Peak Oil and Its Implications for the Main Transport Modes - Case Study Example

Peak Oil’ and Its Implications for the Main Transport Modes Introduction Based on the observation of the production and depletion of fossil fuels, Hubbert proposed that in any given region, the production of fossil fuel roughly follows a bell shaped curve (Hubbert 1967, p. 2215). Appreciating that fossil fuels do not exist in infinite quantities, Hubbert noted that once fossil fuel reserves are discovered, production tends to increase exponentially at first as the resource is exploited more and more and more efficient means of production are employed. At some point in time, a peak level of output is reached so that the decline in production declines exponentially. The notion of peak oil is founded on the Hubbert peak theory. This being the case, peak oil can loosely be taken to mean the point in time at which petroleum extraction has reached its maximum rate and production will henceforth decline terminally (Brandt 2007, p. 3078). Calculation of Future State of Oil Reserves and Production Different models have been applied in an attempt to forecast the future production of oil and the time at which the production of oil will reach its peak. Hubberts’ prediction of future oil supply and production was arrived at by plotting annual production divided by cumulative production for the specific year against cumulative production (Watts 2011). While the Hubbert forecast model relies on a single production cycle per country to predict the future of oil production, the model used by the University of Kuwait is multicyclic in nature (Arvizu 2010). Some of the factors that are considered in the multi-cyclic models include: government regulations, technology advances, political events, and economic conditions (Arvizu 2010). In estimating the global production of oil, researchers that were affiliated to the Kuwait University analysed the production cycles of 47 oil producing nations (Anderson & Conder 2011, p. 1582). The models produced from the data drawn from these analyses were then combined to estimate global production as noted by Nashawi, Malallah and Al-Bisharah (2010, 1794, p. 1792). The model applied by the Energy Information Administration (EIA) to predict the future production of oil, however, is not based on the Hubbert model. The EIA model relies on reserves to production (R/P) ratios to predict future production levels (Garza 2011). Figure 1 presents oil production estimates based on R/P ratios. Fig.1 : Global oil production forecast based on R/P ratios. Courtesy of www.resilience.org Peak Production Timelines Some experts have estimated that 2020 is the year to look out for as it will mark the beginning of the decline in oil production. Other experts have, however, given more pessimistic predictions with some noting that peak production of petroleum has, in fact, already occurred (Michael 2013, p. 58; Russell & Davis 2007). In this category are those who believe that conventional oil peaked back in 2005 as noted by Whipple (2014). Still within the group of pessimistic predictors are experts who note that the world is on the cusp of the peak and that it is, therefore, imminent (Owen, Inderwildi & King 2010, p. 48). In relation to this, a study conducted by the Kuwait University in cooperation with the Kuwait Oil company in 2009 predicted that the peak production of oil would occur in 2014 (oildecline.com 2014). Oil Supply and Demand in the Future Statistics indicate that to sustain the level of conventional oil supply, three million barrels a day of new production must be added year on year (Rhodes 2014). Statistics further indicate that in the next 20 years, the production of conventional oil will drop by at least 50% while shale oil will probably replace no more than six percent of this drop as noted by Rhodes (2014). Taking these facts into consideration, Rhodes (2014) noted that the peaking of oil in the world will occur at the point in which the rate of production of unconventional oils will be exceeded by the rate of loss of production of conventional oils. In the last nine years, oil companies around the world have spent roughly four trillion US dollars to drill more wells and boost their production capacities (Whipple 2014). However, in spite of this massive investment, there is little, if anything, to show for it. Many of the world’s main oil companies have announced that they have reached their production limits and that their profits are dwindling (Baliban, Elia & Floudas 2013, p. 3389). In addition, they have announced that they are making significant reductions in their exploration and drilling endeavors. Some companies have even taken to selling off some of their assets as they are trapped between quickly rising operating costs and steady oil prices (Whipple 2014). Essentially what this means is that while the world’s oil reserves remain massive, the rate of harvesting and production of oil is subject to reduce over time. Experts note that most of the world’s oil reserves have