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The Forum > Article Comments > Oil and the lucky country > Comments

Oil and the lucky country : Comments

By Cameron Leckie, published 30/4/2009

The magnitude of the changes required to adapt to a declining oil supply in Australia imply costs of billions of dollars and time measured in decades.

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I think Australia and the world generally have been lulled into complacency over oil depletion by the strange behaviour of fuel prices. We drive 10% less but the price of a barrel of crude oil goes down 70%. The price must increase as the supply crunch draws near but essential transport can't be cut eg delivery of groceries to supermarkets.

In Australia's case I think we should shift from liquid fuels to compressed natural gas CNG. Buses and trucks should be converted first. Instead of cash handouts to do their own thing domestic car makers should be encouraged to produce gas powered models. Note CNG is mainly methane but LPG is propane and butane. CNG may need more expensive fibreglass tanks to save weight. The problem is that the CPRS is likely to spur a rush to gas powered electrical generation. Dare I suggest nuclear power instead. Moreover nobody sees any problems with exporting huge amounts of gas in the form of LNG. We need a policy to conserve gas for high priority uses like transport, ammonia production and home use. Power generation and export are the lowest priority.

If in fact Australia has 250 tcf (~5,000 megatonnes) of natural gas and coal seam methane that should solve the oil replacement problem for half a century.
Posted by Taswegian, Thursday, 30 April 2009 9:52:04 AM
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Do the projections of future supply assume the price is the same as today? Because it makes all the difference. If and when the price rises, it makes economical, supplies that are not economical today.

Also, anyone who wants to go exploring and mining oil today would surely be a sucker for punishment? I mean finding it and digging it up should be hard enough. But can you imagine the nightmare of parasitic hoo-haa - regulations, royalties and so on - that any productive person would have to go through in order to provide the service of supplying fuel to the population?

I think the flaw in this article is the assumption that 'policy' can and should solve the problem of natural scarcity. There is no evidence that policy is able to. So far as the scarcity is a result of policy, then by all means abolish the policies that are causing the scarcity. But so far as the scarcity is a result of nature, public 'debate' and 'policy' can't fix or improve it. Only discovering alternative more economical supplies of energy can do that. Policies cannot create, but they can certainly destroy wealth!
Posted by Wing Ah Ling, Thursday, 30 April 2009 10:11:00 AM
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Wing Ah Ling is quite right but picks on just one of the complications affecting supply and demand in the oil industry. For example Australia has substantial supplies of oil - the trouble is its locked up in shale, mainly in Queensland, and so is expensive to get at. There has been talk about exploiting those reserves for decades but the price has been too low. If the prices changes, maybe shale will get another look in. Or we could do a Canada where a technological breakthrough recently, and quite unexpectedly, unlocked vast reserves in oil sands that were previously not economic. And yes, I do know about the enviornmental objections to exploiting shale oil - I don't regard them as relevent.
Then there is product substitution. LNG is not as good as a petrol but it will do as a substitute. Its also possible to substitute coal derivatives, although that's desperate stuff.
I liked all the author's pretty graphs, but I would be extraordinarily suprised if the compiling authors intended them to be taken literally beyond about 10 years or so. They are meant to illustrate - not seriously forecast. No one in their right mind seriously forecasts any aspect of the oil industry beyond five years.
Posted by Curmudgeon, Thursday, 30 April 2009 12:15:33 PM
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Wing Ah Ling: "If and when the price rises, it makes economical, supplies that are not economical today."

Quite right. Of course the converse also applies. If and when the prices rises, things we use oil for that we take granted today won't be economically viable. This like driving to work and producing fertiliser.

Wing Ah Ling: "Also, anyone who wants to go exploring and mining oil today would surely be a sucker for punishment?"

