2005 Changing The Oil Economy

Changing the Oil Economy

State of the World Worldwatch Institute

The Oil Economy The Oil Age fueled the 20th Century How does it affect global security? • • • • •

Strategic commodity Economic security Civil security Climate security Alternatives Courtesy Elmendorf AFB

Oil in Modern Life How wide spread is our oil-based culture? • Cars and power plants • Personal care products, cosmetics and drugs • CDs, cell phones, radios, cameras, TVs • Clothing, sports, household furnishings • Food production and transport

A Strategic Commodity • Oil is central to modern civilization • It is the world’s largest source of energy

• Oil has changed from an asset to a liability • Oil is key to manufacturing, feedstock and energy and there are no ready substitutes

• Oil dominates world energy budgets • Per capita and total energy consumption skyrocketed once fossil fuels became widely available

From Wood to Oil U.S. Consumption, 1630-2000 Quadrillion Btu

40 35

Petroleum

30

Natural Gas

25

Nuclear Electric Power

20 15

Hydroelectric Power

10

Coal

5 0 1630 Source: DOE

Wood 1680

1730

1780

1830

1880

1930

1980

2030

Consumption

Million Barrels

World Oil Consumption, 1950-2004 90 80 70 60 50 40 30 20 10 0 1950 Source: BP

1960

1970

1980

1990

2000

2010

China • China exported oil in the early 90’s

• Today, it is the world’s second largest importer 7

Million Barrels/Day

6 5 Consumption

4 3

Production

2 1 0 1970

1980

1990

2000 Source: DOE

Consumption • Global consumption of useful energy per person is about 13 times higher than in pre-industrial times • Per capita consumption is much higher in industrial than developing nations • Consumption has risen despite increasing pollution, emissions and other problems © USDA

Transportation Oil accounts for nearly all transportation energy use

Automobiles – The world’s automobile fleet grew from 53 million in 1950 to 539 million in 2003 – China, with an expanding economy, now has 20 million cars and trucks and by 2020 is projected to have a fleet of 120 million

Digital Vision

Transportation Air Travel Air travel has increased dramatically since jets were introduced – 1950: 28 billion passenger-km – 2002: 2,942 billion passenger-km

© NASA

Supply • Conventional view--production will keep rising – IEA projects production will reach 121 million barrels per day – Sufficient oil reserves exist and new technologies will aid in better extraction

© DOE

A Finite Resource • Dissident view--production will begin to decline by 2007 – Gap between supply and demand will continue to grow – New technologies will only accelerate rate of depletion – Production has outrun discovery for past three decades

© Getty Images

Discoveries World oil discoveries are lagging far behind production 60

Discoveries

Billion Barrels

50 40

Production

30 20 10 0 1920

1940

1960

1980

2000

2020

Production & Resources According to many geologists, resource constraints may soon limit world oil production 30

Billion Barrels

25

Historical Production

20 15

Estimated Resources

10 5 0 1500

Source: DOD, DOE

1700

1900

2100

2300

2500

Falling Production Production has reached a plateau or declined in 33 of the 48 largest producers, including: – – – – – –

6 of OPEC’s 11 members United Kingdom Indonesia Norway Mexico Venezuela

© Getty Images

Oil Production Production Per Day 14 Former Soviet Union

Million Barrels

12 10 8

United States

6 4 Saudi Arabia

2 0 1950 Source: BP

1960

1970

1980

1990

2000

2010

U.S. Production U.S. oil production peaked in 1971 10

Million Barrels Per Day

8

Lower 48 states

6 4 2

Alaska 0 1955 Source: DOE

1965

1975

1985

1995

2005

Dependency • Industrial nations use most of the world’s oil • Developing nations – – – –

Are more dependent on oil as share of total energy use Use more in proportion to the size of their economies Many import virtually all their oil Are more vulnerable to price shocks than many industrial nations

Dependency Percent of Oil in Energy Budgets

Ecuador Thailand Japan U.S. France

0

10

20

30

40

50

60

70

80

Paying the Price Two decades of stable oil prices have abruptly ended. Is this a temporary anomaly?

Dollars Per Barrel

Human Cost Price increases translate into human cost in poor countries – rising food costs affect diets – cooking fuel becomes less affordable

© UN

© FAO

Price and Economic Growth IEA estimates that if the price per barrel price increase is sustained, it will reduce economic growth throughout the world in 2006 Percent Reduction in Economic Growth

1.0

U.S.

