By Frank-Jürgen Richter
During the past month, the media expressed wild concerns about the US Fed interest rate changes, the true capitalization of Deutsche Bank in Germany, the slowdown of the Chinese economy, and the International Monetary Fund’s forecast of lower than usual global growth.
In the background, oil prices continued to fall but the market reacted predictably: there is excess supply so the oil price has been marked down in an orderly manner. A meeting of oil producers in Houston, Texas, at end-February could well produce a solution – needed partly because excess supply will soon fill every storage container, and also the budgets of producer nations are in a mess. They were drawn up when oil was over US$110 per barrel rather than today’s US$33; even rich Saudi Arabia lost US$115 billion last year and is considering selling shares in its state oil company, Saudi Aramco.
Fossil fuels were created about 450 million years ago when the world was a very different place. Masses of fallen trees accumulated in chasms and valleys, and fish and other marine life forms died and accumulated on the sea floor and both areas became covered by sediment.
The continents drifted apart on their huge tectonic plates and the sediments became thicker, exerting large pressure on the dead matter, which changed the deposits to coal (from the trees) and oil and natural gas (from the marine life). Sometimes the sediments created impervious caps, trapping oil and gas in high-pressure pockets which, when drilled into, produced spectacular “gushers”. Some oil and gas became tightly fixed in shales and needed special “fracking” treatment to extract the fuels.
Since the industrial revolution, we have used increasing volumes of all fossil fuels and their prices are strongly correlated, though each cannot be substituted easily for the other in the short term.
Geologists can forecast where fossil fuel deposits might occur, but test bores are needed to predict the volumes of fuel. The fields are classified as proved, probable and possible according to their geological, engineering and economic data: it is an uncertain science. Most of the traditional oil and gas fields have been found and exploited, and increasingly, non-traditional sources are being developed such as the shales of the US or the tar sands of Alberta, Canada.
Thus, proven global oil reserves have increased in recent years due to the exploitation of shale oil fields. Perhaps the best known are the Marcellus shales of the eastern US (which can be traced through northern Europe to Poland as they were from the same marine depositions). Their exploitation has added 4 million barrels a day in less than four years, and so have disrupted the market place. Yet, given fossil fuel’s historic formation, no more fossil fuel will be created – so once we have used it, it’s gone. It is not whimsical to ask what might occur if oil is not available.
The International Energy Agency in Paris has said we have used over half of our known, proven reserves of traditional oil – “peak oil” was passed in 2010. Yet today we are using even more oil as it is so cheap – but even shale oil sources are not inexhaustible. Eventually oil will be left underground as exportation will be so costly, we wouldn’t be able to afford it. Proven sources off Brazil or in the Arctic are being left untouched for the moment as they are deemed unprofitable.
In December 2015, the world’s nations agreed in Paris to reduce their national pollution profile and ratify a new “Kyoto II Protocol” by 2020 which would be legally binding over 15 years. All nations ought to be investing in non-polluting sources of electricity, but with the cheapness and abundance of coal, and the glut of oil and indeed natural gas, there is little incentive to invest in research and development of renewable sources.
It is a fraught issue as all global trade is powered by oil – in trucks, ships and airplanes. Interwoven globalisation cannot stop overnight but as oil becomes more costly, we must question if global trade can continue.
It seems to me that an initial solution would be to create an interconnected national, regional and then global smart electricity grid. Through this we could market electrical power – switching power from the deepening night in the East to the dawn in the West; and from the warmer, equatorial regions to the cold, northerly regions. The grid would capture all sources of electrical power – from traditional fossil fuels and from nuclear generation and from the renewable sources of wind and water power, as well as sunlight.
As we move away from polluting fossil fuels, we must capture more renewables and find ways in which electricity may be stored in sensible quantities as the present methods are ineffective and costly.
The creation of a global grid, while quite simple technically, is a huge political task. But market forces will act rapidly to a diminishing availability of oil – initially, prices will rapidly increase but new oil will still be left underground as few can afford to buy it. Then globalization will collapse and we might all starve! Better to discuss and find ways now to avert catastrophe rather than search for ways to boost the coffers of oil producers.
The writer is founder and chairman of Horasis, a global visions community. Horasis will host the inaugural Horasis Global Meeting in Liverpool on June 13-14. The Future of Energy is one of the main discussion topics of the event.