and rising unemployment. This is not a good solution.

The current version of the Liquid Fuel Security Review does a great disservice to our nation. Not only is it misleading but it is a missed opportunity to commence a long delayed but urgently required discussion on how Australia can transition to a liquid fuel constrained future. A key component of this discussion must be how we systematically reduce the demand for liquid fuels other than through indiscriminate and brutal demand destruction. It is imperative that the final version of the Liquid Fuel Security Review seriously addresses the serious risks posed by future liquid fuel deficiencies; 114 words just does not cut it!

Cameron Leckie served 24 years in the Australian Army and is currently studying Agricultural Engineering.

Share and Enjoy !


Receive articles straight to your Inbox

How often?

Thank you for subscribing!