The Signal To Prepare For Change  

The Age has an editorial on high petrol prices signalling the need for a change of course on energy policy - they even refer to peak oil and start the search for a scapegoat. Conveniently, the federal government has been in place for over 10 years, so there's one worthy candidate.

A year ago, Treasurer Peter Costello warned that petrol prices would stay above $1 a litre. Ah, those were the days: the price is testing record heights (for the cities) of $1.40. By last September, Prime Minister John Howard was warning the Government could do nothing about a short-term price spike. Seven months later, Mr Costello is talking about the risk of a third "oil shock", saying: "This has lasted longer than anyone expected." Mr Howard hopes prices will soon "recede a little bit". It is not just the Australian public, then, that seems to be struggling to come to grips with the fact that the future of oil prices that once seemed inconceivably high is upon us. Service Station Association chief executive officer Ron Bowden this week summed it up: "You're living in a fool's paradise if you think you're just weathering a storm and everything will go back to normal. Normal is high energy prices ... $2 a litre is quite possible."

Official forecasts have proved to very wrong, as the convener of the Australian Association for the Study of Peak Oil and Gas, Bruce Robinson, told a Senate inquiry in Perth last week. In 2002, the Australian Bureau of Agricultural and Resource Economics (ABARE) forecast an oil price of $US21 a barrel this year (it was $US18 at the end of 2001), not $US72. Its estimate of $US35 just a year ago was still out by 100 per cent. The problem, as with comparisons to the 1970s oil shocks, is that the parameters of supply and demand have changed profoundly. The Inquiry into Australia's Future Oil Supply and Alternative Transport Fuels has not attracted the attention it should, but anyone who reads the Hansard record of a thought-provoking discussion on April 11 would understand why old assumptions are unreliable. When even a Big Oil champion such as US President George Bush warns that his country must end its oil addiction, Australia should get the message. The old tyranny of distance grows along with fuel prices.

Demand, driven by China and India, is soaring, but production has been flat for 18 months. Producers are pumping at capacity, not cutting supply as they did in the '70s. Oil is being used up at four times the rate that new reserves are being found. The cheapest oil from the biggest, most accessible fields has driven global development - there has never been a cheaper, high-energy fuel - but the new sources are more inaccessible and costly to tap. ABARE still forecasts that in the next 25 years Australia will use 66 per cent more oil. Where will it come from and, more to the point, at what price?

The question of when oil production will peak (some analysts even say it has) is a highly uncertain one, but it can no longer be safely assumed that there is plenty more, at an affordable price. Australia must urgently assess the full extent of its oil vulnerability, across all industries and sectors. It must be more selective in its use of oil (for fuel and a vast range of products) and develop alternative, market-ready fuels. Some seemingly obvious answers, such as converting vast natural gas reserves into liquid fuel, may not be as cheap or last as long as expected once the world starts looking at this alternative. The US (which could use up Australia's gas in three years) and Europe have depleted much of their natural gas, and China is buying up Australian gas.

Then there is the aviation industry to consider. It has no ready alternative to jet fuel - where does that leave a nation girt by sea, its travellers, exports and imports, should oil prices also go sky-high? (Ships and trains at least can use biodiesel.) Biofuels are being widely advocated, but this is a supplementary resource. Our entire wheat crop could produce only enough fuel to match about 10 per cent of our oil use. The Senate inquiry has aired concerns about the diversion of resources should farmers get better returns from fuel production.

The question hovering over the inquiry is why has there not been more strategic planning to reduce the oil dependence that makes us so vulnerable? Politicians have not led the way in informing the public; they even offer subsidies that encourage reliance on petroleum fuels. The Howard Government has failed to deliver the policy certainty and strategies, including targets and tax incentives for innovation and large-scale investment in alternative fuels.

Newsday in New York has a similar editorial (they aren't blaming the Rodent's inaction though, though I'm sure his mirror-world equivalent will get plenty of blame as time rolls on).

One hope of the local oil industry (and investors in ROC Oil and Tap Oil) was the Jacala well offshore Western Australia. The drilling partners have now given up on it after striking dust - another example of the high cost and difficulty of finding new oil fields.

THE search for oil in the biggest untested structure in the Carnarvon Basin off the West Australian coast has produced a "duster" in the Jacala-1 wildcat exploration well. BHP Billiton Petroleum and its farm-in partners, Tap Oil and Roc Oil, have found no evidence of hydrocarbons at the site after one of the most expensive wells sunk in Australia in recent years.