been found already and that there are little chances of finding more reserves (oildecline.com, 2014). While there are optimistic predictions about Canada’s oil sands which are expected to reach 790,000 barrels a day, this supply will not prevent the peaking of oil production. It is also certain that the production of oil is subject to decline over the years as earlier noted in this report. Figure 2 presents a summary of the world’s fuels supply according to the EIA. Fig 2: World Liquid Fuels supply Courtesy of EIA The world consumption of oil is today estimated at 85 million barrels (oildecline.com, 2014). As previously noted, this demand is known to be growing exponentially by the day. According to the International Energy Agency (2014), world oil demand totaled 91.3 million barrels per day in 2013. The agency predicts that the global demand for oil in 2014 will reach 92.6 million barrels per day. These statistics reveal that the demand for oil is on the rise and meshes well with predictions by other organizations and experts. Statistics indicate that the demand for oil will rise by about 21% between 2007 and 2030 to reach 104 million barrels a day (International Energy Agency 2014). The International Energy Agency notes that over the next five years, the production capacity growth will greatly outpace the world demand for oil. A comparison of the demand and supply of oil reveals that the supply of oil today is slightly more than the demand for the commodity. However, this is bound not to be the case in the near future as the demand is bound to grow exponentially even as supply reduces significantly. It is also worth noting that the supply of oil currently exceeds the demand simply because the statistics take into account oil produced from unconventional and renewable sources. If this was not the case, it is highly likely that the demand would exceed the supply also considering that many oil producing companies are reducing their productive capacities. Uses of Oil In the U.S., oil meets roughly 36% of energy demand as noted by the Institute for Energy Research (2014). Out of this portion, 70% is used in the transport industry in the form of fuels. Manufacturing and industry accounts for 24% of the oil demand even as 5% is used in the residential and commercial sectors. A paltry 1% of the oil is used in the production of electricity as can be seen in figure 3. Fig. 3 Energy demand in the U.S. by sector Courtesy of the Institute for Energy Research Globally, the use of oil by different sectors between 1973 and 2010 is as presented in figure 4. Fig 4: Global energy demand by sector Courtesy of people.hofstra.edu Implications of Oil Peak in the Transport Sector Some of the industries and sectors that are known to consume a lot of oil include industrial, transportation, commercial, and residential. Over the years, the transportation sector has emerged to be the sector that has the highest growth in demand for oil. It is also the sector that uses most oil going by the fact that it accounted for roughly 55 percent of global oil consumption according to the Hirsh report (International Energy Agency 2014). In 2006, the transport sector accounted for roughly 69% of oil consumption in the U.S. The increase in the demand for oil in the transportation sector is credited to the increasing preference for and use of personal vehicles (International Energy Agency 2014). Statistics indicate that in 2004, road transport was the largest consumer of oil in the transport sector considering 25 European ccountries. Road transport in this respect consumed roughly 83% of the share of oil used in the transport sector. This percentage accounted for about 290 million tonnes of oil. Air transport came second in terms of consumption of oil in the transport sector according to the 2004 statistics. The subsector acounted for about 13% of the total share in the transport sector oil consumption. Rail transport consumed 2.5% while ships (inland vessels) consumed 1.4% of oil consumed by the transport sector. The aviation industry that greatly depends on jet A-1 fuel is bound to be negatively affected by the peak oil. Currently, only 11% of petroleum oil end up being used to produce jet A-1 (peakoil.com 2010). The aviation industry currently uses about two billion barrels of oil each year. With peak oil in place, this quantity is destined to significantly reduce as producers try to balance between the productions of different fuels to meet their demands. This means that the 11 percent that currently is the stake of the aviation industry will possibly go below the double digit mark. The cost of travelling by air will also go up in response to the rising cost of jet fuel (peakoil.com 2010). The profitability of airlines is also bound to reduce going by past experiences brought about by the rises in the prices of jet fuel. While it may not be possible to fully replace air as a mode of transport for its advantages in terms of speed and convenience, oil peak will probably see the number of flights between different