1.6

Europe

3.2

India Indebted countries

5.1 0

1

2

3

4

5

6

World Oil Trade, 2002

Exports, MBD <1 1-2 2-4 5-6 6-9

World Oil Trade, 2020

Exports, MBD <1 1-2 2-4 5-6 6-9

Trillion Ton-Miles

5.6 8.8 8.3

6.3

7.1

8.8

12.9

1970 1980 1990 2000 2010 2020

Exporter Dependency • Exporters rely on a continuous stream of oil revenues because their economies are not diversified • Oil income is often diverted to enrich elites and to pay for military buildup

© Getty Images

Uncertainty • Growing demand will increase dependence on supplies from the Middle East • Oil-producing countries are often politically unstable • True state of reserves in Persian Gulf, particularly Saudi Arabia, are in question • Countries such as China and India are entering into oil-intensive development and will intensify competition for oil • Competition will trigger soaring prices

Oil and Civil Society • Access to oil has provoked power maneuvering, military interventionism, and alliances of convenience • Oil resource wealth has tended to support corruption and conflict rather than growth and development

© Lance Cpl. Nathan Alan Heusdens

Oil and Climate Global consensus that Earth is warming and that deforestation and the burning of fossil fuels are the major causes of climate change Digital Vision

Oil contributes 42% of all emissions of carbon dioxide (CO2) emissions, a greenhouse gas

Greenhouse Gas Atmospheric concentration of carbon dioxide is now higher than at any time in the last 650,000 years 400

Parts Per Million

380 360 340 320 300 280 260 1850

1870

1890

Source: Scripps Institute of Oceanography

1910

1930

1950

1970

1990

2010

Greenhouse Gas Past and future CO2 concentration

Source: IPCC

Climate Change Scientists project that rising temperatures will: – melt ice caps and glaciers, raise sea levels, and increase storm severity – trigger regional droughts and famines – lead to the spread of diseases like malaria and dengue fever – affect the growth and harvest of world food crops

Glaciers are already melting

Temperature Changes The global average temperature is already higher than at any time since the Middle Ages 15.0

Degrees Celsius

14.6 14.2 13.8 13.4 13.0 1860

1880

1900

1920

1940

Source: Goddard Institute for Space Studies (GISS)

1960

1980

2000

Climate Security Environmental effects from climate change threaten human security and the global economy – – – –

Global increase in poverty National and regional instability Tightened food supplies Conflict over water resources

© Digital Vision

© UN

Weather Disasters The economic cost of weather-related catastrophes Billion Dollars Uninsured Losses

400

Insured Losses

300 200 100 0

Source: Munich Re

1980-84

1985-89

1990-94

1995-99

2000-04

The Tipping Point

We may already be in the early stages of a global energy transition… One that is as profound as the advent of the oil age was a century ago.

The Tipping Point Oil (1905)

Renewable Energy (2005)

Improving Efficiency Improving automobile fuel economy can make an enormous difference Gasoline and diesel-electric hybrid cars are twice as efficient as internal combustion engines

Renewable Energy Wind- and solargenerated electricity are the fastest growing sources of energy in the world Biomass fuels such as ethanol and biodiesel are proven and competitive with gasoline and diesel

Wind Wind energy is becoming a major part of the global power industry 60,000 Megawatts

50,000 40,000 30,000 20,000 10,000 0 1980

1985

1990

Source: BTM Consult, EWEA, AWEA, Windpower Monthly and New Energy

1995

2000

2005

Solar Solar energy is growing even faster 5000

Megawatts

4000 3000 2000 1000 0 1980 Source: PV Energy Systems, PV News

1985

1990

1995

2000

2005

Biofuels • Biofuels are joining the bandwagon

Million Liters

35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 1980

1985

1990

1995

2000

2005

Policy Changes 1) Ensure that energy markets include renewable options – – –

Enact pricing laws to guarantee fixed minimum prices for electricity Require that utilities provide access to grids Establish quota systems mandating a share for renewables

Policy Changes 1) Focus on industry standards, permits and building codes – Ensure quality hardware – Address public concerns about siting – Design new buildings to be compatible with renewables

Policy Changes 1) Educate investors and consumers •

Ensure a skilled workforce

•

Increase public participation

0 Re O ne the w r ab le s

r

Nu cl ea

Tr a Bi dit om ion as al s Hy dr o

Na tu G ral as

Co al

il

% 2004

O

Choices World Energy Use

35

30

25

20

15

10

5

Source: Martinot, BP

Choices World Energy Growth (2002-2004) 35 30 25 20 15 10 5 V rP So la

W

in

d

s

Bi of ue l

Co al

G as

le Tr ar ad Bi itio om na as l s

il

Nu c

O

o

0 Hy dr

Annual Percent Growth Rate

Source: Martinot, BP

What do you choose? One path leads to the possible calamitous loss of a prime energy source

The other path leads toward a world of abundant clean energy for more of the world’s people

Worldwatch Institute Further information and references for the material in this presentation are available in the Worldwatch Institute’s publication “State of the World 2005” This presentation is based on a chapter authored by: Thomas Prugh, Christopher Flavin, and Janet L. Sawin

www.worldwatch.org