We need to go cold turkey to kick our addiction to oil  

Posted by Big Gav in ,

New Statesman has an article by Mark Lynas on peak oil and reducing fossil fuel consumption - We need to go cold turkey to kick our addiction to oil.

Forget "green growth". Judging by the hard numbers, only two economic factors produce reliably good environmental outcomes: high energy prices and recession. During the era of soaring oil prices, which peaked at just over $140 a barrel in June 2008, people began to do all the things greens have been badgering them about for years: driving less and cutting back on flights, for example.

More recently, the recession has pushed down Japan's fossil fuel emissions by nearly 7 per cent in a year, and the International Energy Agency forecasts that emissions will drop globally by 2.6 per cent. If politicians could claim credit for this unexpected climatic boon, it would be Nobel prizes all round.

Unfortunately, these two drivers of emissions reductions are also the two things that everyone seems desperate to avoid - and there are now reliable signs that the recession in most industrialised countries is ending. But the good news is that oil prices are climbing again: crude is now pushing back towards $80 a barrel, and fears of an oil supply crunch are resurfacing after a rather quiet year for the "peak oil" crowd.

Global Witness, a campaigning NGO, is the latest to issue stern warnings about imminent oil shortages. Its Heads in the Sand report points out that, over the past three years, "conventional oil production ceased to grow, despite massive investment, increasing demand and prices". Moreover, it warns, "the recession does not change the underlying fundamentals" of a widening gap between supply and demand. Instead, it foresees "disaster" if governments "remain committed to keeping their heads in the sand" about the prospect of peak oil.

So why are rising prices presented as such bad news? Oil prices above $100 - or, better still, $200 - a barrel could act as a global insurance policy against the collapse of the upcoming climate change talks in Copenhagen. As fossil fuels begin to price themselves out of the market, they could make up for the failure of politicians to price carbon appropriately to the damage it causes.

The current price of carbon on the EU emissions trading market is a risible 15 euros a tonne, much too low to send a serious signal to Europe's big fossil fuel users. On the other hand, a return to soaring oil prices makes renewables, energy efficiency, nuclear power and other environmentally preferable options much more attractive in conventional economic terms. For these reasons, many environmentalists will mutter privately, if provoked: "Peak oil? Bring it on."

Steve LeVine has an article in Business Week noting there is purportedly plenty of surplus production capacity (not too mention oil stuffed into tankers, the volume of which is at record highs) - $100 Oil? Don't Bet on It.
Observers predicting a price spike have pointed to a drop in global oil exploration and production, saying that when economies rebound there will be a shortage. In the U.S., for instance, exploration is down 27.8% from a year ago, with 309 rigs actively drilling, compared with 428 at this time in 2008, according to the Baker Hughes Rig Count. Abroad, there are 8% fewer rigs drilling than there were a year ago—764, down from 831. Major oil companies such as ExxonMobil (XOM), Chevron (CVX), and BP (BP) continue to spend on exploration, while smaller companies have cut back substantially.

But that is just part of the picture, analysts say. For starters, spare production capacity currently runs about 6.7 million barrels a day, according to the International Energy Agency, with Saudi Arabia accounting for 3.8 million barrels, or 56%, of the total.

In addition, oil storage tanks around the world are overflowing and would have to be drawn down before any big price spike takes place. U.S. crude inventories stand at 339 million barrels, up 27.7% from a year ago, reports the U.S. Energy Information Administration. In addition, since mid-September the Strategic Petroleum Reserve has exceeded 725 million barrels, a 27-year record. In fact, there is such a global glut that there is almost no place on land to put all the oil. An estimated 125 million barrels' worth are floating around on tankers scattered over the globe, according to OPEC. Normally, a negligible amount of oil is being stored offshore in ships.

Refineries, too, can ramp up and produce oil products, analysts say. U.S. refineries are operating at around 80% of capacity, among their lowest rates in two decades. "High inventories and weak market fundamentals might eventually weigh on markets" and push prices lower, said Edward Morse, managing director at Louis Capital Markets, a London-based brokerage. So it's possible that crude isn't such a safe haven after all.


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