destinations reduce. This means many people will need to use alternative modes of transport to save costs and for lack of space. Going by the percentage of oil consumed by vehicles, it is beyond doubt that road transport will be most affected by oil peak. With lower production of oil, the demand for the commodity will rice which will push the prices of petrol and diesel higher and higher. Effectively, many people who rely on private cars for their transport will have to use public transport to save on costs. Also, the cost of road transport even using public vehicles will possibly go up. Road transport is the most widely used means of transport in many countries and it may not be eliminated altogether. However, instead of using vehicles, people mat resort to using bicycles and walking in response to the effects of oil peak. So far, the world has witnessed tremendous technological developments. The transport sector has benefited from advancements in technology in different ways. The production of biofuels that can be used to drive vehicles and other machines is one move in the right direction. While the production and use of biofuels in running vehicles and trains has not been widely adopted at the global scale, it is bound to receive greater attention with time. Solar energy has also been used to power some vehicles. This technology is still yet to receive the attention that it deserves given the peak oil situation. The aviation industry is yet to witness any developments in so far as the use of petroleum fuels is concerned. In the many parts of the world today, electric trains are becoming a common phenomenon. This technology is bound to benefit trains to the extent that the subsector may not be affected grossly by reductions in oil supplies. Generally, the rate of change of technology is high and its effects on the transport sector quite notable. References Anderson, KB & Conder, JA 2011, ‘Discussion of Multicyclic Hubbert Modeling as a Method for Forecasting Future Petroleum Production’, Energy & Fuels vol. 25, no. 4, pp. 1578-1584 Arvizu S. (2010) ‘2014: New and Improved Peak Oil Forecast’, viewed 7 March, 2014 http://www.triplepundit.com/2010/03/2014-new-and-improved-peak-oil-forecast/ Baliban RC, Elia, JA & Floudas, CA 2013, ‘Biomass and Natural Gas to Liquid Transportation Fuels: Process Synthesis, Global Optimization, and Topology Analysis’, Industrial & Engineering Chemistry Research, vol. 52, no. 9, pp. 3381-3406 Brandt, AR 2007, ‘Testing Hubbert’, Energy Policy, vol. 35, no. 5, pp. 3074–3088. Eurostat 2014, ‘Transport energy consumption and emissions’, viewed 7 March, 2014 http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Transport_energy_consumption_and_emissions Garza, E August 19, 2011, ‘The US Energy Information Administrations faulty peak oil analysis’, viewed 7 March, 2014 http://www.resilience.org/stories/2011-08-19/us-energy-information-administrations-faulty-peak-oil-analysis Hubbert, K 1967, ‘Degree of advancement of petroleum exploration in United States’, AAPG Bulletin, Nov. 1967, vol.51 no.11, pp.2207-2227. Institute For Energy Research 2014, ‘Petroleum (Oil)’, viewed 7 March, 2014 http://www.instituteforenergyresearch.org/energy-overview/petroleum-oil/ International Energy Agency 2014, Oil Market Report: World Oil Supply And Demand, viewed 7 March, 2014 http://www.upstreamonline.com/marketdata/marketdata_content/IEA_Oil_Report/article1353542.ece/BINARY/IEA+Oil+report Michael, CL 2013, ‘The New Pessimism about Petroleum Resources: Debunking the Hubbert Model (and Hubbert Modelers)’, Strategic Energy & Economic Research, Inc., New York. Nashawi, IS, Malallah, A & Al-Bisharah, M 2010, ‘Forecasting World Crude Oil Production Using Multicyclic Hubbert Model’, Energy Fuels, vol. 24, no. 3, pp 1788–1800. oildecline.com (2014). Peak oil: Info and strategies, viewed 7 March, 2014 http://www.oildecline.com/ Owen, NA, Inderwildi, OR & King, DA 2010, ‘The status of conventional world oil reserves—Hype or cause for concern?’, Energy Policy vol. 38, no.8, pp. 47-55. peakoil.com 2010, ‘Peak Oil: Impact # 7 – A First Look At Air Travel’, viewed 7 March, 2014 http://peakoil.com/consumption/peak-oil-impact-7-%E2%80%93-a-first-look-at-air-travel people.hofstra.edu 2014, ‘World Oil Energy Consumption by Sector, 1973-2010’, viewed 7 March, 2014 http://people.hofstra.edu/geotrans/eng/ch8en/conc8en/oecdoil.html Rhodes, C 20 February 2014, ‘Peak oil is not a myth’, Chemistry World, viewed 7 March, 2014 http://www.rsc.org/chemistryworld/2014/02/peak-oil-not-myth-fracking Russell, G & Davis, A 2007, ‘Oil Officials See Limit Looming on Production’. The Wall Street Journal, viewed 7 March, 2014 http://online.wsj.com/news/articles/SB119543677899797558 Watts A 2011, ‘Peak Oil – now for the downslope’, viewed 7 March, 2014 http://wattsupwiththat.com/2011/10/27/peak-oil-now-for-the-downslope/ Whipple T February, 2014, ‘The Peak Oil Crisis: A Winter Update’, Falls Church News Press, viewed 7 March, 2014 http://fcnp.com/2014/02/18/the-peak-oil-crisis-a-winter-update/ Read More