How is the Government preparing for Peak Oil?
EnergyAddress to the National LETS Conference, Everetts Park, New Plymouth
Good afternoon. I am delighted to be speaking today on how the Government is preparing for peak oil.
First of all, I would like to clarify exactly what we are talking about.
"Peak Oil" means that at some date global oil production (which has generally risen steadily in recent decades) will begin to decline as it becomes progressively more costly to recover more from known reserves.
Oil production ‘peaking’ is not the same thing as ‘oil running out’. Peak oil refers to the time when maximum oil production is reached which typically occurs when roughly half of recoverable oil has been produced. Therefore, even when world oil production peaks, there will still be large reserves remaining.
No-body actually knows when world oil production will peak and decline. About the only thing all the commentators can agree on is that it will occur sometime this century. Other than that there is no agreement.
While I do not dispute the notion that oil is a non-renewable resource that will run out some day, I do dispute some of the more precise dates given by some commentators. The reality is that putting a date on when oil production will peak is a real headache. It requires data we don’t have and assumptions we can’t test.
In my view the sensible thing to do is to take note of all the commentators and make an assessment of the reliability of each source in arriving at a likely date. Some commentators say that we only have a few years of oil left. Others, like the International Energy Agency, foresee enough oil to comfortably meet demand to 2030.
Based on current advice, oil production seems likely to peak sometime between 2021 and 2067, with probability highest around 2037. It is not the mainstream opinion for oil to peak in this decade.
The source I’m choosing to quote is the US Department of Energy's Energy Information Administration, using up to date US Geological Survey estimates. The two outlying dates, 2021 and 2067, are the result of different chosen assumptions on the size of reserves, and rate of demand increase between now and then. I stress again that other estimates abound, and that I do not assert that this is the right one, but it is in our view the best we have to work to for now. (Bear in mind that after the 1970s oil shocks the predictions were that the world would run out of oil by the year 2000).
The IEA and the US Geological Survey forecasts are considered the most credible in that their forecasts are backed up by data and information that is often only accessible to those agencies. Furthermore, these organisations have access to resources, both in terms of staff and modelling and analytical capability, that other commentators are unlikely to have.
I consider that it is also fair to say that technological improvements mean that the oil industry is steadily increasing the amount of oil it is able to extract and there are many who argue that this technological revolution has only just begun.
That said, the Government acknowledged in 2001 that Peak Oil is one of the two major challenges facing the New Zealand energy sector in the long term, with the other being climate change.
While New Zealanders are fortunate that we do not rely on oil for our electricity production to the same extent as other developed countries, that's no reason to be complacent.
Oil and gas are an integral part of New Zealanders’ daily life. They are important for transport, industry, householders, and electricity generation. That is why our Government takes very seriously the need to move to a future where we are not overly dependent on oil.
With this strong reliance on oil in mind it is appropriate that I comment briefly on the Government’s National Energy Strategy.
The terms of reference for the National Energy Strategy are currently being finalised, with the target of developing and consulting on the draft strategy over the next six months.
We see the development of the National Energy Strategy as a good opportunity to draw together the work that we are doing in a range of areas, including the review of the National Energy Efficiency and Conservation Strategy, and work on climate change policies and the New Zealand Transport Strategy.
We expect the National Energy Strategy to provide long-term direction and leadership for New Zealand to put us firmly on the path to an energy system that supports economic development, while being environmentally responsible.
The strategy will look at issues such as:
The strategy will need to incorporate a system-wide view, covering both demand and supply. Security of supply of both stationary and transport fuels must remain a key priority and the strategy will draw on various scenarios that explore New Zealand’s energy options.
The strategy will also explore the impact of energy choices more broadly – for example, the potential impact a change in land use to grow biofuel feed stocks would have on competing agriculture activities.
It is also important to view the development of the National Energy Strategy in the context of other work already underway.
The Government has already put in place a number of initiatives designed to move New Zealand towards a more sustainable energy future with reduced reliance on non-renewable fuel sources.