Jacala, deep in the Indian Ocean about 200km west of Barrow Island, is a huge structure which some analysts suggested could contain up to 1 billion barrels of oil. Drilling began last month, well behind the original schedule which had the well beginning in the fourth quarter of 2005.

The deep-water, semi-submersible drilling rig, Atwood Eagle, had to suspend operations twice because of cyclone activity. But yesterday Tap and Roc reported to the Australian Stock Exchange that "at this stage obvious hydrocarbon shows have not been observed".

Before abandoning the well later this week, a formation evaluation program will be completed and log data analysed but the outcome is not expected to change. Analysts said yesterday that Jacala-1 had probably cost more than $US20 million ($27 million).

The Herald's Business section today led off with "Oil at $US75, inflation feared".

A surge in oil prices to a record $US75 a barrel over the weekend could ignite inflation fears and drag down retail stocks today, amid concerns increased petrol prices could start cutting into consumer spending.

The surge in oil prices will also place greater pressure on Qantas and Virgin Blue to follow Air New Zealand's lead and raise domestic and international fuel surcharges as soon as this week.

But the concerns over rising energy prices are expected to be counterbalanced by the continued bullish outlook for commodities, which are expected to underpin recent strong gains in stocks such as Woodside Petroleum, BHP Billiton and Rio Tinto.

I tend to agree that inflation (or recession, or a combination of both) is coming if depletion is faster than I expect or Chinese and Indian demand keeps rising rapidly, but Michael Pascoe, who I have a bit of respect for, has a contrary opinion at Crikey, which seems to put a lot of faith in businesses being able to absorb underlying energy price rises without raising their own prices or going broke.

The great and totally understandable journalistic desire to see the worst in all situations, no matter how contradictory the evidence, is delightfully demonstrated by the many headless chook stories running in all media about oil prices. The SMH lead business section story encapsulates it best: “Oil at $US75, inflation feared” shouts the headline, “Shopkeepers brace for spending cuts” warns the strapper beneath it.

D'oh. Anyone notice the contradiction, the Herman Kahn “hot snow load”? When shopkeepers are fearing their customers are cutting spending, they don't put up prices. Their efforts to desperately tempt consumers to keep spending prevent inflation. There's no pricing power in a contracting market.

But one shouldn't just bag one paper about it – the Federal Treasurer and Prime Minister have been out and about kicking the petrol can as well. There's been regular debate about whether the RBA sees higher oil prices as an inflation threat or as a defacto fiscal tightening (higher petrol prices work as a tax increase, except the money goes to oil producers instead of your government).

The answer is a little bit of both in theory, but after several years of rising oil prices without inflation taking off, it should be obvious it's much more of the latter. If anything, the economic dampening effect of more expensive fuel means another interest rate rise is less likely. The stimulatory impact of Peter Costello's tax cuts next month has already been neutered by George Bush's Iran nuke-rattling, Nigerian anarchy and massive speculation by the burgeoning commodity funds.

What's a touch bemusing is that OPEC doesn't like it either. CNN reports the oil producers' told a world energy conference in Qatar yesterday that they want a lower oil price, but can't achieve it as the factors driving the price higher are beyond their control. Producers fear a disastrous collapse in oil demand.

But there are splits over how to pull prices away from their inflation-adjusted high of above $80, touched in 1980, the year after the Iranian revolution. Consumers want more oil while producers want to be sure investing in new fields will pay off. Both sides criticize major oil firms for failing to build new refineries to keep pace with booming demand for motor fuels. "Everyone is protecting their own interests. Nothing is going to change at all," said energy analyst John Hall.

OPEC itself meets tonight, but it's unlikely to increase its official production level as that's not the problem – there's no shortage of oil right now. Too bad that doesn't make a nice scary headline that might help sell papers.

Also in The Herald - "Higher petrol prices are beginning to bite" and "Lights green but should be yellow" which notes that rising petrol prices have yet to make any noticeable impact on Sydney's clogged streets.

Chinese overtures to Saudi Arabia also rated a mention, though some of the sterotyping makes me sigh.

THE Chinese President, Hu Jintao, arrived in Riyadh on his first state visit to Saudi Arabia, in a sign that the sands are shifting in the oil-rich Persian Gulf region. China has become a main market for oil, and Arab states are turning to it as an alternative to the US and Europe in other areas.

...