My, what suckers Shell, BP, Exxon, and their college's are then. They have doubled the amount they spend on oil exploration since 2002, growing at roughly 10%-15%/year. (Source: World Investment Report, 2007 http://books.google.com/books?id=Zze060Hn5FwC&pg=PA90&lpg=PA90&dq=world+oil+exploration+expenditure&source=bl&ots=9o1wyu5zGc&sig=b9MZeLR_6TEPPmssUZ7PpwDyntQ&hl=en&ei=ChH5SfTpKMWNkAXYtoziCg&sa=X&oi=book_result&ct=result&resnum=3 ) It will drop this year though as some of the little guys drop out. But the big guys are raising the expenditure even after the drop in oil prices. Maybe is something to do with the $6 billion of US government subsidies get they each year? That sort of government intervention must make it tough, as you say. http://www.citizen.org/cmep/energy_enviro_nuclear/electricity/energybill/2005/articles.cfm?ID=13980

Curmudgeon: "Then there is product substitution."

Ye Gods, Curmudgeon, what happened? You seem to be acknowledging we have/will hit peak petroleum. That is a turn about for the books. And you are right about product substitution. I presume it will happen, but requires huge capital expenditure. I can't see any evidence of it happening yet which is a bit of a worry.

But the point the "Energy is everything" was making seems lost on you. There is only so much fossil energy in the ground of any sort. Once it is gone, its gone - there is nothing to substitute. Countries like the US have already gone well past peak coal.

By the way, that most optimistic of petroleum surveys - the US Geological Survey, does take into account shale oil. It has us running out in 2040.
Posted by rstuart, Thursday, 30 April 2009 1:09:26 PM
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"Maybe is something to do with the $6 billion of US government subsidies get they each year?"

Just maybe. The subsidies didn't happen to go unequally to the biggest companies by any chance did they?

All such subsidies should be abolished. Why should government be subsidising the oil industry for gossake?

"That sort of government intervention must make it tough, as you say."

This is the same government that's spending up big on the other hand to subsidise alternative energies and impose carbon taxes and what-have-you on the ground that fossil fuels are the worst thing in the history of the world.

The welter of direct and indirect taxes and subsidies and compliance costs is so various and complex that I wonder if anyone knows what the net effect is. Certainly many are countervailing and must cancel each other, making everyone worse off.

All government can add to this is economic incoherence. If the net effect of their interventions is to make oil cheaper to consume, it just encourages people to use it and delays the development and use of alternatives; just as they have done for the last hundred years with centralised coal-fired power stations, thus prejudicing the development of alternative decentralised energy; which they now tell us was all a dreadful mistake.

But if the net effect is to make fuel more expensive, they similarly make everyone poorer than they would otherwise be, and divert resources into the greater wastage of natural resources.
Posted by Wing Ah Ling, Thursday, 30 April 2009 2:36:40 PM
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Wing Ah Ling,

You could knock me over with a feather. I think I agree with everything you said in your last post. That is another first.

However, you contradict what you said earlier:

Wing Ah Ling: "I think the flaw in this article is the assumption that 'policy' can and should solve the problem of natural scarcity."

These subsidies for oil are a policy. Granted they don't solve the problem, they make it worse. But nonetheless, they are an example of policy effecting how much damage natural scarcities will cause us. Equally, you could have policies that force things in the other direction. You could, for example, tax oil and then artificially lower the R&D cost of exploring the alternatives.

This is what the ETS, solar subsidies, renewable energy policies are meant to achieve. I presume you don't like these either. I half agree. It looks to me like the government is trying to pick winners and losers in the game of choosing a replacement for the diminishing fossil fuels. It is an impossible task, and they will be better off leaving it alone. Just taxing fossil fuels and subsiding non-fossil fuels (or non-carbon fuels) equally would be better, I think.

What you don't agree with is any forcing by the government. There we disagree. Left to the market we will get price spikes, like we saw with petrol but much worse. The market seems to be pretty thick in this regard. In fact As the GFC demonstrates, a market left to its own devices can do some pretty dumb things in general. By forcing the price up now, you hopefully start to move over to alternatives sooner. Yes, we pay more now as a consequence. But by making more energy available when the spike hits, you pay a lot less later.
Posted by rstuart, Thursday, 30 April 2009 3:13:46 PM
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