The National Energy Efficiency and Conservation Strategy, or the NEECS, is a key policy response to climate change concerns. It sets out two targets, one for energy efficiency seeking a 20% improvement in energy efficiency by 2012, and the other for the uptake of renewables by increasing our supply of renewable energy by an additional 30 PJ of renewable energy by 2012.
The Minister of Energy, in conjunction with Jeanette Fitzsimons, has recently announced that the existing NEECS will be replaced. The new NEECS will put New Zealand on a faster course to a sustainable energy system.
The Energy Efficiency and Conservation Authority is leading its development, and it will draw on input from stakeholders, international best practice and domestic success stories to inform future policy direction. The NEECS will form an integral part of the National Energy Strategy and the two strategies will be developed in parallel.
In December 2002 the Government published the New Zealand Transport Strategy. The Transport Strategy sets out the objective and key principles for transport: “an affordable, integrated, safe, responsive and sustainable transport system”.
In New Zealand, the transport system underpins the country’s economic prosperity by enabling the movement of people and goods and providing connections to international markets in the world economy.
Transport in New Zealand runs almost entirely on oil. The challenge is to reduce transport fuel consumption by enabling the most efficient use of fossil fuels.
To achieve this, Government is using a range of measures including: regulation, incentives, information and education, managing demand for transport, and facilitating a transition to renewable sources of transport fuel.
For example:
Vehicle Fuel Economy Information
Vehicle fuel economy may vary considerably among cars of the same engine size or weight. Over the past year, the Government has been collating fuel economy figures for new and Japanese used cars entering our fleet.
This information will be publicly available on a website shortly, to help us all to incorporate the increasing cost of fuel into vehicle purchase decisions.
Biofuels
The Government is also active in developing the blending of biofuels such as ethanol and biodiesel with petrol and diesel to reduce oil use. Along with increasing the fuel efficiency of the national vehicle fleet, the development of biofuels is an area where this government aims to see real progress made within the next few years.
In August 2005, the Minister of Transport announced the Government’s agreement in principle to the development and introduction of a mandatory sales target for biofuels in New Zealand.
The Ministry of Transport is leading a cross-agency group in the policy investigations needed to set and introduce the mandatory sales target.
With regards to the target itself, Government wants to see the NEECS 2 peta joule target, which is regarded as a minimum, met during the first Kyoto commitment period from 2008 to 2012. This is critical, not just because of the carbon emissions that will be displaced, but for advancing the benefits of reduced dependence on oil alone as a New Zealand transport fuel.
Government has put in place measures to be a ‘fast follower’ in terms of adopting the latest international technologies (which may include energy efficiency technologies or alternatives to oil products).
The potential to utilise hydrogen as a major energy source to meet the demands of energy consumers across a wide range of applications is the focus of billions of dollars of global investment by both Governments and the private sector. New Zealand is involved and keeping abreast of developments in this area through its membership of the International Partnership for the Hydrogen Economy and through the International Energy Agency.
In terms of the effect of peak oil on the New Zealand economy, peak oil does not imply a disaster scenario or that there will be no oil available at all.
However, we can expect a period of rising prices as supply of oil reduces and we transition to alternative fuels. These price increases will incentivise further exploration and discovery of new supply sources, investment in the development and uptake of energy efficiency measures, and investment in the development and uptake of alternatives to oil, all of which will alleviate further increases in price.
It is also important when considering the oil market situation, to account for the short term and long term nature of the causes of oil price rises. The increase in oil prices since 2003 has been attributed to various factors including international political unrest, hurricane damage to refining capacity, demand growth in Asia and a lack of investment in new capacity. Higher oil prices do not necessarily imply that global oil supplies are running out.
We are on the right track – the task further out is to plan for, not just a prosperous future in a progressively transformed economy, but a future in which this century promises the twin challenges of peak oil production and the effects of climate change.