What makes China an especially attractive business partner for Saudis is its hands-off approach to domestic policy. Discussions with the Chinese focus on economics and rarely on politics, businessmen say.

Access to energy supplies has become a source of friction between the US and China, on top of testy relations over Taiwan, trade and human rights. Their competition for oil is fuelling other, potentially explosive, international crises, as last week's unproductive summit in Washington showed. Mr Hu gave no ground to pressure for sanctions against Sudan over atrocities in Darfur or against Iran over its nuclear program. China has made big investments in the oil industries in Sudan and Iran.

The Saudis are quick to point out that China's gain is not necessarily the US's loss. China cannot give the Persian Gulf regions the security guarantees that the US provides. In that light, the idea that Saudi Arabia would turn entirely to China is also seen as bit of political stage craft.

Cyclone Monica is getting stronger and heading for Darwin - thus far turtles are the only casualties - hopefully no people join the toll. The way the cyclone has strengthened over the Gulf of Carpentaria makes me wonder if it is acting in the same way as the Gulf of Mexico was last northern summer - with shallow, hot water causing dramatically increased storm intensity.

As Cyclone Monica bears down on Darwin, the weather bureau has issued a stark warning: "It's as strong as any cyclone we've seen in the Australian region." The category five storm, which has wind gusts up to 350 kmh at its core, was 70 kilometres off the coast of Millingimbi in the Northern Territory at 1600 AEDT.

"[From] the analysis we've been doing, [Cyclone Monica] is as strong as any cyclone we've seen in the Australian region,'' said supervising meteorologist Andrew Tupper at Darwin's Bureau of Meteorology. He said the cyclone was expected to make landfall tonight somewhere between Maningrida and Croker Island - about 350 kilometres from Darwin - before slowly tracking its way towards the Territory's capital.

If the weather bureau's predictions prove correct, Darwin will feel Monica's full force by tomorrow afternoon - but the bureau can't say exactly how strong it will be by then. "Even if it hits Darwin, we don't expect it to be quite that strong. [It will be] anything between a category three to five,'' he said.

Crikey has a roundup of blogger reports on the cyclone.

* Monica should slowly weaken before she gets to Darwin, since much of the circulation will be over land, and the eye will have to cross land as well. Still, Monica could still be a formidable Category 3 or 4 hurricane by then, and a direct hit on Darwin would likely cause severe damage. –Jeffs Weather

* Monica is currently a category 5 with winds 100 kph stronger than that at 350kph. Darwin houses are required to be designed to withstand a strong category 4 cyclone, but a lot would sustain major damage if Monica retains its present strength and hits Darwin squarely. – Club Troppo

* Australians must feel like residents of hurricane alley in the Atlantic did last year, when three of the six strongest hurricanes on record occurred, causing the most damage ever–what's going on with the weather? However, be reminded that the Northern Hemisphere Pacific Ocean had a very below-normal tropical cyclone season last year, and the Indian Ocean also had below normal activity. – Wunderground

* Well we're looking a lot better with this forecast than we were (see maps) , we should only get some 150 km/h winds about midday at current predictions which will be the edge of the cyclone. We're getting fairly concerned about the storm surge though, high tide is about 2pm - when the expected 3m surge comes we'll flood as the island is largely below sea level, once it clears the 3m high lip at waters edge it'll fill up pretty quick down here. – Mikblog

* This situation continue to deteriorate along the north coast of Australia. It is hard to imagine a worse situation in this area as Australian cyclones almost never reach this strength. Monica is currently much stronger than 1974's Cyclone Tracy which is the benchmark storm for the area. As far as I can tell, Monica may be the most intense cyclone to ever impact the region or even Australia. However, records are hard to find. After striking Queensland a few days ago, Monica has crossed Gulf of Carpentaria and is strafing the coast of the Northern Territory. – The Storm Track

STCWA points to an article about the new SASOL gas to liquids plant in Qatar.

South Africa's Sasol Ltd fuels company will launch the world's first commercial gas-to-liquids plant in Qatar, the company said on Wednesday. The plant would start producing 34000 barrels per day in June, but would quickly expand to 100,000 bpd.

Sasol is by far the largest producer of synthetic fuel from coal in the world. Sasol has technology that allows it to convert coal and natural gas to liquid fuel and will use this technology to expand far beyond South Africa's borders. The company can produce up to 150,000 bpd of coal to liquid fuel. Offshore investments are part of the company's plan to double capacity.

