Exports and imports
… a key assumption is that demand for oil will continue to grow and will be met from a variety of sources including imports, … (p64)
If this is a key assumption, then the question of where these oil imports will be sourced from can, should, but hasn’t been asked. Australia’s oil production peaked in 2001 and is likely to continue declining according to the AREA. We now import a significant percentage of our oil requirements but with our consumption expected to grow by 1.3 per cent per annum our imports are expected to increase at 3.3 per cent per annum out to 2030. This will result in 75 per cent of Australia’s oil requirements being sourced from over the sea. There is significant doubt that this volume of oil will be available in the future as I have in On Line Opinion written about previously.
The concept is not a difficult one to understand, as an oil exporting nation’s oil production goes into decline while its domestic consumption increases, the ability to export oil dwindles rapidly. Applying The Export Land Model (PDF 2.57MB) to the world’s top five oil exporters, suggests that at the time Australia needs 75 per cent of its oil requirements to be met by imports, these countries will be approaching zero net oil exports. This calls into significant doubt the soundness of this key assumption and begs the question; what is plan B?
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Oil intensity
Time to consider another misconception; the oil intensity of the economy. Oil intensity is the quantity of oil consumed per unit of GDP. The AERA states that:
The continued decrease in oil intensity also complements broader environmental and energy security policy goals. (p66)
This statement is disingenuous. Addressing oil intensity without addressing total consumption is a nearly pointless activity. For example, if we double vehicle fuel efficiency but at the same time double the number of vehicles on the road then our fuel consumption remains the same. This is the point that focusing on oil intensity misses.
Despite the decades-long trend of declining oil intensity, total oil consumption has continued to increase as have greenhouse gas emissions. If we really want to complement environmental and energy security policy goals the key is increasing fuel efficiency and reducing the number of vehicles on the road and reducing the distance travelled.
Net energy
What is the difference between a barrel of crude sourced from Saudi Arabia and a barrel of synthetic oil sourced from the Canadian tar sands? The answer is net energy. One of the reasons that crude oil is such a useful energy source is that its net energy profit is so high. However net energy is a major disadvantage for all of the alternatives to crude oil such as biofuels, tar sands, oil shale, Coal to Liquids (CTL) and Gas to Liquids (GTL).
For example, the net energy profit of tar sands is about four (i.e. five units of energy are produced for every one invested). A paper (PDF 78KB) published in the peer reviewed journal Energies suggests that global oil and gas production had a net energy profit of 17 in 2006. The importance of this is that the alternatives to crude oil cannot compete on a barrel per barrel basis. So even though alternative fuels might offset some of the declines in crude oil, when considered on a net energy basis, the actual energy available for our economies to do useful work maybe much smaller, implying that our economies might also be smaller.
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Net energy and energy returns on investment are concepts that governments, many economists and the team that wrote the AERA don’t seem to understand.
Conclusion
So there you have it. Thousands of hours of time and taxpayers money invested into a product that is incomplete, misleading and fails to grasp some fairly simple concepts. This results in an assessment of Australia’s future oil and liquid fuel situation that is not only unduly optimistic but also fails to provide the basis upon which a plan B can be developed for our nation as we enter the second half of the age of oil.
This leaves us in the rather uncomfortable position of having a plan A, business as usual, which is not viable and no plan B. How, in a country as advanced as ours, does this occur? Maybe if we could, as a society, resolve that question we would be much better off both now and into the future.
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