News, opinions and activism regarding our energy future, and local solutions for Perth, Western Australia.

Monday, May 15, 2006

Australia Running Out of Oil

I found two links regarding Australia's coming oil production decline on LATOC's breaking news which were a major prompt for me to start this blog. After thinking and reading on this subject for some considerable time its time to start writing on it!

The subject of is of major national importance and recieved some attention in the traditional media due to the recent APPEA (the Australian upstream industry body) conference in Queensland.

The Sydney Morning Herald reported that the "Lucky Country is running out of oil". (Which raises an interesting question in my mind, how much of Australia's complacency on this issue is due to the national belief in being the lucky country?) Due to declining self sufficiency, Australia will soon be required by the IEA to build a strategic oil reserve holding 90 days supplies. Globally, 4 billion barrels of oil are held in strategic reserves, of which governments hold about 1.5 billion barrels. My rough calculation is Australia's reserve would need to be about 63 million barrels.

IEA executive director Claude Mandil spoke at the APPEA conference:
[Mr Mandil told the conference] that, while the world was well supplied with oil, spare capacity was low.

In a recipe for continued strong prices, the spare capacity remained vulnerable to geo-political upsets that could drive prices higher. Mr Mandil said annual global demand was forecast to grow by 1.5-2 million barrels a day until at least 2010.

With production in non-OPEC countries under pressure, it would be up to OPEC to fill the gap. But huge investment would be required, something OPEC had said it was reluctant to do.

All of my reading and research is extremely sceptical of OPEC reserves and production capacity, with many of the largest fields thought to be in the initial stages of decline. Venezuala recently had to buy oil on the open market to meet its contractual obligations, and graph followers believe that OPEC is declining.

The ABC's (thats Australian Broadcasting Corporation) well respected Lateline program also had a report by Tom Iggulden about the APPEA conference, "Oil Supplies Set to Decline", with some interesting transcripts:

BELINDA ROBINSON, CHIEF EXECUTIVE, APPEA: Australian petroleum liquids production declined 29 per cent since it peaked in 2000, and by 2015 our production will represent less than 30 per cent of our consumption [from 70% today]. In the last year, no liquids finds in Australia exceeded 10,000 barrels. There are massive implications - economic implications - associated with a decline like this, including a potential trade deficit in oil and condensate in excess of $20 billion. To give you some sense of proportion, Australia's total trade deficit at present is around $19 billion, total.

Those are massive economic implications indeed - thats a doubling of our trade deficit, not to mention a massive reduction of oil revenues state and federal governments will be receiving from oil production. IMO what is needed now is for the windfall tax revenues from the oil & commodities boom to be invested in alternative energy now, in order to wean Australia off the oil teat so that trade deficit is never realised. Pro-actively establishing an alternative energy industry would also have future benefits in terms of Australia being able to export technological expertise.

Iggulden then adopts they typical he said/she said style of reporting that is a sure sign the topic is beyond the technical competence of the reporter.

He said...
MATTHEW SIMMONS, FORMER PRESIDENTIAL ADVISOR: We are now out of spare capacity. We used up every scrap of wellhead capacity, refinery capacity, refining capacity, tanker capacity, rig capacity, so now we are really stuck in a jam.

TOM IGGULDEN: But it's not just infrastructure that's putting a block on increasing supply. Mr Simmons accuses the oil industry of misleading the world about how much oil is left. According to his research Saudi Arabia, the world's biggest oil producer, hasn't found a major new reserve of oil for more than 40 years and it's known reserves are running out faster than it's letting on.

She said...
DR ANDREW LATHAM, OIL GEOLOGIST: Broadly, most are agreed that the ultimate yet-to-find potential of the planet is still fairly large. We expect over the next couple of decades more than 10 billion barrels of oil-equivalent resource will be found in new fields.

Apparently that was the view of the APPEA conference - that oil peak isn't due until some time between 2020 and 2050. Personally, I would argue that even if it isn't due till then we need to do something about it now, however if my opinion and that of many other industry observers is correct that the oil peak was 2005, then we REALLY need to do somethinga bout it now. At least that question is starting to get asked:

ALI AL-NAIMI, SAUDI OIL MINISTER: There is no truth whatsoever to the popular belief that the dependence on foreign crude oil leads to higher prices for gasoline at the pump.

TOM IGGULDEN: That drew this response from senior Democrats.

NANCY PELOSI, HOUSE MINORITY LEADER: For the oil minister of Saudi Arabia to say that is a myth is wishful thinking on his part. This has to happen in our country. Perhaps if the President of the United States could have a conversation with his Saudi friends as he held hands with them and kissed with them on his ranch and tell them the ground truth of what is happening in America. The stranglehold of Middle Eastern oil is over for our country.

TOM IGGULDEN: With Australia facing its own oil crisis, the question now is what it can do to reduce dependence on foreign oil. Tom Iggulden, Lateline.



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