STCWA also notes that rising fuel costs are the biggest contribuotr to Australia's large and ever rising current account deficit.

Australia's growing fuel bill has underpinned the second-biggest import surge, with the nation now spending twice as much on imported petrol and diesel as on imported cars. Bureau of Statistics figures show that in the year to the March quarter, the value of imported consumer and business products leapt 16 per cent. The single-biggest factor was rising fuel costs, accounting for about 40 per cent of the increase.

The figures follow growing alarm about soaring oil prices. The price broke the $US72 a barrel barrier yesterday because of rising global demand, concern about dwindling stocks and tensions in the Middle East.

One last interesting note from STCWA is on the plight of Sumatran elephants in Indonesia - on the verge of extinction because of the rising thirst for palm oil.

The number of endangered Sumatran elephants in parts of Indonesia has dropped by 75 percent in the past six years, raising the possibility they could become extinct in the near future, an environmental group said Wednesday.

WWF Indonesia said in a report that the decline in Riau province - on island of Sumatra- is mostly due to the rapid conversion of forest habitat into palm oil and paper plantations.

As a result, conflicts between humans and elephants have risen, with 45 elephants either shot or poisoned since 2000 and 16 people killed by the jumbo beasts, the group said.

Hundreds more elephants were captured and removed from forest areas, often dying in captivity, WWF, also known as World Wildlife Fund, said. The remaining populations number less than 400 in Riau, down from 709 in 1999, it said.

Karavans has a link ("True Life Road Warriors") to an unusual video about gypsy transportation from Serbia - check out Pretty Dyna.

While I don't believe that Peak Oil will be the end of civilization and bring about a new Stone Age, I am concerned about rising oil prices triggering a serious and prolonged depression.

To get a sense of what that might be like, take a look at this 45 minute documentary on how Gypsies survive in a shanty town outside of Belgrade. It's called Pretty Dyna. These modern day road warriors have found a means by which to eke out a subsistence level life by salvaging old car wrecks and breathing new life into them. Many of their vehicles would not be out of place in Mad Max II.

A recent addition to the blog roll is Entropy Production, which I've been reading on occasion for some time. One recent highlight is " Five Stages of Peak Oil".

Looks like the public is starting to move from stage 1 to stage 2!:

1. DENIAL --- Driving from suburbia to your downtown job every day in your Chevy Tahoe.
2. ANGER --- "%$@^##& Exxon!, gouging me at the pump. I demand you lower your prices or I will boycott you!"
3. BARGAINING --- "The Chinese need to stop using so much oil. My, they're burning
six million barrels every day." "We need to get corn farmers to make more ethanol, a 5 % blend would really help." "Maybe we can invade Iran and take control of their oil reserves."
4. DEPRESSION --- "Oh God, civilization as we know it is going to be destroyed. What are we going to do without oil? How can farmers possibly grow any food? Think about the big box retail industry! Oh the calamity!"
5. ACCEPTANCE -- "You know what, my ten minute commute by bicycle is far nicer than my hour long commute from my old place."

I'm somewhere around Stage 8.) Investing in the new reality -- getting an education that will give me valuable skills for a new 'cleantech'-age.

Robert also has a post on Quantum Dot Photovoltaics.

Another new entrant is Peak Oil Crisis, which has headlines with links and a directory of peak oil sites and articles (which is in depth enough to even venture into far out tinfoil land for some peak oil debunking - plus JD's slightly less fraught version of course).






And to close, here's a joke and a story of stupidity.

President Bush met with the president of China at the White House. The arrival ceremony was interrupted by a protester who started yelling, "Stop the persecution, stop the torture!" President Bush had to ask, "Which one of us are you talking to?" — Jay Leno

And the story:

As a lesson in gun safety, it could not be bettered. While delivering his message, Special Agent Lee Paige shot himself in the leg as children watched in disbelief.

Now, since it happened in America - and since the bullet miraculously missed the femoral artery - there is to be the inevitable sequel. Mr Paige, 45, is suing his employer, the Drug Enforcement Administration, for leaking footage of the incident.

He claims that the agency is liable for "mental anguish, loss of reputation, embarrassment, humiliation and anxiety" because a videotape of his "accidental discharge" has gained a global audience on the internet.

His career has allegedly suffered - after 347,000 hits on Google, undercover work is no longer an option - and he says he has been ridiculed in public. He is not demanding payment for the damage to his leg.