Get ready for a century of booms-and-busts

Late last year, the International Energy Agency (IEA) released its annual World Energy Outlook which projected that world demand for oil will increase by about 19 million barrels a day, from 85 to 104 million barrels a day, by 2030. The IEA also observed that since the output from existing oil fields decreases over time, it will be necessary to find 45 million barrels a day of new capacity to offset this decline. In short, 64 million barrels of new daily production capacity must be found over the next 20 years. This is equivalent to six-times the daily production capacity of Saudi Arabia.

By 2030, the IEA expects the world’s production of oil to come from six sources: currently producing fields, known fields yet to be developed, enhanced oil recovery (improved extraction techniques), non-conventional oil (tar sands and biofuels), natural gas liquids, and fields yet to be found (see IEA Figure 11-01). This last source, fields yet to be found, has many oil analysts concerned because there are few unexplored places left in the world where this quantity of oil (about 20 percent of production in 2030) can possibly exist.

Of course, 2030 is a long way off. Well beyond the election-horizon about which most politicians concern themselves. And this short-sighted thinking shows, clearly illustrated by “stimulus” and “infrastructure” spending on projects that will make no sense whatsoever in 20 years time if those fields yet to be found fail to materialize.

But it’s not just 2030 that we need to worry about.

By 2020, world production of oil will peak at around 95 million barrels a day if significant quantities of new supplies are not found. Recently, a number of executives at Total, the large French oil multinational, declared that world oil production will never exceed 90 million barrels a day and that the peak in world oil production will occur sometime within the next decade. When this happens, production will begin to fall, oil prices will rise rapidly, and shortages will take place in those countries that cannot afford the higher prices.

Energy analysts at the IEA and other organizations expect oil supply shortages by 2013 due to a worldwide decline in production capacity caused by the ongoing cancellation of oil projects—one of the effects of the credit crisis and low world oil prices. A similar decrease in production capacity resulted in the rapid rise of world oil prices in 2007-08, a major contributor to the world economic downturn. In other words, by 2013, oil shortages will push world oil prices higher, leading to yet another economic downturn.

Unless some way is found to rapidly reduce the world’s reliance on oil, this cycle of improving economic conditions stifled by high energy costs will continue well into the future. Some projections see each downturn in the economy deeper than the one before it. Ironically, many government policies and spending priorities designed to get the world out of the current economic downturn and prepared for tomorrow’s expected economic growth are ones that will continue our reliance on oil.

A good example of this is Nova Scotia’s three-year $1.9 billion stimulus and infrastructure program, Building for Growth. About 2.6 percent ($50 million) is allocated to energy efficiency in government buildings; most of the remainder is intended for construction projects that will do little to reduce our reliance on oil, notably $1 billion on roads and about $700 million on renovation and construction of government buildings.

So what should be done?

First, politicians and the public must recognize that within the next few years, the cost of oil will rise and that oil shortages will occur because of production shortfalls. This means that all government policies and programs must be designed with the intention of reducing reliance on oil, replacing oil with secure and environmentally benign alternatives, and restricting new demand to energy sources that are also secure and environmentally benign.

In Atlantic Canada, the two energy services most vulnerable to oil-price rises and oil shortages are transportation and space heating. The challenge facing the region is how to reduce, replace, and restrict oil consumption for these two services in as short a time as possible.

Although unpopular to many and inconvenient to some, experience has shown that the quickest way to reduce oil consumption for transportation is to make fewer trips, increase the number of passengers or goods per trip, and, where possible, change modes (for example, from car to bus or truck to rail). Replacing oil products with biofuels (or restricting new consumption to biofuels), notably ethanol and biodiesel, will do little to improve the situation as the IEA has already factored these energy sources into their projections. Electricity can be employed as a transportation fuel; however, availability and cost will limit its use.

Transportation policies should focus on maintaining existing roads and developing regional transportation networks of buses and rail. Politically-driven infrastructure programs that spend hundreds of millions of dollars on multi-lane highways can no longer be justified.

In the built environment, reducing oil demand for space heating is most commonly achieved by lowering building temperatures and improving the building envelope so less heat is lost. Replacing and restricting will mean finding alternative energy supplies for space heating, such as solar thermal, biomass, geothermal, and wind.

Provincial building policies for both existing and new buildings will require significant changes to the building code, reflecting the impending changes in world oil supplies. Government infrastructure spending on buildings will be wasted if alternatives to fuel oil for space heating are not adopted. In fact, ensuring that government buildings have secure energy sources for heating may be of paramount importance as these buildings can offer shelter to individuals and families who face heating emergencies caused by fuel shortages.

Atlantic Canadians will be particularly vulnerable to volatile oil markets, given the region’s reliance on oil for imported foodstuffs, goods, and energy. If the IEA’s projections are right, the oil-price spikes of 2007-08 and today’s economic downturn are but a foretaste of the oil-driven boom-bust cycles that can be expected well into the future. The region can start preparing for this change now or it can wait until change is forced upon it. Either way, change is coming.

Larry Hughes, 3 May 2009
Atlantic Construction and Transportation Journal—May 2009