In support of Paul, I was looking for someone not from the Power industry, but expertise representing the oil industry. As I mentioned in my last blog when you want plumbing you go to a plumber, when you want brain surgery you go to a brain surgeon, so I was looking for someone who could validation of refute Paul’s modelling on source oil costs. Interestingly enough Paul may have been very conservative. Dr Fatih Birol is the Chief Economist from the International Energy Agency (IEA), and definitely the expert who would have the answers (although obviously somewhat biased since not more than a year ago the IEA was saying peak oil was imaginary). Fortunately he was interviewed recently on the ABC science show and there is a transcript and podcast for that event
ABC Podcast & transcriptionAnother person that bought credibility to this dialog was Chris Skrebowski, formerly of BP and the Institute of Petroleum in London, who in his role of oil consultant was a little more explicit around the challenges that we face. Chris claims at the moment the global oil supply is losing the equivalent the entire North Sea in about 15 months or the entire production of Iran, which is OPEC's second biggest producer, in about 11 months. He claims the intersection of demand being higher than what the world can supply is 2014, if OPEC don’t sit on their spare capacity. If they do the date will come towards us.
Back to Dr Fatih Birol, the economist, he says that the global oil demand will increase substantially, driven by the transportation sector, cars, and also by China consumption growth. He quotes that in China 30 people out of 1,000 people own a car, and in the United States 700 people out of 1,000 people own a car. And with growing wealth in China the impact is obvious – India + China = astronomical consumption.
Fatih says that the IEA believes crude oil production peaked in 2006 and we will soon reach the situation outlined by Chris (a blow out in oil cost, as consumption demands more than is produced). Now Fatih also talks about a way out of the oil constraints – oil substitutes from production in gas, oil sands and possibly synfuel (from coal) – and now we circle back to my yesterdays point from Paul Simshauser (AGL chief economist) that oil price will knock on to gas price will knock on to coal price …… and the low cost energy sources we believe we will have in Australia is a façade that is so easy to see through that you don’t have to be economists like Dr Fatih Birol and Dr Paul Simshauser to see the obvious implications.
Now just for a moment come with me on an imaginary trip into the future. One where Australia’s primary energy sources are free (renewable wind, sun, geothermal and hydro) and cars are electric AND therefore we have released ourselves from the grip of fuel fever post 2014 in the rest of the world; where there is less capacity to produce than that demanded for fossil fuels. In this imaginary setting, Australia is a price setter for coal and synfuel, and not a price taker for oil. In this imaginary setting we are low carbon and our fuel has a low input cost to power for the likes of Aluminium smelters, Nickle refiners etc etc. So we still use our minerals as our national wealth, we use renewables as a low cost input to minerals processing and compete so well against every other minerals producing country. AND we also increase our value add (at the moment much of the minerals processing goes off shore where hydro or nuclear power provides a lower cost energy input to the value chain). Our coal, gas (and we do have oil in Australia) go not into our own electrical production but get a high price for their raw costs or processed product (ie synfuel) in international markets (better balance of payments!).
I know we are just imagining this… but where is the vision amongst our leaders today? The CEO of BHP Marius Kloppers (who is into oil as well as minerals) urged the Australian government to transform the economy now. Don’t wait. Sounds like he has a vision similar to our imaginations above. Even John Hewson formal liberal leader got on the band wagon the other day… again having visions like the one above (refer: Newslink)
Malcolm Fraser, another former Liberal leader with John Hewson signed the pro-carbon "Say Yes" advertisement in national newspapers on the 30th of May, described the debate in Australia as "pretty miserable" and said the climate change science was "proven"....
Well what does it take? It’s not hard to stretch the mind. Even if you are totally against the concepts or science of climate change the economics of oil should convince you that transformation from a fossil fuel economy is not just good environmental sense.. it sets Australia up for a fantastic boost in our balance of trade, international competitiveness in the longer term. Those who say it will make us uncompetitive are just downright wrong. Please go and take advice from the economist and understand the midterm future scenarios in Australia. The scenario without carbon is tremendously bright and delivers a legacy of wealth capability for our children, not a economy steeped in a financial model that says “10 years ago coal was cheap and the best thing for our economy was to keep that model – resist change!”.
We must look to the future. If we were the owners of Wells Fargo (stage coach based transport 100-150 years ago) do we ignore the up and coming train or road infrastructure for vehicles because the investments are high and therefore we stick with our horse transport model? I’m afraid most of our politicians today would be in the Wells Fargo camp and not the with the visionaries of the train and road model that had a good century of boom. Now we must move from the fossil fuel car, train and energy model to something newer, something visionary; something with a future. Can anyone identify the leader that can execute this vision? And would you think a carbon tax or ETS is a transitional lever? We need it, and we need the passion for a very fast change that can place Australia at least at the same pace as the rest of the world – that is if we are not comfortable to be ahead of the game.
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